Category Archives: Supply Chain

Become a Financial Superstar with The Receivables Exchange

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The Receivables Exchange, which bill themselves as the world’s first electronic marketplace for trading accounts receivable, simply put, allows businesses to sell their receivables to a global network of institutional investors through an auction (with an eBay-like “buy it now” option) and access working capital in as little as one (1) day. The model, which has been covered by a large number of leading publications (including BusinessWeek, Forbes, and Inc.) is very successful with 99% of all auctions completing and more than 90% closing through the buy-out option, sometimes in as little as thirty seconds!

So why should you care as a Procurement Professional?

In these troubled times, it’s your job to do everything you can to save the business money … and helping finance, who are probably just going to the local bank and accepting the (higher) rates offered on operating credit lines, save money on working capital counts. If you need 2,000,0000 of working capital for the next 30 days while waiting for payments to come in and you take a loan at 2.5% when you could sell your receivables (as an asset-based sale) at 1.5%, that’s 20,000 in financing payments you don’t need to be making. If you have to do it every month, that’s 240,000 of instant savings. And we all know that the financing terms can be much more onerous than just 2.5% for many small and mid-sized companies today, meaning that this can be a million dollar plus savings opportunity for many mid-sized businesses.

Not only can you point out this solution to your finance team, which is probably spending 2.7% of working capital unnecessarily on an annual basis, but you can use your procurement and customer expertise to let them know which receivables would be the most attractive to third party financiers and which receivables would command the best rates. This would go a long way to helping traditional finance managers, that probably see you as the “L” in “P&L” (as astutely noted by Mr. Guth on the VMO blog), understand the cost-savings potential of your department when your expertise is applied throughout the organization.

Furthermore, it’s also your job to keep tabs on the financial health of your suppliers and help your strategic suppliers out so that they are there to help you in the future. If you know that they are in need of more working capital, and you’re not in a position to pay them early (at a fair discount), you can point them to The Receivables Exchange and even help them with the on-boarding and due-diligence process.

So how does The Receivables Exchange work?

Unlike traditional factoring, which generally costs more and places much more onerous restrictions on your financing, The Receivables Exchange is completely anonymous, your customers are not notified that your receivables have been sold (unless you want them to be notified — which means there is no impact to a customer’s AP department) with a 100% transparent fee structure, that is free from restrictive covenants. You bundle one or more invoices for auction, define the minimum advance you require and the maximum transaction fee you’ll pay (for a 30 day advance), your optimal “buy it now” financing requirements, the auction start time (usually “now”), and the auction length (3+ days). Then 30+ buying organizations, which represent 15 Billion in A/R buying power, bid on your receivables and, if the requirements are reasonable, a few days later (1-10 depending on how long the auction takes to close and transfer time requirements), you have cash in your bank account. Then, when your customer pays your invoice(s), the advance, along with the lending fee, is paid to the buyer, a small transaction fee (that is typically between 30 and 60 basis points and determined by your z-score) is retained by The Receivables Exchange, and the remaining funds go into your bank account.

And it’s a sellers market right now. The exchange currently has buying power that is four times it’s current throughput with a number of Receivables Buyers still waiting in the wings to take advantage of the great supply chain financing opportunities that are being passed up by banks and other traditional lenders. The only downside is that the platform is currently limited to US-Headquartered sellers. You can list international receivables on the exchange, including receivables due to international units, but you currently have to be operating, and headquartered, in the US to take advantage of the exchange. When you consider that you can significantly decrease DSO at a very low cost of capital, compress CCC, and increase ROE in a matter of minutes once you are registered (as the auction environment has been optimized for the sale of receivables and the process of uploading your invoice and due diligence documents, bundling for auction, and defining your minimum and optimal terms has been streamlined to only take a few minutes, on average) and download their Adobe Air client, it presents a great opportunity for any company that needs to improve their working capital situation.

For additional information, you can contact Paul Hoeper (phoeper@receivablesxchange.com) directly.

