Larry Berglund, SCMP, MBA

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1 Larry Berglund, SCMP, MBA Presentations Plus Training & Consulting Inc. November 2012 Annual Conference

2 1. Reverse innovation strategies 2. Entering emerging markets 3. Integrating operations, finance, and procurement 4. Supply chain finance opportunities

3 1. Reverse innovation: Mahindra & Mahindra GE Healthcare Procter & Gamble Unilever Wal-Mart

4 2. Entering emerging markets: Ranbaxy Huawei Haier Techtronic Lukoil Embraer HTC BYD

5 3. Integrating operations, finance, and procurement Reduced inventory investment Shorter cash-to-cash cycles Leveraging e-business practices Enhanced productivity Improved ROI

6 4. Supply chain finance opportunities Conserving working capital Creating value Efficiency in transactions Reducing inventory investment Shorter cash-to-cash cycles Competing and collaborating across their supply chain

7 You can buy the same products, at the same price, from the same supplier and still not beat your competition. Why? High finance costs Higher weighted Average Cost of Capital Poor distribution channels Lack of credit Inventory carrying costs Outstanding accounts receivables Poor cash flow Paper-based documentation

8 Protect margins Control costs Manage currencies Hedging Solvency Cash flow Forward contracts Data provenance Credit insurance Regulatory compliance Performance bonds Weather INCO terms Legal systems Political stability Multiple currencies Warranty Bidding process Contracts Logistics Customs Quality Delivery Communications

9 What is an SCF solution? SCF is a set of solutions to source, finance, and manage payments and logistics across a supply chain to mitigate risk and conserve working capital.

10 Global market potential: Receivables management US$ 1.3 Trillion Payables factoring US$ 100 Billion Asset-based lending US$ 340 Billion

11 As much as 5% of the COGS can be attributed to financing! - per Bob Dyckman, Wells Fargo Bank, 2009

12 Risk management as per Mitsui & Co.: A lack of information relating to country risk or the creditworthiness of business partners can be an impediment to doing business. We undertake pre-assessment of business risks, devise methods for managing or mitigating risks we have identified, and based on this provide customers with tailored solutions. We have a particularly important role to play in determining and managing the creditworthiness of business partners, so that our customers can conduct their business with financial peace of mind.

13 Globalization Provenance of data and information Increased competition Security and flexibility of financial instruments Supply chain leverage Financial constraints

14 Buyer Supplier Technology provider (platform) Financial institution

15 2008+ financial crisis Lack of credit High transaction costs Weak cash flow management Increased borrowing costs (Basel III) Threatened liquidity SMEs more active globally

16 Collaboration across a supply chain solution Technology (SWIFT) Technology platforms

17 Reduced COGS Reduced finance costs Improved cash flow Access to lower cost of capital Improved customer relationships Accelerated payment options Reduced transactional costs Less dispute resolutions through transparency

18 Reduce DSO Reduced finance costs Improved cash flow Improved customer relationships Flexible payment terms Reduced transactional costs Less dispute resolutions through transparency

19 Supports reduced financial risk (Basel III) Increased services across a supply chain Market growth opportunity Builds collaborative relationships Efficiencies across supply chain transactions Mitigates financial risk Reduced transactional costs

20 Buyer issues PO Buyer approves invoice and informs bank Supplier ships goods Supplier sends invoice Supplier accepts early pay t Banking Partner Supplier offered early pay t Bank sends discounted funds to supplier

21 Buyer 3. Goods shipped and invoiced Seller 1. PO information 5. Invoice acceptance 6. Invoice funding request SCF platform PO Invoice A/P info Exception advice 2. PO acceptance 4. e-invoice 6. Invoice funding request Early discount? Discount until due? Due date 7. Funds sent to supplier

22 1. Goods shipped with invoice Supplier Distributor 2. e-invoice 3. Invoice notice Distribution Finance Provider 4. DFP pays seller 5. Payment to DFP

23 Enables distributor to improve working capital by increased DPO Improves DSO for seller Provides seller with alternative funding source Improved cash flow to seller Web-based platform to facilitate transparent transactions for multiple distributors Secure financing for sellers Invoices may be discounted in favour of seller Payments from distributors tracked

