Sex, texts and supply chain finance

Sex, texts and supply chain finance

Posted by Pete Loughlin in Supply Chain Finance 31 Dec 2012

Change is often accompanied by changes in language. Not just new words to describe new things but old words change their meaning as their original meaning becomes less exact. The evolution of language is natural but like all change, some find it harder to deal with than others as they stubbornly cling to old terminology. Those who remember the sexual revolution of the 60s and 70s will certainly have heard old fuddy-duddies saying “but ‘gay’ means happy”. I used to think they were feigning confusion in an attempt at humour but no, they really were struggling to come to terms with the evolution of language as the world moved on.

The mobile telephony revolution of the last twenty years has been accompanied by characteristic evolution of language. Whole new words and acronyms joined the English language as abbreviations were developed as SMS shorthand. But still, the fuddy-duddies insist on grammatically correct text messaging, refusing to embrace it or worse, trying to use it and getting it wrong. David Cameron famously thought “lol” meant “lots of love” – it’s a common mistake amongst SMS fuddy-duddies. One of the worst social media faux pas I know was the fuddy-duddy that sent the text message: “Just heard the sad news about your mother. Sorry for your loss. lol”.

I was an EDI fuddy-duddy

Purchasing Insight logoIn the 1980s and 1990s there was a thing called EDI – Electronic Data Interchange. For those who don’t remember, the internet didn’t exist in those days and indeed, for most people at work, computers were something that happened in the computer department. EDI did what it said on the tin. It was all about exchanging data electronically but it meant a bit more than that. For EDI to be a credible business tool, it had to be secure and reliable. The integrity of the data that was interchanged needed to be guaranteed – i.e. the data that was sent must be the same as the data received. And delivery had to be guaranteed too. The sender needed to know that a sent message had been received. All of these attributes defined EDI.

As there was no internet, messages were transmitted and received over private networks – point to point networks managed by large global IT organizations. All of this meant that EDI was a very robust and secure tool – even more so than many of the paper based processes that it was able to replace and it remains to this day of special status in terms of its security and reliability. But it came at a price. The network providers had a captive market in the industries they served such as the military, financial services and retail and with very few organizations able to support private, global networks, they were able to maintain high pricing as their markets grew. Until the big change happened.

As the internet grew during the 1990s more and more businesses started to embrace it as a less expensive alternative to EDI indeed, for a time some business people used the words internet and EDI interchangeable (no pun intended). The internet was indeed an exchange of data electronically but it wasn’t EDI was it? It didn’t have the requisite security, guaranteed delivery and data integrity.

I was, and still am, one of the EDI fuddy-duddies. I bite my lip when people refer to Web Services as EDI. It is electronic. It is data interchange. It is secure. It does have all of the data integrity using digital certificates but it is not EDI. Why? Because it’s over the internet. And because it’s not a flat file, and because it’s XML, and because … well it just isn’t. This is the last resort of the fuddy-duddy, to retrospectively change a definition to make it closer to what you feel comfortable with. I try to hide my fuddy-duddyism but only this month I found myself correcting an accountant on his use of the term EDI.

It is of course important to retain an understanding of what EDI is in it’s true sense and there are times when nothing but the strict definition will do, but most of the time, it makes no sense to get uptight when people use technical terms lazily or inaccurately. What is important is the conversation and the context. So what if an emailed PDF invoice isn’t, strictly speaking, an e-invoice? If it can be read by a computer to eliminate the paper process, it is achieving what an “electronic invoice” is designed to achieve. Getting sidetracked on semantics doesn’t move us forward and indeed, can create obstacles to progress.

The evolution of the language of supply chain finance

So what of today? Can we see evolution in language that indicates a wider change happening now? I think we can. Ian Burdon made a comment in a blog post a few weeks ago about Supply Chain Finance (SCF). He made the point that, increasingly, Dynamic Discounting is described as SCF – which it is not. He is absolutely right in the same way that Web Services is not EDI but I don’t think it matters. It depends of course. There is a difference and in a technical discussion it absolutely matters, but in the context of a business conversation, the distinction is often irrelevant.

Supply Chain Finance refers to the use of the supply chain and the payment terms offered to those suppliers, to manage more effectively the buyer’s working capital. Paying later and making an arrangement with suppliers, via the buyer’s bank, to offset the late payment cost with some kind of lending to the supplier. Dynamic discounting isn’t the same as that. Dynamic discounting allows buyers to offer early payment in exchange for a discount. There is no bank involved. It’s not the same. But as I say that, I can hear my inner fuddy-duddy speaking. Yes they’re not the same but they are both addressing the same business issues and they are achieving similar things.

I have taken to adopting the term “Financial Supply Chain Management” in order to avoid the wrath of the SCF traditionalists when I’m sloppy about what I call SCF and I’m now thinking of traditional SCF together with the relatively new dynamic discounting as all part of the same family. Am I saying Dynamic Discounting is the same as SCF? No, but I’m not going to pull someone up for using the terms in the same sentence. They are both about taking advantage of the relative financial strength of buyers and suppliers to optimize the costs of working capital with a supply chain. Whether that is to lower the cost of working capital by extending payment terms, whether that is lending to relatively weak suppliers attractive terms secured by their stronger customers or whether it’s about getting a better return on cash by securing discounts from suppliers – it all falls into the same set. It is all about a collaborative approach to optimizing the cost of working capital – the cost of doing business.

The fact that the language of Financial Supply Chain Management is evolving is because of two things. First, there’s a big change happening. The market for alternative funding solutions is growing rapidly and it’s better to understand the change and how best to respond to it than to get stuck in the mud on definitions. Secondly, more people are jumping on the band wagon, people who weren’t around 10 years ago, people who don’t know as much as the old hands. They are lazy with the language and they get stuff wrong – but that’s part of the change. Instead of paying attention to the words they use, we should pay attention to what they are saying.

Am I still an EDI fuddy-duddy? Yes – I find that difficult to shake off but for my New Year’s resolution, I’m going to stop worrying about technical definitions around Financial Supply Chain Finance and instead try to understand and get closer to the reasons why the language is evolving.

Happy New Year

Pete Loughlin can be found on twitter @peteloughlin

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