The Financial Supply Chain
Supply Chain Efficiency
Electronic data interchange (EDI) and the Internet have enabled efficient information exchange between
suppliers, manufacturers, distributors, and customers. This improvement in information logistics has
translated directly into better physical logistics: just-in-time procurement manufacturing and distribution.
Companies are linking their internal information management systems (typically ERP systems) with those of
their suppliers and customers.
Re-engineering the Financial Supply Chain
Corporations have made far more progress attacking the physical component of working capital —
inventory — than they have in handling its financial component. The proxy for physical working
capital is typically inventory to sales; the proxy for financial working capital is receivables to sales.
Businesses have done a poor job leveraging the information-logistics revolution to release working
capital tied up in the purchase-to-pay cycle. This is true even though the task of linking the physical
value chain involves integrating complex information flows within and between thousands of firms, while
integrating financial accounting information is relatively simple.
Total working capital management represents the extension of information logistics beyond the physical
supply chain into the financial supply chain. It is the first difficult but vital step toward doing more
business with less working capital.
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