Successes and Best Practices of Financial Supply Chain Automation in Asia.

2005 APEC Symposium on the Assessment and Benchmark of Paperless Trading, Beijing

Carl Wegner, VP Business Development

TradeCard

September 2005

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Growth of Cross-Border Trade

• “80 percent of manufacturers in [the U.S. and Europe] currently purchase, or plan to purchase in the next three years, components or goods produced outside their home countries”

Deloitte Research study "Mastering Complexity in Global Manufacturing," based on a survey of nearly 600 U.S. and European executives, 2003

• “Nearly 30 percent of world gross domestic product (GDP) currently crosses borders”

World Trade Organization, 2003

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The Trouble With Paper-based Trade

• In a world of just-in-time inventories, common systems for paying suppliers remain slow and complex.

• Cost of processing trade documentation is more than 5% of the total annual value of world trade.

• Cost of processing a simple transaction is about $400.

• Up to 24 forms must be completed for each transaction.

• Half of all letter-of-credit transactions are rejected by banks because of incorrect information from the buyer or seller.

Source: Gartner G2 report, June 2002

The real trouble is that this data hasn’t changed much in two years…

Companies need to automate in order to cope with the growth in cross-border trade

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What Overseas Buyers Want

“Leaders are embracing a clear set of processes and enabling technologies to drive down the frequency and cost of supply disruptions.” (Aberdeen Group, Sept 2004)

“AMR Research predict an 8% growth in sales of Procurement and sourcing software [in the US] for the 2003-2008 period”.

Where large buyers choose to source depends not only on price, but on efficiency of communications in the supply chain with their suppliers.

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Inefficient, Outdated Processes Add to Cost of Goods

EXPENSIVE- Bank fees are high- Ineffective use of credit lines- Approximately 90% of LCs result in

discrepancies- Each amendment incurs a fee but

amendments to POs are common in the apparel industry

TIME INTENSIVE - A lot of paperwork creating many errors

through re-keying of data- More work for Accounts Payable department

DISCONNECTED- Paperwork is completely disconnected from

existing ERP and EDI systems

Example: Letter of Credit Transactions

MORE COSTLY THAN IT SEEMS- Supplier requires financing for the period after

goods shipped and before payment is received, usually at unfavorable rates

TIME INTENSIVE - Document matching needs to be performed in-

house by buyer’s accounts department- Payments need to be reconciled manually

creating more work for Accounts Payable department

DISCONNECTED- Paperwork is completely disconnected from

existing ERP and EDI systems

Although suppliers bear the brunt of direct costs, time and cost trickle back to the buyer in the cost of goods

Example: Open Account

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How the Supply Chain is Completed: The Financial Supply Chain

Raw Raw GoodsGoods

SupplierSupplier

Raw Raw GoodsGoods

SupplierSupplierManufacturerManufacturerManufacturerManufacturer Retailer / Retailer /

DistributorDistributorRetailer / Retailer /

DistributorDistributor CustomerCustomerCustomerCustomer

Financial Supply Chain Questions

What and how to pay?When to pay?How much to pay?Who to pay?

Just-in-time-cashCu

rren

tly

bei

ng

o

pti

miz

ed

Movement of Documents

Data&

Money

Physical Supply Chain Questions

What to buy?When to buy?How much to buy?From whom to buy?

Just-in-time-manufacturingOp

tim

ize

d o

ver

la

st 1

0 ye

ars

Movement ofDocuments

Data&

Physical Goods

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Logistics

Factories

Inspection

Customs

Distribution Centers

FinancialInstitution

Suppliers

Buying Offices

Electronic compliance compares documents

Customer and supplier agree on purchase

order

BENEFITS OF AUTOMATING

THE FINANCIAL SUPPLY

CHAIN

• Transparency into the status of transactions

• Automated processes create efficiencies and eliminate errors

• Immediate cost savings

• Optimized financial and procurement decisions through access to information

• Innovative financial programs

• Shortened trade cycles

• Rapid online discrepancy resolution

• Improved trading partner relations

BUYER

A Common Electronic Platform to Coordinate Information and Money Flows With The Physical Supply Chain

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TradeCard Transaction Management “Best Practice” Process

Discrepancy Resolution;Discrepancy Resolution;Payment DecisionPayment Decision

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Patented Electronic Compliance:Compares Procurement and Fulfillment Data/Documents

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Logistics Service Logistics Service ProviderProvider

Proof of Delivery (optional)Proof of Delivery (optional)5

Buying OfficeBuying Officeor Agentor Agent

Payment Approval and/or Payment Approval and/or Inspection CertificateInspection Certificate

4

Send Commercial Send Commercial Invoice and/or Invoice and/or Packing ListPacking List

3

Purchase Order Advised, Purchase Order Advised, Approved, and StoredApproved, and Stored

2Create Purchase Order Create Purchase Order (UI, EDI, ERP interfaces)(UI, EDI, ERP interfaces)

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A/R VisibilityA/P Visibility Determine Value Date; Schedule Funds Transfer

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Trading Partner Trading Partner ManagementManagement

Buyer-Supplier connectivityBuyer-Supplier connectivity Purchase order Purchase order

managementmanagement Workflow and event Workflow and event

managementmanagement Electronic invoicingElectronic invoicing Document managementDocument management Integration moduleIntegration module

Accounts Payable Accounts Payable ManagementManagement

Patented automated Patented automated compliance checkingcompliance checking

Discrepancy managementDiscrepancy management Payment decisioning and Payment decisioning and

schedulingscheduling

Financial Services Financial Services ManagementManagement

Money movementMoney movement Payment Assurance (LC Payment Assurance (LC

replacement)replacement) Automated Supply Chain Automated Supply Chain

FinancingFinancing

SupplierSupplierSupplierSupplierBuyerBuyerBuyerBuyer

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A Complete FSC Solution is Flexible

TRADING PARTNER MANAGEMENT

FINANCIAL MANAGEMENTTRANSACTION SOLUTIONS

Money MovementPlatform automatically initiates electronic payment to suppliers with automated wire transfers and ACH transactions.

