Supply chain management is about linking operational and information processes for the purpose of cutting costs while maintaining or improving services and profit. It started out with a focus on manufacturing processes where the concept of a “loop” best fits what happens. The chain begins with the customer and ends with the customer. Sales, purchasing, suppliers, delivery and all transactions flow through this loop. Increased complexity comes into play when such a concept is applied to non-manufacturing scenarios such as collections management. This supply chain is a network of facilities and organizations which may have very diverse and even conflicting goals. What does supply chain management mean in practical terms for credit managers? It means better data, improved efficiency, elimination of barriers and an improved bottom line on collection.

Today, Credit managers are faced with the reality that there are too many factors to manage effectively in the collection environment today. Many organizations recognize that it often comes down to deciding what to do in-house and what to outsource. Supply chain management brings it all together into one highly transparent network, linking participants together in a process of efficiency. This is done in a way that provides value for value between all the players involved and a larger, clearer purpose. It’s a way of operating that controls all the previously volatile factors into a definable network and often requires a re-think in technology. In ASSET’s web-based real-time network we bring together all parts of the Supply Chain; the solicitors, DCA - Debt collection agents, skip tracers, and financial institutions - where everyone speaks the same language because that’s how they can get and give what they need.

Supply chain management puts an organization in a much better position to handle change. Everyone knows what everyone else is doing and what is expected of them. This unity of purpose and message spells great adaptability and much less waste of resources.

So where do credit manager’s start? The first thing is to decide that supply chain management principles just might be worth a closer look. Lenders are often pleasantly surprised to find that they are already using some techniques simply due to good management practices. The purpose is clear: Getting more favorable collection results without hurting current resources or increasing costs. If supply chain management can do this, it’s worth doing.

Supply chain management science now has a track record of success in organizations. Credit managers have a pool of resources to draw from due to this experience. Here are 7 specific examples of what credit managers can do now to begin the move towards an effective supply chain in the collections environment.

• People have to know what other people are doing and why. They don’t have to do their job, but it is best that they know why it’s being done. Communication always flows across the chain effortlessly when everyone sees the big picture. Do people have this big picture in your department?
  
• Bottleneck discovery. Maintaining a stranglehold on collection account inventory and moving accounts efficiently from one event to the next is the goal. This will validate control over effective customer service, as well as account recovery optimization. Look at workflow and see exactly where the bottlenecks are. This must be definable and measurable.
  
• Motivate and reward good performance. Those performing administrative tasks need to be reviewed as possible candidates for portfolio management and customer service. Looking at speed and accuracy is critical. Asking people who actually perform collection functions what they think about how to achieve this is vitally important.
  
• Moving around tasks. Creating change in the best possible way means questioning how we can leverage what is already working. This can range from centralization (a very common decision) to the decision to immerse previously disparate functions into outsourced entities with high-tech capabilities.
  We may want to take suppliers and bring them in under a very well-defined performance based model. They know what is expected of them directly from an organizational model and are motivated to supply it.
  
• Shared database activity in a technology platform. We can also look at more detailed issues such as customers with multiple accounts that may need concurrent collection activities.
  Sitting down with IT people for fresh ideas can can be essential to such a strategy. This can enable execution of an initiative to professionally collect varied account products from a single customer. Without this shared database, FI’s often use different collection suppliers to collect different product accounts from the same customer.
  
• Seek to reduce the negative perception of the collection function through quality reporting. If collection is done well and at a low cost, this reduces negative perceptions and inspires more cooperation throughout the chain. Quality reporting is a detail in the supply chain that can actually be a driver. The more you have of it, the better the collection supply chain works in every link and as a whole. A really good system means that outsourced parties can even become motivated to shorten recovery cycles and make collections look good.
  
• Centralize and outsource as a philosophy. The economies of scale an institution can gain through centralization are remarkable and free up a lot of energy in a system that may have been too labor intensive and invisible. Many successful collection supply chain management systems sum it up in one simple phrase: “Centralize and outsource to a scale operator”. In centralizing, the organization simply has to look at core competencies and make better sense of what everyone is doing. The outsourcing takes care of whatever can be done better by a third party. If a third party can do it better than the internal organization, they need to get that function.
  

Beyond these seven tips, what remains is to ensure maximum visibility, technology linkages that make sense, and a common performance based goal. This is what creates and holds together the chain. Supply Chain members acting as outsourced suppliers can be audited by the centralized entity and are valued for one reason only: they are the best third parties available to handle the processes that are now externalized. This is the only justification for their existence.

Implementing collection supply chain management can be a very inspiring process and it is one that has allowed an ever-increasing number of lenders and insurers to experience success perhaps never before imagined.

William Meany is president of ASSET Inc., an international software company specializing in Collections Supply Chain Management, now available in the UK. He can be reached at william.meany@ASSET.net or through www.ASSET.net