Financial Supply Chain Survey

8/2/2019 Financial Supply Chain Survey

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CONFIDENTIALThis document must not be passed in part or entirety to any third party withoutthe express written permission of gtnews.

Sponsored by

Financial Supply ChainSurveyResults 2011


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Contents

Contents 2About 4

gtnews Introduction 4About 5

SEB - Our sponsor 5Executive Summary 62011 Survey Findings 8Respondent Profile 9

Geographical spread 9Company size 9Job Level 10

Question 1 11Which industry sector does your organisation operate in? 11

Question 2 13What is your role? (Please select one) 13

Question 3 15Which are the most important risks that your organisation faces in managingits financial supply chain? 15

Question 4 18Which of the following risk management activities has the most scope forimproved support from your organisation's banking partners? (Please selectone) 18

Question 5 21Which of the following methods is your organisation using to mitigate risks?(Please tick all that apply) 21

Question 6 24Which techniques does your organisation use to manage open account-associated risks? (Please tick all that apply) 24

Question 7 27Where in your organisation's financial supply chain do you see the bestopportunities to enhance performance? (Please tick all that apply) 27

Question 8 30In the past year, have you had a supply chain breakage event that has ledto any of the following scenarios? Answers remain anonymous. (Please tickall that apply) 30


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Question 9 33What is the optimum amount of cash, as a percentage of total assets, whichyour organisation would want to hold on its balance sheet? 33

Question 10 36What is the primary focus of your organisation's working capitalmanagement strategy? (Please select one) 36

Question 11 39What is the main challenge to your organisation's working capitalmanagement strategy? (Please select one) 39

Question 12 42What is the main challenge in the overall management of yourorganisation's liquidity? (Please select one) 42

Question 13 45How concerned is your organisation that new and tougher regulations in thebanking sector could have a knock-on effect on the financing of yourorganisation's supply chain? (Please select one) 45

Question 14 48Has the situation with scarcity of capital increased the focus on yourorganisation's own balance sheet and supply chain? (Please select one) 48

Question 15 51How is your organisation planning to use the possibilities in its balance

sheet in the future? (Please tick all that apply) 51Question 16 54

How important is it to your organisation that your supply chain: 54Question 17 57

Where does your organisation see the main value of sustainability in itssupply chain? (Please tick one) 57

Question 18 60Which organisational level currently co-ordinates your supply chainmanagement and how is it likely to be handled in the future? 60

Appendix 63


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Aboutgtnews Introduction

Together, gtnews and the AFP offer anunrivalled mix of information, education,training and member services to more thanthree quarters of the worlds largest 1000

corporations.

gtnews, an Association for Financial Professionalscompany headquartered in London, is the leadingglobal knowledge resource for over 50,000 treasury,finance, payments and cash managementprofessionals. Online, gtnewsis updated weekly andprovides subscribers access to an archive of almost8,000 global treasury articles in addition to specialreports, commentaries, surveys, polls, news, ratingsupdates and whitepapers.

Access to gtnews.com is free of charge to those who

register, and we never sell names or e-mailaddresses, so our readers privacy is assured.

The gtnewseditors encourage industry experts toshare their knowledge on key issues facing treasuryand financial professionals, including best practice incash and liquidity management, regulatory changes,trends in the financial supply chain, treasurytechnology and the pursuit of internal efficiencies.

Our authors come from the treasury departments ofleading corporations, from banks, from technologycompanies, from governments and from specialistconsultancies. All our content is checked and editedby our London-based team of experienced financialwriters, who commission, write and publish newmaterial every week.


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About

SEB - Our sponsor

With trade finance, you can achieve safer, more efficient and more profitable international trading and cashmanagement. And, if your trade finance is integrated into the services that you offer to customers and suppliers, youwill also be able to boost customer and supplier satisfaction, as well as achieving considerable process and liquiditysavings. Effective trade finance can prove a key factor in releasing capital tied up in the trade process, providing your

company with extra trading capacity.

SEB provide effective overseas payment services and examination of all relevant commercial documentation, as wellas qualified advice and lasting customer care in the form of continuous improvements, cost-cutting tools and methods,and process development. A partnership with SEB enables you to develop your overseas trading in four differentareas - risk management, Process development, working capital and customer/supplier care. This is the trade route tofree up your working capital.


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Executive Summary

The results in this report are all based oncorporate respondents only.

> A total of 126 corporate respondents participatedin the gtnews2011 Financial Supply Chain Surveybetween 18 November and 16 December 2011.

> Western Europe-based readers accounted for37% of the total survey respondents. North Americanreaders represented 26% of the responses.Respondents from Asia-Pacific made up 21% of the

responses, while central and eastern European (CEE),Latin American and Middle Eastern/Africanrespondents made up the remaining 16%.

