Dole Asia Holdings has chosen Taulia to run its dynamic discounting and supply chain finance programmes.  Singapore-based Dole is a global consumer food and beverage company that produces and distributes fresh fruits and vegetables and packaged food products.

Its initial participating funders for the supply chain finance program are two international banks, and Dole plans to add other preferred banks in the future.

​More than 2,000 suppliers across Singapore, the Philippines, and Thailand will have access to the program.
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Taulia will demonstrate its dynamic discounting solution at Working Capital Forum Europe in Amsterdam on 1st December. 

Chief financial officers must place supply chains at the heart of their business strategy, urges Bram Desmet, professor of operations and supply chain at Vlerick Business School in Belgium.
With the aftermath of Covid, the energy crisis and the war in Ukraine all contributing to a looming recession, companies need to have a clearer idea of how their supply chains support their wider company goals, he says, ahead of his keynote address at the Working Capital Forum Europe to be held in Amsterdam in December.
“Many supply chains were designed in the pre-covid period when markets were relatively stable, and they were able to operate on cruise control,” he says. “We are now trying to navigate through two crises in a row on cruise control, which is completely ridiculous.” Many CFOs have taken a reactive approach to overcoming the challenges of the past few years, Desmet argues.

During the pandemic, there were not enough components and raw materials available which led to companies holding low inventories. With consumers panicking to stock up on goods in case supplies ran out, sellers could demand any price they wanted for their products.

Excess Inventory

However, with current inflation rates and a recession in sight, there is a risk that corporates have now over-ordered and created an excess of inventory.

“Everyone is sitting on expensive inventories while demand is decreasing,” he says.
What CFOs need to do, he argues, is to more carefully consider how decisions related to inventory can impact the company’s long-term business strategy, its financial metrics, and the sustainability of its supply chain.

This idea is at the heart of Desmet’s ‘Supply Chain Triangle’ concept that he uses when working with clients via his company Solventure to help them better manage their businesses.

The concept is based around the idea that companies have three interlinked priorities. They provide a service to customers, which comes at a cost – for instance warehousing or logistical costs - and which requires inventory.

Any decision made will have an impact on these three ‘corners’ – service, cost and inventory or cash.
“The ‘Triangle’ captures the struggle I see in many companies. On one hand you want to deliver a good service to customers, yet at same time we want to keep our costs under control.

“Finance is concerned with inventory because inventory is working capital, and working capital is linked to cash flow which important metric to them,” he explains.

Through talks and workshops, Desmet uses the triangle to help companies understand the three elements are linked. For instance, sales teams are more focused on customer service, operations teams might prioritise cost and efficiency and finance departments can be quite aggressive on working capital reduction without necessarily understanding the impact on other sides of the triangle, he explains.
Last-minute cuts to inventory in times of crisis may help a finance team hit certain goals for that year, but it may not be the right decision for the company in the long-term, he says.

Managing inventory is always a challenge due to lead times, Desmet adds, noting that companies don’t always know what the market conditions will be like six to nine months down the line when the stock turns up.

Don't panic!

By considering the impact of decisions on different sides of the theoretical triangle, companies can avoid taking a “panic and improvisation” approach to supply chain management.

“During Covid I hoped more CFOs and CEOs would have understood that if supply chains are not running well, then the business is not running well,” he says.

The current economic problems are “another reminder if you don’t balance that triangle - you are always in a reactive mode or an improvisation mode and that is simply not professional or optimal from a value generation perspective”.

Desmet argues that greater investment in supply chains is needed, as well as getting the supply chain experts in the same room as the CFO and the finance teams.

“Finance has credibility and impact but lacks operational knowledge, while with supply chain it is the other way round, they often don’t have clout in a company to make things happen,” he says.
By bringing together the right people, companies will be able to redesign their supply chains to be more resilient.
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“Supply chains are outdated and what we can do is help companies rethink supply chains to better connected to strategic needs and provide more clarity on the impact on financial performance and financial metrics,” he says.

Bram Desmet, with his client Danfoss, will speak at the Working Capital Forum in Amsterdam in December.  Places are free of charge for corporate treasurers and procurement directors.  To reserve your place, Click here.

