Digitisation: Accelerating the financial supply chain

By removing paper and automating processes, digitisation is driving major change in both physical and financial supply chains.

By Ujjwal Jain - Head of Trade Singapore at Standard Chartered

Digitisation in the supply chain facilitates coordination, collaboration, transparency and near real-time information across entire ecosystems. Little surprise then that companies are responding to these opportunities, as illustrated by a  PwC study on the rise of Industry 4.01. In the study, a third of the over 2000 respondents stated that they had started to digitise their supply chains, and 72% expected to do so in the next five years. In doing so, they can expect efficiency gains of 4.1% p.a., while also boosting annual revenues by 2.9% percent2. A subsequent release of the study3 suggests that businesses who are leading the way with digitisation are expected to achieve 60% higher cost savings over the next five years than those just embarking on their digitisation journey.

The financial supply chain link

The transparency arising from this investment in digitising physical supply chains is also a major opportunity for the associated financial supply chains. This is because the near real-time exchange of accurate data4 in these digitised physical supply chains supports more efficient funding by banks in financial supply chains, as well as faster recirculation of working capital.

For instance, if a bank can digitally leverage data to build profiles of participants' delivery and payment performance, it can customise its pricing and solutions accordingly. This, together with traditional parameters such as industry sector and corporate size, can help with the assessment of supply chain strength. At a higher level, digitisation also enables banks to track entire transactions, which can assist in mitigating two important pre-shipment financing risks: identification of the source of origination and supplier performance risk. Therefore, more effective and proactive pre-shipment financing becomes possible as banks can become involved earlier in the trade process, benefiting both buyers and sellers.

Going deeper

The transparency in supply chain ecosystems is also enabling concepts such as deep tier financing and tokenisation. These can support entire B2B2C networks where all value-added suppliers can obtain competitive funding supported by an anchor credit (end buyer). Banks with extensive networks have a natural advantage here because of the scope of their networks, especially in regions such as Asia and Africa where numerous thinly-capitalised yet valuable suppliers reside. The unambiguous nature of the whole process also helps build trust and loyalty across the supply chain to promote more cost-efficient products and services.

Another advantage is that the bank is not only refinancing one company, but the entire supply chain. This increases the reach of banks and allows them to become a strategic partner in the supply chain.

Light-speed growth in Asia

Asia is witnessing the lightning pace of digitisation, as well as e-commerce growth, which is expected to show an average annual revenue growth rate over the next four years of 10.7%, resulting in a market volume of USD1.5 trillion by 20235.

This is partly due to the growing number of affluent consumers in Asia, who are driving greater consumption of goods and services within the region6. Previously, the growth of efficient trade finance mechanisms in Asia to support this demand was hampered by structural difficulties, such as low awareness of supply chain financing and the limited regional reach of international banks. The good news is that digitisation of supply chains is already improving this situation so that banks are now able to deliver more effective financing solutions.

Digital supply chains will dominate the future

Digitisation of supply chains is fast becoming the perceived norm, with 80% of respondents to a recent Material Handling Industry (MHI) survey believing that digital supply chains would be the predominant model within just five years7. Businesses globally will stand to gain, as they benefit from new financing solutions. Banks will also be able to deliver on the basis of greater transparency and efficiency.


https://www.pwc.com/gx/en/industries/industries-4.0/landing-page/industry-4.0-building-your-digital-enterprise-april-2016.pdf

https://www.strategyand.pwc.com/media/file/Industry4.0.pdf

https://www.strategyand.pwc.com/gx/en/industry4-0/global-digital-operations-study-digital-champions.pdf

Supported by technology such as GPS, IoT, track and trace and field sensors

https://www.statista.com/outlook/243/101/ecommerce/asia

https://www.luxurysociety.com/en/articles/2018/01/key-insights-affluent-asia-pacific-consumers-2018-part-1/

https://www.mhi.org/publications/report

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