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Event Report: Working Capital Forum 2023

Sustainability and innovation were top of the agenda for the more than 300 experts and practitioners who came together again for the Working Capital Forum Europe 2023 on November 28th.

​Against the backdrop of the beautiful Beurs van Berlage building – but in the shadow of serious economic challenges – they shared best practices, explored cutting-edge technologies and discussed where next for a trend that just keeps growing, ESG-linked SCF.

As Working Capital Forum CEO Mike Hewitt said, “Today is about all of us working together, bringing support to developing economies and building more sustainable supply chains.”

See more photos from the conference and awards

New world disorder
​Menno Middeldorp, Global Head of RaboResearch, kicked off the day with a summary of the geopolitical risks facing treasurers (image above). Events that disrupt or cut off supply chains – such as conflicts or the recent pandemic – are hard for treasurers to hedge, he noted.  These tend to cascade, with numerous risks emerging in multiple locations at the same time, weakening the impact of efforts to diversify supply chains. 

Amid a “new world disorder,” in which regional powers are positioning themselves in relation to China-US rivalry, he said the dollar would likely remain dominant – albeit challenged by the renminbi and by cross-border digital-currency transactions. And he advised treasurers to remain alert to increased risk of capital controls and financial sanctions. 

​Middeldorp also predicted that direct imports of Chinese goods by the US and eurozone would continue to shrink. But he noted that as supply chains become longer – with more middle-men and potential points of failure – many will still lead back to China.

Why working capital matters
Tighter working capital management can help buffer companies from negative macroeconomic trends, noted McKinsey & Co Partner Jakob Ruden (below) in a session that explored how companies can fuel growth by building a cash culture and improving their balance sheet health. As well as unlocking cash fast, it can increase companies’ enterprise value, boost their credit rating and improve financial KPIs, he said.

But efforts to get net working capital in shape often run out of steam, partly because the decisions of so many people – from warehouse managers and accounts payable specialists to commercial negotiators and the CFO – are involved. 

To get back on track, he recommended making working capital transformation a top priority for management, with regular communication at all levels. He also called for the established of a small ‘SWAT’ team and the setting of ambitious targets that are monitored through strict weekly drumbeats.

Transformation at Teva
Working capital transformation certainly delivers, as demonstrated by Teva Pharmaceuticals, where efforts have freed up $375 million and helped the company halve its debt, Tanya Rodman, Director of Corporate Treasury (pictured), and Andrea Grgić-Halić, Director of Procurement Centre of Excellence Programmes, revealed next.

Teva’s working capital agenda was deprioritised for a decade amid cheap and highly available funding. And by 2017, mergers and acquisitions had left the company with fragmented systems and a $34 billion debt burden. Higher funding costs in a post-COVID world led to an epiphany – to continue delivering for customers, Teva needed to release trapped capital and buffer itself against supply shocks, which would require organisation-wide financial discipline and a clear strategy. 

So Teva established a cross-functional team and put its systems, processes and working capital metrics under the spotlight. Under a new payment terms strategy, Teva standardised its supplier payment terms, extending them by an average 30 days. A focus on payment process optimisation saw it channel payments through bimonthly runs – increasing its days payable outstanding by seven days. 

It focused SCF programmes on its top spend countries and – as part of Teva’s work to reduce its Scope 1 and 2 emissions by 33% by 2030 – offered suppliers better discount rates based on an ESG score provided by sustainability ratings provider EcoVadis. In one year, the accounts payable balance of the programme – which was Highly Commended in the Best ESG Working Capital category of this year’s American Express-sponsored awards – has tripled to around $90 million.

REWE’s road to SCF
Matthias Cork, Director of Working Capital at Germany’s REWE Group, then outlined its journey towards launching an SCF programme. 
In 2020, the trading and tourism company’s working capital was not actively managed and changes were hard to explain. But the group was keen to increase investment and cut debt, and travel slumps during COVID and rising interest rates hammered home the need for a new approach. 

To shine a light on working capital processes, define KPIs and standards across the group, and improve monthly reporting data, REWE created a virtual working capital team that brings together Treasury, Finance and Corporate Control. The initial aim was to simply increase payment terms, but supply chain disruptions plus the prospect of tighter EU regulations persuaded it to launch an SCF programme. 

To retain equal relationships with all its banks, REWE opted for a flexible multi-funder platform with Taulia that allows it switch between bank-financed SCF and dynamic discounting. Only 50 of the couple of hundred SME suppliers invited to join have so far onboarded – a response that surprised Cork – but these use the platform heavily and more are now making enquiries. Given 90% of REWE’s CO2 emissions come from its supply chain, REWE expects to add an ESG element to its SCF pricing in the next year.
 
Tools & Techniques
The Tools & Techniques stream opened with an exploration of purchase order financing. Provider Twinco COO Carmen Marin said it offers a way for emerging market suppliers to tap funding that also helps buffer them against inflation. Eduardo Zamacola, President of Acotex, Spain’s national association of textile, accessories and leather trade, said the data gathered and monitored by providers like Twinco helps buyers manage supplier relationships more proactively. And Azhar Khalid, CEO of Denim E, outlined how Twinco funding is helping the Pakistani denim maker become more sustainable.

German online retailer Zalando was then joined by partners Santander and SAP (right) to share its journey towards rolling out an automated and interconnected payments and invoicing solution that won it this year’s Best Integrated Working Capital Project award. Zalando’s Senior Treasury Manager, Paola Jimenez, and SAP Functional Consultant, Lokesh Doggala, described the tight collaboration that had enabled them to roll out at top speed an innovative solution that has improved Zalando’s cash flow management and sped up invoice delivery and settlement.

