1. A.T. Kearney 82/7478 1 Supply Chain Financing Dr. Dale S. Rogers Nevada Logistics Institute Reno, NV 13 August 2015 Dr. Dale S. Rogers Nevada Logistics Institute Reno, NV 13 August 2015

2. 2 2 Overview nStrategic Supply Chain Financing Supply chain financing defined Fund the Growth Working capital nTactics Supply chain finance – reverse factoring E-Payables Cash Conversion Cycle Options nStrategic Supply Chain Financing Supply chain financing defined Fund the Growth Working capital nTactics Supply chain finance – reverse factoring E-Payables Cash Conversion Cycle Options

3. 3 Supply Chain Flows Product Flow Information Flow Financial Flow

4. 4 Supply Chain Finance is: 1.Using the supply chain to fund the organization, and 2.Using the supplier organizations to fund the supply chain 1.Using the supply chain to fund the organization, and 2.Using the supplier organizations to fund the supply chain

5. 5 5 Supply Chain Financing Fund the Growth!

6. 6 6 Fund the Growth nFirms are looking to an efficient and effective supply chain to fund the growth of the company. nCompanies cannot only be dependent on revenues and financial management to grow profit. nFirms are looking to an efficient and effective supply chain to fund the growth of the company. nCompanies cannot only be dependent on revenues and financial management to grow profit.

7. 7 Sources of Operating Capital: An Example Pricing SKU Rationalization Mix Management Supply Chain Savings Functional Savings

8. 8 Reasons for Increases In Cash Holdings Inventories have fallen Cash flow risk for firms has increased Capital expenditures have fallen R&D expenditures have increased. Source: THOMAS W. BATES, KATHLEEN M. KAHLE, and REN´E M. STULZ (2009). Why Do U.S. Firms Hold So Much More Cash than They Used To? Journal of Finance

9. 9 Manufacturer 3PL Customer Transportation Provider (Carrier) Bank Supply Chain Finance (Reverse Factoring) Pays Immediately 3PL sells accounts receivable to bank and receives payment in less than 30 days Pays in 30 days Uses Manufacturer’s credit rating Pays in 90 days

10. 10 Timeline 0 days30 days60 days90 days 3PL pays the Transportation Carrier Manufacturer pays the Bank Bank pays the 3PL

11. 11 SupplierManufacturer Aggregator Supply Chain Finance Or wait 90 days Supplier can choose to receive payment as early as 2 days after the invoice has been approved. Uses Manufacturer credit rating Bundle of Manufacturer receivables as DTC notes Bank 1Bank 2Bank 3 Submits invoice to Aggregator Agrees to SCF Arrangement

12. 12 Timeline day 0day 10day xday 90 Invoice sent to Manufactur er Invoice approved Aggregato r sends money to supplier day 8 Manufactur er sends money to Aggregator Aggregato r sells notes to bank(s) Aggregato r sends money to bank(s) Delivery of product Product received

13. 13 Dynamic Discounting nOffering of early payment discounts on approved invoices awaiting payment. nBuyers have option of choosing an APR nSupplier invoices discounted based on a sliding scale derived from the number of days supplier is paid early. nTypes: Early Payments Extended Discount Term Dynamic Payment Terms (ASAP) nOffering of early payment discounts on approved invoices awaiting payment. nBuyers have option of choosing an APR nSupplier invoices discounted based on a sliding scale derived from the number of days supplier is paid early. nTypes: Early Payments Extended Discount Term Dynamic Payment Terms (ASAP)

14. 14 HOW DOES IT FIT WITH OTHER EARLY PAY PROGRAMS? THEY COMPLEMENT EACH OTHER PERFECTLY Accounts Payable Value Larger Supplier Size Smaller C2FO SCF Buyer push Buyer extends DPO Supplier pull Buyer generates profit Cards SPEND LEVELS = SCF $50M+ = C2FO everything in between = P-Cards less than $1M