24 A bank s WACC is generally much lower than any other company in a supply chain SCF opportunities are facilitated by banks and non-bank financial institutions The WACC for an SME can be substantially reduced within an SCF solution The cost of capital is affected by the volatility factor in an industry

25 Industry Auto parts 1.93 Bank 0.89 Beverage 1.28 Electronics 4.37 Office supplies/equipment 1.87 Packaging and container 1.28 Retail store 1.99 Semi conductor 6.35 Wireless networking 5.90 Volatility Factor security s price: 1 = follows market >1 = more volatile <1 = less volatile

26 C2C = Days of inventory on hand + Days of receivables - Days Payables Outstanding C2C = ( ) - 52 = 61 days

27 Industry Electronic and electrical Beverages Food producers Household goods Leisure goods Personal goods General retailers

28 Without an SCF solution With an SCF solution 2003 $11.60 $ $12.71 $ $20.65 $10.09

29 Cost factor Without an SCF solution With an SCF solution Credit reviews $0.21 $0.11 Paper costs $0.15 $0.00 Collections $1.28 $0.00 Invoice creation $1.46 $0.28 Exception handling $0.58 $0.29 Total $4.69 $0.68

30 Industry Electronic and electrical Beverages Food producers Household goods Leisure goods Personal goods General retailers

31 The average DSO = 30 days

32 61% of late payments are due to compliance or administrative problems such as incorrect invoices or receiving the invoice too late to process payment on established credit terms (Source: CRF - Credit Research Foundation)

33 DIH = Average inventory COGS x 365 (500,000 4,500,000) x 365 = 40.6 days

34 Industry Electronic and electrical Beverages Food producers Household goods Leisure goods Personal goods General retailers

35 Inefficient processing of incoming stock Inefficient materials handling processes PO delays Transit time Poor demand forecasting Weak inventory management practices Push vs pull techniques No postponement strategy Poor capacity planning Poor vendor performance

36 % of profit % of additional sales needed to equal $1 saved in the supply chain 30% 40% 50% 60% 70% 80% 90% 2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $ $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $ $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $ $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $ $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.0 0

37 Open Accounts E-documents Automated compliance checks and credit management Lower discrepancy rates Less time to process Generally 50% lower costs through an OA Transparency on trade information Invoice matching/reconciliation Automated tracking of shipments

38 Too costly and slow when compared to an Open Account Value > $100,00 can cost between $ $4000 per LC Rates vary between banks and countries SWIFTNet Trade Services Utility solutions are being adapted Automates an end-to-end solution for buyer and seller

39 1. Applicant and Beneficiary negotiate LC Applicant (buyer) 2. Applicant applies for LC Beneficiary (seller) 5. Ships goods 6. Presents LC to Advising Bank Issuing Bank 3. Issuing bank sends LC to Advising bank 8. Makes payment to Beneficiary Advising Bank 4. Advises Beneficiary 7. Sends LC to Issuing Bank

40 Bolero, UK Capital Tool, Peru Castle Pines Capital, USA Demica, UK Finacity, USA Global Supply Chain Finance, Switzerland Orbian, USA Prime Revenue, USA SCC Swiss Commercial Capital, Switzerland The Receivables Exchange, USA Trade Card, USA

41 Formed in 1999 TradeCard is bank agnostic and partners with 25+ financial institutions Utilizes cloud-based technology to support collaborative supply chain relationships Manages US $2B in transactions per month Assists its clients to attain more competitive financing rates when required Added Adidas to its client list in 2012 with its global suppliers Continued growth and largely unaffected by economic crisis of 2008 Enables buyers and sellers to manage procurement and financial transaction workflow with transparency, from order to account settlement, which optimizes cash flow and credit lines Branches in New York, San Francisco, Hong Kong, Taipei, Seoul, and Tokyo

42 Citigroup, USA GE Capital, USA HSBC, USA IBM Global Financing, USA RBS, UK SEB, Sweden Santander, Spain Siemens Financial Services, Germany Standard Chartered, UK UniCredit, Italy Wells Fargo, USA

