Supply chains flow to credit departments.(INTERNATIONAL)

One of the ramifications of the global marketplace is the fact that supply chains are becoming longer and more complicated, and sometimes traverse unstable and dangerous areas beset by military conflict, civil unrest or natural disasters. Supply chain management is a crucial function of many corporations today that buy and sell products around the world. It is a function that credit professionals must take into consideration as a key variable to consider in assessing country or political risk. A customer's ability to pay for products may be greatly influenced by the costs and risks of the supply chains upon which it depends. Credit departments in companies involved in global trade are positioned to be one of the best sources of knowledge and information needed to create corporate supply chain management programs.

Alice Knight, V.P. Finance and Administration for Paper Products Marketing (USA), contends that credit managers involved in international sales already analyze global supply chains as part of their analysis of country risk. Factors such as infrastructure and currency, that are considered in-country risk, also affect supply chains. These are factors that are often as important as the financial condition of the customer. "At the end of the day, you have to be concerned about the financial condition of your customer and the country risk, as well," said Eugene Perry, Division Credit Manager for Cooper Crouse-Hinds. A supplier's ability to get paid by a customer is affected by the customer's whole supply chain. If a customer cannot get the supplies it needs to produce its products in a timely manner, then its sales will suffer--as will its cash flow. A diminished cash flow can result in customers stretching out payment terms on open account purchases.

Michael Quinn, Sr. Trade Product Manager at J.P. Morgan, said that supply chains run two ways: raw materials flow into a customer's facility and finished products flow out of their facility. He said credit professionals and other officials must ask when evaluating their customers' risk levels, "Who is that customer dependent upon for other sales, and who is he dependent upon for his raw materials?" Quinn pointed out the increased emphasis on stopping trade with companies having direct or indirect links to terrorists groups since 9/11 and how efforts to prevent money laundering and other fraud have only complicated supply chain management. "If a customer's supply chains are widely dispersed, are they the bad guys?" he asked. "Should you be concerned about them being shut down by somebody?"

Jonathan Heuser, St. Trade Sales Manager at J.P. Morgan, pointed out that supply chain management takes into account variables such as available transportation services, import/export duties, government regulations, anti-terrorist and fraud regulations and location of distribution centers. "As the supply chains elongate, both the cost of that supply chain and the risk of that supply chain increase," said Chris Vukas, Sr. V.P. Global Supply for UPS Capital.

"I think the supply chain is getting more and more complicated--and there's more and more at stake," Heuser added. "The complexity is increasing exponentially, which makes it harder to learn everything there is to know."

In order to manage supply chains, a company must take a systems or integrated approach, Vukas contends. Noting that the ultimate decision-makers in supply chain management are the "C-Level" or top officers, he said, "They can't view their global supply chains as silos, and they need to look at them in a unified way."

Knight said the analysis of supply chains as part of country risk is a relatively new practice. This provides a unique opportunity for credit managers to play a key role in providing vital information to other departments--such as procurement and logistics. "These are exactly the same things that the purchasing agent or logistics manager needs to look at, to determine if it is economically feasible to buy from a company." ...