15. 15 Source: Bavelos Group, 2015 SCFC2FOCards 2505007501,0001,2501,5001,7502,000 $X0 $35 $30 $25 $20 $15 $10 $5 $0 APR 70% 60% 50% 40% 30% 20% 10% 0% SPEND $M APRSpendValueCapital Cost Typical spend distribution of Fortune 500 company TOGETHER THEY HELP ADDRESS ALL PARTS OF THE SUPPLY CHAIN AND MAJORITY OF VALUE OPPORTUNITY IS IN MIDSECTION OF SPEND Largest Supplier Smalles t Supplie r

16. 16 Payments Purchase Requisition Purchase Requisition Purchase Order Purchase Order Check ACH VCA Wire Transfer FedWire

17. 17 E-Payables P-Card Ghost Card Virtual Card

18. 18 E-Payables – P-Cards Retail Commercial Tie Cards Co-Branding Buying Firm Chief Purchasing Officer Buying Firm Chief Purchasing Officer Supplier Firm Bank Card Issuer Bank Card Issuer Bank Processor MasterCard Visa Processor MasterCard Visa Fraud Security Rebates

19. 19 SCF vs. E-Payables nSCF brings CPO and CFO together. The tension used to be on CPO focusing on price and CFO on working cap. nSCF for core suppliers, large volume of money, frequent transactions. nP-card (or virtual card) more for lots of SME suppliers. nSCF brings CPO and CFO together. The tension used to be on CPO focusing on price and CFO on working cap. nSCF for core suppliers, large volume of money, frequent transactions. nP-card (or virtual card) more for lots of SME suppliers.

20. 20 Cash Requirements – Monthly Payments vs. Weekly Payments Monthly Invoice Payments Weekly Invoice Payments Average Cash Required

21. 21 Cash Conversion Cycle

22. 22 Cash Conversion Cycle CCC = DSO + DIO – DPO nDays Sales Outstanding (DSO): the number of days needed to collect on sales. nDays Inventory Outstanding (DIO): how many days it takes to sell the inventory. nDays Payable Outstanding (DPO): the company's payment of its own bills. CCC = DSO + DIO – DPO nDays Sales Outstanding (DSO): the number of days needed to collect on sales. nDays Inventory Outstanding (DIO): how many days it takes to sell the inventory. nDays Payable Outstanding (DPO): the company's payment of its own bills.

23. 23 Selected CAPS Firms 2014 CCC

24. 24 Further Explanation nhttp://financing.supply

25. 25 Funder Solutions

26. 26 End Of Presentation Extra slides follow

27. 27 Sources of Data nIncome Statement: Revenue Cost of Goods Sold (COGS) nBalance Sheet: (Average) Accounts Receivable (Average) Accounts Payable (Average) Inventory nThe number of days in the period (year = 365 days, quarter = 90) nIncome Statement: Revenue Cost of Goods Sold (COGS) nBalance Sheet: (Average) Accounts Receivable (Average) Accounts Payable (Average) Inventory nThe number of days in the period (year = 365 days, quarter = 90)

28. 28 Days Sales Outstanding (Average) Accounts Receivable/ Revenue per day nChoices: Accounts Receivable AAR = (beginning AR + ending AR) / 2 Time average of AR (Average) Accounts Receivable/ Revenue per day nChoices: Accounts Receivable AAR = (beginning AR + ending AR) / 2 Time average of AR

29. 29 Days Inventory Outstanding (Average) Inventory / COGS per day nChoices: Inventory Average Inv. = (beginning Inv. + ending Inv.) / 2 Time average of Inventory De-inflate COGS? (Average) Inventory / COGS per day nChoices: Inventory Average Inv. = (beginning Inv. + ending Inv.) / 2 Time average of Inventory De-inflate COGS?

30. 30 Days Payable Outstanding (Average) Accounts Payable / COGS per day nChoices: Accounts Payable AAP = (beginning AP + ending AP) / 2 Time average of AP De-inflate COGS? (Average) Accounts Payable / COGS per day nChoices: Accounts Payable AAP = (beginning AP + ending AP) / 2 Time average of AP De-inflate COGS?