5 steps to freeing the cash that’s hidden in your supply chain
The following is a guest post from PrimeRevenue’s Tom Roberts.
How do you transform a supply chain finance program from a supplier early payment initiative into a powerful working capital solution? The answer requires an analysis-driven approach that can be broken down into five steps:
1. Benchmark supplier terms and identify optimization opportunities. Companies must be able to easily analyze and determine which suppliers will yield the most impact to their unique working capital objectives. This requires access to powerful benchmarking intel based on supplier geographies and commercial considerations such as contract length, sole- or multi-source supplier categories, are just a few key factors. Given the volume of supplier data involved in this exercise, strong data analytics capabilities are required to identify the right suppliers to onboard and other optimization opportunities.
2. Prioritize suppliers for program onboarding. The key to freeing up substantial working capital in a short period of time is prioritization. Which suppliers should be onboarded first? Which will be included in subsequent phases of program rollout? What are the easy “wins” that will yield fast improvements to working capital? Such an approach customized to individual supplier characteristics maximizes working capital, cash flow and time to value.
3. Customize your message based on your supplier targets. “Know thy customer” is Sales 101 – and a lesson to be learned by any company looking to efficiently enlist suppliers into a Supply chain finance program. Strategic sourcing teams need to have different messaging for different groups of suppliers. This messaging takes into account the supplier’s business characteristics, drivers, value of capital, and the economic impact the program will have on their operations. By creating a customized and compelling message, procurement can get more suppliers on board more quickly.
4. Arm your sourcing team with the right training, tools and negotiation support. Training must be provided to procurement teams to ensure they understand and agree with the proposed payment terms and how the supply chain finance program impacts supplier financials. Additionally, procurement teams need access to supplier financial data and scenario modeling tools to strengthen negotiations and keep suppliers engaged.
5. Measure for continuous performance improvement. Measurement of the supply chain finance program is critical to keeping performance on track. How much working capital are you freeing up? Which suppliers are making material contributions to your objectives, and which are not? The ability to track performance down to the regional, commodity and procurement manager level provides visibility and accountability.