how can you keep control when outsourcing part or all of your procure-to-pay process

Financial Services

Copyright © Siemens AG 2012. All rights reserved.


Siemens Supply Chain Finance Program

Financial Services

Financial Services


Global Shared Services

Siemens DPO

Supply chain finance and working capital organization

Critical success factors and key learnings

Different SCF models

Win/win

Agenda

Financial Services


GSS processes over 2.1 million invoices per year

Front Office is located in Orlando, Florida

Back Office (transactional activity) is located in Bangalore, India

225 GSS employees supporting P2P processes for North America in the

US and India

Global Shared Services (GSS)

North America P2P Statistics

Financial Services


Inhouse Treasury

(SFS TRE IHT)

Global

Markets

(SFS TRE GM)

Financing Services

& Investment

Management (FIM)

Treasury

Center, In-house

Bank, Pension

Manager 24h Global presence

SIEMENS

Businesses

EUR

MUNICH

SFS GmbH

HONG KONG

SFA

ISELIN, NJ

SCC

BEIJING

SFSL

Capital and

Financial

Markets

Corporate

Pensions (PEN)

DEN HAAG, NL

SFM

SCCs Basic Role in Siemens

Financial Services


70 43 43 70 Honeywell

61 32 34 63 Emerson

70 50 51 71 Schneider

59 46 45 58 Philips

94 52 59 101 ABB

33 44 69 58 General Electric

99 67 36 68 Siemens

70 46 45 68 Median

1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th Benchmark Comparison

Cash Conversion Cycle

DIO Comparison DPO Comparison DSO Comparison

Working Capital Benchmark : Study Results


61 32 34 63 Emerson


59 46 45 58 Philips

94 52 59 101 ABB


99 67 36 68 Siemens

70 46 45 68 Median





61 32 34 63 Emerson


59 46 45 58 Philips

94 52 59 101 ABB


99 67 36 68 Siemens

70 46 45 68 Median




Working Capital Benchmark : Study Results

Source: The Hackett Group 2010 REL working capital DSO = days sales outstanding

DPO = days payables outstanding

DIO = days inventory outstanding Cash Conversion Cycle = DSO – DPO + DIO

-

4th 3rd 2nd 1st Leading Source: The Hackett Group 2010 REL working capital Medians are based on industry segment

4th 3rd 2nd 1st Lagging Leading

Siemens DPO in a competitors’ benchmark

Financial Services


Acme Inc. Cash Conversion Cycle

34.96

30.88

18.19

47.65

0 10 20 30 40 50 60

CCC

=

DPO

-

DSO

+

DIO

Days

Competitor Cash Conversion Cycle

4.24

62.46

15.20

51.50

0 20 40 60 80

CCC

=

DPO

-

DSO

+

DIO

Days

• Acme is at a ~30 day working capital disadvantage to Competitor

SCF and Working Capital Organization – The CCC

Financial Services


Day 30

Invoice

Received

Buyer makes Payment

via SCF Provider

Day 0 Day 60

Supplier is Paid Non-

recourse by SCF Provider

Buyer Suppliers

Day 10

Grant Suppliers access to on-demand cash Reduce Supplier’s financing costs Reduce Suppliers’ days sales outstanding (DSO) Put downward pressure on costs of goods Put upward pressure on cost of goods Strengthen Buyer – Supplier partnership with “win-win” offering

SCF Removes Negative Effects of Terms

Extension

Financial Services


Challenge Key Learning

• Resource Allocation

• Internal Incentive Alignment

• COGS vs. Terms

• Marketing Message

• Sourcing SCF Pipeline Data

• Tracking SCF Attributed Success

• Upfront Budgeting

• Creation of KPIs & Integration

into Procurement Performance

Mgt.

• Strong Delivery of Term/Price

Movements

• Defined Supplier On-Boarding

Goals Agreed Upon Upfront

• SCF Templates - Define

Incremental Value Due to SCF

Critical Success Factors / Key Learnings

Financial Services


Business Model Review/Approval

Risk/Reward Analysis – supplier relations and operations

In House Platform vs. 3rd Party Provider

RFP process, if required

Procurement organization – defining the supplier targets

Supplier outreach – marketing message

Implementing SCF

Financial Services


Selecting from 3 SCF Models:

Single-Bank Model

Multi-Bank Model

Universal Funding Model

What are the different SCF models

Financial Services


Suppliers or Sub-contractors pay a discount charge when they choose to sell receivable and receive cash early. Below is an

example of a Discount Charge in the Siemens SCF Program for a supplier has annual sales of at least $500K with Siemens.

Payment Terms with Siemens: 90 days

Siemens Approved Payment Amount: $10,000.00

Annualized SCF Discount Rate: 2.00% (Assumes Libor @ .50% + 1.50%)

Auto-Discount Scenario

Invoices Submitted = Day 0

Payment Approved by Siemens and Shared with SCF platform = Day 15

Receivable Sold to Orbian by Supplier or Sub-contractor = Day 15

Cash Received by Supplier or Sub-contractor = Day 17

Number of Days Cash Received Early = 73 days

Discount Charge Paid by Supplier or Sub-contractor = $41 (73/360) x .0200 x $10k

Discount Charge as a Percentage of the Receivable = 0.41%

Cash Proceeds Received by Supplier or Sub-contractor on Day 17 = $9,959

Example of a discount charge

Financial Services


Buyer Increases Payment Terms from traditional to extended Increase DPO, improving CCC Improve cash management (100% certainty of payment timing / amount)

Supplier Accelerate payments Cut receivables financing costs with low SCF rate Decrease DSO, improving CCC Reduce A/R operating costs Improve cash management (100% certainty of payment timing / amount)

The SCF “Win-Win”

Financial Services


Douglas Schoch

Siemens Capital Company, LLC

VP, Relationship Manager

In-House Treasury (TRE)

[email protected]

732-590-6582 office

Contact

mailto:[email protected]





how can you keep control when outsourcing part or all of your procure-to-pay process

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