Larry Berglund, SCMP, MBA
Presentations Plus Training & Consulting Inc.
November 2012 Annual Conference
1. Reverse innovation strategies
2. Entering emerging markets
3. Integrating operations, finance, and
procurement
4. Supply chain finance opportunities
1. Reverse innovation:
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Mahindra & Mahindra
GE Healthcare
Procter & Gamble
Unilever
Wal-Mart
2. Entering emerging markets:
 Ranbaxy
 Huawei
 Haier
 Techtronic
 Lukoil
 Embraer
 HTC
 BYD
3. Integrating operations, finance, and
procurement
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Reduced inventory investment
Shorter cash-to-cash cycles
Leveraging e-business practices
Enhanced productivity
Improved ROI
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
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You can buy the same products, at the
same price, from the same supplier and
still not beat your competition.
Why?
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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
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Protect margins
Control costs
Manage currencies
Hedging
Solvency
Cash flow
Forward contracts
Data provenance
Credit insurance
Regulatory compliance
Performance bonds
Weather
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INCO terms
Legal systems
Political stability
Multiple currencies
Warranty
Bidding process
Contracts
Logistics
Customs
Quality
Delivery
Communications
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.
Global market potential:
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Receivables management US$ 1.3 Trillion
Payables factoring US$ 100 Billion
Asset-based lending US$ 340 Billion
As much as 5% of the COGS can be attributed
to financing!
- per Bob Dyckman, Wells Fargo Bank, 2009
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.”
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Globalization
Provenance of data and information
Increased competition
Security and flexibility of financial
instruments
Supply chain leverage
Financial constraints
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Buyer
Supplier
Technology provider (platform)
Financial institution
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2008+ financial crisis
Lack of credit
High transaction costs
Weak cash flow management
Increased borrowing costs (Basel III)
Threatened liquidity
SMEs more active globally
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Collaboration across a supply chain solution
Technology (SWIFT)
Technology platforms
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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
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Reduce DSO
Reduced finance costs
Improved cash flow
Improved customer relationships
Flexible payment terms
Reduced transactional costs
Less dispute resolutions through
transparency
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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
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
3. Goods shipped and invoiced
Buyer
Seller
1. PO information
5. Invoice acceptance
6. Invoice funding request
SCF platform
2. PO acceptance
PO
Invoice
A/P info
Exception advice
Early discount ?
7. Funds sent to supplier
4. e-invoice
6. Invoice funding request
Discount until due ?
Due date
1. Goods shipped with invoice
Distributor
Supplier
2. e-invoice
3. Invoice notice
Distribution Finance Provider
4. DFP pays seller
5. Payment to DFP
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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
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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
Industry
Volatility Factor
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
security’s price:
1 = follows market
>1 = more volatile
<1 = less volatile
C2C =
Days of inventory on hand
+ Days of receivables
- Days Payables Outstanding
C2C = ( 56 + 57) - 52 = 61 days
Industry
2002
2003
2004
2005
Electronic
and electrical
114
105
106
99
Beverages
67
64
63
61
Food
producers
61
60
58
62
Household
goods
101
99
96
99
Leisure
goods
90
86
80
78
Personal
goods
101
105
100
99
General
retailers
37
37
37
39
Without an SCF
solution
2003
2006
2008
$11.60
$12.71
$20.65
With an SCF
solution
$6.81
$8.64
$10.09
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
Industry
2002
2003
2004
2005
Electronic
and
electrical
79
78
77
77
Beverages
53
53
54
57
Food
producers
47
46
45
46
Household
goods
61
63
62
61
Leisure
goods
59
56
54
52
Personal
goods
59
56
54
52
General
retailers
16
15
16
15
The average DSO = 30 days
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)
DIH = Average inventory ÷ COGS x 365
(500,000 ÷ 4,500,000) x 365 = 40.6 days
Industry
2002
2003
2004
2005
Electronic
and
electrical
85
79
82
76
Beverages
62
62
57
56
Food
producers
54
53
52
56
Household
goods
88
85
85
87
Leisure
goods
78
77
73
72
Personal
goods
92
96
94
95
General
retailers
63
64
65
67
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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
% 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
$16.6
7
4
$2.70
$3.13
$3.70
$4.55
$5.88
$8.33
$14.2
9
6
$2.63
$3.03
$3.57
$4.35
$5.56
$7.69
$12.5
0
8
$2.56
$2.94
$3.45
$4.17
$5.26
$7.14
$11.1
1
10
$2.50
$2.86
$3.33
$4.00
$5.00
$6.67
$10.0
0
Open Accounts
 E-documents
 Automated compliance checks and credit
management
Generally 50% lower costs
 Lower discrepancy rates
through an OA
 Less time to process
 Transparency on trade information
 Invoice matching/reconciliation
 Automated tracking of shipments
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Too costly and slow when compared to an
Open Account
 Value > $100,00 can cost between $1500 - $4000 per
LC
 Rates vary between banks and countries
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SWIFTNet Trade Services Utility solutions are
being adapted
 Automates an end-to-end solution for buyer and seller
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
Advising Bank
3. Issuing bank sends LC to Advising bank
4. Advises Beneficiary
8. Makes payment to Beneficiary
7. Sends LC to Issuing Bank
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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
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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 300-400 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
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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
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
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
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
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
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
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
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
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
 7000+ 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
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
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”
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Brazil - Petrobras
Canada - Export Development Canada
France - OSEO
Germany - KfW Bankengruppe
UK - UK Export Finance
LIBOR benchmark review
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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
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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
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