TFR SEPTEMBER 201446

Efficient supply chain management: Local expertise, implemented globally

PARTNERSHIP INSIGHTS: SUPPLY CHAIN

Centralisation can create efficiencies for some elements of global supply chains, yet this shouldn’t be at the expense of local expertise, says Sebastian Hölker , head of innovative trade products at UniCredit

Without doubt, the globalisation of supply chains has created a large amount of efficiency

for companies around the world. And the obvious next step, for many, is consolidation by centralising the control of similar processes.Already, many processes – from cash management to IT infrastructure – have been centralised in forward-thinking companies to good effect.

Yet there are many other elements of equal importance to supply chain managers that are more difficult to centralise because of regional differences and idiosyncrasies. This is why we believe that the best supply chain management strategies of the future will be those that most effectively leverage local expertise.

Not all centralisation is beneficialAlthough some banks maintain that the most efficient global supply chain management solution is one run by a single bank, the banking crises of recent years provide a warning for businesses against relying on one bank alone, given the concentration risk this presents.

Yet even in terms of efficiency, we cannot agree that one bank can provide the most effective solutions in every facet of a modern multinational company’s global supply chain. In our view, supply chains can be largely divided into five flows:

■ goods; ■ money; ■ rights; ■ risk; and ■ information.

Of course, there are efficient, centralised, global management systems for some of these flows. For example, logistics providers such as DHL and UPS have become extremely efficient at managing cross-border freight deliveries. And at

the same time, the increasing commoditisation of money-flows around the world means that the consolidation of cash management processes is relatively straightforward. As such, both money and goods flows can be – and have been – centralised successfully.

The importance of local expertiseIndeed, the opposite trend is evident in other flows present in global supply chains, such as the flow of risk. For instance, judging the credit risk presented by debtors requires a detailed understanding of their specific business practices – which is best done locally rather than from a centralised hub for a variety of reasons.

For a start, partners based locally are more likely to already have longstanding relationships in place (alongside the required documentation, such as Know Your Customer certificates). And, what’s more, the regulatory approach to credit risk management differs appreciably from country to country, even within Europe.

While the Basel accords have granted Europe some harmonisation in this area, they remain guidelines and individual states are granted a large amount of leeway in implementation. This contributes to the difficulty of accurately assessing the credit risk of a corporate in another country – in turn, impacting pricing.

On a similar note, the regulatory treatment of receivables purchasing can differ significantly between countries. In Germany, for instance, there are not many requirements and the process is relatively straightforward. At the same time, far more stringent regulations are in place in other countries, such as Italy.

International systems built to make use of local expertsSpecific knowledge of each legal system is therefore vital to execute the process effectively.

But instead of considering these local variations an annoyance, forward-thinking businesses should work to partner with banks that can leverage their local expertise to solve local challenges.

This kind of local know-how can also be useful with respect to navigating cultural differences. For example, our clients in Western European countries often come to us requesting help in managing their relationships with partners in central and eastern Europe – where our large footprint is very useful. To this end, we rely on our local colleagues to understand the priorities and worries of local businesses – reducing uncertainty and ensuring keener pricing on both sides of the transaction.

Such examples demonstrate how local expertise can be used effectively in an international framework, and we believe that this mind set will contribute to the biggest advances in supply chain finance practices over the next few years. Certainly, it is important that banks and corporates respect that every aspect of a global supply chain cannot be controlled from a central location. Even in our modern globalised economy, it is plain to see that local expertise and knowledge can be used to innovate and yield better results.

Dr Sebastian Hölker is head of innovative trade products at UniCredit

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