Title : Case study – Supply chain Finance at Procter & Gamble
2013 :
1. Extend payment terms to suppliers by 30 days, from the current average of approximately 45
to 75 calendar days.
2.
Announced Supply chain financing (SCF) program giving eligible suppliers the ability to
contract with one of two global banks (Citigroup, Deutsche Bank, and JPMorgan Chase.) to
receive discounted payments for their P&G receivables in 15 days or less.
Understanding the Stakeholders:
1.
Procter & Gamble:
Founded in 1837
Mission - “improve the lives of the world’s consumers”
Headquartered in Cincinnati, Ohio
Over 20 of its brands—including Always, Bounty, Charmin, Gillette, Olay, Oral-B, and Pampers
– range of household and personal care with leader in many.
A constituent of the Dow Jones Industrial Average since 1932, and had maintained a long-term
credit rating of AA- from Standard & Poor’s since 2001.
Earned $11.6 billion on sales of $80.5 billion in the fiscal year ending June 2015
2012 : $10 billion cost-cutting program by P&G
(At least $3 billion of savings in the area of overheads; $6 billion in cost of goods sold; and
about $1 billion from marketing efficiencies)
2015: P &G had eliminated 11,000 office positions
Title : Storyline of SCF :

P&G conducted a review of its working capital management practices by comparing its financial
metrics against other CPG firms.

This benchmarking analysis showed that P&G typically paid its suppliers (known as external
business partners) more quickly than its peers.

On average, P&G had been paying suppliers in 45 days, compared to 75 to 100 days or more
for other firms in the industry.

Reason : Their payment terms differed so much was because our buyers had always focused
on price, quality, delivery, service, responsiveness, and innovation. The company’s renewed
focus on a Total Shareholder Return [TSR] metric, however, brought a new emphasis on cash
flow.
Title : Outcomes:

Benchmarking analysis shifted the project’s focus from P&G’s treasury group to its purchasing
group, with a corporate mandate to extend contracted payment terms by at least 30 days.

Both groups understood that this decision had implications for their suppliers: by taking
longer to pay its invoices, P&G’s suppliers would need to wait longer to receive funds.

For this reason, P&G decided to implement an SCF program along with the payment extension
to give suppliers the option to be paid more quickly.

Objective of SCF:
Goal 1 of SCF : To make the SCF program holistic and sustainable, and one we could
launch globally for our top 3,000–4,000 suppliers on day one.


Facilitated by P&G’s banking partners (the SCF banks), the program would mitigate the impact
of extended payment terms by providing P&G’s suppliers with access to capital on terms that
reflected P&G’s AA- credit rating.

To design and implement the SCF program, P&G formed a dedicated, cross-functional team
that included members from the firm’s treasury, legal, banking, and purchasing groups, and
also formed a project board to oversee implementation
Title : Design methodology of SCF:

3 contracts were introduced:
commercial contract : between P&G and the supplier specifying product and payment terms;
service contract between P&G and the SCF banks specifying payment terms for invoices;
financing contract between participating suppliers and the SCF banks
Deal :

SCF banks had the right, but not the obligation, to buy P&G receivables on a non-recourse basis
minus a fee (i.e., at a discount to face value) if the suppliers requested advanced payment.

The supplier’s claim on the P&G invoice would be transferred from the supplier to the SCF
bank in exchange for a discounted payment.

P&G would then pay the original invoice amount at face value on the date set by the
commercial contract.
Design Principles :
(1) Be low- cost;
(2) Don’t accept supplier price increases for longer payment terms since we were starting from belowaverage payment terms relative to our competitors;
(3) Allow local teams to control the implementation rather than corporate staff;
(4) Ensure funding competition by having at least two participating banks for each supplier. A key
design feature of the SCF program was the decision to have two banking partners in each region to
ensure competitive financing rates.
Title : Question ???
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2015 :
Question 1 : Decision to be made by Fibria Celulose S.A & treasury group in Brazil , a key supplier to P&G,
should it continue participating in P&G's Supply Chain Finance (SCF) program ?
Question 2: Review the costs and benefits of the program, and decide whether to continue with their
current SCF bank, and under what terms, or switch to the other SCF bank in the program.