​​​Why did Knorr-Bremse, a German manufacturing and services company with a 'rock-solid' balance sheet and no immediate need for additional financing, put in place a receivables finance solution?

The answer, according to Rainer Gerstung, Senior Manager Corporate Finance & Treasury, was to be ready for whatever shocks the post-Covid economic climate might bring. In a classic case of 'fixing the roof while the sun shines' the firm wanted to have access to additional funding in place before it might need it.

Gerstung decided to work with CRX Markets, whose working capital platform integrated smoothly with the firm's existing SAP ERP, allowing multiple banks to compete to fund individual debtors made available for financing by the firm. 

Tim Kallenborn, Head of Sales at CRX Markets, pointed out that all the funding banks had agreed to sign the same Master Receivables Purchase Agreement (MRPA), which hugely simplified the arrangement. While the Knorr-Bremse programme is funded by banks, CRX Markets  has also brought specialist non-bank funders into similar programmes for other clients. 

​For Knorr-Bremse, recievables finance forms part of an integrated working capital strategy which also includes reverse factoring. For Gerstung, its great benefit is optionality - Knorr-Bremse may not need the extra liquidity today, but it has the facility to scale up its factoring very quickly should markets conditions worsen.

Rainer Gerstung and Tim Kallenborn were speaking at the latest online event from the Working Capital Forum. You can watch a recording of the webinar here.

Total trade flows reached nearly 20% above pre-pandemic levels in 2021, according to new data from The ICC, with default rates dropping across all categories. For supply chain finance, the obligor-weighted default rate decreased from 0.93% in 2020 to 0.06%

The data comes from the 2022 Trade Register report, produced by ICC with partners Global Credit Data (GCD) and Boston Consulting Group (BCG).
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Despite the current macroeconomic uncertainty, BCG expects global goods trade to continue to grow at a further 5.6% compound annual growth rate (CAGR) over the next 10 years on a nominal basis, and 2.3% in real terms.  Despite the current macroeconomic uncertainty, BCG expects global goods trade to continue to grow at a further 5.6% compound annual growth rate (CAGR) over the next 10 years on a nominal basis, and 2.3% in real terms.  

Ten companies have been named as shortlisted entries for the 2022 Working Capital Awards, sponsored by American Express. They range from pharmaceuticals to FMCG and from retail to technology. The shortlist is released today after an independent jury spend a week scoring 25 entries. 

​Category winners and 'highly commended' entries will be announced at the Awards Dinner on 30th November at The Amstel Hotel, Amsterdam (above). 

​The evening will also see one entry named as 'Gold Award Winner', representing the best example of working capital among all the entries. There will also be special awards for Startup of the Year, Innovator of the Year and Working Capital Champion.

Many of the winning entries will be invited to speak during special sessions at Working Capital Forum Europe at The Beurs van Berlage, Amsterdam, on 1st December. Tickets for the Awards dinner and for the conference are available ​​here.
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Treasury Intelligence Solutions (TIS) has launched  Working Capital Insights, which integrates data from multiple sources  to deliver working capital metrics and KPIs on one dashboard. TIS, once best known as a payments systems provider, acquired cash forecasting specialist Cashforce in June.
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TIS says the new solution allows corporations to, 'Integrate their ERPs and corresponding AP and AR data with the solution in order to review payment terms and behaviour for vendors and customers, analyse invoice and billing activity, and measure all elements related to their net working capital status and cash conversion cycle.'

As a use case, TIS suggests users can evaluate DPO or DSO to identify discrepancies in payment behaviour across regions or customer groups, and could also analyse payment and invoice terms across their supplier base to look for extra efficiencies or adjustments.

Erik Masing, CEO of TIS, described the launch as,  'The perfect addition to our existing cash, liquidity, and payments management capabilities.'

The Financial Accounting Standards Board (FASB) has issued its long-awaited Accounting Standards Update (ASU) covering the disclosure of supplier finance programmes. 

Under the newly-published rules, a company that uses a supplier finance program will be required to disclose sufficient information about the program,  'To allow a user of financial statements to understand the programme’s nature, activity during the period, changes from period to period, and potential magnitude.'

