J.P. Morgan Supply Chain Working Capital

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T R E A S U R Y S E R V I C E S

Treasry and the Spply Chain:A New Mdel r Wrking

Capital Management

understanding physical and nancial spply

chain relatinships can generate wrking

capital management strategies r grwth



Best-in-class cmpanies align spply chain and treasry peratins in

rder t spprt the entire rganizatin’s crprate nance bjectives.

Treasry pressinals need t view nancial decisins as interlinked with

the physical gds mvement decisins made by clleages in lgistics,

prcrement and cmpliance nctins. understanding critical physical

and nancial spply chain dependencies will better prepare treasrers t

select the wrking capital strategies that drive crprate grwth.



Financial Prle

Spply Chain Activities

1

Imagine an eager shpper wh enters

yr clthing stre lking r the latest

ashin. Her size isn’t in stck, s she

heads t the dr and crsses the mall

t nd what she needs at a cmpetitr.

A man enters an electrnics sperstre

t lk r the fat screen televisin

he saw in the Snday paper. It is nt

available, s he bys it nline instead.

Nw think a actry rshing t trn

t an rder r a key cstmer. Critical

parts arrive late, and the assembly line

shts dwn.

In each these cases, breakdwns in

the spply chain had a direct impact n

end cstmers and cst the cmpany

nt jst revene bt cstmer gdwill

— which takes its tll in lst tre sales

and higher csts. A smart spply chain

is key t delivering nt nly gds bt

reliable nancial perrmance as well.

There are certain times when an end

cstmer derives maximm tility rm

a prdct r service and is willing t paya premim. Fr example, an mbrella

has greater vale n a rainy day than n

a snny day. A Christmas tree is mch

less valable the day ater Christmas.

A cmpany able t deliver the right

prdct at the right time in an ecient

manner can maximize revenes and

keep csts dwn. Cmpanies that miss

the ptimal delivery windw, r drive p

their expenses in an ert t make the

windw (expediting with airreight, r

example) redce their ptential margin.

Extended glbal spply chains heighten

the risk “Diminished Vale”: the

prt pprtnity missed by cmpanies

when their spply chains ail t perrm

cnsistently at an ptimal level.

Intense cmpetitin and demanding

end cstmers have led t the

develpment increasingly cmplex

spply chains as cmpanies seek

niqe prdct mixes and lw-cst

advantage. The reslting glbal mdeladds a hst new challenges t spply

chain planning and prdct delivery, in

additin t sbstantially increasing the

risk that all players in the spply chain

will be aected by diminished vale.

Serving glbal markets cmpnds the

level risk.

The lnger r wider a spply chain

becmes, the mre inventry and

cash fw is cntained within it. Fr

mltinatinal rganizatins and theirsppliers, the glbal spply chain

has cme t represent a signicant

ser wrking capital within each

enterprise, an imprtant actr in the

nancial dynamics the entire spply

chain. Cnseqently, the pprtnity t

imprve spply chains shld be seen

as an pprtnity t imprve nt nly

physical inventry management, bt

nancial perrmance as well.

Regardless hw well it is managed,

the spply chain and the inventry it

delivers are signicant sers wrking

capital. Smart, nancial-riented

management the spply chain

prvides a ramewrk t discver and

realize nancial benets thrght the

cash-t-cash cycle.

A treasry manager wh nderstands

the nancial dynamics the spply

chain can emply an extensive array

tls and best practices t help

the cmpany meet its wrking capital

bjectives. Specically, by viewing

the spply chain thrgh a nancial

lens and eectively cperating with

internal partners in spply-chain-

related rles, treasry managers can

have a real impact n making their rm

mre cmpetitive. In eect, treasrymanagers can becme the lynchpin

a cmprehensive peratinal nancial

strategy that better manages wrking

capital and drives crprate grwth.



Actins in the physical and nancial

spply chain are interdependent. An

actin in ne realm cases a reactin

in the ther — and nt always r the

better. A cmpany’s prcrement team,

r example, might switch srcing

rm Mexic t China in rder t ct

manactring csts. Thgh the

cmpany’s prcrement team was

able t redce pre prdct cst in this

scenari, transprtatin and lgistics

csts increased, as did the ncertainty

related t the extended transprtatin

netwrk. Pls, the cmpany lses

ptential savings available thrgh

NAFTA, the ree trade prgram

arrangement with Canada,

Mexic and the united States.

