Category Archives: Finance

Listen to Bob and Avoid the Pitfalls of DPO

In a recent post over on the Supply Chain Management Review on smart working capital management, Bob points out the pitfalls of being tempted to be preoccupied with DPO (days payable outstanding). While the objective to match DPO up with DSO (days dals outstanding) is an admirable one, as this would balance the cash cycle time tied up in accounts receivable (waiting for your customers to pay you) with the cash cycle time contributed by supplier payment terms, this can be counter-productive. Since this usually results in requests for DPO extensions, it leaves untested the willingness of suppliers to entertain aggressive discount payment terms in exchange for early payment by the customer. From a balance sheet perspective, cost savings are always better than favorable DPO terms. Plus, if the organization can negotiate aggressive discount terms from its supplier(s), it can then offer its customers discount terms which could speed up their payments to the organization.

If the organization speeds up its payments to its suppliers and its customers speed up their payments to the organization, the net result is not only a shorter cash cycle time, but, as a side effect, the payment cycles will start to line up — allowing Procurement to accomplish its original goal of balancing DSO and DPO while saving money. That’s a win-win that all parties at the table can win with. So listen to Bob and avoid the pitfalls of DPO preoccupation.

Keeping Strategic Decisions on Track and the CFO Happy

A recent article in the McKinsey Quarterly on “How CFOs can keep strategic decisions on track” is a good read for any CPO looking to impress the C-Suite. Noting that judgement can often be colored by self-interest, and that CFOs are generally the most disinterested parties where strategic decisions are concerned, the article points out how a disinterested CFO can often provide hard financial data to counter inherent biases.

This implies that a great way to keep your strategic supply management decisions on track, keep the CFO happy, and impress the C-Suite is to run your proposals, with your projections, by the CFO before you take them to the rest of the executive suite. And if you need number crunching help, and they have staff, the CFO, who will likely be impressed that you asked for help before making a final recommendation, will probably be glad to lend you some support to confirm or verify your projections. Not always, but much more likely than if you make a presentation first and ask for help later.

TradeCard: Transaction Management for the Global Supply Chain Part II

In yesterday’s post we introduced you to TradeCard, a supply chain management services and trade finance company that provides an end-to-end SaaS transaction management solution that connects over 4,000 buyer and supplier companies across the world with local support in over 50 countries. This solution, which implements end-to-end transaction management from the cutting of the Purchase Order to final settlement (including chargebacks) with support for financing, document management, 3rd party freight forwarders, and factory floor shipment packaging, is one of the most extensive SI has seen with respect to visibility into the three critical supply chain flows — financial, physical, and information.

We discussed the financial flow, which supports pre- and post- export financing, payment protection, invoice discounting, and settlement with their Procure-to-Pay solution; the physical flow, that is supported by their collaboration, Factory Xpress, and document management solutions; and the information flow, which is supported by the aforementioned solutions along with the TradeCard Advantage and Custom Objects Toolkit solution. Today we are going to dive into the physical flow and the solutions that support it.

We’ll start with the collaboration solution. Designed with forecasting and supply planning in mind, the solution allows for forecast and purchase order data to be pulled from your ERP / forecasting system / system of record of choice and pushed back when the production plan and/or purchase order is complete. Forecasting revolves around (rolling) supply plans, that can be completed from a material, supplier, forecast, inventory, (material) commitment, or demand view. Buyers and suppliers, who are given permission, can edit the forecast, and the revised forecast can be maintained along side the original forecast. The forecast can be at the product level, or the component material level, as the platform has equal support for component and 2nd tier raw material suppliers, who can also be given (read or edit) access if relevant or key. The system also allows the scheduled production runs to be collaboratively decided upon (and updates the projected inventory automatically). There are no built-in forecasting models at this time, but that may change in a future release. (In the interim, Tradecard can integrate any forecasting system that can provide data in a standard format such as EDI, XML, or CSV.)

The UI is similar to many web-based supply management platforms, and includes a “taskboard” that keeps track of all of the current tasks for the current user, which can be ordered by action type, transaction, or assignment date. With respect to transactions, which the suite is designed around, a user can query and track transactions by purchase order, invoices, payments, packing & shipping, financing, (goods) receipts, contracts, adjustments, events, and customs filings in addition to supply plans. Purchase orders are extremely detailed and can contain all of the information required by the supplier, freight forwarders, and any customs authorites (including order terms, parties, freight terms, destinations, items, components, additional terms, and required documents). This allows for the easy generation and submission of appropriate trade and customs documents (with over 10 import and export document formats supported out-of-the-box). The system maintains complete document history and allows an authorized buyer to query exactly who did what when. Events allow the buyer to track the transaction after the PO is issued and record actual production, shipments, receipt, distribution to warehouses, returns, chargebacks, and other relevant events.

Factory Xpress is the “shop floor” solution that is designed for the personnel who are actually packing and shipping the orders. The users can access, and (if they have permission) edit the packing plans, create and print packing slips and/or shipping labels, and even scan appropriately barcoded labels to indicate when an order has been packaged and shipped. In addition, orders for packing labels and materials can be sent directly to Avery Dennison, whom the solution was developed in conjunction with. The system supports bulk packing, multi-packing, and free-packing plans and can automatically regenerate packing plans based upon changes in order quantity, delivery location, carton sizes, or item mix. Once the shipment has been packed, packing manifests can automatically generated from the packing plan and purchase order.

