The convergence of financial and physical supply chains

In the past, when the concept of supply chains was more domestic, apparel and textile companies could manage with minimal integration of the financial and physical supply chains. However, as supply chains have expanded globally, costs have increased, and lead times have stretched, it has become inevitable for an organization's supply chain and financial departments to work closely together to resolve discrepancies.

With apparel and garment companies conducting business across the world, it has become increasingly essential to understand their operations and find ways to partner with them to avoid unexpected risks, reduce costs, and improve performance. Sharing information becomes crucial in such situations and requires the involvement of finance, logistics, procurement, and supply chain departments.

Breaking down the barriers between supply chain operations and finance can benefit apparel and textile companies in various ways. Collaboration like this can help reduce the cost of goods, enhance competitiveness in the industry, and utilize capital efficiently. Engaging in such projects allows a firm or organization to gain high-profile and cross-disciplinary visibility. Automating processes in operations and finance brings authenticity, and data becomes more valuable when shared.

Manual financial processes are known to increase the cost of trade by about five percent. Therefore, eliminating paperwork can help reduce costs that are otherwise prone to errors. Using automated financial processes provides a detailed description of the amount to be paid, in which currency, at what time, and to which account. Such a system ensures the smooth management of working capital.

Once such issues are resolved, more critical concerns like supplier relationships can be addressed. This can be used to give suppliers advance notifications of incoming orders, allowing them extra time to buy fabrics and source materials efficiently. Some retailers taking advantage of financial supply chain automation collect early payment discounts from suppliers, enabling them to fill frequent orders and save money. It also provides a methodical way for apparel retailers to analyze which of their suppliers are their most cost-effective business partners. Some even use it as a mechanism to provide incentives or penalties for different supplier situations. In cases of shipping errors or delays in the supply chain, suppliers may be penalized with a charge.

Moreover, using platforms like Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) can provide integration but may fall short in delivering results even after incurring expenses. Using a cloud platform, on the other hand, offers more flexibility because it allows convenient data exchange in all formats between apparel retailers and suppliers. A cloud-based system also enables both parties to use their existing ERP systems while integrating operational and financial processes.

With the rapid growth of globalization in trade, the financial relationships between suppliers and retailers are evolving. Many are moving away from traditional methods such as Letters of Credit toward simplified and streamlined financial processes, especially using open account payment methods.