Payment AssuranceHave access for suppliers to payment assurance, without tying up credit lines, and to electronic Letters of Credit.

FinancingElectronically apply for pre-and post-export financing online.

Early Payment Discount ProgramOptimize credit availability and usage across the supply chain with innovative programs, including terms extension program.

Workflow and Event Management Move tasks within and among enterprises on a common platform, with real-time notification of supply chain events.

Purchase Order Management Manage the delivery, negotiation and amendments of purchase orders.

Electronic InvoicingPresent invoices electronically.

Document Management Route, store, and organize electronic documents.

Shipping/Logistics Documents Have access to transaction data, including proof of delivery.

Integration ModuleConnect to ERP systems, EDI interfaces, and other services or solutions.

Patented Automated Compliance Checking Electronically compare procurement and fulfillment documents to make or support payment decisions.

Discrepancy Management and Dispute ResolutionIdentify and resolve discrepancies between procurement and fulfillment documents to enable payment.

Payment Decisioning and Payment Scheduling Decide when and how payments should be made, whether upon compliance or triggered by the customer.

Warehouse Reconciliation and Chargeback Management Electronically compare warehouse goods receipt with invoice and automate chargebacks.

TRANSACTION MANAGEMENT

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TradeCard Enables Best Practices

• Connect to trading partners electronically

• Automate global trading processes including finance

• Manage documents and amendments electronically

• Know what invoices are “OK to pay”

• Automate payment scheduling and settlement

• Electronic discrepancy resolution

• Replace Letters of Credit with alternative payment assurance

• Offer automated export financing to suppliers

• Take advantage of early payment discount programs

• Preserve or extend DPO

• Optimize credit throughout the supply chain

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TradeCard as Part of a Regional Paperless Trading Initiative

• TradeCard’s focus is on enabling international trade and providing paperless connectivity, transactional functionality with workflow and event management and financial services to ensure automation of the financial processes in global supply chains

• In a regional set-up, TradeCard can provide any part of its system to enable paperless trade for example to manage invoice, packing list, proof of delivery, advanced shipping notice and financial guarantees electronically

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TradeCard Customers Around the World – From 0 – 40 Countries

• Australia

• Bahamas

• Bangladesh

• Canada

• China

• Egypt

• Germany

• Greece

• Honduras

• Hong Kong

• India

• Indonesia

• Israel

• South Africa

• South Korea

• Spain

• Sri Lanka

• Sweden

• Taiwan

• Thailand

• Turkey

• United Arab Emirates

• United Kingdom

• United States

• Vietnam

• Italy

• Japan

• Jordan

• Lithuania

• Macao

• Malaysia

• Mexico

• Nepal

• Peru

• Philippines

• Portugal

• Singapore

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TradeCard’s Success

• 600 + new members in 2005

• 20+ financial institutions, 100’s LSP

• More suppliers converting to buyers

• Intra-Asia business is growing faster• Penetration into our core verticals apparel and footwear is also accelerating •TradeCard is not just a concept or plan - it is live and expanding customers and capabilities

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FOOTWEAR APPAREL RETAIL

More Than 1300 Client Members Use TradeCard for Their Global Supply Chains

Case Study: Burton SnowboardsBest Practices in Cross-Border Trade Management

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Burton Snowboards Profile

• Profile– $320M company with $130M procurement

– Approximately 40 vendors in:• Hong Kong

• Taiwan

• China

• Europe

• U.S.A.

– Using ERP system from SAP

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Burton’s Suppliers in Asia

S.Korea

China

Hong Kong

Taiwan

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Business Challenges to growth

• Transactions created mountains of paperwork

• Letters of credit tied-up time and working capital

• Excessive paperwork made it difficult to capture more early payment discounts

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Burton’s Solution: Implement TradeCard

• Selected TradeCard in December 2003; Burton implemented in February 2004

• Used holiday period for integration with SAP system and vendor on-boarding

• Live in 6 weeks

• Jointly visited vendors in Asia and North America

• Using full suite of TradeCard products including early payment program for suppliers (Automated Supply Chain Financing (ASCF)).

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Successes for Burton Snowboards

• Greater visibility between financial and operational processes allows improved working capital forecasts

• Through automated transactions, Burton Snowboards can offer suppliers payment in five days at a discounted rate and surpass return from extending payment terms

• Time and working capital freed up through letter of credit elimination

• Integrated TradeCard with its SAP implementation in under 25 business days

• Procurement-to-payment costs expected to be one-third to one-half of last year because of TradeCard

• Visibility of being able to find transactions anywhere in the system and knowing when the cash flows are coming in

• Suppliers sometimes ship 30 to 40 times on a single purchase order. Because TradeCard automatically matches relevant procurement and fulfillment documents, Burton benefits from time savings.

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Successes on Supplier Side

• Easier for finance departments to keep tabs on receivables

• Better working capital management and reduction in short-term borrowing

• Production department gets advanced notice on material and manufacturing requirements.

• Working capital no longer stretched thin when buyer’s business growth needs to be supported – working capital freed up through early payment

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Burton Results:

Source: Retail Systems Alert “Top of the Net”