> Thirty-two percent of respondents came fromcompanies with annual revenues between US$50mand US$249.9m; 25% came from corporates withrevenue of US$1bn and US$9.9bn; companies withannual revenues greater than US$10bn made up 18%of the respondents. Only 10% of respondents werefrom companies with revenue under US$50m.

> The highest proportion of respondents came fromthe manufacturing industry, which made up 29% ofrespondents, followed by transport (11%) and serviceand media (10%). Increased presence of respondentsthis year from transport (11% compared with 3% in2010) and trade (5% up from 3% in 2010) industrysectors underpin the extreme relevance for thesesectors to properly manage their financial supply chain(FSC) programmes.

> Treasury and finance are still the most directlyinvolved roles in managing the company's FSC, with32% and 20% of respondents respectively.

> Counterparty risk - customer (46%), liquidity risk(43%) and foreign exchange (FX) risk (41%) are at thetop of the list in terms of the most important risks anorganisation faces in managing its FSC.

> The risk management areas with the most scopefor improved support from a corporates bankingpartners is counterparty risk on both the buyer andsupplier side; these were chosen by a quarter of therespondents. Interestingly, corporates are not turningto their banks to help mitigate liquidity or settlementrisk.

> Asia-Pacific (37%) and North American (27%)respondents are the most likely to view bankingpartners as helping them to manage liquidity risk.Small and mid-sized companies (up to US$999.9m)expect their bank partners support in managingliquidity risk.

> Guarantees have made an entry as risk mitigators,taking the lead away from softer mitigants such ascredit rating agency scoring.

> Letters of credit (L/Cs) are still alive and kickingand steadily hold the number one position as a meansto mitigate risk. They are the most used tradeinstruments in the Asia-Pacific region - 54% reportusing L/Cs.

> Supply chain finance (SCF) techniques arebecoming prevalent in the portfolios of options amongsurvey respondents - with 43% of buyers and 34% ofsellers using this method to manage open account-associated risks. Buying companies with revenuesabove US$1bn are more mature in the use of SCFinstruments to reduce risk of open account

transactions.

> Opportunities in the FSC to enhance performanceof a company are once again identified within client-focused processes - 59% of survey respondentschose negotiation of commercial and payment terms,while 37% selected customer collection handling.Improving internal operations took second place (38%)this year, whereas it had not been contemplated in2010.

> Similar to 2010, the majority of respondents (58%)

have experienced a breakage in their supply chain.Beyond the impact of delay to projects/ strategyimplementation (22%), the significant negativeconsequences of disruptive events in the supply chainare measured in terms of loss of customers (21%),higher cost of capital (16%) and compliance failure(13%).

> Asia-Pacific companies are far from being incontrol of their supply chain, as only 19% declare notto have suffered from supply chain breakage events.Very large (>US$10bn) companies are a segment thatapparently suffers from supply chain breakage events

(61%).


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> A maximum of 25% on total assets appears to bethe right ratio expressed by respondents. From 2010there is a clear tendency to increase the cash levelsabove the 10% threshold, with peaks above 25% (in

14% of cases).

> Small to medium-sized corporates (underUS$250m) are more concerned with lack of credit fromfinancial institutions and are therefore pushed to keephigher levels of cash on hand (10%-25% of totalassets).

> Liquidity is once again the key objective of anycompany strategy - 37% of respondents chose thisoption as the primary focus of their working capitalmanagement strategy.

> Forecasting and reporting (chosen by 42% ofrespondents) are the main areas of concern in alldisciplines controlled by corporate treasurers. Thisalmost exactly mirrors the results from the 2010 FSCSurvey. In Asia-Pacific, CEE and Middle East/Africathe importance of forecasting and reporting has a clearedge on any other challenge to the organisation'sworking capital management strategy.

> Forecasting and planning as challenges in theoverall management an organisation's liquidity hold astrong primary position among mid-sized to large

companies (US$50m- US$9.9bn). Small ( Just over half (55%) of respondents say that theyare somewhat concerned that new and tougherregulations in the banking sector could have a knock-on effect on the financing of their organisation's supplychain. This is down from 66% in 2010.

> The overall focus on balance sheet and supplychain has not undergone significant change from 2010to 2011 - the focus on internal capabilities to free upsources of capital remains at the top. North Americanrespondents are the only ones whose focus is morelikely to be unchanged, with 52% choosing this option.

> The adoption of SCF programme instrumentsoutpaces practices to improve and streamline internaloperational processes, for example leanermanagement of the supply chain. Forty-five percent ofrespondents said that they would review possiblelaunch of a supply chain finance programme in order

to use the possibilities in its balance sheet in thefuture.

