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Optimize Working Capital: Strengthen Trading Partner Relationships. Brook Ballard – Sysco Corporation Scott Hughes – Wells Fargo . April 4, 2011. Working capital management. Goal: Fund necessary day to day operations and invest assets optimally - PowerPoint PPT Presentation
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Optimize Working Capital: Strengthen Trading Partner RelationshipsBrook Ballard – Sysco CorporationScott Hughes – Wells Fargo
April 4, 2011
Working capital management Goal: Fund necessary day to day operations and
invest assets optimally Inventory, cash, receivables and payables
management are all levers of WCM
Internal Factors External Factors
Size and growth rate Banking ServicesOrganizational structure Interest ratesLevel of working capital management
Technology and products
Borrowing and investing positions and activities
Economy and competitors
Industry challenges
3
Industry challenges
How do you extend Days Payable Outstanding (DPO)? How do you shorten Days Sales Outstanding (DSO)? How do you optimize Days Inventory Outstanding (DIO)?
4
Industry challenges (cont.)
94% of CFOs consider cash flow optimization to be important or very important 1.
59% of CFOs rated better cash management as their top priority 1.
1. The Working Capitalist, REL, YEAR
Management Buy In System Enhancements Customers willingness to accept change
What is in it for me? Check to ACH Check to Card Maintain check but extend terms
Challenges to Converting Accounts Payable to more Cost Efficient Methods
Managing Working Capital can be a Real Bear
7
88
Technology to improve AP processes
Source: IAPP 2008 Member Benchmarking Survey
Adoption of submitting electronic invoices is increasing.
0%
10%
20%
30%
40%
50%
60%
70%
2006 2007 2008 2009 2010 2011 2012
Source: PayStream Advisors, Q1 2009
Paper invoices
Electronic invoices
1010
B2B payments study
-5.3%
6.7%
7.4%
9.1%
9.7%
-10.0% -5.0% 0.0% 5.0% 10.0% 15.0%
Checks
T&E cards
Wires
P-Cards
ACH
Growth
Paym
ent t
ype
Source: Aberdeen Group, June 2009
Paper62%
How payments are made
Trends over the past 18 months
11
“Best in class” payment mix
Source: IAPP Member Benchmarking Survey
Sysco’s Annual Payment Tender Type
450K or 18%
2M or 82%
5K or 0%
Check ACH
Wire
Maturity framework of electronic payments
13
Definition of Maturity Class
Mean Class Performance Cost*
Best-in-Class:Top 20% of aggregate performers
80% of overall payments processed by electronic methods
$3.533.5 days to process
Industry Average:Middle 50% of aggregate performers
30% of overall payments processed by electronic methods
$11.1916.0 days to process
Laggard:Bottom 30% of aggregate performers
7% of overall payments processed by electronic methods
$35.5627.1 days to process
Source: Aberdeen Group
*Overall processing cost per payment
How does Sysco Calculate the value of AP? AP-DPO calculation
Calculating Cash Flow Impact
2010 Current Period Change
AP 1,900,000 2,000,000
DPO 17.05 17.70 .65
Cost of a Day 111,437 112,994 73,446
Why is this important?
Trading partner tension
•Maintain or extend DPO•Inefficient trading partner relationships results in higher cost of procurement & payables•Inability to forecast accurately•Paper intensive processes•Inability to capture early payment discounts•Resource intensive purchase to pay•Reduce fraud
Buyers’ Objectives•Aim to reduce DSO•Inefficient receivables posting, cash application and collection processes. Heavy use of Lockboxes•Inability to forecast accurately•Paper intensive invoice delivery and receivables•Manual/inefficient dispute resolution•Resource intensive order to cash
Suppliers’ Objectives
VS.
Payables Optimization Analysis
Payables focused, demonstrates how much liquidity can be realized by improving the purchase-to-pay processes
Provides intelligent routing to expedite payment, minimize costs and DSO but maintain DPO
Provide insight for dynamic discount management
Factors in time value of money
Payables Optimization Analysis Overview
1.Gather Data 2.Control Data Review
3.Intelligent payment routing
output4.Recommended
Actions
1.Gather Data: Master Vendor File is uploaded
2.Control Data Review: Cost per disbursement, DPO, float, cost of funds, discounts available, average ticket, quick pay vs. slow pay. 3. Output shows total hard dollar savings, broken out by payment issuance savings, cost of funds impact, additional rebate and early payment discount all based on a best-in-class target mix
4. Recommended actions are tailored to improve trading partner relationships
Payables Optimization Analysis: Data elements needed
Mandatory Optional Annual Spend D & BDBA Site ID Early Payment Discount (%) Vendor IDEarly Payment Discount Threshold (days)
Contact Name
Payment Type Address (City, State, Zip) TXN Count MCC Code Vendor ID Tel TIN
Example output: Potential Hard Dollar Savings
Example output: Optimum spend mix
Segregated Vendor Population System Rollout
Training Resistance to change Negotiating Terms
Sysco Payment Conversion Challenges
Supplier Onboarding
Migrate suppliers from check to more beneficial payment forms and terms Reduced disbursement costs
Optimized DPO
Payment status visibility for suppliers
Improved Vendor Relations and Maintenance of supplier payment information
22
Supplier Analysis & Onboarding support
4
•Extract master vendor file
•Analysis segmentation
•Enrollment strategy
•Build marketing campaign
•Execute outreach campaign
•Relationship activation
•Payment and remittance
23
24
Recommendations for success
Involvement of executives is critical to achieve goals
Segmentation of vendors Tracking working capital metrics Automation and standardization of payment
processes Creation of a compensation system based on
improving working capital
QuestionsBrook BallardSysco CorporationPhone: 281-584-1334Email: [email protected]
Scott HughesWells FargoPhone: 770-551-4663Email: [email protected]