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Pioneering a New Era of Financial Supply Chain Management

by Anil Walia, Executive Director, Head of Trade & Supply Chain Advisory UK & EMEA, RBS

Over recent years, the focus of financial supply chain management (FSCM) has been directed towards supply chain finance (SCF). It would almost appear that SCF and FSCM have become synonymous, but this is a misnomer. FSCM refers to a wider concept, of which SCF is just one part. By reverting to the original meaning of FSCM, and applying new techniques and solutions, treasurers have a powerful new opportunity for optimising working capital and process efficiency.

The origins of financial supply chain management

The term FSCM first became popular in around 2000, when innovative banks started looking at the financing and risk mitigation opportunities within the physical supply chain.

By that time, the manufacturing industry in particular had made substantial progress in automating the physical supply chain, with highly sophisticated sourcing, production and distribution.

The financial supply chain is a parallel, but reverse process to the physical supply chain. As a company purchases goods and services, cash passes from the company to its suppliers. Similarly, as the company sells goods to its customers, cash passes from the customer to the company. The financial supply chain encompasses the full spectrum of financial processes within and between companies. FSCM aims to optimise these processes by improving working capital management, reducing processing costs or mitigating risk. It therefore aims to deliver a comparable degree of automation and transparency in financial processes and flows as companies had achieved in their physical supply chains. While traditional banking had focused on the bilateral relationship between the bank and a customer, FSCM extends this focus across the different parties that comprise the supply chain, from suppliers through to customers. This includes the distribution of cash in the supply chain, passing demand of liquidity from the supplier down to the customer, thus providing liquidity when and where it is required during the supply cycle.