When viewed in parallel, the

nancial spply chain represents

the management cash and capital

as it spprts inventry and srcing;

the physical spply chain represents

2

the management prdct and

inrmatin. A cmpany mst

identiy any gaps in the bsiness

prcess/fw that create cstmer

satisactin prblems, add cst

r cycle time, and/r impact inventry

— whether these gaps lie in the

physical r nancial arenas, r bth.

understanding the nancial

prle spply chain activities is

critical t evalating alternatives (See

Figure 1). As treasry and spply chain

clleages evalate varis stages

their enterprise prcesses, it becmes

clear that mltiple wrking capital

reqirements are tied t physical spply

chain actins. Redcing the need r

wrking capital redces the cmpany’s

need r cash, thereby redcing the

cmpany’s dependence n tside

credit acilities and/r reeing internal

cash r alternative ses.

Integrating physical and

nancial spply chains

The fnancial supply chain

represents the management

cash and capital as it

spprts inventry and

srcing.

The physical supply chain

represents the management

prdct and inrmatin.



3

PHYSICAL SUPPLY CHAIN SUPPLY CHAIN ACTIVITY FINANCIAL SUPPLY CHAIN

• TechnologyEncryption

•Models,Samples

• ProductInformation

• LabelingandMarking

• ResearchandDevelopment

• ServiceParts

• Production

• InternationalSupplier

• Foreign,DomesticandInternational

CarriersandConsolidation

• Broker/CustomsandTransferto

DomesticCarrier

• Importing

• Trafc

• Receiving

• Storage

• DestinationofGoods

BuyerofGoods

• Stores

• InternationalRelatedParties

•OEMs

• Distributors

SellerofGoods• Contract

• OrderManagement

• OrderFulllment

•Manufacturer,Distributor,

NonproductionorR&D

• Contract

•Manufacturers

• Distribution

• Trafc

• Export

• CustomsandForeignGovernment AgencyRequirements

• DomesticandInternational

CarriersandConsolidation

• Broker/CustomsandTransfer

toDomesticCarrier

• Stores

•OEMs

• InternationalRelatedParties

• Distributors

Research and Development Expense

Raw Materials

Selling, General and

Administrative Expenses

Balance Sheet as Finished

Goods Inventory

Income Statement as Selling,

General & Administrative Expenses

and Balance Sheet as In-Transit

Inventory

Income Statement as Revenue, Cost

of Goods Sold, and Selling, General

& Administrative Expenses and

Balance Sheet as Cash

Research and Development Design

Global Procurement

Logistics and Distribution

Import Location

Sales and Service Contracting

Manufacturing

Logistics and Distribution

Sales and Service

f igure 1

FINANCIAL PROFILE OF THE PHYSICAL SUPPLY CHAIN



4

Trae Compliance Impacts

Supply Chain SuccessTrade cmpliance shld be a central

isse r crprate cers. Legally, it is

the bligatin every u.S. rm’s bard

directrs r senir management t

nderstand their cmpliance prgram

and t prvide reglar versight,

adeqate resrces and direct access

t the bard r cmpliance cers

— all in accrdance with the Federal

Sentencing Gidelines r trade

reglatin.1 Cmpliance isses dn’t

stp with crprate cers — spply

chain and nance exectives have

reasn r cncern as well.

Trade cmpliance inrmatin is a

cmmn element that helps tie nancial

and physical spply chains tgether.

The prper presentatin dcments

is reqired t satisy the nancial

bligatins within a physical spply

chain: dcments that veriy delivery

gds at a specied price, qantity

and lcatin, sing the cntracted

transprtatin methd. Trade

dcmentatin als recrds key data

elements that shw when wnership

gds is transerred rm spplier t

byer, and wh bears respnsibility r

dties, taxes and reight.

Elevated levels risk inevitably

drive csts higher and precipitatethe inecient se wrking capital.

Thse assessing the risk prle a

spply chain mst determine hw mch

incremental risk is being added by

decient trade cmpliance prcesses.

Cmpliance isses alne can disrpt

r break a spply chain: brder delays

de t pr dcmentatin, inability

t cmply with gvernment secrity

prgrams and inadeqate vetting

sppliers, cstmers and partners are

examples inadeqately managed

cmpliance. Penalties, lss crss-

brder trading eligibility and spply

chain bttlenecks are cmmn reslts.

Gd cmpliance practices can als

represent a cmpetitive advantage.

