Tactics without strategy is the noise

before defeat Sun Tzu, 500 BC

THE MISSING LINK

OPTIMIZING WORKING CAPITAL THROUGH
SUPPLY CHAIN FINANCE

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The Missing Link

CONTENT
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INTRODUCTION
CHALLENGES IN
SUPPLY CHAIN FINANCE
THE MISSING LINK
WHAT DOES IT LOOK LIKE?
THE UNIQUE ONBOARDING SOLUTION
SCiENABLE
BEWARE:
THE RATE ARBITRAGE TRAP
SCiMAP IS THE MISSING LINK
SOLUTION OVERVIEW
WHY YOU SHOULD CONSIDER SCiMAP?
WE ARE HERE TO SUPPORT YOU
REFERENCES
ABOUT PRIMEREVENUE

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INTRODUCTION
Supply Chain Finance has the potential to drive hundreds of millions, if
not billions, of dollars in incremental cash flow for Global 2000
organizations. However, as many companies who have implemented
Supply Chain Finance can attest to, potential does not always translate
into reality.
Why? There is a missing link.
While implementing Supply Chain Finance and onboarding suppliers to
an Supply Chain Finance platform improves supplier cash flow, it has
no effect on the buying organizations working capital and cash flow.
To bridge the gap between potential and reality, companies need a
solution that is more than just a supplier early payment tool. They
need something that will turn Supply Chain Finance into a more
complete working capital solution. This missing link will provide a
rigorous data driven approach to Supply Chain Finance program design,
execution and measurement.
PrimeRevenues SCiMapTM solution provides exactly that through a
cloud based application. SCiMap will analyze your spend and provide a
strategy to optimize payment terms based on multiple benchmarks and
supplier characteristics. Its payment terms optimization engine is
built on top of a global database of over 1.3 Trillion dollars in spend
from suppliers worldwide. Strategy is great, but your Procurement
team has to work with your suppliers and negotiate payment terms in
order for you to achieve your objectives. SCiMap will help there too
by providing a detailed payment term projection for each supplier as
well as the associated supplier messaging. SCiMaps supplier card will
show you various supplier financial and operational characteristics and
the economic impact of different scenarios on each supplier. This is
where SCiMap really gives your Procurement team a competitive edge.
Finally, SCiMap will measure and track the results of your Supply Chain
Finance program so you can see how youre doing against your cash
flow goals down to the regional, commodity and Procurement manager
level. SCiMap takes you all the way from strategy to execution to
measurement and accountability.
PrimeRevenue Inc. 2015

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The Missing Link

CHALLENGES IN
SUPPLY CHAIN FINANCE
What is a successful Supply Chain Finance
program?
Most companies implement Supply Chain Finance
to help optimize payment terms. They define
success by improvements in working capital and
cash flow.
Despite this, most Supply Chain Finance solutions
simply provide a supplier financing tool. They do
little to help the buying organization determine
their working capital strategy or execute against
that strategy.

Yes, longer terms are better, but how

long?
At what point are payment terms optimized
based on the buyers objectives and the unique
characteristics of their supply chain?
At best, todays Supply Chain Finance solutions
take a one size fits all approach to helping buyers
achieve their Supply Chain Finance objectives.
They analyze everything through the prism of a
single characteristic the suppliers credit rating
(and associated cost of debt).

This single factor is used to determine supplier

payment terms, prioritize suppliers and create
supplier messaging.
Critical factors such as
payment terms benchmarking, the buyer-supplier
commercial relationship, supplier financial
objectives, supplier industry and geography,
supplier ownership structure, etc. are not taken
into consideration.
In some cases, such as when the bank funding the
Supply Chain Finance program suggests payment
terms or prioritizes suppliers for rollout, supplier
selection may be based on maximizing supplier
early payment requests and minimizing rollout
costs. This leads to the prioritization of a few
large suppliers. The suggested payment terms
take a one size fits all approach across the
selected suppliers which does not reflect
individual supplier characteristics and therefore
limits the success of the term extension
initiative.

Most Supply Chain Finance solutions

simply provide a supplier financing
tool. They do little to help the
buying organization determine their
working capital strategy or execute
against that strategy.

