Understanding Supply-Chain Finance

Supply chain finance is gaining prominence as an important financial tool for the supply chain. Today’s world of globalization has spawned a number of innovations because organizations do business globally. Supply chain finance is one of the modernisms that have come up to expedite the flow of trade across national borders.

Basically, supply chain finance is a set of processes concerning business and finance. It is a technology-driven chain of processes that links the different cogs in the wheel of a transaction. These cogs could consist of all the players involved in the transaction, such as the buyer, the seller and the financial institution which has financed either the seller or buyer, or both. Supply chain finance works with these different, but related players together with the aim of easing the burden associated with credit financing, on which most supply chain businesses run.

How does supply chain finance work?

We have to understand that supply chain finance is offered by the financial institution with whom any of the entities involved in a global exchange of transactions work. Typically, most organizations that trade globally would work with financial institutions. What these financial institutions do is to lend money in some circumstances at the behest of the buyer. An imaginary example would help illustrate this better:

  • Let us say Company X is in the habit of buying goods from Supplier Y
  • Supplier Y supplies certain goods to X and submits it an invoice. X, which has initiated the deal, approves the invoice for payment for the regular period, say, 60 days
  • For some reason, Y is need of some urgent money. This can happen in any business in any situation, and is nothing unusual. Y requests payment for the invoice it has raised with X and seeks a quicker payment. Since X is not prepared for this request and is not having the necessary money, what it does is to approach its financial institution, Z to expedite this particular invoice.
  • Z agrees to this, as it has a good relationship with X. Z clears to Y the money X owed it. So, as a result, X is free of worry in the sense that it does not have to pay right away from its pocket. Y is happy because its request for early payment has been granted.

In all this, what is the financial institution, Z’s gain? Y’s request for earlier than scheduled payment will be met by X only on the condition that it accepts discounted payment. This difference in the amount is the earning that the financial institution, Z has made.

This is how supply chain finance is a win-win situation for everyone who is part of the supply chain. It works all the more efficiently in a situation in which the players involved are from different locations, as financial institutions have the infrastructure and resources to make payments across the globe at the touch of a button, and when the amounts of transaction are typically large.



Anti-money laundering and legislation to control it

Irrespective of whether a country is advanced, developing, or a backward one; money laundering is a common phenomenon that runs through the blood of most economies. It can be described as the systematic means of suppressing, camouflaging or guising the illegitimate or criminal sources of money flow and making them appear legitimate or legal.

Ways by which money is laundered

Activities, be they global or local, involving the use of nefarious means –meaning means that are proscribed by the law –used for making money, are considered money laundering. Anything from local flesh trade to global terrorism to banking fraud to illegitimately done political funding can qualify for money laundering. Tax evasion is also a serious means of money laundering, because covering up income to avoid paying taxes certainly results in the infusion of bad funds to the economy, which is further used for activities that could also be illegal.

All this calls for serious use of state machinery in checking and controlling the flow and use of money laundering. Most governments across the world have enacted much anti-money laundering legislation. The effectiveness of these laws depends primarily on the country in which they are enacted and will of the state in implementing the anti-money laundering plans.

US anti-money laundering legislations

The US can trace its history of passing anti-money laundering laws to 1970, when the first major attempt at curbing money laundering was codified under a law in the form of the Bank Secrecy Act (BSA). Under the BSA, financial institutions are required to disclose unauthorized transactions of over $10,000 that are not accompanied by proper documentation and report the same to the US Department of the Treasury.

Another requirement of the BSA is that financial intuitions must also file a Suspicious Activity Report (SAR) for a transaction based on suspicion that funds could have come from an illegitimate source. Determination of what is suspicious is defined in this act, which the concerned authorities have to use for reporting.

The Money Laundering Control Act

The US has also legislated the Money Laundering Control Act, which it passed in 1986. This law arms the regulatory and law enforcement authorities with teeth. It equips them powers to term any suspicious financial transaction as being a case for potential prosecution if the authorities can show that the money is concealed as defined within the framework of this Act. Not only financial institutions; even individuals could come under the scanner of this Act.

Extensions for the Money Laundering Control Act

The Money Laundering Control Act has been supplemented over time by a few additions. Important among these include:

  • The Anti-Drug Abuse Act of 1988
  • The Annunzio-Wylie Anti-Money Laundering Act of 1992, and
  • The Intelligence Reform & Terrorism Prevention Act of 2004


What is Project Management?

Project management is the means of managing a project and taking it to its conclusion. So, what is a project? In simple terms, it is a temporary allocation of resources into completing an endeavor. It is temporary in terms of execution, because it has a defined start and end date. These of course, can be extended or truncated, depending on the situation, because during the course of a project, priorities could change, making the end date or anything between the two a shifting goalpost.

