The concept of electronic trading exchanges is well established, but a number of concerns have prevented exchanges achieving their full potential as cheap and paperless conduits of technical and commercial information up and down the supply chain. GXS, one of the largest trading exchange platform providers, reckons to have addressed two of the most critical.
In theory, an exchange should connect all the parties in a supply network, from sole traders to multinationals, so that everyone has simultaneous access to the data they need, without needing to run parallel or back-up systems on paper and ‘snail-mail’. In practice, reliability issues have meant that the backup systems have had to remain in place and so, far from electronic commerce saving money, it may have imposed an additional layer of cost. Now GXS, with its recently launched Trading Grid 2007 believes it can offer confidence levels that will allow the abolition of many manual back-up systems. With three data centres they are guaranteeing a 99.9 per cent service level.
But technical reliability isn’t the only impediment to the paperless supply chain. If the paperless transfer of technical information has been possible from the early days that hasn’t been true of commercial and financial transactions – largely for legal reasons: in Europe, in particular, the legality and enforceability of ‘electronic-only’ invoicing has long been problematic. But, Steve Keifer of GXS tells ‘Supply Chain Standard’, his company is very shortly to launch services to take advantage of new EU regulations that allow purely electronic invoicing.
The convergence of physical and financial flows that this will enable has potential to go much further than merely eliminating paper invoices. Keifer points out that banks and financial houses are looking to become intermediaries in the supply chain. It is conceivable that factoring and invoice discounting routines could be triggered, inexpensively, at or even before the Purchase Order level, and by the same data sets that initiate the physical transaction – and the discounter or other finance provider could have the same visibility of the physical state of the order, and thus the same understanding of the risks, as the buyer and seller. By the same token, one could conceive that these information flows could be used to detect and protect from ‘carousel’ and other VAT fraud, while the potential for improving supply chain cash flows could take very serious amounts of money out of supply chain costs – no longer would suppliers have to factor in the risk and cost of 60 or 90 day payment: ‘automatic’ invoice discounting, where the financier has full visibility of the risk, should come in much cheaper than the current system of unknown risk and interest on delayed payment. This could be a real breakthrough.