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Management Strategies

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Corporations Seek Bank Buy-In for Supply-Chain Standards

Market pressure forces corporate showdown with banks over standards.

Corporations are seeking standards that encompass the entire trade life cycle, according to Tom Buschman, treasury development manager of Shell International and coordinator of TWIST, a standards organization focusing on standards in wholesale financial market transaction processing; commercial payments, collections and working capital; and cash management.

Driven to reduce costs and show regulators that they have a handle on internal processes, global corporations hope to wring every efficiency they can out of their informational supply chains. "Whether commercial or financial transactions, it's important to bring those together," said Buschman, who spoke as part of a TWIST panel, sponsored by Cable & Wireless (London), during the Sibos convention in Atlanta.

The TWIST standards focus on the entire trade cycle, including the financial component. Unlike prior corporate messaging standards such as the United Nations' EDIFACT (Electronic Data Interchange For Administration, Commerce and Transport) standard, which was designed to send (but not receive) messages, the TWIST standard was designed expressly for two-way communication, according to Buschman.

While banks tend to focus on inter-bank links and their connections to their corporate clients, the corporations seek to integrate all of their various buyers and suppliers, including banks. "We really need to move back in the supply chain," Sarah Jones, EMEA treasurer for Hewlett-Packard (Palo Alto, Calif.), told attendees. "The ability to exchange in a single format - bank-to-bank and corporate-to-corporate - means we'd have the ability to get straight-through processing."

With a multitude of suppliers, customers and products, the invoicing challenge looms large for the typical corporation. "The ability to identify who's paid us and what they've paid us for is a problem that many corporates have," said Jones. "TWIST can help us solve that issue."

Banks could also benefit from the ability to provide information and funds throughout such a comprehensive supply chain. "There's a value for corporates and an opportunity for the banks," noted Robert Blair, vice president, JPMorgan (New York; $771 billion in assets) Treasury Services. "I'd like to be a credit supplier to HP for their 10,000 credit relationships."

But in order for a standard to catch on, it has to be usable by the smallest organizations as well as the largest. "The fear is that it's just going to be the standard for a large multinational corporation," said Bill Faulkner, manager of global operations services for GE Corporate Treasury, which works with over 100,000 vendors. "If we can capture all of them, it's incredibly appealing."

Propagating a standard across such a wide swath of companies would require the involvement of the ERP vendor community. "It will come from a degree of lobbying," suggested Faulkner. "Ultimately, they will have to get involved."

Promote From Within

Banks will also be challenged to participate. But has it been banks that have held up the works? "For years and years, the big banks have not been interested in moving ahead with building true Internet-based payment systems that are XML-enabled and TCP/IP-enabled," says Stephen Lange Ranzini, chairman and president, University Bancorp (Ann Arbor, Mich.; $50 million in assets), and the U.S. delegate to the United Nations Center for Trade Facilitation and Electronic Business (CEFACT). "A lot of the bankers feel threatened by it - any new and disruptive technology can threaten their jobs."

By this reckoning, it's the corporations that can break the logjam toward a standards-based financial supply chain, by telling their banks, "We need this stuff, and we needed it years ago," Ranzini adds. "And if you aren't going to do it, we'll drag you along kicking and screaming."

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