Category Archives: Finance

Opportunities for Transportation and Logistics Operators Part I

In addition to the presentation of 18 theses around the continued scarcity of energy resources, Volume 1 of the Transportation & Logistics 2030 report on “how supply chains will evolve in an energy-constrained, low-carbon world” by PriceWaterhouseCoopers and the Supply Chain Management Institute also identified some (emerging) opportunities for transportation and logistics operations that are worth close scrutiny by any provider looking to differentiate themselves in the marketplace.

The report provided opportunities in four areas:

  • Products & Services
  • Finance & Accounting
  • Processes & Organization
  • Strategy & Policy

Today, we’re going to overview the products, services, finance, and accounting opportunities.

Products & Services

  • Virtual Delivery
    e-Document providers capable of quickly and cost effectively digitizing any type of document (received by any traditional means of communication) and reproducing an exact copy at the destination will gain a short term advantage as companies begin the slow journey to true paperless operations.
  • Eco-Consultants
    Companies who recognize the market for green logistics and SCM early and develop an expertise will have the opportunity to provide eco-consultancy services to their customers.
  • Slow Transport
    Companies that provide slower, but much more energy and cost efficient, transport options might see a booming business as the eco-conscious consumer starts to dominate the market.
  • Co-opetition (Competitive Collaboration)
    Cooperation between competing businesses as a way to cut costs and achieve competitive advantages will gain increasing acceptance. For example, logistics providers have an opportunity to collaborate on “last mile” deliveries and significantly reduce associated costs with network and route planning optimization.
  • Low Cost Logistics
    Going beyond co-opetition and allowing a customer to assemble logistics services according to their needs, which could be limited to the actual transport of goods (where the customer takes over administrative processes and work steps) could be a booming business. (Of course, these providers will need to implement a sophisticated real-time infrastructure with cost transparency to enable this service.)
  • Fabbing Supply Chain
    Fabrication of products using a computer and a 3-D printer could be common by 2030. Providers who offered this service to consumers who bought “blueprints” over the internet could see a booming business.

Finance & Accounting

  • Mobility Account
    Environmentally aware companies may start introducing mobility accounts and monitor the carbon footprint caused by their employees business trips. Providers that offer (SaaS) solutions for mobility account tracking could see a booming business.
  • CO2 Ticker
    Companies tracking carbon emissions will start reporting all carbon emissions associated with product and transport with a CO2 Ticker. Companies who can reduce this number will see a competitive advantage.
  • Green Credits
    Green Credits, a positive incentive system to act in an environmentally friendly way that grants credits to employees who engage in activities to improve environmental conditions, might catch on. Providers who offer such credits to customers who select greener alternatives might gain a competitive advantage.
  • Total Emission Monitoring
    CO2 emission tracking is just the tip of the iceberg. In the future, sulphuric dioxide, nitrogen oxides, noise, and other pollutants will also be monitored. The first to market with Total Emission Monitoring solutions will have a clear advantage.
  • Sustainability Rating Agency
    Third party sustainability ratings will be as important as third party credit ratings in the future. Logistics companies with high sustainability ratings that could improve the ratings of their customers will be looked very favourably upon in the future.

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How Do I Know That My Adviser Isn’t Another Bernie Madoff?

This article, from the October 12, 2009 print edition of Canadian Business (and Yahoo Finance on “How Do I Know That My Adviser Isn’t Another Bernie Madoff”), got my attention. After all, I’m a well educated Ph.D. who can build some of the most complex mathematical and computer models in the world, and I often don’t have a clue what these people are trying to, or should I say not to, tell me. (And that’s why I don’t have a personal financial advisor who oversees my financial decisions and plan to keep it that way.)

And we have essentially the same problem as supply management professionals every time a new sales person comes knocking on our door. Is he selling us a better product, or is he selling a fresh batch of snake oil? And how do we tell the difference?

The article reiterated a great piece of timeless advice that we all need to remember, “if it’s too good to be true, it probably is“. That’s not to say that there aren’t categories where you can save 50% or more off of what you’re paying now, as there are, but that they’ll likely only represent a small fraction of the “opportunities” that sales people will try to bring to. By the time you factor in switching costs, logistics costs, quality trade-offs, etc., the real opportunity will in fact be a lot smaller than the sales person may make it out to be.

So do your research, and just like you should start with a security commission check and Google search before you meet with a financial advisor, you should check with the supplier’s local Better Business Bureau (or equivalent) and do a Google search before you get too far down the negotiating path. It’s better safe than sorry, especially in this economy.

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Have You Figured Out Where Your Cash Went Yet?

About a year ago, Bob Matthews of Paladin Associates penned a great post over on e-Sourcing Forum.

It’s the Fourth Quarter … Do You Know Where Your Cash Went?.

It’s a good question … and one that is as poignant as ever. Do you?

If you don’t, now would be a really good time to find out. There are a number of sourcing service providers with expertise in spend analysis that can quickly get you on the right track and, if you don’t already have one, help you get a spend analysis solution that will allow you to answer this question whenever you need to ask it.

Here are just a few of the service providers you can call (who are on the list because I’ve talked to them recently and/or verified recent wins for their customers):

Claro Group

iq West

Lexington Analytics

Mitchell Madison Group

MPower Group

Opera

Paladin Associates

Power Advocate

Source One

Treya Partners

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

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

The last couple of weeks have really driven home how important cash flow and access to credit is for suppliers right now. They 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.On the one hand, economic indicators are beginning to show that the economy is stabilizing and that the recession may officially be over (e.g. a recent article in the WSJ reporting that GDP grew by 3.5% in the 3rd quarter). On the other hand, it is clear that short-term credit and cash flow, the life blood of most suppliers, is still severely squeezed.

Over the last two weeks, I have had the opportunity to speak to CFOs, Treasurers and COO’s of many small and medium sized suppliers, as well as representatives of many larger companies. And what they are telling me is that while large companies are having no trouble accessing credit right now, the medium and smaller companies are still finding short-term credit very difficult to come by and it is very expensive, or laden with restrictive covenants, when it is available.

Recent headlines back up this anecdotal evidence and continue to paint a clear picture of the gulf between the haves and have-nots in this economic environment. Large companies that have survived this crisis appear to be well positioned for future growth as they have stockpiled cash at record rates. According to another WSJ article, the largest 500 non-financial firms in the US held about $994 Billion in cash and short term liquidity investments … representing the greatest percentage of cash assets in the past 40 years. According to Carsten Stendevad of Citigroup, “Everyone is hoarding cash“. Well, maybe everyone who is fortunate enough to be able to, and therein lies the problem.

For those companies not in this august group, the picture is a little grimmer. Small and medium sized suppliers in every industry have seen their credit lines cut, their access to cash curtailed over the past year and a half, and the flow has not freed up significantly since then. Add to that last week’s not so surprising news of CIT filing for bankruptcy and suppliers’ options become fewer still. (CIT, who provides over $60 Billion in cash flow to over one million suppliers, is the largest provider of short-term credit and receivables financing to small and medium sized business). Rick Patterson, a partner with private-equity firm Spire Capital, sums it up best: “Everybody is looking for alternatives. Capital is much less fluid in these smaller markets than in the bigger ones. The financial crisis has trimmed the number of potential lenders to small companies by more than half, and that will hurt businesses that rely on a cycle of ‘repaying and re-borrowing’ to stay alive“.

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.

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

The first set of options require a close working relationship between buyers and suppliers and the latter requires a supplier to look at new ways to monetize their greatest assets in this economy, their receivables.

In part II, we will explore these options in detail.

Thanks, Drew!

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