43 Burton Snowboards: Key metrics: 56,000 SKUs supplied from Asia, Europe, and North American suppliers of boards, clothing and accessories ~500 FTEs in US, Europe, and Japan Products sold in 36 countries Key to low cost production based on WIP reporting from multiple suppliers WIP reports require high accuracy to avoid production delays, enabling an agile production schedule, or to reposition the sequencing of high-moving popular items By participating in a robust SCF solution most its suppliers have reduced their DSO

44 Golden Change: Key metrics: Described as medium-sized footwear company with 10,000 FTEs Annual sales $250M producing 12+M pairs/shoes exported to 100 countries High-season is April through October Customers include: Timberland, Dr Martens, Wal-Mart, LL Bean, Caterpillar, Wolverine World Wide, and Harley Davidson Savings of 75% by not using LC Sales people can view order status via laptop, any time, any where

45 International Playthings: Key metrics: $30M revenues/year ~50 FTEs 18 suppliers/700 designs of toys LC costs were $75K/year Shift to OA reduced trade transaction staff from 4 FTEs to 1 FTE Fully secure, encrypted system to protect all supply chain partners

46 Jeanne Pierre Originals (JPO): Key metrics: ~50 FTEs Customers include: TJ Maxx, Kohls Reduced A/R by 7-10 days Suppliers have the option of being paid in advance of due date less a discount once a compliant/eligible invoice is submitted online Fully automated (paperless) online trades and transactions

47 Mitsui & Co.: Key metrics: ~40,000 FTEs $56.4B revenues 850 companies in 5 operating groups (metal production and materials; electronics and information; energy; consumer products/services and chemicals) 50% cost reduction by using open account vs LCs for imports and exports Improved JIT and reduced WIP Customer satisfaction increased

48 Patagonia: Key metrics: ~1300 FTEs 80 factories imports from 12 countries $300M revenues from clothing and footwear Saved $100K per year plus 1.5 FTEs in transaction costs Eliminated price discrepancies on all orders through SCF solution DPO reduced by 10+ days

49 Rasolli/Jumbo Shoes Key metrics: $9M sales/year 100,000 ft² warehouse Bank and transaction costs reduced 70% Only requires hours to set up accounts versus weeks through LC process

50 Rite Aid: Key metrics: 90,000 FTEs Revenue $25B 24,000 SKUs with high turns in retail sector 4000 fashion items; (5) seasons (Holiday, Valentine s Day, Summer, Back-to-school, and Harvest) 3000 buyers, suppliers and third party services globally import containers annually from 5 Pacific Rim countries In 2007 Rite Aid acquired a 338 outlet drugstore competitor and rolled them into their SCF solution Customers (P&G, Colgate) typically rate Rite Aid as top performing supplier

51 TAL Apparel: Key metrics: 10,000 FTEs $600M annual revenues 3M ft² of production space in 6 countries 80% of customers US-based 40 M garments produced/year Customers include: Brooks Bros., Calvin Klein, Giordano, Hugo Boss, JC Penney, Liz Claiborne, Tommy Hilfiger, Ralph Lauren Data transmission 100% reliable zero system down time Single source of document control which generates PO, invoice, statements, shipping documentation, online compliance, open account trades, and replaces LCs Considered an in-house PO gateway but went with 3rd party open account service provider Moved from EDI on private network to OA

52 Textile del Valle SA Key metrics: ~3000 FTEs Textile exporter from Peru to US and Europe Advised by a major global brand to move to an open account solution to reduce business process costs to its customers All orders, amendments, invoices, proof of delivery, and approval of payments are through a single multi-enterprise OA platform The OA allows Textile del Valle to request early payment options by clicking the box

53 Brazil - Petrobras Canada - Export Development Canada France - OSEO Germany - KfW Bankengruppe UK - UK Export Finance LIBOR benchmark review

54 General level of understanding of SCF solutions is low Willingness to be collaborative across the supply chain In-house operations, finance, and procurement need to be integrated as a strategy Loss of autonomy by individual managers Sharing of information seems counter intuitive Requires consistency in technology Requires training

55 Major retailers bypassing middle man Supply chain strategy revisions Identifying financial and technology partners Integration of supply chain, finance, IT, operations, and suppliers Crowdfunding - approved in UK/pending in USA - not allowed in Canada

56 Kiitos Děkuji Tak Σας ευχαριστούμε Spasiba 唔 該 Merci vilmal wiliwni Terima kasih Kiitos

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