Achieving a desired trading stats,

sing ree trade znes eectively, and

leveraging Free Trade Agreements

(sch as NAFTA r CAFTA-DR) are all

examples ways in which cmpanies

can leverage trade expertise andcnvert a ptential challenge int

a cmpetitive advantage. Shld

an imprter r exprter rn al

gvernment reglatins, an active

apprach t cmpliance management

and planning can even prve t be a

mitigating actr.

Cmpliance ailres can inhibit the physical delivery

gds, which directly impacts nancial perrmance and

can be a drain n wrking capital.

1 united States Sentencing Cmmissin www.ssc.gv/gidelin.htm.



5

Physical Supply ChainFailures Impact Finance

Tday’s extended glbal spply chains

cntain a high risk mving gds with

diminished vale: gds delivered t

market later than intended and missing

the ptimal prt windw. Csts

assciated with diminished vale can

prve particlarly steep in spply chains

that prdce and deliver seasnal,

ashin-riented r time-sensitive

gds, r r cmpanies sing jst-in-

time r lean manactring practices.

Examples we have bserved inclde

the late delivery back-t-schl items

(55% markdwns) and vital hspital

eqipment sch as MRIs (reslting

in 15% lwer prices). Additinal

diminished vale actrs t cnsiderinclde high restcking csts, the risk

litigatin rm liability lawsits and

ptential damage t the brand.

The impact spply chain ailres is

nt, hwever, limited t diminished

vale gds — it extends all the

way t a cmpany’s tp-level nancial

perrmance. In a stdy the impact n

cmpany valatin 800 spply chain

disrptins rm 1989 t 2000,2 rms

experienced 33% t 40% lwer retrns

n eqity ver a three-year perid,

beginning ne year prir and ending

tw years ater the annncement the

disrptin. In additin, the same stdy

shwed that cmpanies experienced

an average 13.5% increase in share

price vlatility in the year ater sch an

annncement was made.

Whether an rganizatin is a

mltinatinal, an entreprenerial

grwth cmpany r a sbsidiary lking

r eciency, the imprtance spply

chain management t the ptimizatin

wrking capital is indisptable.

Decisins being made abt inventry

are every bit as imprtant as decisins

regarding accnts payable andreceivable strategies, and tgether

they may help t answer sme key

qestins r treasrers: What is the

mst ecient balance cash,

inventry and nancing r the

enterprise? What risks des this

mix pse?

2 An Empirical Analysis of the Effect of Supply-Chain Disruptionson Long-Run Stock Price Performance and Risk of the Firm

by Vind Singhal and Kevin Hendricks

Spply chain ailres and

disrptins negatively

aect cmpany valatins

and cntribte t share

price vlatility.





TRAdITIONAL SUPPLY CHAIN ACTIVITIES CAN bE

dIRECTLY LINkEd TO FINANCIAL REqUIREMENTS AT

EACH STAgE OF THE CYCLE AS FOLLOwS:

• Prouct development. As a cmpany cnceives

and designs a prdct, sppliers are selected and

vetted. The cmpany needs t calclate the ttal

landed cst the new prdct and nderstand the

ptential transprtatin reqirements rm varis

rigin lcatins while deciding n spplier payment

strategies.• Prouction. A cmpany then determines the best

srcing arrangement t maximize the vale their

cash by balancing cst with eciency. Sppliers

are then cntracted, payment terms are negtiated,

service levels are determined, the manactring

prcess begins and plans are made t mve the

nished prdct.

• distriution. Finished gds are mved t warehses

r end cstmers sing the mst cst-ecient

methd t meet timing and delivery reqirements.

Dcmentatin is created in accrdance with glbal

reglatry reqirements and distribted alng the

spply chain.

• Sellin. As the spply chain cycle clses, nal

dcmentatin is sbmitted, nancial settlement

is made with all parties and the entire prcess is

reviewed r eciency and accracy. Were the right

items delivered at the right time r the right cst?

Were they sld r the right price? Were all legal

bligatins met?

