supply chain finance overview -...
TRANSCRIPT
Supply Chain
Finance Overview
January 2013
1
What’s in a Name?
2
What is Supply Chain Finance?
Financial Times: Supply chain finance allows a supplier to sell
its invoices to a bank at a discount as soon as they are approved
by the buyer. That allows the buyer to pay later and the supplier to
secure its money earlier. Instead of relying on the creditworthiness
of the supplier, the bank deals with the buyer – usually a less risky
prospect.
What does it really mean?
What’s in a Name?
3
What is Supply Chain Finance?
Wikipedia: Global supply-chain finance refers to the set of
solutions available for financing specific goods and/or products as
they move from origin to destination along the supply chain. It is
related to a quickly growing use of a battery of technologies and
financial business practices that allow for dynamic payables
discounting.
What does it really mean?
What’s in a Name?
4
What is Supply Chain Finance?
Procurement Intelligence Unit: Supply chain finance is a
buyer-led initiative that facilitates favourable financing for the
supplier in order to achieve mutual benefits for both trading
partners, through the use of a technology platform and a third-party
financial institution or otherwise.
What does it really mean?
What’s in a Name?
5
What is Supply Chain Finance?
EDC : Supply chain finance is a form of asset-based lending and
reverse factoring that was created to help improve the financial
efficiency of supply chains. It helps both suppliers and buyers free
up working capital.
What does it really mean?
What’s in a Name?
6
What is Supply Chain Finance?
What does it really mean?
Supply Chain Finance refers to the culmination of people,
processes and technology that enables the infusion of
cash (early) within a traditional Business to Business
open account transaction that serves to remove costs and
strengthen the players that make up the chain of value
that allows us to conduct business.
Specialty Vehicle Value Chain
7
Commodities
Energy
Value-added
commodity
products
OEM Parts &
Assemblies Mfg.
OEM Chassis Mfg.
Design Services OEM Dealer Network
Truck Bodies &
Custom Vehicles Mfg.
Emergency Vehicles
Recreational Vehicles
Trailers
Buses
Capital
Goods
After- market
Parts Distribution
Dealers / Service
Distribution
After-market
Parts Mfg.
Commercial
Buyers
Fleet Buyers
Public Sector
Buyers
Individual
Consumers
MRO
Transportation
Services
Warehousing /
Logistics
Import / Export
Control
Customs
Brokers
Financing Companies
Core Supply Chain
Secondary Supply Chain
Commodities
Energy
Value-added
commodity
products
Value-added
commodity
products
OEM Parts &
Assemblies Mfg.
OEM Chassis Mfg.
Design ServicesDesign Services OEM Dealer Network
Truck Bodies &
Custom Vehicles Mfg.
Truck Bodies &
Custom Vehicles Mfg.
Emergency VehiclesEmergency Vehicles
Recreational VehiclesRecreational Vehicles
TrailersTrailers
Buses
Capital
Goods
After- market
Parts Distribution
Dealers / Service
Distribution
After-market
Parts Mfg.
Commercial
Buyers
Fleet Buyers
Public Sector
Buyers
Individual
Consumers
MRO
Transportation
Services
Warehousing /
Logistics
Import / Export
Control
Customs
Brokers
Financing Companies
Core Supply Chain
Secondary Supply Chain
Agenda
Types of SCF
Why bother?
What’s on YOUR priority stack?
Where to start?
‘Cutesy’ video
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Common SCF solutions
Type Typical Characteristics Common Users
Supplier Payment
Programs
Increase DPOs
Reduce seller DSOs
Large buyer-driven
Interest rate arbitrage
Technology intensive
Retail and Consumer Goods
Transportation Sector
Manufacturing
Distributor Financing
Reduce DSO
Increase buyer DPO
Credit management intensive
Large seller driven
Interest rate-arbitrage
High technology firms
Intermediates goods providers
Inventory Finance
Vendor Managed Inventory
3rd party Inventory Ownership
Raw Material Purchase Programs
Manufacturers
Maintenance Repair & Overhaul
EPMC contractors
What about factoring?
Said a different way, SCF is:
Category of solutions designed to provide working capital
financing and accelerated cash inflow to SC Participants
Links supply chain events to financing decisions and actions
Combination of financial services and technology
solutions that Links Buyers, Suppliers & Financing providers
Reduces financing costs
Increase credit availability throughout the supply chain
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Reducing Total Cost and Working Capital NeededAccelerating Cash Flow
Reducing Supply Chain Risk
A deeper dive into Supplier Payment Programs Often driven by large buyers
Usually involves a FI that provides funds and often the
technology
Value to buyer: defer DPOs - amount owing remains a trade
payable.
Value to supplier: crystallize the value of an approved
receivable.
What is it called when governments announce SCF?
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Financial Supply Chain Automation – An Example
Immediate
Discount
Discount to
Maturity
Hold Until
Due
Physical Goods & Invoice
Purchase Order Information
Invoice Funding Request
Suppliers
Purchase Order Acceptance
Funds remitted to supplier
(possibly discounted if trigger occurs before maturity)
A/P
Pa
id in f
ull
(e.g
. n
et 9
0 d
ays)
Financial
Institution
Buyer
SCF
Platform P.O. Data
Invoice data
A/P status info.
Exception alerts
Electronic InvoiceInvoice Acceptance
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SCF – The Result
13
Buyers
Minimize investment in W/C by increasing DPOs
Reduces COGS – up to 5% in some cases
Reduces total borrowing costs
Automation reduces administration costs
Increase cash flow;
Increases stability of supply chain;
Suppliers
Early payment reduces (DSO);
Reduces cost of capital by leveraging the buyer’s credit rating;
Increases certainty of cash flows;
Provides pre-shipment, WIP financing based on data triggers**;
Increases the strength of the customer relationship.
SCF = Win - Win situationEliminate costs from the supply chain while
enhancing the strength of participants
So why bother?
1) Cash Conversion – efficient use of funds.
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Days sales
outstanding
Days inventory
outstanding
Days payables
outstanding
Days Working
Capital
Required
International Trade’s impact on working capital
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Impact Increase Increase Decrease Increases
Characteristics Larger buyers are
increasingly
seeking 60, 90 and
longer terms
• e.g. 180- days
not uncommon
certain markets
Longer global
supply chains
require additional
safety stock to
mitigate disruptions
Suppliers are
absorbing buyer
inventory needs
and deliver on a
just-in-time basis
or provide vendor
managed inventory
Foreign suppliers
have tighter terms
due to limited trade
credit
• 30% to 50%
down payments
on orders
• 100% payment
at shipment
For most
companies, global
trade increases the
need for working
capital to fund the
investments in
receivables and
inventory
Can you handle
international
transactions
where your cash
conversion cycle
is very long?
+ - =
Cash Conversion Cycle
So why bother?
1) Cash Conversion
2) Predictability
3) Reduce Administrative costs
4) Add visibility into organization
16
So what’s on your priority stack:
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Controller / AR / AP what are 2013 priorities?
Where is a system that allows suppliers to be
paid early on that list?
Where do we start?
18
ELECTRONIC INVOICES - Electronic invoices and paying your
suppliers electronically has proven over and over to save 60% over manual
costs. ( you can do it yourself, or you can look to your financial partner or 3rd
party platforms to help you out)
WORKFLOW – 70-80% timesaving in creating the system that manages
procurement to payment workflow within the organization.
Standardized Purchase terms – where you have purchasing
power, standardizing terms, liabilities, returns, early payments is a best practice.
THIS MAY BE THE STOP point for many small / mid sized
companies.