​Specifically, a buyer will be required to provide the following qualitative and quantitative information:

1. The key terms of the program, including a description of the payment terms (including payment timing and basis for its determination) and assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary
2. For the obligations that the buyer has confirmed as valid to the finance provider or intermediary:
   1. The amount outstanding that remains unpaid by the buyer as of the end of the annual period (the outstanding confirmed amount)
   2. A description of where those obligations are presented in the balance sheet
   3. A rollforward of those obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid.

​The buyer should disclose the outstanding confirmed amount as of the end of each interim period.

'The new ASU responds to requests from investors for greater transparency around a buyer’s use of supplier finance programs,', said FASB Chair Richard R. Jones. 'It enhances transparency by requiring new disclosures intended to help them better consider the effect of these programs on a company’s working capital, liquidity, and cash flows over time.'

The new rules will apply to fiscal years beginning after December 15, 2022.

The new regulations  - and the future of supplier finance - will be the topic for a special session at Working Capital Forum Europe in Amsterdam on 1st December.

Prompt payment legislation could be having a dampening effect on supply chain efficiency, according to research from The London Business School. 

In their article, Fix the Financing of Supply Chains, Nitish Jain and S Alex Yang examine France's ​LME law, which restricts trade credit to 60 days for most French firms.  

'We found that the LME had a significant impact on retailers’ inventory investment,' wrote Jain and Yang.  'Taking hardware retailers as an example, the LME caused a 16 percent decline in trade credit, which subsequently led to an 11 percent reduction in inventory. A drop in inventory is not only going to lead to emptier shelves and more unsatisfied customers, but also hurt retailers’ financial performance. Indeed, we observed a 15 percent drop in revenue and a 3 percent decline in gross profit for retailers due to trade credit restrictions.'

Jain and Yang argue instead for a market-based approach that incorporates supply chain finance platforms. 'The future of the financial supply chain should be empowered by technology, not confined by stricter regulation,' they conclude.

Taulia has signed a memorandum of understanding with Standard Chartered to collaborate in delivering working capital finance solutions, starting with supply chain finance and dynamic discounting. It's the first time Taulia has signed with a bank since its acquisition by SAP.

'We are proud to announce the signing of the MoU with Standard Chartered and this marks another milestone in Taulia’s journey to grow our bank network and work closely with our partners to deliver working capital solutions for all of our clients,' said Thomas Mehlkopf, Head of Working Capital Management CoE at SAP and member of the Taulia Leadership Team. 

Revenues from supply chain finance at the world's 10 largest transaction banks increased by more than 20% in the first half of 2022, according to new data from Coalition Greenwich. 

​The increase contributed to a 22% rise in combined revenue from cash management and trade finance to reach $15.6 billion. 

​Coalition Greenwich tracks transaction banking revenues at Bank of America, Barclays, BNP Paribas, Citigroup, Deutsche Bank, HSBC, JPMorgan, Société Générale, Standard Chartered and Wells Fargo.

Join Europe's top companies at  Working Capital Forum Europe, Amsterdam, 1st December 2022

Coca-Cola Europacific Partners, Danfoss, Pepco, Vattenfall and Telia are among the companies sharing their working capital stories at Working Capital Forum Europe in Amsterdam on 1st December. 

Other speakers announced today include Duncan Marvin, author of The Pyramid of Lies - Lex Greensill and the Billion Dollar Scandal, Bram Desmet, originator of the Supply Chain Triangle concept and Menno Middeldorp, head of research at Rabobank. A parallel track will include technology demos from cash and working capital leaders such as TIS, Taulia, Coupa, Kyriba, PrimeRevenue and many others, as well as early insights into a supply chain connectivity venture between Commerzbank and Deutsche Telekom.

Full details for the event, to be held at Amsterdam's Beurs van Berlage (above), are here. Around 250 working capital practitioners are expected to attend.

Coca-Cola Europacific Partners (CCEP) has chosen Rabobank to run a new sustainability-linked supply chain finance programme. Rabo will provide funding to the programme, with other banks expected to participate and grow the facility over time.

The programme incentivises suppliers to make sustainability improvements. It will provide competitive financing that is linked to sustainability-driven KPIs for suppliers that unlock incremental discounts against the initial funding rate. The programme will set KPIs for suppliers in improving their overall ESG ratings, using data from EcoVadis. 