> Asia-Pacific respondents are the most optimistic inexpecting benefits from SCF programmes. Theapproach to improve internal operations of the supplychain as a prerequisite for effective SCF initiatives is

adopted also in this region.

> Large and very large (>US$1b) organisations areabsolutely focused on socially sustainable (i.e. respectfair relationships and ethical business practices)supply chains that can be economically sustainable forall constituents. The role played by these companiesin the global economy is considerable and it is veryimportant to appreciate their sensitivity to social andeconomic sustainability.

> The survey results show a steady shift away from

the steering wheel of supply chain management beingin the hands of the chief financial officer (CFO) andtreasury into the more capable hands of a dedicatedsupply chain manager. While in 2010 the concept of adedicated resource was a sort of nice to have, in2011 it has become an essential part of the corporatestrategy.


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011 Sur ey Fin ing

8


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Respondent Profile

A total of 126 corporate respondents participated in the gtnews2011 Financial Supply Chain Survey between 18November and 16 December 2011.

Geographical spread

Western Europe-based readers accounted for 37% of the total survey respondents and North American readersrepresented 26% of the responses. Respondents from Asia-Pacific made up 21% of the responses, while central andeastern European (CEE), Latin American and Middle Eastern/African respondents made up the remaining 16%.

Company size

Corporations of all sizes (as determined by annual revenue in US dollars) participated in the survey, with 32% ofrespondents coming from companies with annual revenues between US$50m and US$249.9m. The next mostrepresented segment is companies between US$1bn and US$9.9bn making up a quarter of respondents. The largestcompanies, with annual revenues greater than US$10bn, made up 18% of the respondents. Only 10% of respondentswere from companies with revenue under US$50m.


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Job Level

Respondents were predominately from the management and non-financial executive segment of the workforce - 26%and 27% respectively. Senior management and staff were relatively evenly spread across with 22% each.


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Question 1

Which industry sector does your organisation operate in?

> Manufacturing> Service and media> Retail> Transport> Insurance> Energy and mining> Public sector> Utilities, telcos, real estate> Trade> Other (please specify)

The highest proportion of respondents came from the manufacturing industry, which made up 29% of respondents,followed by transport (11%) and service and media (10%). The increased presence of respondents this year fromtransport (11% compared with 3% in 2010) and trade (5% up from 3% in 2010) industry sectors underpin the extremerelevance for these sectors to properly manage their financial supply chain (FSC) programmes. Their participationunderlines the importance for them to know more about market trends and learn best practices from their peers, aswell as from other industry sectors.


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*CEE and Latin America omitted due to low response rate.


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Question 2

What is your role? (Please select one)

> Treasurer> Financial manager> Accounts payables/receivables> Controller> Procurement> Other

Treasury and finance are still the most directly involved roles in managing a company's FSC, with 32% and 20% ofrespondents respectively. Controllers and accounts payable/receivables are similarly represented at 7% and 6%respectively, while procurement makes up only 3% of respondents.


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As expected, treasurers and financial managers are the most engaged in FSC in large and very large (>US$1b)

organisations. In addition it is the financial manager position that tends to be the most interested in FSC when theybelong to companies with smaller (


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Question 3

Which are the most important risks that your organisation faces inmanaging its financial supply chain?

> Counterparty risk - customer> Counterparty risk - supplier> Foreign exchange (FX) risk> Operational risk: i.e. employee errors; system failures; fire, floods or other losses to physical assets; fraud or other

criminal activity

> Political risk

> Sovereign risk> Liquidity risk> Other

Unsurprisingly counterparty risk - customer (46%), liquidity risk (43%) and foreign exchange (FX) risk (41%) are at thetop of the list in terms of the most important risks an organisation faces in managing its FSC. The uncertainty reigningin the current economic environment makes companies very careful about any relationship with other parties.

Customers are much riskier counterparties than suppliers (39%) because there is less contractual power againstcustomers. Liquidity risk was added as a new option in 2011 and leapt to the top three risks given the recent - and stillcurrent - difficulties in getting cash from financial institutions (FIs). Sovereign risk is another new entry that just lessthan one in five treasurers chose as an important risk. FX risk confirms that international trade business is stillrelevant despite the financial and economic crisis.


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Apart from North America and - to some extent - western Europe, liquidity risk does not top the list in other regions.North America and western Europe respondents make up 63% of the total population of respondents (see Figure 1),so the risk items they select outweigh others in the global rankings. When split by region, however, we see that otherrisk items keep treasurers awake at night.