Building Better Links in Your High-Tech Supply Chains

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An article from late last year in the McKinsey Quarterly on “building better links in high-tech supply chains” did a great job of summarizing the roadblocks to collaboration in today’s high-tech supply chains and of providing great advice for building better bridges across your supply chain.

When you get down to the nitty-gritty, the following roadblocks are almost universally present in under-performing supply chains:

  • Partner complexity and churnSupply chain partners often change as product designs and specifications evolve.
  • Siloed forecastsManufacturing, Sales and Marketing, and Product Development often keep, and modify, their own copies of the forecast separately.
  • Poor data qualityOEM forecasts, which set broad targets across a number of product lines, aren’t typically granular enough to be useful to partners.
  • The spiral of mistrustExecutives often believe that they must guard information on their business plans and processes, even from partners.

However, with a little work, they can be removed. The advice given in the McKinsey article is good.

  • Sledgehammer the SilosEveryone needs to work off of the same plans and forecasts.
  • Trust is TantamountVery little is truly so confidential that it can’t be shared with (strategic) supply chain partners. For example, point-of-sale, customer forecasts, and primary market data will soon be public knowledge anyway (a supplier could walk in and see your product in a store, access public import/export records, and do a survey to see where most of your product ends up), so why not share the information up front? Confidential designs beyond the subassembly they’re building are one thing, forecasts are another.
  • ShareWhy should your partners use their own separate distribution networks with overlapping inventory hubs and logistics systems, which only increases costs for everyone? These assets can, and often should, be shared … and this will reduce costs for all parties.
  • CollaborateUndertake joint product development, at least on the components your partner is responsible for. After all, they’re the true experts and given the freedom to come up with a design that conforms to a few parameters might save you a bundle of cash. Look at what Tata Motors did. You could do that to.

Listen to Gene and Seize Your Supply Chain Opportunities

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Gene Tyndall, editor of CSCO Insights, recently penned a piece on how the “recession offers chief supply chain officers opportunities as well as challenges” which I believe is a must read because I do not think enough organizations are taking advantage of the opportunity provided to them to become the organizational superstars. Gene, who recommends that organizations pursue smart cost reductions, indicates that these smart cost reductions are likely to be found in your:

  • Overall Supply ChainAs many companies have found, going global typically adds unexpected costs, increased time, and risk. However, innovation and intelligence focussed on the problem by an experienced organization can often reduce these costs, time, and risks.
  • Supply Chain NetworkProduction and logistic locations add costs in the form of fixed capital, operations, taxes, leasing, and SG&A expenses to the business. Rationalizing the global network can reduce these costs.
  • Total Delivered CostThe total delivered cost, which includes freight, duties, taxes, and logistics, can often be reduced through better logistics, duty, and tax planning.
  • Logistics OutsourcingThis industry has rapidly matured over the last decade, and a 3PL provider with an appropriately designed network might be able to save you money.
  • Supply Chain TechnologiesWhile traditionally thought of as long-term cost reductions, there are near-term savings potentials through today’s rapid implementations, improved visibility, powerful analytics, and greater alignment of technology to the business. Especially if you go pay-as-you-go SaaS. e-Sourcing will allow you to identify potentially lower-cost and higher-quality sources of supply, decision optimization will allow you to define the allocation with the lowest cost that meets all of your business requirements, contract management will allow you to monitor and ensure provisions and pricing are being met, e-Procurement will automatically do m-way matching and flag invoices that aren’t at contracted amounts or duplicate billings, etc.