Initially launched in Germany, the programme will be expanded to CCEP’s suppliers in the rest of Europe, Australia and New Zealand in future phases,  It represents a significant win for Rabobank, replacing several existing programmes at CCEP, which has annual revenues of €13.5bn. ​

CCEP will also partner with Rabo Foundation, Rabobank’s social impact fund, to support one of its farmer programmes in Indonesia  that promotes the adoption of sustainable practices and farm inputs to increase yields and achieve better long-term economic strength.​

America's largest public companies managed inventory more effectively, collected from customers faster, and took longer to pay suppliers, according to the 2022 Working Capital Survey from The Hackett Group.  Despite this improvement across all three components of working capital, the overall working capital improvement opportunity increased substantially, said the report.

The three key measures of working capital – days payables outstanding (DPO), days sales outstanding (DSO), and days inventory outstanding (DIO) – all trended positively for the year for the top 1000 US businesses. DPO improved by .5%, from 61.9 days to 62.2 days. DSO improved by 2%, from 41.7 days to 40.6 days. Finally, DIO improved by 2%, from 56.7 days to 55.7 days.

Excess working capital grew substantially in 2021. According to The Hackett Group’s analysis, the top 1,000 companies have nearly $1.7 trillion tied up in excess working capital, 28% up from $1.29 trillion in 2020. The opportunity includes $627 billion in inventory, $533 billion in receivables, and $498 billion in payables.

Top performers by industry now convert cash more than three times as fast as typical companies (15.8 days versus 46.2 days). They collect from customers 43% faster (in 27.8 days versus 48.7 days), hold 58% less inventory (28.1 days versus 67.7 days) and take 50% longer to pay suppliers (76.6 days versus 51.2 days).
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Cash on hand as a percentage of revenue fell by 23% last year, after a sharp increase to 13% in 2020, putting it now back near pre-pandemic levels. Companies also saw a 17% decrease in debt as a percentage of revenue, indicating that companies have been using the cash they have hoarded during the pandemic to enhance their operational and financial performance.
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'The improved metrics of 2021 are encouraging, but they are contrasted by a significant increase in total excess working capital,' said The Hackett Group Director Shawn Townsend. 'That opportunity -- combined with ongoing uncertainties and disruptions ranging from high inflation, growing interest rates, geopolitical issues and the ongoing pandemic -- means that companies cannot take their foot off the gas when it comes to working capital management.'

Commerzbank is working with Deutsche Telekom subsidiary T-Systems on a supply chain automation solution that will integrate financial services. 

​Working with an unnamed pilot customer from the logistics sector, the project will use 5G, artificial intelligence, the internet of things (IoT), blockchain, cloud technology and sensors  to digitise the entire supply chain. 
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Urs Krämer, Chief Commercial Officer at T-Systems, said the project will, 'Bring the worlds of technology and finance together so as to digitise all aspects of a supply chain – from procurement, invoicing, through logistics, to payments.'

'Supply chains will change rapidly with digital networking and integrated payments,' said Jörg Oliveri del Castillo-Schulz, Chief Operating Officer of Commerzbank. 'Together with T-Systems we are working on scalable solutions so that our customers can make their complex supply chains such that these are more efficient, resilient and productive.'

PVH Corp, owner of the Calvin Klein and Tommy Hilfiger brands, has launched a sustainable supply chain finance program with HSBC. The US corporation claims it is the first such programme in the fashion industry to be tied to both environmental and social objectives, and based on suppliers’ sustainability ratings.

The HSBC-funded programme gives PVH’s suppliers  access to funding based on environmental targets as well as a series of social elements, including a healthy and safe working environment, compensation and benefits, and employment issues, such as forced labour, child labor, and harassment and abuse. 

“PVH's commitment to environmental stewardship and enhancing human rights in our supply chain is core to our Forward Fashion strategy," said Sarah Clarke, Chief Supply Chain Officer at PVH. "The availability of accessible financing is pivotal to ensuring our suppliers are empowered to invest back into their businesses and people, and contribute to our collective goal of creating an innovative and responsible global supply chain.” 