Indeed, the other option is the most popular among western Europe and Asia-Pacific respondents. The verbatimanswers for this question include: commodity prices: fuel, plastic; unseasonably bad weather: excessive rain or cooldays"; "counterparty risk - banks"; "fluctuating markets on a daily basis"; "regulatory compliance"; and "technology

disruption; scale and size; advantages of competition". These are all external factors that involve risk levels that aredifficult to control or influence, as opposed to, for example, operational risk issues expressed by ME&A respondents.This choice is indicative of their relative fledgling presence as market players and attempts to reduce any forms ofwaste and inefficiencies they might generate internally through badly controlled operations. External pressures areimportant, but not as much as the internal.



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Question 4

Which of the following risk management activities has the mostscope for improved support from your organisation's bankingpartners? (Please select one)

> Counterparty risk - customer> Counterparty risk - supplier> Foreign exchange (FX) risk> Operational risk> Political risk

> Sovereign risk> Liquidity risk> Settlement risk> Other

Banks need to be more capable of assisting their corporate customers in handling risky commercial relationships, ascounterparty risk - buyer and supplier were chosen by a quarter of the respondents as the risk management activitieswith the most scope for improved support from corporates banking partners. Corporate clients need instruments andservices that provide visibility and anticipate problems.

FX risk - chosen by 16% of respondents - should also be in the capable hands of banks wishing to assist theircorporate clients. Once again, the availability of instruments that anticipate the impact of currency fluctuations on cash

inflows and outflows should be considered as powerful means to increase customer retention and loyalty.Interestingly, corporates are not turning to their banks to help mitigate liquidity or settlement risk.


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Asia-Pacific (37%) and North American (27%) respondents are the most likely to view banking partners as helpingthem to manage liquidity risk. Research experience shows that usually the majority of survey respondents from theseregions are from companies relatively small in size (below US$250m). This coincides with the results already seen inQuestion 3, where this size of company fears the most from liquidity risk.

Western European respondents are, instead, more favourable to partner with banks able to avoid FX and settlementrisk. Western European survey participants usually work in companies large (>US$1bn) in revenue size andexperience fragmented (i.e. geographically and in terms of organisational structure) sales channels. Assistance from

local banks can turn into a long-lasting partnership.

*CEE, Middle East/Africa and Latin America omitted due to low response rate.

Small and mid-sized companies (up to US$999.9m) expect their bank partners support in managing liquidity risk.After all, banks are the main source of risk given their reluctance to lend money to these apparently riskiercompanies. Revenue size is most often associated with the ability to fulfil finance repayment obligations. As such, thereasoning is that the smaller the company is, the higher the risk the bank faces of not getting repaid.


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Larger corporations (>US$1bn) are better able to handle any risks connected to scarcity of liquidity by themselves (asa matter of fact they face the opposite problem - i.e. where to allocate excess liquidity). Their disperse organisationmakes it difficult to run common credit policies with all their customers, often times particularly due to local habits andregulations. Banks can provide a valuable service support if they are able to leverage their network of regional

branches and of correspondent partners. This local presence goes hand in hand with the additional support expectedby large organisations in having banking partners able to offset forms of FX risk potentially arising from anycommercial relationship with foreign trade partners.


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Question 5

Which of the following methods is your organisation using tomitigate risks? (Please tick all that apply)

> Letters of credit (L/Cs)> Guarantees> Trade insurance> Credit insurance> Credit agency scoring> None - working on an open account basis

> Other (free text box)

The striking effect of the international financial crisis brings companies to rely on financial instruments that alleviaterisk. Guarantees have made an abrupt entry as risk mitigators, taking the lead away from softer mitigants like creditagency scoring. Indeed, the supplier side - i.e. when days sales outstanding (DSO) prevails over days payablesoutstanding (DPO) - still counts on the services of credit agencies as the primary method of risk mitigation, withguarantees following closely behind. It is of relevance to notice that operations following open account terms make upalmost a third (30%); this option was not specifically available to the 2010 survey participants. As expected, althoughrepeatedly given up for dead, L/Cs are still alive and kicking and steadily hold the number one position as a means tomitigate risk.


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Asia-Pacific respondents are clearly on the supplier side of the fence given the traditional role of Asian companies assuppliers of North American and Western Europe trading partners. Indeed the theory that L/Cs are the most usedtrade instruments in the region is confirmed in this survey by a 54% rate of adoption. North American and westernEuropeans are more robust users of open account and credit agency scoring. The maturity of the trade business insuch regions allows suppliers to rely on more flexible and efficient methods to mitigate risk.

Data points from Asia-Pacific firms are too small to provide significant relevance for analysis. Buyers in both NorthAmerica and western Europe are strong users of L/Cs to reduce their risk exposure. Western Europeans are also

more acquainted to use credit-related instruments (e.g. agency scoring, insurance) than their North Americancounterparts. Guarantees seem to be much more in favour in western Europe, due to the larger size in revenue ofrespondents in this geography. Their relevance in the contractual relationship with smaller suppliers allows the largecorporates to apply risk mitigation methods tied to guarantees.