Industry Week’s Mega Checklist for Improving Cash Flow in Your Supply Chain

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Industry Week recently an article on “how to optimize your supply chain to improve cash flow” that was pretty much a 21-point mega cash-flow optimization checklist for manufacturers that need to improve their cash-flow, which starts with EBITDA (earnings before interest, taxes, depreciation, and amortization) optimization. The suggestions offered were:

  • Business Process OptimizationReduce direct variable process costs with better information flows that are designed to decrease order management costs.
  • Direct Effort OptimizationDecrease direct variable costs by increasing the value-added-to-nonvalue-added ratio through network and production optimization.
  • Efficient Utilization of ToolsLessen direct variable costs by ensuring the right number of tools are available, adequately utilized, cared for, and properly stored.
  • ERP & PLMDiminish divisional ERP/PDM/PLM software fixed costs by rationalized all of the various ERP, PDM, and PLM instances in use.
  • Indirect SG&A Optimization Constrict variable headcount costs through processes and procedures as well as organizational and software solutions.
  • Logistics OptimizationShrink direct variable costs with better packing and storing that reduces waste and overhead.
  • Machine OptimizationCompress direct and indirect variable costs by optimizing machine utilization and maintenance schedules.
  • Network OptimizationEbb fixed costs by reducing the number of redundant facilities.
  • Obsolescence Cost MitigationWane direct variable costs through better forecasts and inventory management.
  • Lean your Plant LayoutSubside fixed costs by reducing the space needed for the same output.
  • Product Management OptimizationAbate indirect variable costs by improving product-use instructions.
  • Production OptimizationContract direct variable costs through cycle time reduction.
  • Quality Control Assessment of ProductionCurb indirect variable costs by minimizing failure rates.
  • Research and Development OptimizationCurtail indirect variable costs by reducing the need for engineering support staff.
  • Risk ManagementLighten indirect variable legal costs by assessing potential business risks.
  • Safety Audits, Training, & Insurance Spend Management Lower indirect variable costs by auditing the production area and minimizing safety issues.
  • Spend ManagementRestrain direct variable costs by evaluating existing assets to realize consumption cost savings.
  • Supplier AuditCheck indirect variable costs by ensuring material and information flows with the supplier are optimized to minimize failure and rejection rates.
  • Supply Chain ManagementSlash direct variable costs by developing optimal just in time structures with demand planning.
  • Supply Chain Management OptimizationMinimize direct and indirect variable costs by focussing on financial, material, and information flows in planning/scheduling, logistics, and procurement.
  • Transportation ManagementNarrow direct variable costs by optimizing shipment lot sizes, consolidating shipments, and improving freight terms.

Managing Supply Chain Technology Challenges

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A recent article in Supply Chain Leader on “synchronizing supply chain applications with continuous change” had some good tips on how to manage the challenges that come with any technology deployment, including technology deployed to support the supply management organization. As the article notes, even the best designed applications won’t deliver with a deploy-and-do-nothing approach. Value comes from continual use, and continual upkeep, and this only happens if you conquer the challenges and get the adoption levels you need, quickly.

According to the article, these are four of the biggest challenges and the best ways to combat them:

  • Operational ChallengesRetaining operational knowledge is a challenge for the best of organizations. A continual commitment to training and employee process ownership is key.
  • Evolutionary ChallengesContinuously changing demand requirements, competitive pressures, and supply arrangements put a strain on even the most agile supply management departments. They key to success is to continually monitor application usefulness, and when performance starts to slide, refine the models, data, and application thereof. This will require regular maintenance and updates for an on-premise application, or regular product direction councils with your SaaS vendor to make sure the application stays as relevant as the day you bought it.
  • Organizational ChallengesMany applications are implemented to respond to certain business needs, but priorities shift over time. As attention gets diverted, applications lose executive sponsorship and the (financial) support required to keep them relevant. In order to make sure this doesn’t happen, current and potential application usefulness needs to be reviewed every year along with the potential savings that could be realized if the application obtained the necessary support. Then, a business plan that presents the ROI can be prepared to secure necessary funding. And if the ROI isn’t there, you know it’s time to replace the application with a more appropriate one, and you can focus your efforts on building that business plan instead.
  • Infrastructure ChallengesAs the technology landscape continues to evolve, new hardware and middleware releases bring new technology and innovations to the table. Every upgrade of infrastructure opens questions of compatibility, both backward and forward, requiring business applications to be upgraded. But if you keep track of your current compatibility requirements in a compatibility matrix, and analyze upgrade requirements before a planned upgrade, you can insure that the infrastructure environment evolves to support your application needs.