Why Treasury and Procurement Should Collaborate for a Successful Supply Chain Finance Program

Part I: Why Treasury and Procurement Should Collaborate for a Successful Supply Chain Finance Program

May 16th, 2017

David Gustin | Co-founder| Trade Financing MattersGreg Person | Vice President Global Presales | Kyriba

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David Gustin

Co-founder

Trade Financing Mattersdgustin@globalbanking.com

Greg Person

VP, Global Presales

Kyriba Corporationgperson@kyriba.com

Today’s speakers

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History of SCF

State of the market

Treasury / procurement divide

Understanding your supply chain

Strategic execution with SCF

Role of technology

Discussion on trends and common challenges

Agenda

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Timeline – Evolution of Supply Chain Finance

1999 Orbian

formed as

Joint Venture

between SAP

and Citibank;

Tradecard

launched SaaS

company

2003PrimeRevenue

formed

SEC releases

initial comments

on programs

related to rebates

2008Marketplace to

Auction

Receivables

introduced

Pcard programs

– Virtual

Account, Single

Use

2009Orbian supports

40 buyers –

Siemens and

GenMills prime

customers

Taulia founded

Kyriba starts

first program

GT Nexus

TradeCard

merger

JPM exits Xign

2005 Orbian

successfully

launched the

first

proprietary US

Capital Markets

funding

program

2000 OB10

founded

2012 SAP

buys Ariba

Accounting issue continues to affect market

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The vast majority of trade credit sits on company balance

sheets in the form of payables and receivables

*Note: $2tn in USA, an estimated 3 trillion Euros of

accounts receivables outstanding in the EU,

estimated $8tn globally

• Trade finance is a large, global and

interconnected industry, encompassing nearly

$8tn in notional credit*

• Most of trade credit (~$7.5tn) is not

intermediated directly and remains on

corporate balance sheets (in the form of trade

receivables)

• Banks are the main third party source of

financing for corporate trade, but intermediate

roughly $500bn of trade credit (12%)

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State of the Supply Chain Finance Market

• It’s still all about Working Capital = term extension

• Broad swatch of industry sectors embrace SCF…Across more geographies

• Regulatory - Bank regulatory costs have become less efficient than third parties

• Funding – Libor costs are increasing

• Big push by Banks to link to Capital Markets – not easy!

• Technology – it’s both platform and managed services

• Replacement market growing

• Huge sovereign wealth risk – South Africa downgrade, Italian banking system

• Multi-Bank solutions on the rise – so many reasons: banking crisis, non banks, etc.

• Onboarding challenges remain – high fixed costs to onboard relationships you don’t bank

• Government push back on supplier term extension – Australia example

• Operations and Accounting challenges still exist

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Polling Question

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Why Conflicts Exist

CFO /

Treasurer

Procurement

Supply

Chain

Balance Sheet

Income Statement

Source & Use Statement

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Trends: Alignment Is Key

Supply Chain

ProcurementCFO/

Treasury

Delivery

Cost

Innovation

Partnerships

On time delivery

Not always about cost

Working Capital

Liquidity

Investments

Compliance

Low cost capital

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Trends: Understanding Your Supply Base Is Critical

Remaining suppliers

Critical suppliers

Diversity suppliers

Bottleneck suppliers

Large suppliers

Top category suppliers

JV partner suppliers

Remaining suppliers

Circle size denotes number of suppliers

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Successful Lessons for Long-Term Programs

• Lesson 1: Supply Chain Finance is a tool…not a strategy

• Lesson 2: Risk Control is always #1

• Lesson 3: Continuous improvement is not an option

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How Treasury can help execute the strategic visionFree cash flow targets

COGS / EBITDA improvement

Supporting key supplier relationships

Process efficiencies (LEAN, Six Sigma)

What Is My CFO’s Strategic Vision?

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13

Cost of Goods sold

reduction

Assist Suppliers

▪ Is there a no-risk alternative to my low short-

term investment returns?

▪ Can I pay my suppliers at a discount?

▪ Are there geographical considerations to

optimize discounts?

Achieve Better Yield on Idle Cash or Reduce COGS

Working Capital & Operating Cash Flow Improvements

▪ Extending payment terms to some or all

suppliers?

▪ Maintaining existing payment terms if

receiving downward pressure on terms

from suppliers?

▪ Move suppliers off discount terms to net

terms?

▪ Improve supplier relationships?

▪ Assist suppliers in getting access to capital?

▪ Reduce supplier risk regarding cash flow

challenges?

▪ Is there better AP process to drive more

transparency & efficiency?

Supply Chain Finance to Drive Strategic Results

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Strategic Execution

Suppliers

Procurement/ AP

Treasury/ FP&A

Stakeholder Business Driver

Supplier Where’s my money?

AP Are we executing PO/Invoice/AP per contractual agreement?

Treasury Do we have enough liquidity?

FP&A Are we meeting FCF and working capital targets?

CFO Are we meeting investorexpectations?

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So How Does Technology Help?

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Fintech Fostering Alignment - What Gets Measured Gets Managed

FinTech Visibility

SupplierInvoice & Pay Status

DSO

AP Invoice & Payment

DPO

Treasury Cash Flow, Interest Inc

& Exp

CFO / FP&A Working

Capital KPIs & FCF

FinTech Execution

Supplier“Pay me

now”

AP

SCF Smart Payments (funded v

non)

Treasury

SCF Bank Programs & Onboarding

CFO / FP&A

Improve FCF, DPO

Measurement SCF Management

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How SCF can support initiatives• Cash flow / working capital, reduction in cost of

goods sold, etc.

• Identify opportunities on an individual supplier

basisUtilize individual supplier characteristics, credit scoring

and payment terms benchmarking

• Determine impact on supplier and buyer

• Iterative process – buyer tacit knowledge of

suppliers

• Cross functional win – led by you!

Where to Start?

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$0

$200

$400

$600

$800

AAA

AA+ AA AA-

A+ A A-

BBB+ BB

B

BBB-

BB+ BB BB-

B+ B B-

CCC+

Millio

ns

Spend

AVG of 65% of spend with non-investment grade suppliers

Financial cost and risk which could be mitigated with SCF liquidity

Supplier Demographic Analysis(Example)

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SCF solution to soften impact of term extension– Value messaging and execution critical to program success

Getting It Right the First Time

Segmentation (VSA) and

prioritization of suppliers.

Program design

Assist Corporate in creating suppliers

messaging / communication about

benefits of the program

1 Selection 2 3 4

Activate suppliers‘

requests to join the

program.Perform KYC and signature

of contract

Invitation & Education Activation Monitoring

Follow program KPIs

and adjust approach as

needed

Open Discussion

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• The Critical Importance of Business Continuity Planning for TreasuryJune 13th, 2017 | 2:00 pm ET | 11:00 am PTApproved for up to 1.2 CTP and up to 1.2 FP&A recertification credits by AFP

• Simplifying Payments - Top 5 Reasons Why the Cloud Improves Your Payment PolicyJune 22nd, 2017 | 2:00 pm ET | 11:00 am PTApproved for up to 1.2 CTP recertification credits by AFP

Join one of our next Modern Treasurer webinar sessions:

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Additional Resources

eBook: Making the business case for supply chain finance

Get PDF at: http://kyri.ba/SCFeBook

Global Business Intelligence report: State of Supply Chain Finance Industry, Entering a New Era of Maturity

Get PDF at: http://kyri.ba/SCFstate

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