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Question 6

Which techniques does your organisation use to manage openaccount-associated risks? (Please tick all that apply)

> Buyer insurance> Factoring/selling receivables/supply chain financing (SCF)> Political risk insurance> None - the majority of my trade operations are inter-company> Other

Supply chain finance (SCF) techniques are becoming prevalent in the portfolios of options among surveyrespondents, with 43% of buyers and 34% of sellers using this method to manage open account-associated risks. In2011 suppliers are also very concerned with risk factors affecting the financial capability of their foreign buyers(political risk insurance ranked at 21%).

Compared to 2010, attention of buyers and suppliers shifted away from buyer insurance into other forms, particularlyinto the option "None - the majority of my trade operations are inter-company". Most notably, the fact that tradestatistics show that the majority of trade operations are inter-company may explain the shift. In 2010 inter-companytrade was not one of the options and therefore respondents might have used the buyer insurance option as theclosest proxy to illustrate a situation where the seller and the buyer belong to the same organisation. The risk mitigantused by the supplier (buyer insurance) is, in reality, the same instrument used by its buying companion entity.


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DSO-aware (i.e. supplier-side) companies are apparently more accustomed to SCF instruments to manage openaccount-associated risks. The other factor is as significant as previously measured among buyer-side (i.e. DPO-aware) companies.

*Under US$50m omitted due to low response rate.

Buying companies with revenues above US$1bn are more mature in the use of SCF instruments to reduce the risk ofopen account transactions. This comes as no surprise; neither do the results from smaller buying companies (belowUS$1bn) who still prefer more traditional insurance instruments.

The other factor deserves major attention and investigation due to its significant percentage of results. Unfortunatelyrespondents did not want to provide extended description.


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Question 7

Where in your organisation's financial supply chain do you see thebest opportunities to enhance performance? (Please tick all thatapply)

> Sourcing> Negotiation of commercial and payment terms> Supplier invoice handling> Customer invoicing> Supplier payment handling

> Customer collection handling> Improve internal operations by moving from manual to automatic> Dunning> Reconciliation

Opportunities in the FSC to enhance performance of a company are once again identified within client-focusedprocesses: 59% of survey respondents chose negotiation of commercial and payment terms, while 37% selectedcustomer collection handling. Improving internal operations takes a strong second place (38%) this year, whereas ithad not been contemplated in 2010. This is additional evidence that companies are looking at all forms ofopportunities to enhance operational performance as a means to find new sources of funding.

The percentage levels of other options do not differ significantly from last year to this, meaning that they remain thebest opportunities endeavoured by respondent companies. The option that emerges from the plateau is sourcing,

which highlights the importance of setting proper trade relationships with new suppliers. These new partners may help


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enhance business in new markets, or can be substantial facilitators that will improve a buyer's efficiency and helpreduce costs, allowing them to stay competitive.


Across all company sizes there appears to be no move away from negotiation of commercial and payment terms asthe most significant opportunity to enhance the performance of their financial supply chain (FSC). Small (


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organisation's banking partners. It is a fact that invoicing practices require the support (particularly with regards to theinfrastructure) of an external party to be fully implemented and functional.

In Question 3, companies with revenue size between US$50m and US$249.9m were identified as the most flexible in

growing their business. They therefore require the ability to source new suppliers that can help them expand thebusiness in new markets. Supplier and customer payment practices fall in the domain of larger (>US$250m)companies given the increased complexity of their trading networks.


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Question 8

In the past year, have you had a supply chain breakage event thathas led to any of the following scenarios? Answers remainanonymous. (Please tick all that apply)

> My organisation has not had a supply chain breakage event> Higher cost of capital> Compliance failure> Damage to brand/reputation> Delay to projects/strategy implementation

> Loss of customers> Loss of key suppliers> Reduced share price> Other

Similar to 2010, the majority of respondents (58%) have experienced a breakage in their supply chain. Beyond theimpact of delay to projects/ strategy implementation (22%), the significant negative consequences of disruptiveevents in the supply chain are measured in terms of loss of customers (21%), higher cost of capital (16%) andcompliance failure (13%). The first two items dovetail perfectly with the data analysed in Question 3, where'counterparty risk - customer' was the highest ranked risk factor, immediately followed by 'liquidity risk' which isintertwined with the higher cost of capital to bear. Also, disruptions in the supply chain usually create high levels of

unsold inventory that immediately hits the company's working capital and, hence, raise the cost of capital.


