scf and procurement webinar_february 2017
TRANSCRIPT
Supply Chain FinanceWhat is in it for Procurement?Lauri HolländerTapani Oksala
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presenters
Lauri Holländer
TapaniOksala
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Why are companies extending payment terms?
How do the payment terms impact performance?
What is in it for Procurement?
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CFO
CPOProcurement strategy
Supply base
Suppliers
Systems
Resources
Strategic
In-direct
Cost savings
Agreements
Prices
Payment terms
Accounting
Treasury
Reporting
Working capitalControlling
Cash management
Investments
Financial information
Banks
Risk management
Funding
Administration
Strategy
Development
ControlsPlanning
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Working Capital
Capital needed for the day-to-day operations of a company
PayablesReceivablesInventory
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Month 1 Month 2 Month 3
Invoice: 30 days netInvoice: 30 days net
Invoice: 30 days net
Month 1 Month 2 Month 3
Invoices with 90 days net
Trade payables = X
Trade payables = 3X
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Payment Term Extension: Business CaseCurrent Payment Term:Current Trade Payables:
Future Payment Term:Future Trade Payables:
30 days200 MEUR
60 days400 MEUR
Change in Trade payables: +200 MEUR Weighted Average Cost of Capital: 8 % p.a.
Change in Employed Capital: -200 MEUR WACC-based value of the change: 16 MEUR
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Why are companies extending payment terms?
Improved Cash Flow
Enhanced Balance SheetIncrease in Trade PayablesReduction in Net Working Capital
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Why are companies extending payment terms?
How do the payment terms impact performance?
What is in it for Procurement?
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Outstanding Payables:Outstanding Receivables:
xx days
Buyer’s Payables:Supplier’s Receivables:
Buyer’s Payables:Supplier with Financing:
Payment term extension
Funder
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Supply Chain Finance = Buyer-driven arrangement
Approved Payables Financing
Form of Receivables Financing
Reverse FactoringDynamic Discounting
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How do the payment terms impact performance?Long purchase payment terms are beneficial
Short sales payment terms are beneficial
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Why are companies extending payment terms?
How do the payment terms impact performance?
What is in it for Procurement?
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CPO – value driversearly supplier relationship maturity level“how can I ensure my new, innovative suppliers are onboard”
Key Levers
• Savings• Reduced supplier (supply chain) risk• Social responsibility & Innovations
Enabling solution• Dynamic Discounting (supply chain risk & savings)
Value for supplier
• Secure cash flow with early payments• More transparent sales receivables process• Become part of the buyer ecosystem
Supplier Relationship Maturity I (1-2 years of cooperation)
time
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CPO – value driversevolved supplier relationship maturity level“how to take most out of my established supplier network”
Key Levers
• Contract renewal • Cost avoidance• Automation through effective process / tools
Supplier Relationship Maturity II (3-5 years of cooperation)
Enabling solution• Reverse Factoring (extend payment terms, cost avoidance)
Value for supplier
• Remove personal collaterals• Cost of money for flexible daily operations• Preferred partner status within the buying
organization (sell more)
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CPO – value drivershigh supplier relationship maturity level“ something new for my loyal, value adding suppliers”
Key Levers
• Contribute to company’s financial goals• Tool for negotiating with supplier• Revised supplier base
time
Supplier Relationship Maturity III(3-5 years of cooperation)
Enabling solution• Supply Chain Financing (working capital)• Dynamic Discounting (cost savings)
Value for supplier
• Access to cash (sales receivables)• Low cost funding for operations and
innovations• Partnership status with the buyer
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Measuring the success
time
Supplier Relationship Maturity I
time
Supplier Relationship Maturity II
time
Supplier Relationship Maturity III
Cost savingsOn time delivery
Spend consolidation
Released working capitalAverage payment time
Cost Savings
DPO improvementValue add through suppliers
Preferred customer
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Sell More Pay SmarterBuy Easier