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The Missing Link

Even after youve developed your payment term

strategy, todays Supply Chain Finance solutions
do nothing to help you maximize Procurements
chance of successfully executing against that
strategy. How do you train them? What tools are
you making available to them?
What Key
Performance Indicators should you track and how
will you track them across a global company?
How do you gain visibility into key Supply Chain
Finance milestones across the organization?

Unfortunately, current Supply Chain Finance

solutions do not have answers to these questions.
Supply Chain Finance programs can deliver
hundreds of millions or even billions of dollars in
cash flow gain to buying organizations, yet due to
the missing link in Supply Chain Finance
solutions, they are managed more like small, one
off projects, with lots of clunky spreadsheets and
no way to effectively manage accountability.

CHALLENGES IN
SUPPLY CHAIN FINANCE

What are my Supply

Chain Finance
objectives?

What are the

optimized payment
terms for each
supplier?

How do I collaborate
and ensure alignment
among key
stakeholders?

How should suppliers

be prioritized to
accelerate value?

What is the impact of

various optimization
scenarios on my
objectives?

What is the
messaging for each
type of supplier?

How do I train the

How do I track against
Procurement team?
plan? How do I ensure
What tools do they need?
accountability?

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The Missing Link

THE MISSING LINK

WHAT DOES IT LOOK LIKE?
What kind of a solution is required in order to convert Supply Chain Finance from a supplier early payment
tool into a working capital solution? Such a solution must address three key areas: Supply Chain Finance
Program Design, Execution and Measurement.

Design

Provide terms benchmarking specific to

commodities, geographies and industries.
Commercial considerations such as contract
length, sole or multi-sourced supplier, etc. must
be included.

Identify optimization opportunities, based on

the information described above and in
collaboration with Procurement and other
internal stakeholders.

Determine supplier messaging and approach.

Messaging needs to take into account the
suppliers business characteristics including its
corporate objectives, business drivers, economic
impact of any term extensions and the suppliers
value of capital.
You wouldnt sell the same way to all of your
customer segments - different segments have
unique characteristics and value features
differently. For the same reason, you also should
not communicate term extensions and Supply
Chain Finance the same way to all supplier
segments.

For example, you will fail to achieve your

working capital objectives if you take the same
approach with a large investment grade supplier,
a large sub investment grade supplier and a
smaller supplier.

Prioritize suppliers for rollout, identify quick

wins, determine objectives and Key Performance
Indicators (KPIs) and pull it all together into a
strategy to achieve meaningful and continuous
working capital efficiency improvements.
Such an approach, customized to individual
buyer/supplier characteristics, maximizes
working capital efficiency and cash flow
improvements and minimizes time to value. It is
much more effective than a one size fits all
approach.

A recent study titled Maximizing the

Value of Supply Chain Finance looked at
the expected returns of implementing a
one size fits all Supply Chain Finance
strategy versus a customized Supply Chain
Finance strategy. The customized
approach yielded more than double the
cash flow gain. Beta Research School for Operations
Management and Logistics1

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The Missing Link

What kind of a solution is required in order to convert Supply Chain Finance from a supplier early payment
tool into a working capital solution? Such a solution must address three key areas: Supply Chain Finance
Program Design, Execution and Measurement.

Execution

Training must be provided to your Procurement

team to ensure they understand and agree with
the proposed payment terms and how Supply
Chain Finance impacts supplier financials.
Training should include best practices on using
Supply Chain Finance in supplier negotiations.

Sophisticated tools and supplier negotiation

support must be provided to the Procurement
team, including detailed payment term
projections for each supplier and the associated
supplier messaging.
Various supplier financial
and operational characteristics should be made
available to the Procurement team as well as the
economic impact of different scenarios on each
supplier. Arming your Procurement team with the
information and tools they need is critical for
achieving your objectives.

Measurement

Program measurement is the last piece of the

puzzle.

Measurement is critical, you need to see how

you are doing against your Supply Chain Finance
objectives down to the regional, commodity and
Procurement manager level. This supports both
visibility and accountability.

Cycle time around key Supply Chain Finance

milestones needs to be measured and tracked in
order to speed time to value.

