Daily Archives: November 11, 2009

One out of Eight Organizations Get It. What Do We Do About The Other Seven?

According to AMR’s latest research, summarized in this piece on driving supply chain transformation through the Chief Supply Chain Officer, only one out of eight organizations have a CSCO, CPO, or equivalent that reports directly to the CEO.

The supply chain is the life-blood of a modern company but seven out of eight companies still don’t have a C-suite leader?! This is just crazy. What can we do? If you have any ideas, I’d love to hear them!

What Are The Requirements for Collaborative Innovation?

We all know that collaboration is important, because we know it gets results. What we don’t always know is what is required or how to get there. This recent article in Industry Week on Collaborative Innovation provided some insight.

The article, which resulted from a survey of 30 global CPG manufacturers and retailers and a panel discussion with Coca-Cola, Aerosoles, and Unilever, highlighted four requirements for successful collaborative innovation in the manufacturing and retail sectors. While they may not form a complete recipe for success, they certainly provide a good starting point:

  • Non-Adversarial Mindset
    I would go one step further and say that you need to be able to trust the the party.
  • The Ability to Learn to Speak “Another Language”
    Every profession, and every group, has their own “language”. You are going to need to learn it or you might as well only speak English while your collaborator only speaks Mandarin as the communication gap will be just as broad until you do.
  • New Metrics
    The metrics that got you to today won’t necessarily be the metrics that get you to tomorrow.
  • Willingness to Share IP
    Everyone has to bring something to the table.

In addition, the article highlighted four key lessons that you should heed:

  • Look for Opportunities that provide Mutual Success.
    All parties have to be engaged. This is more likely to happen if it’s a win for everyone.
  • Conduct Collaborate Business Planning that Meets the Needs of Each Partner
    You need to focus on everyone’s needs, not just yours.
  • Build Trusted Relationships
    As I noted, you have to go beyond the non-adversarial mindset and actually work toward trust between all parties.
  • Get Your House in Order Before Attempting External Collaboration
    If you’re not ready to collaborate, your efforts will be for nought.

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Drew Hofler on “Supplier Liquidity Options when Credit is Still Frozen” (Part II)

Today’s guest post is from Drew Hofler of Ariba (Working Capital Solutions).

In our last post, we noted how the last couple of weeks have really driven home how important cash flow and access to credit is for suppliers right now as well as how the last couple of weeks have also served to illustrate the credit dichotomy between large, cash-rich, investment grade companies and their mid-sized & smaller suppliers in the current economic environment.

While suppliers are finding it difficult to access short term cash flow through traditional markets, they do have options and there are alternatives that are becoming more and more popular with both Buyers and Suppliers to reduce supply chain risk and inject liquidity into the supply chain.

Suppliers options really fall into two categories; collaboration/cooperation with their buyers OR working independently to create liquidity.

The first set of options requires a close working relationship between buyers and suppliers.

  • Discount Management
    Buyers who have stockpiled cash while the Fed Fund Target rate lies between 0% to 0.25% are earning next to nothing on that cash right now. At the same time, their suppliers can not access credit and are paying upwards of 12% to as high as 24%+ to accelerate their cash flow through high cost credit vehicles. It only makes sense for Buyers and Suppliers to take advantage of this rate arbitrage to collaborate on early payment terms to give suppliers access to the liquidity pools of their buyers at rates that lower the supplier’s cost of capital while at the same time significantly increasing Buyer’s short term return on cash. Companies may find the best investment of their cash is not holding it or buying down debt, but paying suppliers early if the terms of early payment represent a favourable ROI, typically in the form of Discounting. Companies can meet their suppliers in the middle through collaborative networks that enable dynamic discounting, where a supplier’s desire for early payment can meet a Buyer’s desire for favourable return on cash, resulting in a win-win situation.
  • Supply Chain Financing
    Alternatively, companies can continue to hold on to cash while at the same time helping suppliers get paid early. Rather than simply beating suppliers over the head with terms extensions, large companies can utilize third party financing to allow their suppliers to access early payment, often at costs of capital far lower than they could get otherwise. Utilizing this type of financial product, both buyers and suppliers can win, turning “bare-knuckle negotiations between companies and their customers and suppliers” into the handshake of a win-win agreement. (WSJ article)

The other alternative is for suppliers to control their own destiny and look at ways to monetize their receivables. Many have done this before with traditional factoring options, but found they came at a heavy price and become somewhat of a last resort. And as the CIT bankruptcy underscores, there is significant risk to suppliers in being bound to one financing provider. But, as it has been covered before, options like The Receivables Exchange (a partner on the Ariba Supplier Network) can yield the same results — cash flow for outstanding receivables — but extremely quickly and at a lower price since the market bids on the receivables to drive down the cost through an automated system in real-time.

  • The Receivables Exchange (TRE)
    Even with Buyers implementing draconian measures (such as Anheiser-Busch, who “told suppliers it would take as many as 120 days to pay its bills from 30 days previously“, as per this WSJ article), suppliers are no longer completely at the mercy of big buyers, stingy banks and single-source providers like CIT. New technology-based options, like TRE, opens the door for suppliers to access broad segments of the capital markets they otherwise could not access, as capital providers compete to pay them early. Even when banks are curtailing credit to many and making it more expensive to all, there are billions of dollars waiting to invest in the receivables, which are the greatest assets of many small firms. Technology platforms like TRE open the door to access that market and can provide much needed liquidity in a competitive environment that drives down the cost of capital for the supplier and reduces their risk of exposure to a single capital source.

There is no doubt that the credit and cash flow situation is difficult for suppliers in this economy. And while credit markets may be thawing, small and medium size companies are still by and large frozen out. But the same dynamics that are causing so much distress are also opening the doors to new cash flow alternatives that can lower suppliers cost of capital, reduce the liquidity risk in the supply chain and provide Buyers and Suppliers alike with win-win options.

Thanks, Drew!

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