An extract from the May In-sight, FCI's quarterly Newsletter
Today, Thompson Lui, Regional Manager SSEA is interviewing Amit Agarwal (AA), Executive Director and Head of Open Account Trade (OAT) Products at Global Transaction Services, DBS, about digital transformation in this edition. Amit is responsible for leading the overall business performance, strategy, and product innovation across the suite of solutions comprising receivable purchases, supplier financing, distributor financing, and finance leases. Amit also oversees the bank’s OAT business across its network countries.
TL: We have heard about digitalisation for some time now within our industry, but what exactly digitalisation does?
AA: There is no doubt that digitalisation is the current revolution in the industry. It has accelerated the fusion of the physical and financial supply chain. In layman’s terms, it brings greater efficiency, cost reduction, full transparency and traceability in the supply chain, resilience to disruption, excellent customer service, etc. It has proved to be a key competitive advantage in ensuring sustainable long-term business growth.
TL: What are the pros and cons of this transformation?
AA: Digitalisation is an ongoing business transformation journey with wide-ranging benefits. It transforms business processes and makes them more efficient - saving time, money, and resources in the long run. Cost savings can range from obvious costs like maintaining legacy infrastructure to more strategic cost savings such as optimum resource planning (due to improved visibility).
Supply Chain Digitalisation 4.0 aims to bring a network effect where all stakeholders for a business are aligned and have transparent access to all the required/consented data. It improves visibility and enables businesses to be nimble in view of ever-changing customer demands. Should I put myself in manufacturers’ shoes, long term benefits are apparent, almost comparable to switching from combustion engines to electric vehicles (EVs). While there is no con of digitalisation, there are challenges in implementing a transformation agenda. Any change is not easy. Most of these barriers are internal and include organisational structure, alignment between various business partners, and employee pushback. The lack of a runway is another major challenge when traditional organisations are looking to invest in such initiatives as there is often an expectation of immediate payback. As such, transformation is only possible with higher adoption by all stakeholders and ecosystem partners.
TL: Digitalisation requires capital investment. Will benefits outweigh this extra cost?
AA: Benefits of digitalisation are greater efficiency, improved connectivity and reduced cost of operations. This can be best explained by a simple use case in the financial supply chain. Instead of providing physical documents to financial institutions which is a manual and time-consuming process, DBS RAPID facilitates business transactions by integrating real-time data services into the corporates’ business platforms via APIs. While the cost-benefit of eliminating the physical transfer of documents is viewed as ‘marginal,’ benefits accrued through time saved in making payment or financing the underlying trade can run into millions per transaction. Hence, digitisation of business processes will build economic profit in the long run.
TL: The world is still affected by COVID. Is this the best time to roll out such program?
COVID-19 has exposed the fragility of the supply chain during lockdowns. Both physical and financial supply chains were severely impacted. On the flip side, digital solutions made it possible for some businesses to expand their market base. Solutions that we have implemented are related to the digital onboarding of suppliers of large corporates, supplementing the corporates’ need to diversify its supply chain. For example, a leading consumer electronics manufacturer of indoor air cleaning appliances required increased stocking at the distributor’s end. Understanding that most SME distributors were facing a liquidity crunch, the manufacturer and DBS set up a digital distributor financing program. Within 24 hours, several APIs were built to obtain data from the manufacturer eliminating the need for financial documents from distributors.
Digital KYC was enabled, with no requirement for physical branch visit. As a result, DBS’ solution enabled 38 distributors to be onboarded within three weeks, providing the much-needed liquidity to facilitate the stocking and sale of the appliances. In a similar instance, a corporate had to reorganise its supplier base due to lockdown and onboard new suppliers to continue production. Onboarding suppliers within 24 hours using DBS Digital Supplier Onboarding solution helped corporates manage challenges during uncertain times. There are many other examples, but the noteworthy point is the willingness of corporates to strengthen their capabilities by embracing digitalisation. The pandemic has proven to be a catalyst for rapid digitalisation of trade and supply chain finance. Corporates recognise the benefits of digital technologies to strengthen business continuity and build longer term resilience.