Another characteristic of a project is that it is not part of an organization’s daily work. It is carried out for a specific purpose, after which the organization rarely initiates another of its kind, unless required to.

Project management is about managing variables

So, project management is about the ways in which an organization assigns or apportions its resources and defines and follows objectives in completing a specific set of tasks and activities in executing a project.

Many variables go into the ingredients or components of project management, depending on the nature of the project, its importance to the organization, the resources needed for its implementation, the bottom-line or outcome of the project, etc.

In a general sense, project management can be said to consist of the following phases:


System Safety Engineering is an important component

Like all humans, systems too, come with inherent defects and flaws. It is often jocularly remarked that the only way to have a flawless system is to not create it at all! If it is given that systems have to necessarily come with faults, then that leaves systems professionals in a quandary: not build a system at all, or build one with flaws. There is one reasonable way out of this Catch 22 situation: System Safety Engineering.

System Safety Engineering is about minimizing defects

As we have just seen, there can be no system without a fault. There is, however, a way out of the predicament just mentioned: bring the defects down to a minimum. This is essentially what System Safety Engineering consists of.

Engineering, in whatever base form, has been the core force of technology. In a broad sense, its origins can be traced to the time early man build implements for hunting and other purposes. Again, in a broad sense, System Safety Engineering can also be said to have originated with the first attempts to improve these tools.

System Safety Engineering has grown alongside technology

This explains the very origins of this discipline, but its evolution into a more structured branch of engineering happened only with the advent of the modern times, when engineering became more advanced and scientific. With this development, System Safety Engineering has taken root as a scientific method that not only builds, but also analyzes issues and problems. Into it, System Safety Engineering built the ability of predicting the effectiveness of solutions that were in the process of emerging. As a result, System Safety Engineering has developed with modern technology.

This is a very generic description of System Safety Engineering; its applications are extremely wide and span the whole range of areas of engineering, be it aerospace, mechanical, nuclear, chemical or just about any other branch.





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Operational Risk Management as a function of the management

Operational Risk Management has come to assume great significance to organizations. Any organization would be required to have both people and processes. Processes concerning these are prone to some kinds of discrepancy, which could result in losses for the organization. Operational Risk Management may be defined as the method by which these losses can be plugged.

There are several risks that organizations face, such as business, logistical, strategic, as well as compliance and legal. Operational Risk Management seeks to be a robust program that can address issues arising from these aspects.

How does Operational Risk Management differ from Enterprise Risk Management?

It is generally understood that the core differentiator between Operational Risk Management and Enterprise Risk Management is that the former looks after the risk the organization faces, from a legal viewpoint. People in charge of Operational Risk Management concern themselves more with important elements such as HR policy, due diligence and other related aspects that require legal attention or action.

From this description, it is quite clear that Operational Risk Management covers every possible risk the organization is exposed to, expect the reputational and strategic. This makes Operational Risk Management some sort of subset of Enterprise Risk Management. The Basel Committee gives high importance to Operational Risk Management, equating it with credit and market risks in terms of gravity and magnitude to the organization’s working.

Operational Risk Measurement

There is another element that is closely related to Operational Risk Management, and that is Operational Risk Measurement. To summarize the quintessential difference between the two; while Operational Risk Management is concerned with the qualitative assessment of operational risk; the latter is about the quantitative aspect of operational risk.




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Enterprise Risk Management is an important element of organizational management

As businesses grow in size, they have to accommodate more and more people and processes. This inevitably results in more and more interaction with a host of sources, such as regulatory bodies, government, investors and so on. Internally too, companies need to be in the knowhow of how to get their employees aligned with these matters. Managing all these is what Enterprise Risk Management is, in a nutshell.

As companies put in place practices and processes, Enterprise Risk Management takes an important role because the people at the top have to continually create and adhere to risk-management policies and procedures. They and other staff have to assess the adequacy and effectiveness of these policies and procedures. Enterprise Risk Management is thus a function that concerns a number of important people in the organization.

How do we get an understanding of Enterprise Risk Management?

So, how do we define Enterprise Risk Management? Although it is difficult to come up with a single definition; Enterprise Risk Management may be thought of as including the planning, organizing, leading, and controlling of the activities of an organization, all of which is done with the intention of eliminating, or at least minimizing the effects of risk on an organization’s capital and earnings.

It has to be borne in mind that the organization faces several risks apart from only the financial. Enterprise Risk Management’s expanded and comprehensive role should also cover risks that come about as a result of unanticipated losses, as well as strategic, operational, and other risks.

Need for professionals

Many organizations, given the enormous and vast scope of Enterprise Risk Management; hire professionals who address the issues relating to it. Today, we have professionals that specialize in Enterprise Risk Management, just like there are finance and marketing professionals. These Enterprise Risk Management professionals assess and address Enterprise Risk Management issues, minimizing them and keeping the organization in good health.




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