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North America and western European companies are likely more mature in the management of their supply chains,although in the majority of cases they do experience unwanted negative events. Asia-Pacific companies are far frombeing in control of their supply chain, as only 19% declare not to have suffered from supply chain breakage events.They indeed suffer from higher cost of capital given that in the majority of circumstances they are small to medium-sized organisations subject to tight contractual rules with their larger clients. Typically these Asian suppliers aremandated to hold high levels of inventory and accept unfavourable payment terms. Often times they service their

customers with low added-value products, which explains why these customers are very sensitive to any issues in thedeliveries along the supply chain. Once any breakages occur their clients are able to quickly switch to new providers,making the scenario of loss of customers for their suppliers a major cause of concern (38% suffer from loss ofcustomers due to breakage in the supply chain).


Very large (>US$10bn) companies are a segment that apparently suffers from supply chain breakage events (61%).

They are certainly subject to continuously changing dynamics in trade and logistics conditions, which affect the


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performance of their distributed network of plants and subsidiaries. The more complex the supply network, the easierit is to suffer from supply chain glitches. Any negative performance in the delivery of the vast spectrum of productsand services that these very large organisations have in their portfolio has immediate repercussions on the risk levelperceived by customers (which in 23% of cases close the relationship) and investors, causing an increase in the

expected rate of return that leads to a higher cost of capital. Unsold inventory generates trapped cash in these vastnetworks and all this increases the total cost of capital.

Also small (US$50m-US$249.9m) and medium-sized (US$250m-US$999.9m) corporates present exposure to supplychain disruptive events, 65% and 60%, respectively. For both revenue segments the current economic climatepromises opportunities to expand into new markets. The nimbleness and flexibility of these companies allows them totake decisions faster to stay competitive. Well-functioning supply chains are the prerequisite to expand in acompetitive landscape. Of course, any issue in the supply chain brings delays in the execution of expansion strategiesas an immediate consequence, which are considered as one of the most negative consequential effects (26% and40% of responses, respectively).

*Under US$50m omitted due to low response rate.


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Question 9

What is the optimum amount of cash, as a percentage of totalassets, which your organisation would want to hold on its balancesheet?

> 0-9%> 10-25%> 26-50%> 51-75%> 76-90%

> 91% or higher

Liquidity risk is among the highest ranked risk in Question 3. The best way to counter this risk is by keeping sufficientcash on hand. A maximum of 25% on total assets appears to be the right ratio expressed by respondents. From 2010there is a clear tendency to increase the cash levels above the 10% threshold, with peaks above 25% (in 14% ofcases). The 10%-25% ratio must be the target for any initiative aimed at enhancing the performance of the financialsupply chain as seen in Question 7.


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Corporates based in the Middle East/Africa region are most likely to hold onto a higher level of cash on their balancesheet, with 50% saying that they hold between 26% and 50% of their total assets. Western European companies aremost likely to hold the least - 41% say that they hold between 0%-9% of their total assets as cash.


Small to medium-sized corporates (under US$250m) are more concerned with lack of credit from financial institutionsand are therefore pushed to keep higher levels of cash on hand (10%-25% of total assets). Very large corporates(>US$10bn) are less concerned about credit constraints but require higher levels of cash to offset high levels of costof capital, as seen in Question 8.


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Question 10

What is the primary focus of your organisation's working capitalmanagement strategy? (Please select one)

> Release of tied-up working capital> Preservation of capital> Ensure financial flexibility> Ensure liquidity> Protect company credit rating> Cost control

> Other

Liquidity is once again the key objective of any company strategy - 37% of respondents chose this option as theprimary focus of their working capital management strategy. It is quite significant to appreciate that as recently as2010 this was not included as an option for the focus of an organisations' working capital strategy. In just one year itbounced to the top position, garnering points from other strategic foci listed below.


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Question 11

What is the main challenge to your organisation's working capitalmanagement strategy? (Please select one)

> Relevant measurements for different parts of the organisation> Appropriate incentives for different parts of the organisation> Follow-up on performance> Inter-departmental communication> Forecasting and reporting> Other

While the focus of working capital management strategies has changed in the near past (Question 10), the same hasnot happened to the concerns surrounding working capital management. Forecasting and reporting (42%) are themain areas of concern in all disciplines controlled by corporate treasurers. This almost exactly mirrors the results fromthe 2010 FSC Survey.


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In Asia-Pacific, CEE and Middle East/Africa the importance of forecasting and reporting has a clear edge on any otherchallenge to the organisation's working capital management strategy. In North America the presence of multinationalcorporations demands additional attention to establishing measurements for different parts of the organisation. Alsorespondents from western Europe typically work for structurally complex organisations, with the additionalcomplication that language and cultural barriers must be overcome even between departments based in countrieswithin Europe.

*Latin America omitted due to low response rate.