Suppliers progress will be measured against PVH’s Human Rights and Environmental Supply Chain standards and performance assessment standards will be measured using what the firm describes as ' industry-aligned tool'. These include the Social Labor Convergence Program (SLCP), which measures a facility’s performance against human rights and labor standards, and the Sustainable Apparel Coalition’s (SAC) Higg Facility Environmental Module, which assesses environmental standards. 

Our first round table in London since 2019 almost ended before it began. As our diverse group of treasury, corporate finance, and procurement leaders began to describe the supply chain issues they were facing, more than one revealed that their policy for the moment was to, ‘Forget about working capital.’  Not, thankfully, because it was no longer a concern, but because of the vital importance of securing increasingly scarce supplies of everything from grain to microchips, paying what the market demanded, and carrying inventory in far greater quantities than would have been thought wise in the old days of ‘optimisation.’ 
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Conflicting priorities
One procurement chief in a multinational electronics firm found himself between two conflicting priorities: As consumer spending declines thanks to inflation and rising interest rates, so the pressure is on to control costs across the business.  However, with a global shortage of microchips, prices are rising as scarcity increases - so much so that the launch of a significant new product has been postponed for lack of components. ‘For us, it’s all about the rising cost of money,’ he said, referring not just to the cost of capital but to FX, and the need to manage these variables more carefully than ever before.

One notable exception to the procurement race was a consumer goods multinational that had effectively vertically integrated, owning their key commodity crop from ’seed to consumer’ and ensuring consistency of supply in quantity  - though even they could not control the weather. 

A global treasurer at a beverage firm also noted the difficulty of getting consistent grain supplies - not just in quantity, but also in quality. As a result, farmers began to offer poorer grades to keep up with demand, where supplies from Ukraine and Russia have been effectively cut off. 

Just in case
Our entire group, then, acknowledged the move from ‘just in time’ procurement with lean stocks and tight tolerances to ‘just in case,’ building up stocks against whatever the future might hold - which is becoming more challenging to predict by the day (see our Stockholm round table report for why black swans are becoming white swans). 

With that in mind, the importance of effective cash forecasting was on the rise. No one underestimated the difficulty of that task - as one treasurer joked, ‘I have a 99% record on cash forecasting - we were wrong 99% of the time.’ Yet there were ways to increase the quality of forecasts. Like so many elements of the modern treasury, it came down to data - its availability, quality, and our ability to analyse it. 

Perhaps best equipped for forecast accuracy was a multinational which had invested in setting up an in-house bank (based on SAP), giving near-real-time global visibility of cash with a corresponding increase in forecast reliability. The same treasurer also used other advanced tools, such as virtual accounts, bringing greater reconciliation accuracy and simplicity to banking arrangements. 

Payables and receivables finance
Despite the changeable conditions, working capital tools and techniques remained an essential part of the toolkit. Both payables and receivables financing were in use. Treasurers took a pragmatic approach, pursuing the cheapest cost for funding. One treasurer described the choice between receivables finance and a revolving credit facility simply: ‘It’s all about the BPs (basis points) However, all were aware of the forthcoming tightening of standards around the reporting of supply chain finance and keen to ensure they kept their programmes on the right side of the debt/payables divide.

One priority that had not changed due to global conditions was environmental, social, and governance (ESG), which remained a priority in procurement and treasury. Everyone present had ESG priorities with some, such as a global mining concern, seeing them as a priority above all others, as the gateway to cooperation with national governments. Supplier finance was seen as one route to encourage compliance with ESG standards across the supply chain.

As the meeting closed, participants were asked what they would suggest should be the priorities of treasury and procurement in this changeable economic climate. Five themes emerged:

1. Think long term - it's tempting to focus on immediate threats, but don’t let go of the strategic perspective. 
2. Nurture your talent - whatever the external conditions and however good the technology, having the right people on your team is the best safeguard against shocks
3. Change behaviours - what worked in the past may not be right for the future. Your thinking may need to change.
4. Remain Flexible - No plan survives contact with the enemy - so be prepared to adapt as you go.
5. Communicate - with suppliers, with banks, within your own business. In a time of crisis, it’s more important than ever,

Working Capital Forum Round tables are open to senior leaders in treasury, procurement, and payments and are held under the Chatham House Rule. If you would like to join a similar event, contact dianah@adaugeomedia.com or apply directly for our future events in Edinburgh, Dusseldorf or Amsterdam.