Supply Chain Finance Overview. January 2013

Transcription

1 1 Supply Chain Finance Overview January 2013

2 What s in a Name? What is Supply Chain Finance? What does it really mean? 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. 2

3 What s in a Name? What is Supply Chain Finance? What does it really mean? 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. 3

4 What s in a Name? What is Supply Chain Finance? What does it really mean? 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. 4

5 What s in a Name? What is Supply Chain Finance? What does it really mean? 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. 5

6 What s in a Name? 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. 6

7 Specialty Vehicle Value Chain Energy Transportation Services Warehousing / Logistics Import / Export Control Customs Brokers Core Supply Chain Secondary Supply Chain Financing Companies Design Services OEM Dealer Network Commercial Buyers Truck Bodies & Custom Vehicles Mfg. OEM Chassis Mfg. Emergency Vehicles Public Sector Buyers Commodities Value-added commodity products OEM Parts & Assemblies Mfg. Recreational Vehicles Dealers / Service Individual Consumers Capital Goods Distribution Trailers Fleet Buyers Buses 7 MRO After-market Parts Mfg. After- market Parts Distribution

8 Agenda Types of SCF Why bother? What s on YOUR priority stack? Where to start? Cutesy video 8

9 Common SCF solutions Type Typical Characteristics Common Users Supplier Payment Programs Distributor Financing Increase DPOs Reduce seller DSOs Large buyer-driven Interest rate arbitrage Technology intensive Reduce DSO Increase buyer DPO Credit management intensive Large seller driven Interest rate-arbitrage Retail and Consumer Goods Transportation Sector Manufacturing High technology firms Intermediates goods providers Vendor Managed Inventory 3 rd party Inventory Ownership Raw Material Purchase Programs Inventory Finance What about factoring? Manufacturers Maintenance Repair & Overhaul EPMC contractors

10 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 Reducing Total Cost and Working Capital Needed Accelerating Cash Flow Reducing Supply Chain Risk 10

11 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? 11

12 A/P Paid in full (e.g. net 90 days) Financial Supply Chain Automation An Example Buyer Physical Goods & Invoice Suppliers Purchase Order Information Invoice Acceptance Invoice Funding Request SCF Platform P.O. Data Invoice data A/P status info. Exception alerts Purchase Order Acceptance Electronic Invoice Immediate Discount Discount to Maturity Hold Until Due Financial Institution Funds remitted to supplier (possibly discounted if trigger occurs before maturity) 12

13 SCF The Result 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. 13 SCF = Win - Win situation Eliminate costs from the supply chain while enhancing the strength of participants

14 So why bother? 1) Cash Conversion efficient use of funds. 14

15 International Trade s impact on working capital Days sales outstanding Days inventory Days payables + - = outstanding outstanding Days Working Capital Required Impact Increase Increase Decrease Increases Characteristics Larger buyers are increasingly seeking 60, 90 and longer terms e.g days not uncommon certain markets Cash Conversion Cycle 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? 15

16 So why bother? 1) Cash Conversion 2) Predictability 3) Reduce Administrative costs 4) Add visibility into organization 16

17 So what s on your priority stack: Controller / AR / AP what are 2013 priorities? Where is a system that allows suppliers to be paid early on that list? 17

18 Where do we start? 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 3 rd 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. 18

19 John McPherson