Understanding Financial Supply Chain Management in the Context of Conventional Logistics and Supply Chain Considerations
The financial supply chain consists of transactions, orders, purchases, invoices, payments, and cash management to facilitate the purchase, manufacture, and sale of goods. Financial supply chain management, then, is the application of supply chain management principles to optimize and build efficiencies into cash flow and financing considerations.
While financial supply chain management isn’t a nuts-and-bolts supply chain and logistics operation, it is closely interconnected with it. Streamlining and optimizing conventional supply chains is done in parallel with streamlining and optimizing cash flow.
In a sense, financial supply chain management (often abbreviated FSCM) is simply an extension of the overall practice of strategic supply chain management. Including finances in the scope of considerations for procurement and distribution, as well as funding operations, is simply opening the same sort of visibility into management and administration that supply chain managers use with transportation, storage, and inventory systems.
In fact, you can think of financial supply chain management as a kind of inventory process… one for money rather than goods. Like raw materials or finished products, cash or credit aren’t items you want to run short of. And likewise, excess cash-on-hand is often a sign that financial systems aren’t working at optimal efficiency. That money is leverage that isn’t being exercised toward productivity or profit.
While the financial supply chain is a relatively new concept in business management circles, it may be one of the hot new fields, and one that draws on skillsets like those perfected by supply chain management professionals.
How Can SCM Concepts Be Applied in Organizational Financial Management?
Both accounting and supply chain management (SCM) are concepts that have been around for a long time in the business world. They’ve each worn different labels and been seen through different lenses, but they’re both aspects of business administration that every senior executive must grapple with sooner or later.
In that sense, there’s always been a connection between the two. The supply chain both requires finances and adds to them. It’s part of the loop of spending money to make money that every business engages in.
And accounting is a concept that is critical within the supply chain itself. Inventory management is essentially an accounting activity; so are budgeting and purchasing.
Putting together financial acumen and the supply chain perspective on the flow of goods and services is what makes FSCM work.
But the idea of putting SCM concepts to work within the accounting world is relatively recent.
It may also be astoundingly lucrative. According to the Bureau of Labor Statistics, the highest paying industry for logisticians for 2022 was in Securities, Commodity Contracts, and Other Financial Investments and Related Activities. With an average salary of almost $120,000, supply chain managers have six figures worth of reasons to apply their knowledge in the world of finance.
Why Supply Chain Management Principles Have a Role in Accounting and Finance
Accounting departments have accurate knowledge of overall expenses and income. What they may lack is insight into the detail; what parts of the supply chain process are creating the greatest expense? What types of orders are the least expensive to fulfill?
There is often a failure to connect siloed business units, even within the logistics train. They often have overlapping costs and inefficiencies. Duplicative procurement processes, overlapping transportation or storage arrangements, or lengthy production processes can go unnoticed.
These are also areas of interest for investors. The increasing capabilities of analytics systems has created new demand for transparency in financial operations. And with supply chain risks on everyone’s mind these days, Wall Street has a keen interest in efficient financial management.
Put it all together, and you have a situation where the concepts and expertise common in the supply chain world are becoming must-have assets in the fields of finance and accounting.
What Exactly Happens in Financial Supply Chain Management?
Financial supply chain management is a relatively new concept and not all the details agree between different advocates. In general, though, the financial gurus chop it into three segments. You can think of these as equivalents to physical supply chain processes like procurement, transportation, or storage – but for money.
Procure-to-pay cycle in Financial Supply Chain Management
Ensuring there is cash-on-hand to fund input materials for the company’s products and receiving and paying the bills for those goods and services. It closely involves traditional accounts payable work with forecasting, cash management, and demand analysis.
Working capital management in Financial Supply Chain Management
Once only the province of sophisticated firms with large financial teams, this aspect of organizational finance is being seen as crucial to healthy supply chain management systems. This function evaluates business capitalization and how to balance assets and liabilities for a smooth flow of cash. It connects procurement and order cycles, creates buffers between the two, and allocates excess assets for maximum return throughout the process.
Order-to-cash cycle in Financial Supply Chain Management
The inverse of the procure-to-pay process, this tracks the receipt of orders and the invoicing and reception of receipts. It combines traditional functions of quoting and order processing with accounts receivable.
Along the way, FSCM helps both accounting and supply chain professionals by offering:
- More accurate assessment of financing, insurance, and transaction costs on production
- Improved forecasting for strategic decision-making that combines financial status with supply chain capacity
- New insights into financial or operations strategies to maximize efficiency and profitability
Big supply chain management software vendors like SAP are fully on board with dedicated FSCM components that cover major financial supply chain considerations like:
- Billing services
- Collections management
- Credit management
- Dispute resolution
- Treasury and risk management
Financial Management Capabilities Are Already Being Built in Common Supply Chain Management Software
If this mass of numbers and coordination sounds to you like the perfect job for an ERP system, you’re in luck. In large part, FSCM is enabled by the existence of big, interconnected Enterprise Resource Planning software that can track and manage finances alongside orders, production, and other SCM processes.
Like other aspects of supply chain management software, FSCM modules are due to get a boost from new breakthroughs in machine learning, IoT (Internet of Things) integration at various stages of the supply chain, and data science processes.
Because these are software-heavy processes, a professional certification in the relevant kind of ERP is often helpful. Companies like Oracle and SAP offer certs in various aspects of their massive ERP systems. Although not specific to FSCM, those certifications show employers that you have been able to wrap your head around systems-concepts for that software and know your way around the architecture and modules. They are valuable, vendor-approved credentials that show you know your stuff.
How an Education that Covers Aspects of Supply Chain Management Can Find Good Use in the Financial Supply Chain
FSCM takes a particular combination of skills, all of which are advanced. Most often, these concepts and practices are best learned by earning a college degree.
It’s possible to come at this specialty from either the worlds of accounting and finance or with a supply chain management background.
Although finance and accounting skills are necessary, supply chain majors have a real advantage in some ways. While accounting programs may offer supply chain and logistics coursework as electives, almost all SCM majors are required to take specific business accounting and finance classes as part of their program. Although these classes don’t mint instant experts in FSCM, they do lay groundwork that will make it easier to pick up more advanced concepts later on.
You will even find undergrad degrees out there at universities that house both supply chain management and finance programs within the same department, such as Bachelor of Applied Science/Bachelor of Science in Business Administration offered with a Supply Chain Management Specialization. Options like these combine the fields of supply chain management and business finance into seamlessly integrated programs.
At the advanced level, a Master of Business Administration in Supply Chain Management will build on a lot of the high-level financial management concepts that senior corporate leaders need to master. Coursework often covers:
- Business accounting processes
- Basic financial management
- Regulatory and ethical obligations in accounting
- Managerial economics
Accounting majors, on the other hand, may find a Certificate in Supply Chain Management is their ticket into FSCM. Offered at every level of college, these short, inexpensive programs have only a handful of courses. But they build up a specific set of skills and knowledge in their area. It can be just the thing for picking up the right kind of supply chain management skills to add on to existing accounting strengths.
No matter what direction you come at FSCM from, demand is likely to be strong in every industry. New applications of supply chain management techniques are an exciting place to be; when they go together with finance, they can also be lucrative.
2022 US Bureau of Labor Statistics salary and employment figures for Logisticians reflect national data, not school-specific information. Conditions in your area may vary. Data accessed October 2023.