Introduction Supply Chain Finance (SCF) Lecture # 10 Jan H Jansen E-mail: jan.jansen@han.nl

Lectures period 2 or 4 Lecture Topic Preparation 8 Introduction to value Cool connection round 1 Assignment 6 9 CAPM & EVA Cool connection round 2 Assignment 7 10 SCF instruments Cool connection round 3 Assignment 8 EBA SCF 11 Blockchain in SCM & SCF Cool connection round 4 Case Philips 12 Cool connection round 5 Case Unilever 13 Cool connection round 6 Case Heineken 14 Cool connection round 7 Test exam Exam case

Round # 4 The Cool Connection

Recap Lecture 9

Value concept in business 𝐄𝐕𝐀 𝐓𝐌 = NOPAT – WACC * Capital

EVATM (Stern & Stewart) NOPAT Operating Profit Sales - Costs * (1- tax rate) Costs of Capital Capital Employed * WACC Re * ε Re = Rrf +β *(Rm –Rrf) + Rd * λ *(1-t)

Economic Value Added 𝐄𝐕𝐀=𝐍𝐎𝐏𝐀𝐓 −𝐖𝐀𝐂𝐂 ∗𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐞𝐦𝐩𝐥𝐲𝐞𝐝 𝐖𝐀𝐂𝐂= 𝐑 𝐄 ∗ 𝛆+𝛌 ∗ 𝐑 𝐃 ∗ 𝟏−𝐭 𝑹 𝑬 = 𝑹 𝑹𝑭 + β * (𝑹 𝑴 - 𝑹 𝑹𝑭 )

Lecture 10 SCF instruments

EVA™ Working Capital

Levels of SCF instruments Strategic Take over Joint venture Minority interest Tactical Equipment financing Pay on production Supply risk sharing Currency risk sharing Operational Working Capital Management Reverse factoring Dynamic discounting Inventory financing Purchase order financing Source: SCF, its practical relevance and strategic value, Boer de, R. et al, SCF Community, 2015 Adapted by the author)

Supply Chain Finance Instruments (‘Umbrella’) Source: Standard definitions for techniques of Supply Chain finance, 2015

Dynamic Discounting (Source: Standard definitions for techniques of supply chain finance, June 2015, Global supply chain forum) ‘A number of methods through which early payment discounts on invoices awaiting payment are offered to suppliers. The service is dynamic in the sense that the earlier the payment the higher the discount’

Dynamic Discounting

Aim of the report Clear set of definitions, so there is no more: uncertainty, ambiguity and lack of clarity when SCF terminology is used Authors / Members: ICC BAFT EBA FCI IFG ITFA

SCF definition (1) Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum., 2014

SCF definition (2) Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum., 2014

SCF definition (3) Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum., 2014

SCF definition (4) Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum., 2014

SCF definition (5) Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum., 2014

Definition SCF (Source: SCF – European Banking Guide, EBA, 2014)

Physical Supply Chain (PSC) & Financial Supply Chain (FSC) Figure 16 Supply Network management as defined by Slack, A. et al. (Slack, 2011)

Collaboration in the chain No collaboration Bilateral collaboration Collective collaboration

New pattern in trade flows Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum., 2014

Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum., 2014

Supply Chain Finance Instruments (‘Umbrella’) Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum., 2014

Supply Chain Finance Instruments (‘Umbrella’) Accounts payable / Buyer centric Reversed factoring (Confirming / Approved payables financing) Dynamic discounting Inventory centric Pre-shipment Purchased Order-based finance Accounts receivable / Supplier centric Receivables purchase Invoice discounting Factoring Forfaiting Related Documentary trade finance Bank payment obligation (BPO) Asset-based lending Payments & Foreign exchange

1a Reversed factoring (Confirming / Approved payables financing)

Source: SCF European Market Guide, EBA, 2014

Source: http://www. newburyconsulting. co

1b Dynamic discounting Source: SCF European Market Guide, EBA, 2014

2a Pre-shipment

2b Purchased Order-based finance

3a Receivables purchase

3b Invoice discounting

3c Factoring

3d Forfaiting Source: SCF European Market Guide, EBA, 2014

4a Documentary trade finance Source: SCF European Market Guide, EBA, 2014

4b Bank payment obligation (BPO) Source: SCF European Market Guide, EBA, 2014

4c Asset-based lending

4d Risks: Payments & Foreign exchange

Conceptual model SCF for WCM in SMEs