The larger the company size the more concerning becomes the inability to properly measure the performance fordifferent parts of the organisation. The dispersed reality of conglomerates, made up of subsidiaries and branches, invery large (>US$10b) companies demands the need to pay attention to establishing appropriate incentives for thedifferent parts of the organisation. Very small (


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Question 12

What is the main challenge in the overall management of yourorganisation's liquidity? (Please select one)

> Forecasting and planning> Proper measurement system> Having adequate committed facilities in place> Having adequate uncommitted facilities in place> Visibility and central ownership of cash positions> Other

As already seen in Questions 10 and 11, liquidity and forecasting management are paramount in any company'spractices to improve financial performance. While these factors still keep the top ranking they would be uselesswithout a proper measurement system, which has made its entrance in 2011 gaining 14% of the vote. As the treasuryfunction gains more relevance and importance, it also becomes important to measure and assess the performance ofthe treasury office in terms of how it is bringing value to the company. Rather than being a cost centre, treasuryshould look to use key performance indicators (KPIs) in the creation of a value centre.


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North American companies are the most focused on forecasting and planning, with 63% of companies choosing thisoption. Interestingly, this does not seem to be an issue in the CEE, where companies are focused more on propermeasurement systems. North American and western European companies do not seem concerned about havingadequate uncommitted facilities in place, which is chosen by a quarter of companies based in the Middle East/Africaregion.


The main challenge to liquidity management among mid-sized to large companies (US$50m-US$9.9bn) is forecastingand planning. Small (


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treasury workstations that hardly allow a unified vision of the company's cash positions across its multiple bankaccounts. The lack of automation is therefore a source of concern and a challenging obstacle to overcome.


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Western European companies are used to dealing with regulations enforced by the EU: more than two-thirds (68%)are somewhat concerned, while only 12% are very concerned. North American organisations are becoming morefamiliar with regulatory impositions particularly since the financial crisis in 2008, which has expanded beyond thefinancial sector to impact all industry segments. In this region, those that are very concerned make up a slightlyhigher proportion (19%) than their western European peers. However, the crisis in the eurozone is showing already itsnegative repercussions on the overall sentiment of companies: the total percentage of very concerned and

somewhat concerned in western Europe (80%) overtakes North America (75%).

Asia-Pacific respondents appear to be the least concerned, while the Middle East/Africa respondents appear to beeffectively polarised on the subject. The likely explanation is that companies in this region are fast growing andrelatively young, which means they do not have to bear the burden of legacy organisational structures that cause themajor pain in adapting to new externally imposed rules.


Companies under US$50m are flexible and nimble enough to overcome eventual limitations introduced with newregulations. The same does not apply to very large organisations (>US$10bn) whose complex governance structure(or lack thereof) demands a lot of attention in light of new binding regulations. Scenario planning must become acommon practice for these corporates to anticipate regulatory issues and enable to react appropriately.


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Question 14

Has the situation with scarcity of capital increased the focus onyour organisation's own balance sheet and supply chain? (Pleaseselect one)

> Yes, my organisation will focus more on using the possibilities in our own balance sheet before using bankoverdrafts/loans

> No, the organisation's focus remains unchanged> No, the organisation will focus less on using our own balance sheet

The overall focus on the balance sheet and supply chain has not undergone significant change from 2010 to 2011 -the focus on internal capabilities to free up sources of capital remains at the top. This result is tightly linked with theresults in Question 3 and Question 11 regarding liquidity management. The same intention to focus on thepossibilities in their own balance sheet is the likely interpretation of the answer given by those who have said that theorganisation's focus remains unchanged (43%).


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North American respondents are the only ones whose focus is more likely to be unchanged, with 52% choosing thisoption. Respondents from CEE are the most likely to focus more on using the possibilities in their own balance sheetsbefore using bank overdrafts/loans.


Focus on the balance sheet is the main strategy across all segments regardless of revenue size. Larger sizedcompanies (>US$1bn) have already put in place initiatives that allow them to keep the focus unchanged, whilestriving to gain more from their balance sheets. Smaller (


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Question 15

How is your organisation planning to use the possibilities in itsbalance sheet in the future? (Please tick all that apply)

> Review possible launch of a supply chain finance programme> Leaner management of our supply chain in general> Increased usage of discounted L/Cs> Increased use of guarantees in emerging markets> Other

The adoption of SCF programme instruments outpaces practices to improve and streamline internal operationalprocesses, for example leaner management of the supply chain. Forty-five percent of respondents said that theywould review possible launch of a supply chain finance programme in order to use the possibilities in its balancesheet in the future. Financial instruments tied to SCF programmes or to L/Cs have taken a solid lead versus moreoperations-centric improvements/leaner management of the supply chain in general dropped in popularity from 59%of respondents in 2010 to 35% in 2011. Time is very tight in current economic circumstances and reaction to likelyturbulences is best supported with financial means. Of course, a streamlined supply chain is the prerequisite to reapthe greatest benefits from the deployment of financial tools.


