Manufacturers devote considerable time and resources to managing their physical supply chain, but often it's their financial supply chain that needs the most attention. As costs continue to escalate, managing cash and capital is just as important as managing relationships among supply chain partners. And in many cases, the integration between the physical and the financial supply chain is such that any weak links in one of the chains will threaten the vitality of both chains. 

By way of definition, "the financial supply chain refers to the transactions that occur between trading partners that facilitate the purchase of, and payment for, goods and services, such as sending purchase orders and invoices, and making payment," explains Scott Pezza, senior research associate with analyst firm Aberdeen Group. 

See Also: Lean Supply Chain Logistics Best Practices

Just as finance involves much more than just "bean counting," the financial supply chain represents the actual lifeblood of an organization, as it provides the cash flow needed to ensure the doors are kept open, the lights are kept on, the employees are being paid and products are being made and shipped.

According to a study of corporate executive and senior financial managers conducted by Aberdeen, the top two pressures motivating manufacturers to focus on the financial supply chain are demand volatility's impact on available cash, and the risk of trading partner default. When there is volatility in demand, manufacturers are pressured both internally (adding more inventory buffer to avoid out-of-stocks) and externally, with the inflow of cash slowing and becoming less predictable, Pezza notes. "The risk of trading partner default will impact the value of accounts receivable," he adds, "with an increase in the allowance for doubtful accounts."