7

s

e

Post-ShipmentSupply Chain

Financing(receivables)

InventoryFinancing

Export ComplianceReview

Structured TradeFinance (buyer)

Commercial Cards

port Letters of Credit

Open Account Solutions

Order-to-PayI N

F O

R M A T I

O

N

M A N A

G E M E N T

M E N T

ME N T

I N V E

N T O

R Y

B U Y I N G

Jurisdiction

Determination/Export

Classification

Export LicenseManagement

RestrictedParty Screening(end customer)

order LogisticsManagement

Trade DocumentGeneration

BrokerManagement

Free TradeProgram

Management(solicitation &qualification)

AdvanceSupply ChainInformation

(C-TPAT, 10+2,

FAST, AEO)

HTSClassification Country

of OriginDetermination

ValueDetermination

ysis

I O N

O P M E N T

P R O D

U C T I

O N

P h y

s i c

a l

F

i

n

a n

c i a l

P h y s

i c a

l

R O V E M

E N

T

M A N

A G

E M

E N T



8

Prouct developmentPhase: Sourcin to buyin

Fr internatinal spply chains, keeping

abreast glbal develpments is

indispensable. Cmpanies shld

maintain and emply p-t-dateknwledge shiting spply chains,

ecnmic and plitical develpments

in key srcing lcatins, changing

cmpliance and secrity reqirements,

reign exchange fctatins, labr

and cmmdity price indexes, ree trade

prgram develpment, prt peratins

and even weather.

Inadeqate planning and the ailre t

inclde a risk cmpnent in the initial

develpment and recasting phase canlater lead t spply chain breakdwns,

which inevitably signal a drain n

wrking capital. As cmpanies begin

the prdct develpment prcess, they

are challenged t srce materials and

calclate the nal cst gds. oten,

a cmpany’s spply chain peratin

des nt spprt the mst eective

verall bsiness mdel. Fr example,

Stage 1: Product Development Phase:

As a cmpany cnceives and designs a prdct,

sppliers are selected and ttal landed cst is calclated

t nderstand the ptential transprtatin reqirementsrm varis rigin lcatins. Cncrrently, spplier

payment strategies are determined.

rms may create prdct elements rm

“scratch” when srced cmpnents

are readily available; r they may

misread the market’s spply and

demand balance, reslting in delivery

the wrng prdct mix. Errrs

made at the start the cycle have acmpnding ripple eect thrght

the rest the spply chain.

Tangible bsiness impacts these

missteps inclde excess inventry,

bslescence and write-s. Stck ts

can ccr, which in trn case cstmer

dissatisactin and lst sales. Wrse,

attempts t mitigate spply chain

ailres can reslt in even mre csts

and risks. Premim reight services r

rsh delivery mean nt nly increasedcsts bt increased expsre t el

price escalatin and vlatility, as well as

risks inherent in circmventing nrmal

lgistics prcesses.

Mving rm indirect t direct srcing

carries its wn risks. Cmmn mistakes

made by grwing cmpanies inclde

nt accnting r “ttal landed cst”

(cst the gds pls transprtatin

ees, dties, taxes, etc.) and sing

cst as the primary criteria, which

inadvertently leads t selecting an

inapprpriate vendr that delivers pr-

qality gds. Qality isses maniest

themselves in rejected shipments and

scrap, higher rates retrns rm

cstmers, an verall increase in time

spent wrking with the spplier and

an increased need t carry inventry

bers t cver variability. In additin t

cstmer dissatisactin, the bsiness

impact pr qality can case an

increased variability in plan verssactal inventry psitins, leading



9

bUSINESS PROCESS IMPROVEMENT STRATEgIES INCLUdE:

1. Sourcin Analysis. This stdy determines the best lcatin and gegraphy r spplier selectin r a

specic cmpany and a specic gd, incrprating dty analysis, ree trade prgrams and lgistics

reqirements.

2. Restricte Party Screenin . This prcess ensres that sppliers are nt “denied parties” accrding t the

u.S. gvernment and are therere eligible t legally receive bsiness rm a u.S.-based cmpany.

3. distriution an Fulfllment Stuy. Evalatin varis manactring r distribtin center strategies

via analysis inbnd ttal landed csts, variability, risks and wrking capital reqirements, and

tbnd cstmer service levels, csts and risks.

4. Supply Chain Financin. Examinatin byer-driven payables/receivables discnting sltins that

deliver benecial nancing arrangements t sppliers in rder t spprt their prdctin peratins.

5. Lane Cost Analysis. Step-by-step accnting r all the csts invlved t design, bild and deliver

gds t the end cstmer.

6. Compliance Plannin. Ensre that all reglatins are bserved, crrect dcments are generated

and cmpliant prcesses are in place. Classicatins and dty treatments shld be established and

evalated while rigin parts and materials shld be analyzed in rder t maximize vale ree trade

prgrams and minimize dty expsre.

t increased inventry and premim

reight charges, mre resrces and

travel expenses needed t manage the

spplier and increased verhead csts

t handle reverse lgistics.

