In banking’s transaction-based supply chain, demand forecasting and planning can yield significant operational benefits.
by Genevieve Mbama, November 2013
Integrated value chain planning has received limited consideration in the banking industry. However, with the supply chain of banks globally becoming more complex and regulated, converging and synchronizing demand forecasting and supply and design chain planning to optimize operations can yield significant benefits, including the reduction of costs and the increase of income from products and services.
The value chain of banks is based entirely around the production of services that relies on cash—in both physical and electronic form—as the "raw materials," with depositors, lenders and borrowers as customers that appear at both the beginning and the end of the chain. In addition, there is also the multiple network of distribution channels and platforms through which products and services are offered to or accessed by customers. As banks leverage new technologies and collaborate with third-party service providers to optimize service delivery across these channels, the emergence of eBanking—as well financial inclusion products such as mobile money, mobile banking, electronic wallets, and agency banking—are adding to the complexity of the banking supply chain and driving adoption of the value chain concept to banking.
Integrating the value chain will help with the synchronization of processes and functional silos, drive compliance, and optimize sales fulfillment and service delivery.
The value chain of banks is unique because cash is at the center of consumption of a bank’s products and services by customers. Consequently, whenever customers use these products and services, there is movement of cash in and out of the bank. The demand chain relates to customer utilization of products and services across all distribution and consumption channels, such as ATMs, branches, mobile devices, and Internet and point-of-sale terminals, that leads to cash outflows in the form of withdrawals, transfers, payments and borrowing. The supply chain also relates to the utilization of products and services that leads to cash inflows in form of deposits, on-lending, and investment in financial instruments and the bank’s cash reserve. The third part of the value chain relates to the design chain—the research, design and development of products and services.
Integrating the value chain will help with the synchronization of processes and functional silos, drive compliance, and optimize sales fulfillment and service delivery. Such improvements will increase customer satisfaction, speed to market, and the bank’s agility in responding to change.
Implementing integrated value chain planning technology and processes throughout a bank’s value chain will yield a number of benefits:
Demand forecasting and planning involve sensing and forecasting the consumption of products and services that lead to cash outflow. It requires identifying customer usage patterns and trends in products and services such as credit/loans, cards, online purchases, transfers and payments. It also includes anticipating and forecasting the impact of regulatory policies of the reserve bank that may lead to an increase in the cash reserve with the bank. Demand planning helps in managing supply chain volatility, liquidity crises and unplanned losses.
Supply chain planning requires better demand visibility to monitor the consumption of products and services that result in cash inflow and impact optimal cash levels. This includes the frequency, trends and sources of in cash inflows into various customer accounts, such as savings, current, collections and short-term investment accounts. Banks can develop what-if scenarios and plans to manage cash supply gaps and minimize costs. Such planning will also help to improve the asset-liability management strategy.
Genevieve Mbama is director of Customer Strategy and Insight at Oracle, focusing on Europe, the Middle East and Asia.
Supply chain network optimization involves all distribution channels where cash is held and through which customers transact, including ATMs, branches and agent bank outlets. Banks need to monitor transactions at these locations and leverage modeling to forecast requirements and plan the logistics for distribution of cash and other transactional devices to these locations. This can reduce costs and optimize service levels.
The goal of integrated value chain planning in banks is to reduce the costs of funds and distribution, minimize excess cash, prevent cash shortages, and increase income-earning opportunities from customers’ utilization of products and services and investment of excess cash.