Dear,
As a consequence of energy scarcity and excess debt, the world is entering fully into a new systemic phase of capital scarcity.
Energy shortage → Weak growth/decrease
Excess Debt → Excessive Capital Consumption
If Capital is overconsumed due to excess debt and does not regenerate at the same speed due to lack of Growth, Capital becomes scarce. And Capital is the most important resource in the financial system, therefore the priority must be to optimize it.
The need to optimize capital brings new business processes and massively deploy business processes that until now had been a minority.
For example; The credit risk function has traditionally been limited to the exposure that suppliers had with their clients, but not the other way around.
The Credit Risk module, within the Financial Supply Chain Management area, made it possible to measure the Credit Risk exposure to customers and based on sophisticated rules, categorize customers and block the exit of merchandise, the creation of the delivery or the Order confirmation.
But credit risk management for supplier exposures presents special challenges. A confirmed purchase/sale order is technically a Forward contract and will be an Asset or a Liability depending on the difference between the Fair Value and the Strike Price of the purchase-sale contract and if the Purchase Order is an Asset (because the Fair Value is higher than the Strike Price), the client will be exposed to the Provider's Credit Risk.
SAP purchasing and sales modules do not have the ability to determine the Fair Value of a Contract and the potential credit risk exposure of a Purchase Order. Historically this has not been a serious problem and was resolved with penalty conditions for poor service, but the scarcity of Capital is changing this forever.
An undercapitalized system manifests itself with increasing volatility; The weak growth and excess debt is transferred to the price of the main commodities and energy, which are necessary components in production, increasing the volatility of the price of the products and services that require them.
This volatility increases the market risk of these products, in some cases reaching the Fair Value of the marketed product above the Strike Price, turning it into an Asset for the Client and exposing it to the Credit Risk of its Supplier.
Forward contracts manage this scenario with the help of collaterals that protect both parties against the potentially volatile Credit Risk, and with the determination of Margin Calls in case the collateral is insufficient.
The combination of the SAP Sales, Purchasing and Logistics Execution Modules, with the FSCM Credit Risk and SAP Banking Market Risk, Credit Risk and Collateral Management functionalities would respond to the requirements of this scenario, facilitating the efficient execution of the contract. Purchase/Sale and Capital Optimization.
During the last 12 years we have worked on this integration, developing the process that allows extracting the best of the functionalities of the Logistics and SAP Banking areas to satisfy the needs of the Purchase/Sale process in a complicated environment such as the current one.
More generically, our proposal measures the Capital and Liquidity consumed and generated by the processes of the real economy managed with SAP Systems, detecting the deficits and surpluses of capital and liquidity of the process. With this information, it proposes financial instruments to offset these deficits and surpluses, optimizing the consumption of capital and liquidity of the system.
We are working on presenting our system to the market and looking for business partners and investors. If you are interested, do not hesitate to contact 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
Visit my SAP Banking Blog at: http://sapbank.blogspot.com/
Let's connect on Twitter: @FerranFrancesGi
Ferran.frances@capitency.com
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