Freign exchange csts rm a

mlticrrency bsiness envirnment

mst be addressed and calclated.

Managers shld test a given srcing

r lllment decisin nder dierent

crrency exchange scenaris, ranging

rm minr (10%) t majr (30%)

fctatins. Flctatins can als

have an adverse ripple eect in the

rm nexpected csts, sch as

increased dties, taxes and ees,

and internatinal reight. Even

cmpanies bying and selling in asingle crrency — uSD, r example —

shld cnsider the impact crrency

fctatins n their verseas sppliers.

Fr example, an apparel cmpany

bying garments rm Chinese sppliers

with a cntract denminated in uSD

shld nderstand the impact the

uSD’s depreciatin n that spplier’s

csts and cash fw. understanding

the key cst drivers beynd reign

exchange csts in the srcing decisin

is imprtant in rder t mnitr the

health the prgram. Fel prices,

labr csts and cmmdity csts can allfctate de t market cnditins and

trn nce-snd srcing decisins int

qestinable ventres.

Finally, incterms (standard trade

denitins mst cmmnly sed in

internatinal sales cntracts), payment

methds and payment terms are ten

nt crdinated. Financial managers

may aim r extended payment terms

in a drive t extend Days Payable

otstanding, while prcrement andsrcing teams are willing t negtiate

shrter terms in the qest r a lwer

cst gds. The tw parties may

actally be measred r cmpensated

r achieving diametrically ppsed

gals, leading t inecient instittinal

behavir and increased wrking

capital reqirements in the extended

spply chain, ten categrized nder

Days Inventry otstanding, Days

Sales otstanding and Days Payable

otstanding. Fewer inventry trns

generally mean an increase in the

verall cash-t-cash cycle, as well as anincrease in cst gds sld.

Cmpanies mst als take int accnt

the impact their selectin payment

instrments and payment terms n

their sppliers’ nancial pictre, and

cnsider emplying tls that help

mitigate the eect any changes

and inject liqidity int the verall

chain. Byers and nance managers

shld agree pn a practical and

nied payment strategy, aligned withcrprate nance gals, and ensre

that jb perrmance incentives spprt

that strategy.



10

Prouction Phase:buyin to Inventory

The prdctin phase the spply

chain is when wrking capital needs are

determined and spply chain activities

initiated. Treasrers mst nderstand

the typical pitalls this part the

cycle — specically, nexpected

wrking capital demands and impact

spply chain variability and ailre.

As prdctin begins, arrangements

are made t acilitate the evental

mvement gds, and decisins

are made regarding ptential Free

Trade Agreement eligibility and

the applicatin relevant secrity

prgrams. unanticipated reglatry

reqirements and reqent changes

in imprt/exprt reglatins can

reslt in delays at prts, which in trn

may lead t time-cnsming cstms

inqiries, inspectins and seizres.other adverse cnseqences vary

rm the minr (brkers cnstantly

reqesting inrmatin t cmplete

entries) t the mre pnitive (ranging

rm excess dties, taxes and ees —

ten incrred by nt taking advantage

Free Trade Agreements — t ptential

nes and penalties). In a wrst-case

scenari, a rm’s spply chain actins

at the brder may trigger an adit by a

natinal reglatry agency. Sch risks

can be mitigated, hwever, thrghbetter planning, brker and imprt

entry management, accrate prdct

classicatin, specialized FTA prgram

management, dty minimizatin and

cstms cmpliance spprt.


1. Accounts Payale Stratey. There is a wide range payables ptins with

varying degrees risk and cst: wires, checks, prepaid and debit cards,

cmmercial prchasing cards, letters credit and pen accnt prcessing.

Third-party vendr payment sltins knwn as “rder-t-pay” can prvide

cnnectivity, transparency and eciency.

2. Free Trae Proram Participation. Cmpanies can revamp srcing

arrangements t leverage ne the many reginal trade agreements thatredce taxes, qtas, dties and ees r certain gds t encrage trade.

Prgrams can be cmplex and paperwrk intensive, bt they still yield

sbstantial benets.

3. Classifcation Analysis. Ensre gds are prperly classied t speed

mvement thrgh cstms and determine eligibility r ree trade prgram

participatin. uprnt planning and dynamic adit and evalatin prcesses

are critical.