One very neat feature of the platform is the “discrepancy preview” that a supplier can run before finalizing the invoice. When the discrepancy preview is run on a draft invoice, it compares invoice data to shipment/packing manifest data and PO data and reports all discrepancies in pricing, order quantities, factories, origins, destinations, and other comparable data and checks that all terms and/or documents have been completed. This allows the supplier to correct any data that can be corrected before the invoice is sent, minimizing the chance of the buyer rejecting it or sending it back for correction. It also allows the buyer to verify that the invoice they received is consistent with what they expected, or if its not, immediately determine what the discrepancy is and whether or not it was approved (due to a change in forecast or demand).

With respect to reporting, there are dozens of built in report types and the user can select the attributes and value ranges for each report, but TradeCard does not yet possess a generic report builder tool, although custom reports can be created by way of their Common Objects toolkit if required. However, complete export of all in XML and CSV format is supported and the buyer can use a third party data analysis and reporting tool to construct whatever report they want for more detailed analysis.

Finally, the TradeCard platform currently supports English, Traditional, and Simplified Chinese with Spanish coming later this year, and most implmentations, which includes integration to your ERP and forecasting systems, and onboarding of 80% of your relevant supply base, and user training, are accomplished in 90 days. It’s a solid solution and one worth looking into if you need to manage end-to-end transactions across the global supply chain.

TradeCard: Transaction Management for the Global Supply Chain Part I

In yesterday’s post on how it’s sourcing, procurement, and global trade management, we mentioned how a critical part of global trade is finance and document management. One company that facilitates this process is TradeCard, an end-to-end SaaS transaction management solution that connects over 4,000 buyer and supplier companies across the world with local support in over 50 countries. And while they aren’t the only company that facilitates this process, with notable competitors being Integration Point and their extensive suite of import, export, and supply chain compliance solutions and TradeBeam with their import, export, and visibility solutions, they are the first solution that I’ve seen that implements end-to-end transaction management from the PO to final settlement (including chargebacks) with support for financing, document management, 3rd party freight forwarders, and factory floor shipment packaging. Furthermore, their solution, which supports the physical, financial, and information flows from all parties, focusses on the alignment of the flows.

The financial flow is supported by way of a procure-to-pay solution that enables pre- and post- export financing solutions, payment protection, invoice discounting, settlement, and chargebacks. Through agreements and alliances with over 25 banks, insurers, and other third parties, the TradeCard platform allows a suppier to request financing as soon as the purchase order is received. Then, depending on the supplier’s credit rating and the amount of the request, the request will be forwarded to one or more financing partners who will offer financing at standard terms or the TradeCard credit line, where the TradeCard platform can automatically grant certain financing requests under standard terms on behalf of the partners in the financial network.

The time of the financing request is flexible. The supplier can request financing at any point from the receipt of the purchase order to the receipt of goods by the buyer, and might even be able to request financing beyond receipt of the goods by the buyer, depending on the buyer’s standard payment terms. In addition, the platform allows the supplier to offer invoice discounting on early payment by the buyer as soon as the invoice has been accepted. Finally, the platform allows for electronic payments, which completes the end-to-end financial lifecycle of the transaction.

The physical flow is supported by their collaboration solution, which allows buyers and suppliers to collaboratively share current demand data and collaborate on forecasts and production plans, the Factory Xpress solution that allows for the creation and execution of detailed packing plans, and the document management solution that allows for the creation and transmission of documents that are required by freight forwarders, customs agents (for import and export), and distribution centers.

The information flow is supported by their Procure-to-Pay, Collaboration, and Factory Xpress solutions as well as their TradeCard Advantage solution that allows for queries and reports across the platform and the transaction data that it contains. It’s also supported by their new Custom Objects Toolkit that allows TradeCard to quickly create custom extensions — that can take the form of integrations, reports, or global trade documents — for customers on an as-needed basis.

By integrating the three flows, TradeCard provides a single view into the global supply chain for buyers, suppliers, factories, and partners around the world, which can be integrated into the platform as needed. TradeCard can, and has, integrated multiple ERP, best-of-breed, and home-grown sourcing, procurement, and global trade solutions into its platform in support of its hundreds of global Fortune 3000 customers. Furthermore, over 150 service providers already inject services into the platform in the form of financing, payment protection, inspection, and logistics, which a customer can take advantage of day one.

Tomorrow’s post will dive into the physical supply chain flow and the solutions that TradeCard provides.

Procurement Is Worth IT

So listen to the CPO Agenda when it says that Procurement Professionals should get bonuses, even though it might make this recommendation for the wrong reasons.

If Sales gets bonuses for making a sale, which brings the organization X cents to the bottom line for every dollar sold, then Procurement, which brings the organization 5X to 20X cents to the bottom line for every X dollars saved should definitely be in line for a bonus.

Plus, as the CPO Agenda suggests, if fixed costs are still a problem from a (short-sighted) organizational viewpoint, performance-based bonuses should be much less of a problem, especially if they are based on cost avoidance or savings, as a CFO can’t argue with numbers that improve the bottom-line 10X as much as the same numbers from Sales improve the bottom line.

Plus, if you want to retain talent, this is the best way to do it. Just like a hedge fund manager jumps to the investment house that will give him the biggest reward, your stars are going to jump to the organizations which give them the biggest rewards. And as much as you’d like to think that work-life balance, empowerment, and sustainability are important to your team, in general, nothing compares to a bigger paycheck which gives your star the ability to control their own work-life balance, a feeling of empowerment, and the ability to financially support their own sustainability goals.

So give your stars performance-based bonuses. They’re worth it.