In the past when the concept of supply chains was more domestic, apparel and textile companies could do away with minimal integration of the financial and physical supply chains. But with the expansion of supply chains all over the globe, increasing costs, and outstretched lead times, the need for an organization's supply chain and financial departments to work closely to resolve discrepancies is inevitable.
With apparel and garment companies doing businesses with different parts of the world it becomes increasingly essential to understand their modus operandi and find ways to partner with them in order to avoid any unexpected risks, decrease costs, and improve performance by providing them better. Sharing of information becomes inescapable in such situations and requires involvement of finance, logistics, procurement, and supply chain altogether.
Breaking the wall between supply chain operations and finance can help an apparel or textile company in a big way. Collaboration like this can be beneficial in reducing the cost of goods, compete better in the industry, and make use of capital efficiently. Indulging in a project like this allows a firm or organization to gain high profile and cross disciplinary visibility. Automation of processes in operations and finances bring authenticity, and data becomes more valued when it is being shared.
Manual financial processes are believed to increase the cost of trade by five percent. Hence getting rid of the paperwork can help cut costs otherwise prone to errors. Using automated financial processes on the other hand provide a detailed description of what amount needs to be paid, in which currency, at what time, and which account. A system like this ensures smooth management of working capital.
And once such issues are resolved, more important concerns like supplier relationships can be addressed. This can be further used to give suppliers prior notifications of incoming orders. The extra time obtained can be utilized for productive purposes like buying fabrics and sourcing materials. Some retailers taking advantage of the financial supply chain automation collect early payment discounts from suppliers, allowing them to fill frequent orders and also save money. It further provides apparel retailers a methodological way of analyzing which of their suppliers are their most cost effective business partners. While some even use it as a mechanism to provide incentives or penalties for different supplier situations. In case of shipping errors or delay in the supply chain the suppliers are penalized with a charge.
Moreover, using platforms like Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) do provide integration but fall short of delivering results even after making expenses. Using a cloud platform instead is more flexible since it allows convenient exchange of data across all formats between apparel retailers and suppliers. A cloud based system also lets both the parties to use their existing ERP systems and at the same time integrate operational and financial processes.
With the rampant growth of globalization of trade the financial relationships between suppliers and retailers is evolving. Many are moving on from the tried and tested method of using Letters of Credit to more simplified and streamlined financial processes especially using the method of payment on open account.
In collaboration of the physical and financial supply chain the main players involved are importers, exporters, financial institutions like banks, insurance agencies, 3PL (Third party logistics), carriers, and customs & inspectors. The financial supply chains provide information through nodes and networks from predominantly banks, while the physical infrastructures that form the links like warehouses, transport lines (road, ports, airports, rail lines) and a network platform serving as a hub provides all the information linked to various nodes.
Financial processes such as commitments of orders and contracts, validations, reconciliations, and payments can be fulfilled using a cloud network platform allowing more transparency and visibility. The physical supply chain events like handoffs, physical movement of products, inspections, and verifications keep suppliers on track and provide importers updated information of their orders.
An approach to converge the financial and physical supply chain can eliminate the different kinds of finance and credit related risks involved in the apparel industry, it can also minimize risks related to strengthening of partners, and risks that arise due to alleviating production, material, and labour costs.
The integration of an organizations physical supply chain and the finance department closely can open up a bundle full of opportunities for players in the textile and apparel market. It also becomes convenient when financial institutions and banks have a trusted source to count on the reliability and have complete access to the supply chain processes in order to provide early and deep financing to suppliers. This consequently reduces the cost of capital of the suppliers which gets transcended to other players across the supply chain resulting into lower priced textile products and garments for the end consumer. Moreover such collaboration can lead to improved cash flows for the suppliers, who can use them for future expansions.