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Asia-Pacific respondents are the most optimistic in expecting benefits from SCF programmes. The approach toimprove internal operations of the supply chain as a prerequisite for effective SCF initiatives is adopted also in thisregion. The use of L/Cs maintains strong presence as evidenced by various research sources and anecdotal facts.North American companies appear to be more balanced across the proposed options. Western European companiesare more diligent in reviewing possible launches of SCF programmes, alongside managing leaner supply chainprocesses. L/Cs are used at a lesser extent in this region.


Very small (


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*US$250m-US$999.9m and US$>10bn omitted due to low response rate.


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Question 16

How important is it to your organisation that your supply chain:

> Is environmentally friendly> Is economically viable for all constituents> Respects fair relationships and ethical business practices

Counterparty risk on the customer and supplier side is among the greatest sources of risk as measured in Question 3,hence the relevance of building a supply chain that respects fair relationships and ethical business practices, chosenby 91% of respondents. A corporates economic viability follows suit. Supply chain management as a discipline is best

defined as a blend of practices, organisation and technologies that support - in a profitable way - partners in thedesign, plan, source, make, deliver, and return of goods and information relative to products and services delivered inthe global market.

Social responsibility gauged by the environmental friendliness of their supply chain is also an element of value thatmust be underlined. It would be interesting to see whether respondents have found any indicator system thatmeasures the economic benefits of implementing environmentally sustainable supply chains.


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More than two-thirds of companies based in the Middle East and Africa view the environmental friendliness of theirorganisation as equal in importance to the organisations economic viability or ethical business practices. Asia-Pacificcompanies, on the other hand, view fair relationships and ethical business practices as the paramount concern.


Large and very large (>US$1b) organisations are absolutely focused on socially sustainable (i.e. respect fair

relationships and ethical business practices) supply chains that can be economically viable for all constituents. Therole played by these companies in the global economy is considerable and it is very important to appreciate theirsensitivity to social and economic sustainability. Environmental sustainability, the third pillar of a sustainable supplychain, is indeed present although to a lesser extent. The likely explanation is that environmental sustainability is hardto measure and quantify from a profit/loss perspective. Therefore, the return on investment (ROI) of anyenvironmentally-related programmes is always hard to justify.


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Question 17

Where does your organisation see the main value of sustainabilityin its supply chain? (Please tick one)

> Positive influence in the search of new business opportunities> Enhances our corporate reputation> Early adaptor advantage - sustainable supply chains will become the norm> My organisation doesnt see the value in sustainable supply chains> I don't know

Attention to avoiding the negative consequences of supply chain malfunctions on corporate brand and reputation wasalready evident in Question 8. The results suggest that companies are still in the quest for commonly acceptedprinciples to properly measure the benefits from running a sustainable supply chain. Reputation can have a tangiblebeneficial repercussion but certainly the expected effects of sustainability on generating positive influence for newbusiness opportunities seem quite reduced. The responses in the don't know and no value categories (togethermaking up 18% of respondents) have increased since 2010, although are still limited in number. These results show areal need for a system that helps companies to quantify the benefits of a fully deployed sustainable supply chain.


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Regional segmentation of responses somehow carbon-copies the comments made in the previous section of revenuesegmentation. Asia-Pacific and CEE are regions usually represented by respondents from smaller companies, whilethe western hemisphere, particularly western Europe, sees the majority of large and very large corporaterespondents.


Companies up to US$249.9m still envision sustainable supply chains as gateways to improve brand reputation and,hence, open new channels for business growth. Companies with larger revenue (>US$250m) are more realistic,pragmatic and, to some extent, more disillusioned. They look at brand reputation and recognition as a means to keepa foot in the door of what most likely will become a common business practice in the not-so-distant future. It is oursuspicion that this apparent attention on the value of sustainability conceals, in reality, a more opportunistic wait andsee strategy, where very little is invested other than the bare minimum to keep the supply chain running at minimumspeed in terms of investments for sustainability.


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Smaller companies (US$50m) envision a future role for a dedicated supply chain

manager. In larger organisations (US>$250m) treasury gains more relevance and power in managing the supplychain. Its expected role is to assist dedicated supply chain managers in handling very sensitive business processesand decisions that impact very significantly the corporate bottom line.

The results confirm a steady trend that is seeing the physical and financial supply chains convergence under acommon corporate strategy. The physical supply chain is managed by a dedicated supply chain manager and byprocurement while the financial supply chain is in the hands of treasury.


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