Championship-caliber negotiators do a number of

things well. They gather as much information as they
can about suppliers, the supply base and market
conditions and they learn about best practices in the
industry before they sit at the negotiating table.
Charles Dominick, President and Founder of Next Level Purchasing,2

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Learn the other partys

motivations...use facts to persuade
Extreme Negotiations, Harvard Business Review
Jeff Weiss, Aram Donigian, Jonathan Hughes

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The Missing Link

BEWARE:
THE RATE ARBITRAGE TRAP
Many may find it comforting to think that using Supply Chain Finance to support supplier payment term
negotiations is just a math exercise where one simply determines the suppliers cost of debt, compares it
to the Supply Chain Finance rate offered and calculates the appropriate term extension which suppliers
will happily accept. Unfortunately, its not that simple.
This approach will significantly reduce the potential benefits of implementing Supply Chain Finance.
Proof of this is the many suppliers who participate in Supply Chain Finance yet have a lower cost of debt
than the Supply Chain Finance program rate. These suppliers would have been ignored by a rate arbitrage
approach which focuses on sub-investment grade suppliers. Buyers and their Supply Chain Finance partner
need to go much further than simple rate arbitrage.
An example of the rate arbitrage approach is as follows: The buyer might say Supplier X, your cost of
funds is 5%, the Supply Chain Finance rate we are offering is 1%. You will be better off with Supply Chain
Finance and a term extension of 30 days than your current situation so you can join if you give us a 30 day
term extension. Essentially the buyer in this example is trading the benefits of Supply Chain Finance for
a term extension. The issues with this approach include:
1. The rate differential exists at a single point in time. Even if the buyer knew that a certain supplier
had a cost of funds of 5% today and even if that supplier acknowledged this, it is still only their cost of
funds at a specific point in time. While it may be 5% today, it may not be 5% next year. Suppliers always
believe their business will improve so they think their cost of funds will be lower in the future while a
term extension is forever.
2. The Buyer opens themselves up to constant term re-negotiation. Linking the term extension amount
to the rate differential implies that if the rate differential goes down (or Supply Chain Finance is
withdrawn) then the term will decrease.
3. It puts the buyer in a poor negotiating position because the supplier will have better information
than the buyer about their own cost of funds. Negotiating from an information deficit is always sub
optimal.
4. It forces Procurement to become experts in corporate finance. They get dragged into discussions
about commercial paper, asset backed finance, A/R securitization, factoring, secured versus unsecured
financing, etc.
5. The buyer winds up with a lower cash flow gain. Generally, a term optimization approach utilizing
various types of benchmarking and based on supplier characteristics will yield 2 to 5 times the cash flow
gain of a rate arbitrage approach. For example, a rate arbitrage approach eliminates the nearly 40% 60% of spend with suppliers who are investment grade themselves.

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The Missing Link

SCiMAP IS THE MISSING LINK

SOLUTION OVERVIEW
SCiMap is the missing link that turns Supply Chain
Finance into a complete working capital solution.
It provides a rigorous process and data driven
approach to Supply Chain Finance program
design, execution and measurement. It helps
your organization maximize the value of your
Supply Chain Finance program and accelerate
time to value.
SCiMap allows you to analyze your supply chain
and optimize payment terms. Its optimization
engine is built on top of a proprietary global
database of over 1.3 Trillion dollars in spend from
suppliers worldwide across many industries.
Payment terms benchmarking is provided for
specific commodities and geographies (for
example, payment terms are longer in Italy and
Spain than in Germany).

Commercial considerations such as length of

contract, sole or multi-sourced commodity, etc.
are taken into account to both optimize payment
terms and prioritize suppliers for rollout.
SCiMap also takes into account your objectives in
the optimization process. You can input your
goals, for example a zero day cash conversion
cycle, and it will give you a roadmap with various
options. Its not just a one-off analysis either, it
allows you to fine-tune your strategy over time
based on actual results or changes in spend,
suppliers, etc.

More than $1.3 Trillion

of spend analyzed
On average, our
customers gain $100
Million in cash flow in 12
months
Operates in the Cloud

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The Missing Link

Goals and strategy are great, but your

Procurement team has to work with your
suppliers and negotiate payment terms in order
for you to achieve your objectives. SCiMap will
help there too by providing a detailed payment
term projection for each supplier as well as the
associated messaging to be used during
negotiations.
SCiMaps Supplier Card, will also show you various
supplier financial and operational characteristics
at a glance such as supplier credit ratings and
cost of funds information as well as the economic
impact of different scenarios on each supplier.