4. broer Manaement. Transrm brker relatinships int strategic

partnerships by selecting a ew key brkers, develping mtally benecial

relatinships and negtiating vlme-based discnts n ees. Prevent

nhealthy dependence n a single spplier by wrking thrgh a singleinterace, with mltiple partners sharing agreed-pn prcedres and

service standards.

Stage 2: Production Phase: The best srcing

arrangement is determined and sppliers cntracts’

are signed, payment terms are negtiated and

service levels established. The manactring

prcess begins, and plans are made t mve

the nished prdct.



11


1. Outsource Loistics Manaement. Streamline and integrate glbal imprt and exp

prcesses t ensre reglatry cmpliance and minimize spply chain delays.

2. Trae document Preparation. Centralize and atmate the preparatin and cllectin

dcmentatin needed t satisy predetermined nancing agreements. Ensre

data crrectness and cmpliance back t the prdct develpment and prchase rd

issance prcesses. Crdinate with cnterparties t make certain that a gd exp

translates t a gd imprt.

3. Trae Compliance Revie. Fll assessment glbal exprt r imprt peratins t

pinpint cmpliance ailres that stall delivery gds, ensre systematic cmplian

and redce risk.

4. Inventory Financin an Venor Manae Inventory. Financing ptins that minimiz

the time inventry sits n the balance sheet.

Stage 3: Distribution Phase:

Finished gds are mved t

warehses r end cstmers

sing the mst cst-ecient

methd t meet timing

and delivery reqirements.

Dcmentatin is created

in accrdance with glbal

reglatry reqirements

and distribted alng the

spply chain.

distriution Phase:Inventory to Settlement

The distribtin phase starts when

gds rll the prdctin line and

mst be transprted t anther actry,

a distribtin center, the stre shelves

r the end cstmer. Financial spply

chain activities take place in parallel

t physical spply chain activities.

Depending n the payment and

settlement tactics being emplyed, the

timing key events in the physical and

nancial spply chains may begin t

diverge.

A treasrer needs t nderstand that

accnting treatment r the gds

— r example, when they mve rm

inventry t accnts receivable —

can be a cmplicated prcess. Sme

cmpanies carry zer inventry andimmediately mve prdct t a third

party r end cstmer as it rlls the

prdctin line; thers pt t carry

inventry as an asset. Vendr managed

inventry (VMI), extended payment

terms and accelerated payments

rther cmplicate this pictre. Physical

spply chain ineciency leads t

excess inventry in the warehse and

n the balance sheet, which drains

wrking capital and slws inventry

trns, negatively impacting a variety

nancial metrics.

A cmpany’s nancial strategy is

typically nt a cs prcrement,

cmpliance and spply chain

pressinals, wh instead cncentrate

n mving gds qickly t the end

cstmer r keeping their shelves

stcked with plenty inventry. Fr

example, a rm’s trac department

may be csed n the lwest cst

transprt, while the distribtin nitis attending t the cntracted rder

ll rate. Meanwhile, the stre needs

t time their deliveries de t limited

space, and the cstmer simply wants

the prdct delivered r available at the

time it was prmised.

Cnsidered separately, these

departmental measrements are

sel indicatrs eciency; when

they are viewed tgether it is clear

that individal gals can cmpete,

decreasing verall eciency and driving

p the need r wrking capital. In

additin, rms balancing inventry

amng mltiple lcatins arnd the

wrld can rther cmplicate inventry

management and bild additinal

wrking capital ineciency int the

spply chain. Lack visibility t gds

in the spply chain makes it diclt

t detect these ineciencies. A review

will likely reveal increased inventry

t cver delivery variability r reqent

premim reight charges t cver pr

demand recasting and planning.

Hwever, these red fags are raised ater

the damage is dne.

T ncver sch “hidden” scenaris,

it is imprtant t measre and track

standard eciency metrics, sch

as Days Inventry, Days Salesotstanding and srpls stck in bth

markdwns and scrap.

Cmpanies mst als take int accnt

the impact their sales terms n their

cstmers’ nancial pictre, and n

the cstmers’ wn nancial spply

chain, and cnsider emplying tls t

help mitigate the eect any changes

and inject liqidity int the verall

chain. Fr example, a cmpany selling

high-tech prdct int Rssia thrghdistribtrs with payment and revene

recgnitin dependent n installatin

may need t extend sales terms rm

30 r 45 days t 90 days t allw r

increased imprt times and variability

transit within Rssia. I the same

30 r 45 day payment terms are sed

r Rssia, the distribtr will need t

secre nancing at higher interest rates

and will be able t take ewer large

rders at any given time.

