Dear,
Global debt and weak economic growth, as a consequence of the depletion of fossil energy sources and other critical resources, will make the new structural environment of capital scarcity visible in a few months.
In an environment of capital scarcity there is no higher priority than optimizing it, and that need to optimize capital will bring about the redesign of banking business processes.
The consumption of capital is a direct consequence of risk (market risk and counterparty risk) and optimizing capital is nothing more than a synonym for reducing risk.
Risk is reduced by sharing and integrating relevant information through business processes. SAP founders understood this, and the ability of SAP systems to do so has made them the market leader over the last 30 years.
For example, the comparative analysis of the sales forecast and the actual sales provides the basic information to determine the Safety Stock, and with an accurate estimation of the Safety Stock level, companies hedge against the risk of losing sales. If the organization improves its forecast using multivariate statistical analysis techniques, with data collected from external sources of information, or by implementing consensus forecast processes with its main customers, it reduces its risk of losing sales.
Technically, these hedging techniques reduce the cost of capital (opportunity cost due to lost sales, reputational cost or obsolescence costs of the inventory), as a non-payment insurance reduces the cost of capital due to credit risk. Furthermore, the cost of implementing and incentivizing the use of these processes is analogous to the cost of the insurance premium. But even more, the risk of suboptimal implementations of these processes is analogous to the risk of wrongly choosing financial instruments and their suppliers.
But the real economy business process improvement, provided by SAP best practices over the past 30 years, has not been accompanied by a similar improvement in the solvency and liquidity allocation processes.
Pressure for cost reduction and service level competition has brought a new paradigm that seeks the synchronization of logistics processes, among the multiple agents of the value chain. Vendors collaborate with manufacturers, retailers, logistics providers, sharing information through the value chain for synchronizing demand and supply times and quantities, considering all the constraints of the value chain.
Banks have remained outside of these collaboration networks, not because of a lack of incentive, but because of their inability. They simply lack the know-how, technology and processes to do it. This is a great weakness but also an opportunity for the players capable to implement the new paradigm in Financial Services as it is a key driver in Capital Optimization.
All business processes consume and generate capital and liquidity, although they do so after a period of maturity of the process. And it is precisely for this reason that they require the financial system to cover capital and liquidity needs in periods of shortage and investment opportunities in periods of surplus.
Capital and Liquidity synchronization requires measuring the capital and liquidity position of the companies at different temporary horizons, and allocating capital and liquidity (financial instruments) according to their distribution in the business processes through different time horizons.
To do this, we must start by expressing the events of the real economy in terms of generation and consumption of solvency and liquidity, so that, when integrating them into business processes, measure the shortage or surplus of capital and liquidity of the process in each time horizon . Adding the capital and liquidity position of all the processes in the different time horizons, we will know the shortage or surplus of capital and liquidity of the organization in each time horizon.
Finally, by adding the processes of other subsidiaries of the group and even partners and suppliers, we will be measuring the shortage or surplus of capital and liquidity of all of them, opening the gate to collaboration scenarios, in which some processes provide capital and liquidity or opportunities for investment to other processes on the same network.
Making an analogy, it is something similar to the Vendor Managed Inventory Collaboration processes (typical of logistics), but exchanging financial instruments (loans, deposits and derivatives) instead of stock replenishments.
We are working on presenting our system to the market, and looking for business partners and investors, if you are interested do not hesitate in contacting me at ferran.frances@capitency.com
Looking forward to reading your opinions.
Kindest Regards,
Ferran Frances.
www.capitency.com
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
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Ferran.frances@capitency.com
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