This is where SCiMap really gives your

Procurement team a competitive edge: it
generates a specific supplier profile, giving them
a detailed strategy per supplier.
It even
prioritizes suppliers so you can accelerate
implementation.
Finally, SCiMap will measure and track the results
of your Supply Chain Finance program so you can
see how you are doing against your cash flow
goals down to the regional, commodity and
Procurement manager level. SCiMap takes you
all the way from strategy to execution to
measurement and accountability.

SCIMAPs Supplier Card,

customized for each
supplier, provides critical
insights and tools to the
Procurement team,
maximizing their
effectiveness in supplier
negotiations.

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11

The SCiMap solution, which is

unique, is a must-have for any
organization that wants to truly
optimize its working capital Sourcing
Innovation3

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The Missing Link

WHY YOU SHOULD CONSIDER

SCiMAP?
SCiMap will greatly improve your ability to achieve your cash flow and working capital targets. With 10 years
of leadership and innovation in procurement and the financial supply chain, PrimeRevenue has generated
billions of dollars in cash flow gains for its 12,000 customers. That expertise and experience is engineered
into SCiMap.

SIMPLE DATA UPLOAD &

CLASSIFICATION
Spend data is uploaded without any
software installation and analyzed
across all categories and divisions.

BENCHMARKING
Supplier payment terms are
benchmarked by commodity class,
geography, supplier relationship
type, etc.

TERMS OPTIMIZATION
SCiMaps payment terms optimization
engine is built on top of a global
database of over 1.3 Trillion dollars in
spend.

COLLABORATION
Your information and findings can
be shared easily within your
organization.

ROLE-BASED VIEWS
Roles can easily be created or
changed as needs evolve, without
having to update
the privileges of every user.

EXPERT ADVICE
Working capital experts consult
with you on strategies and best
practices.

NEGOTIATION SUPPORT
Multiple tools are provided, including
payment term projections, messaging
and prioritization for each supplier.
Supplier financial and operational
characteristics are displayed as well as
the economic impact of different
scenarios.

MEASUREMENT AND TRACKING

Measure the results of your Supply
Chain Finance program so you can
see progress against your goals
down to the regional, commodity
or manager level. Cycle time
around key milestones is measured
and tracked in order to speed time
to value.
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13

The Missing Link

WE ARE HERE TO SUPPORT YOU

A
B
C

Complete a working capital benchmarking and

compare your performance with your peers.

Identify how much potential cash flow you can

generate for your short-, medium-, and long-term
strategies.
Design a detailed program to improve working
capital and develop a detailed action plan to
achieve substantial results.

Interesting to read more?

ONBOARDING SUPPLIERS IN SUPPLY CHAIN FINANCE
A particular challenge when deploying Supply Chain Finance programs has
traditionally been onboarding and ensuring that opportunities in terms of
number of suppliers in a program are fully realized. Many do not realize
that a successful Supply Chain Finance program requires selling the
financing solution not only to the buying organization but also to each
individual supplier.
Download here: http://primerevenue.com/about/resources/white-papers.html
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The Missing Link

REFERENCES

1
2
3

https://www.tue.nl/
http://www.mypurchasingcenter.com/office-products/articles/secrets-of-successful-negotiationsrevealed/
http://blog.sourcinginnovation.com/2013/08/30/primerevenue-priming-your-financial-supply-chain-forsuccess-part-ii.aspx

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ABOUT PrimeRevenue
PrimeRevenue is the leading global provider of multi-bank Supply Chain Finance technology
and services. The PrimeRevenue OpenSCi platform and working capital advisory services
provide businesses with the control and flexibility required to drive superior Supply Chain
Finance results, thereby reducing cost, capital and risk throughout the supply chain and
enabling stronger supplier relationships.

Headquartered in Atlanta, PrimeRevenue also has offices in Paris, Frankfurt, London, Prague,
Melbourne, and Hong Kong, and operates some of the largest Supply Chain Finance programs
for customers around the globe.

For more information, visit: www.primerevenue.com

To learn more about how we can help your business,

Please contact us.

Phone: +1 877.217.3838
Email: info@primerevenue.com

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