Whether cased by sbptimal spply

chain planning, an npredictable

transprtatin pipeline r a lack

visibility, excess inventry drives p

spply chain csts.



12


1. Import/Export Assessment. Evalatin all imprt/exprt peratinal prcesses t mitigate risk

expsre via dcmentatin cmpliance with glbal reglatry reqirements. Pstentry adit prcess

r cstms entries r exprt lings t ensre cmpliance and ptimal dty treatment.

2. Freiht Payment an Auit. Exercise greater cntrl ver entire reight payment and inrmatin prcessby centralizing reight cntracts and service-level agreements in a database and aditing invices r

accracy, dplicatin and rate errrs.

3. Forein Exchane an Commoity Manaement. Banking services that acilitate crss-brder payments in

varis crrencies in rder t ptimize wrking capital and help trading parties t ensre predictability

cash fw, cntrl and csts, and enhance nancial stability r spply chain partners.

4. Structure Trae Finance. Financing strategy designed in partnership by bankers, ECAs (Exprt Credit

Agencies) and ther credit and capital markets prviders t spprt large, strategic prjects and

transactins.

5. Supply Chain Operational Revie. Evalatin spply chain nctinality, inclding ability the spply

chain t perate accrding t agreed-pn metrics. Analysis shld inclde identicatin bttlenecks

and perrmance spply chain partners.

Sellin Phase:Settlement to Sourcin

The settlement phase the spply

chain is the prcess by which payment

is received by varis parties incldingthe seller, the spplier, the nancing

entity and the like. The settlement

phase als incldes srting paperwrk,

managing dedctins and chargebacks,

and reslving disptes. Csts and

prts are ttaled, the prcess

assessed and bsiness prcess

imprvements identied. A review

the entire cycle and sbseqent

adjstments shld help remve

bttlenecks, highlight pprtnities

r eciency, minimize tre riskexpsres and eliminate nnecessary

wrking capital sage in the next cycle.

An ecient spply chain helps

deliver gds t the end byer

thrgh the right windw, allwing

the seller t maximize revene and

prt. An ineective spply chain

means diminished vale, increased

transprtatin csts and excess

inventry. Spply chain prcesses

shld inclde decisins abtwhen and hw t cllect and prcess

payments as well as eciently manage

disbrsements — all timed t bth

exprters’ and imprters’ needs.

Individal assessments and adits imprt/exprt management prcesses

as well as reight csts and reign

exchange pprtnities shld be

evalated as part the search r

peratinal imprvements.

Imprters and exprters benet alike

rm sae, ecient integratin with

their bank’s wrldwide transactin

capabilities. They can streamline

settlement prcesses by tsrcing

dcment checking, accnts payable

and reign exchange prcesses.

They can review and adit reight

bills, adit the cstms cmpliance

prcess, evalate carrier and partner

perrmance, and measre whether

r nt the spply chain is meeting

established perrmance standards.

Eective integratin can even help

players in the spply chain t gain

access t mre ecient nancing.

A grwing variety translatin tls

and indstry standard le rmats

(EDI ASC ANSI X.12, uN/EDIFACT,

SAP IDc and XML) acilitate direct

exchange electrnic inrmatin.

Stage 4: Selling Phase:

As the spply chain cycle

clses, nal dcmentatin

is sbmitted, nancial

settlement is made with

all parties and the entire

prcess is reviewed r

eciency and accracy.



13

When evalating ptential partners, it

wld be benecial t seek a partner

that spprts cntries and crrencieswrldwide, as well as a cmplete

set data exchange ptins sch

as extended remittance text, split

remittance details and retrn le

acknwledgments.

Atmating crss-brder transactins

and prcesses helps rms gain

visibility int and manage the risks

invlved in cndcting crss-brder

bsiness. Cmbining a bank’s treasry

capabilities with a ll nderstanding

the internatinal fw payments

can als yield pprtnities t better

manage crrency fctatins, allwing

a byer t lck in avrable prices r

helping sellers t manage the crrency

expsre risk represented by lnger-

term prchase cntacts. By the same

tken, expsre t critical cmmdities

like el, cttn, sgar r cpper can

be managed and hedged. By applying

a cmprehensive reign exchange and

cmmdity strategy, rms can takeadvantage market pprtnities and

achieve ecnmies scale.