Diego Maus, CFO and Corporate Officer at Grupo IFA, then gave a refreshingly candid overview of the challenges it has faced in gaining bank support for an SCF programme it launched in November 2023. The group – which negotiates, buys and makes payments on behalf of 33 Spanish regional retailers to give them strength in numbers – initially planned the programme to offer dynamic discounting plus reverse factoring, but banks have been surprisingly reluctant to fund the latter. He and tech partner Kyriba are confident that once one bank steps forward, others will quickly follow to avoid missing out on what promises to be a hefty programme. 

Supply Chains & Inventory
The Supply Chains & Inventory stream was opened by Bram Desmet, Professor of Operations and Supply Chain at Vlerick Business School, who joined Mark van Abeelen, Director of Finance Strategy & Business Excellence at Ricoh Europe, to discuss strategies for managing inventory in challenging times. Van Abeelen introduced the company’s approach to coping with supply chain disruption and its ‘ONE Ricoh’ supply chain-as-a-service model. He also outlined the company’s efforts to make Ricoh a more circular business. For example, 132,580 end-of-contract machines were returned from customers, and 73,120 re-usable service parts were returned from engineers. 

Desmet ran two interactive workshops where he introduced his ‘supply chain triangle’ concept that inventory should be managed holistically, through Supply Chain and Finance colleagues partnering closely and sharing data. Participants were helped to develop strategies for how they could break down siloes at their own firms and improve cross-functional communication.
Dhiresh Dave, Head of Product, Structuring and Legal at trading company Falcon Group, and Eugenio Cavenaghi, Head of Working Capital Advisory and Structured Trade at Santander CIB, then outlined the benefits of inventory management solutions – an offering they believe will hit the mainstream within five years. 

Technology & Innovation
In the Technology & Innovation stream, Royston Da Costa, Group Assistant Treasurer at Ferguson Group, shared insights about the company’s cash forecasting tools and strategies. This was followed by short “elevator pitches” from solution providers including Cobase, Kyriba and TIS.

Dynamic discounting – a solution that larger suppliers are increasingly embracing – was centre stage next. And judging by the notably high attendance at this session, the trend has longer to run. For the first time, representatives from banks and technology providers – including Citi, CRX Markets, Kyriba, MUFG, PrimeRevenue and SAP Taulia – were pitted against each other to showcase the features and capabilities that keep their platforms in the lead.  

Case Studies: Bridgestone, AGCO and Siemens
The day’s first case study focused on a sustainable SCF programme that won Japanese tyre maker Bridgestone this year’s Best ESG Working Capital Initiative award. Julle Pedersen, Director of EMIA Bridgestone, was joined by partners Taulia, JP Morgan and EcoVadis, to explain how the programme works, why it has scaled so successfully and what’s next. So far, 20% of enrolled suppliers in the programme – which offers suppliers discounted pricing for improving their EcoVadis ESG rating – have improved their score. 
Tope Fajonyomi, Senior Treasury Manager at agricultural machinery manufacturer AGCO – winner of this year’s Best Use of Receivables Finance award – outlined how an innovative programme that combines securitisation, factoring and insured receivables has helped delivered on the company’s goals of improving cash flow, minimising credit risk, strengthening customer relationships and maximising profitability. 

Finally, Siemens veteran Douglas Schoch – winner of the 2023 Working Capital Champion award – was joined by the company’s Head of Supply Chain Finance Friedermann Kirchhof and Orbian’s Markus Schiffers to reflect on the early days of a now monster programme that helped establish SCF as we know it.

Spotlight on regulation
Regulation and efforts to digitalise trade were centre stage at the next session. One highlight was a discussion about how proposed amendments to the EU’s Late Payment Directive could impact SCF. Sullivan & Worcester Associate Luna Owen explained how the changes would introduce a maximum payment term of 30 days for suppliers, with payments made later than this subject to a compensation fee and interest. 

 

Sean Edwards, CEO of the International Trade Forfaiting Association (ITFA), warned that such changes could squeeze the financial system’s ability to provide SCF. They could also hurt small buyers – such as those in the food and beverage industry – if they lose currently more generous terms with their larger suppliers. 

Frederic Gits, Group Credit Officer, Corporates at Fitch Ratings, added that proposed amendments to the Directive could simply result in suppliers being forced to accept lower prices. And Eleena McDaniel, Director of Global Accounting and Reporting at Lots Group, cautioned that enforcing the rules – especially around the late payment fee – could be difficult.

​Otto strikes gold in Bangladesh
Germany’s Otto Group was last onto the main stage with a deep dive into the e-commerce group’s complex structure and working capital needs, plus some lessons learned as it dipped its toe into SCF one month before COVID struck and ultimately extended one of two programmes to Bangladesh – winning in the process not only this year’s Best Use of Supply Chain Finance  prize but the overall Gold Award .

It was initially challenging to achieve buy-in for SCF at Otto, where multiple brands run everything from marketing to debt collection independently. So rather than imposing the structure on them, it started by running workshops with buying departments and other stakeholders, asking them to share problems that a centralised solution could help with, said Moritz Küsel, Head of Structured Finance and Risk Controlling. 

It took a similar approach, this time with suppliers, when it launched a second SCF programme in Asia. In Bangladesh – where local rules dictate that suppliers must be paid when goods are released from the port of origin – this helped it achieve 100% supplier acceptance for bringing payment terms in line with elsewhere and for joining the programme. 

Otto is now rolling out a programme in the US, with a view to making SCF available to as many suppliers as possible. “We will always try to push supply chain finance even further,” Fabian Schulenburg, Senior Project Manager, Working Capital, concluded.

The event’s charity partner, Bees for Development, helps the world’s poorest communities build a reliable and environmentally sustainable income. Any support is gratefully appreciated.