Hitachi may be best known for producing a huge range of products, from Shinkansen bullet train cars to the most reliable hard drives to the Magic Wand, but under the hood of the massive global organization and its many divisions, there are individuals doing some crucial, if unsexy-sounding, work.
One of those people is Tom Cross.
As vice president and general manager at Hitachi Capital America Corp., Cross builds out trade and supply chain finance programs for Hitachi companies and third parties. We caught up with him in an email conversation to get his take on the current landscape within the supply chain finance (SCF) sector.
Spend Matters: How did you first get into trade and supply chain finance? What drew you to it?
Tom Cross: I realized in the mid-1990s that commercial banking would ultimately go through the same evolution as consumer banking, shifting from enterprise (company/individual) to transaction level. Credit card, mortgage and installment lending are tremendously more efficient than giving an individual a big loan that is then spent on a variety of disparate uses. With that realization in mind, I started looking for others with a similar mindset. GE Capital, Citibank and American Express all had early implementations of SCF that relied on buyer confirmation of payment. I figured that we could use our factoring/ABL experience to provide automated financing of unconfirmed payables and started a company in 2000 for that purpose. The idea was to act as an automated intermediary between platforms like Ariba and the underlying banks that can’t otherwise deal with the transaction flow, processing and risk management. What drew me in was the ability to create something meaningful that improves the lives of lots of people.
SM: What do you see as the biggest challenges facing that industry today?
TC: Fear, bandwidth and lack of cooperation. Trade finance folks fear change, regulators and loss of (a) job. Too much current work, coupled with general reluctance for departments within the same bank to work together, makes the creation of new solutions almost non-existent. SCF started 20 years ago as a way to accelerate confirmed payables from investment-grade buyers and hasn’t changed much. Solutions for non-investment-grade buyers, unconfirmed invoices and vendor-managed inventory are still lacking.
SM: Are there any other barriers to transformation in your industry?
TC: Too many to name. I’m not sure there is a standout barrier. Transformation requires a couple of things that are difficult for financial institutions. The first is that an existing business line is likely cannibalized in some way, meaning that [particular] business line is unlikely to help. Unfortunately, the to-be-cannibalized business line probably has the best resources for the transformation because they are generally closest to it. This is why most SCF programs, also referred to as reverse factoring, are not done within a bank’s factoring department. The second challenge is inter-departmental cooperation. It is generally easier to work with another institution altogether than another department within the same institution. Product evolution happens within a department, but transformation tends to involve multiple disciplines that span multiple departments.
SM: How do you see the role of trade and supply chain finance evolving inside your organization?
TC: We are building out solutions for inventory finance and multi-tier SCF, which hopefully extends SCF farther down a supply chain where the real problems lie.
SM: What is the biggest contribution supply chain finance professionals can provide to the larger enterprise?
TC: Corporations could realize the biggest benefit from lower procurement cost and risk. Balance sheet metrics and liquidity are secondary. Banks can leverage SC/trade finance as a wedge product.
SM: How does your team anticipate changes or trends in the industry?
TC: Mostly through conversations with the industry and our partners.
SM: How have you deployed technology to your advantage?
TC: We are not good at technology, so rely on close partner relationships for technology. We are leveraging tech for analytics, presentment and processing.
SM: How vital is industry intelligence to you in your role, to your team and to your organization?
TC: Extremely vital, in all regards. It’s how we effectively partner and deploy solutions.
SM: What are some of the resources you go to for research within your team or in your organization?
TC: Our channels, partners and industry newsletters.
SM: What are the key qualities you look for in a partner or potential partner?
TC: We look for flexibility and a desire to create something big. Most folks have the necessary smarts and can build the necessary tech if they don’t already have it. The challenge is that, while everyone is the same in not knowing what they don’t know, the inflexible are not willing to consider the possibility they don’t know everything. An example is a current platform that told me 15 years ago they did everything my company did from a financing perspective. Come to find out 15 years later, they have nothing and are now trying to figure out why…[I] could have told them why a long time ago. A flexible partner listens and is willing to learn. A flexible partner is only useful if they have vision and a desire to create something big. Hitachi doesn’t think small.