CnclsinTday’s treasrers and nancial pressinals mst nderstand precisely hw

nance integrates with ever-lengthening physical spply chains in rder t set

lng-term strategy, accrately recast nancial reqirements, manage risks and

ensre cmpliance with glbal reglatins. Witht sch a cmprehensive view

the prdct spply system, cmpanies will miss lw-cst srcing pprtnities

and prt maximizatin ptential and endanger cstmer relatinships. Managing

spply chain isses n a “reghting” basis rather than thrgh resight, planning

and rbst management prcesses intrdces npredictability, drives p csts and

expses the rganizatin and its cers t penalties, nes and headline risk.

Financial pressinals are in an ideal psitin t help ensre that an rganizatin’s

spply chain is prperly aligned t deliver nt jst gds, bt als deliver n the

rganizatin’s nancial gals. Hwever, t accmplish this, they mst develp a

clse wrking relatinship with all crprate areas materially invlved with the

spply chain. This wrking grp mst establish a ramewrk r nderstanding

rm a nancial perspective every aspect the prdct spply chain, rm the rststeps develpment and prdctin thrgh the nal stages distribtin and

settlement. Partners that marry nance and trade expertise with a ll range spp

chain erings can help treasrers and their spply chain clleages identiy tls,

tactics and best practices that prmte grwth while ensring a healthy balance

sheet and ptimal se wrking capital.

Tday’s glbal bsiness envirnment is rie with pitalls, bt active physical and

nancial spply chain cllabratin can prvide a healthy ramewrk t navigate

the landscape. A treasrer’s niqe perspective n the capital invested in spply

chains can be a signicant tl t help eect sch crprate change. Ater all, awell-managed and nancially integrated spply chain can be a cmpany’s secret

weapn — a cmpetitive advantage that can be ar mre diclt r rivals t

replicate than the prdct itsel.

A B o u T T H E A u T H o R S

Jonathan Heuser, gloal Supply Chain Hea, gloal Trae Services

Jnathan Heser is an Exective Directr within the Glbal Trade Services grp at J.P. Mrgan. He leads the bank’s

Glbal Spply Chain team, prviding trade management and wrking capital sltins t retail, apparel and cnsmer

gds cmpanies. other respnsibilities inclde spply chain cnslting, spply chain nance and the bank’s classicaltrade nance initiatives in Latin America. He is a reqent speaker n the tpic spply chain nance and was named

ne Supply and Demand Chain Executive magazine’s “Prs t Knw r 2008.”

Previsly, Jnathan spent ve years with Fritz Cmpanies, Inc., nw uPS Spply Chain Sltins, mst recently serving

in a client cnsltant rle. He hlds an MBA rm the F.W. olin Schl Management at Babsn Cllege where he was

an olin Fellw.

John brocell, gloal Supply Chain Consultin, gloal Trae Services

Jhn Brckwell has an extensive backgrnd in glbal trade bsiness and prcess evalatin, lgistics planning

and decisin spprt systems. As the Glbal Spply Chain Management Practice Leader, his cs is n nding

pprtnities r bsinesses t ptimize their internatinal trade by imprving csts, cycle times and qality and by

minimizing risks. A reqent speaker n the tpic spply chain ptimizatin and impacts t wrking capital, Jhn

was named ne Supply and Demand Chain Executive magazine’s “Prs t Knw r 2007.”



© 2008 JPMrgan Chase & C. All Rights Reserved. JPMrgan Chase Bank, N.A. Member FDIC

Treasury Services at J.P. Moranjpmrgan.cm/ts

Fr inrmatin n Glbal Trade Services at J.P. Mrgan,

visit jpmrgan.cm/trade

A B o u T J . P . M o R G A N

The Glbal Trade Services grp at J.P. Mrgan is a

wrldwide leader in prviding sltins r glbal trade

management. The grp prvides lgistics and trade

nance sltins designed t help clients enhance

physical and nancial spply chain peratins, imprve

cmpliance with gvernment trade reglatins and

ptimize wrking capital. Lgistics sltins inclde

trade management cnslting, tsrced peratins

management, technlgy and trade edcatin and

cmpliance training.

Glbal Trade Services is part J.P. Mrgan’s Treasry

Services bsiness, a tp-ranked, ll-service prvider

innvative payment, cllectin, liqidity and investment

management, cmmercial card and inrmatin sltins.

With mre than 50,000 clients and a presence in 39

cntries, J.P. Mrgan’s Treasry Services is the wrld’s

largest prvider treasry management services.

Documents

J.P. Morgan Supply Chain Working Capital