Hottest information about 8th Annual Global Strategic Sourcing and Procurement Summit
27 August 2020
Managing Director – Trade, Export and Supply Chain Finance
“UNEXPECTED HERO FOR DISTRESSED SUPPLIERS: ARE BANKS THIS TIME SAVING THE DAY?”
Supply Chain Finance is what you need in these challenging times, says Eugenio Cavenaghi of Santander.
Have banks shown enough support to companies during the COVID-19 crisis?
There was a huge peak in demand for financing and the banking system is still struggling to satisfy all of it, but the reaction has been in most cases constructive. Even before the crises, Santander was heavily engaged in the day-to-day financing of thousands of supply chains. In fact, for lack of official statistics and league tables, Santander considers itself the larges Supply Chain Finance bank globally, which meant for us a lot of stress and hectic days since January until now to support the orderly deployment of liquidity to suppliers. Our service was high in demand and we had to jump in to plug a huge financing gap in manufacturing chains that were considered solid up until the end of 2019, and we are really proud of our job during the pandemic.
Which sectors were financially most impacted by the negative consequences of the crises?
Almost everyone got impacted. E-commerce and food retail enjoyed a surge in demand for their products, so financially they fared well, although they had to cope with punctual deficit of supply. Most others had to deal with both supply and demand disruptions, which put enormous strains to the cash flow of several industries. Fashion and luxury, impacted by high seasonal effects, as well as automotive, where consignment warehouses amplify the issue, were among the most affected. Everywhere buyers were trying to delay their cash outflows, coping with factory shutdowns, lower production rates and subdue sales orders, while suppliers needed liquidity to flow quickly to stay afloat. Actually an unsolvable dilemma, until a bank comes in and tries to solve the problem.
How does it work? Can bank really mitigate the conflict, when both buyers and suppliers pull in opposite directions?
One of the most effective tools a bank can apply in these circumstances is Supply Chain Finance. The principle is simple: the buyer agrees the longest possible payment term with his suppliers, in order to provide relief to his own treasury organisation. The suppliers, however, are not left alone with the burden but can be invited to join a Supply Chain Finance programme. Under such a programme, the buyer cooperates with a bank to share real time information about the suppliers’ invoices that have been received, validated and confirmed by the buyer. For this reason, Santander calls the product “Confirming”, for example. The real advantage is that, thanks to the data about the confirmed invoices, the bank can turn to the suppliers and offer them the possibility to accelerate the payment of those invoices. So, regardless of how long a payment term has been negotiated for, the supplier can receive the money from the bank right after the buyer’s confirmation.
Sounds interesting but is it not cumbersome to manage, when complex buyer – supplier relationships generate hundreds or even thousands of invoices every month?
The key here is digitalisation. A bank like Santander, for example, has invested for decades in the automation of its own Supply Chain Finance platform. Everything is now managed online, through secure web portals that aggregate payments and invoices and manage the communication flow with thousands of counterparties. The most successful programmes run with one large buying organisation and a few thousands of suppliers connected worldwide. The lead relationship is the one between the bank and the buyer, whose confirmation enables the bank to extend the payment acceleration service to a vast network of suppliers.
Bankers normally talk to CFOs and Financial Directors; they rarely mingle with procurement officers. How does the collaboration work out, when these Supply Chain Finance projects take place?
We prefer to start a Supply Chain Finance programme when we are certain that also the procurement department is fully onboard and shares its rationale and objectives. Santander also makes the point of employing project teams that have a diverse background and include bankers with previous experience in supply chain or procurement functions, which facilitates the communication. In the last three to four years the collaboration has really become intense and fruitful. We like to use the analogy of the 3PL (3rd Party Logistics) providers in the world of logistics. Buyers and suppliers always have to overcome a logistical challenge to ensure that goods are delivered from A to B. This task can be taken over by the buyer, by the supplier or by an external specialist, like DHL, UPS, FedEx, etc. In many circumstances, the option of using a specialist is the most efficient one and reduces the overall costs for the entire chain. Same thing for the financing of working capital: whenever goods or services are delivered, there is working capital that needs to be financed. This can be arranged individually by the supplier or by the buyer, but in most cases the most efficient solution is one that involves a third party specialist, i.e. a bank that arranges a concerted Supply Chain Finance programme. Once procurement officers have embraced this concept, it becomes very easy for them to embed this banking service into their own strategic thinking and use it to achieve their goals.
Many thanks for your time, Mr. Cavenaghi.
8 July 2020
Questions For Sherif Aboelgheit
What is the biggest issue your company is facing while establishing close relationship with key suppliers?
The perception of the supplier about your value to him, as building close relationship must be the target and aim of both parties. Building a relationship with suppliers who see you as noisy will not have any value or any benefit. In order to build a relation with a supplier, he should see you as strategic to him as you see him a key supplier to you in order for this process to succeed and gain momentum. So choosing the right supplier in order to establishing close relationship with is the biggest issue my company is facing.
How do recent technological innovations, such as advanced analytics, integrated suites and machine learning, create new opportunities for supplier relationship management?
Of course, technological innovations enhanced the process of supplier relationship management. The a/m innovations enabled the organisations to forecast future events and behaviours, enabling them to conduct what-if analyses to predict the effects of potential changes in business strategies and as a result provide more probable accurate future information between both parties which will enhance the trust, credibility & business performance between them and as a result create new opportunities of SRM. On the other hand, advanced analytics practices are becoming more widespread as enterprises continue to create new data at a rapid rate. Now that many organisations have access to large stores of data, or big data, they can apply predictive analytics techniques to understand their operations at a deeper level thus transmit more solid information to the other party will also lead to enhancing SRM.
Where do you see procurement post-pandemic?
I believe there will be major changes in procurement post-pandemic: e-procurement will not be an option, dependence on local suppliers will increase, building close relations with key suppliers will be mandatory in order to face the new challenging competitive high changes era, and enhancing CSR for organisations will be a must.
Dr.Aboelgheit is a Senior Consultant specialising in Strategic Management & Supply Chain Management. He is internationally recognised as an inspirational speaker, trainer, coach, facilitator and conference presenter. Dr. Aboelgheit has over 20 years of work experience in the field of strategic management, procurement, supply chain management & project management in major multinational companies.
After earning his bachelor’s degree in engineering – electric power section, followed by a master degree in Business Administration – Marketing Specialisation, Dr. Aboelgheit earned a doctorate degree in Business Administration – Management specialisation. On the other hand, Dr. Aboelgheit is certified as International Supply Chain Manager & International Procurement Manager from IPSCMI.
He currently holds the position of Assistant General Manager for Procurement at ENPPI Petroleum Company Egypt. This added to his experience in the different functions of procurement & supply chain management including purchasing, contract management, logistics, inventory management as well as supplier performance management.
As a freelance, Dr. Aboelgheit has distinctive expertise in strategic management, project management, interpersonal skills, marketing, operations and supply chain management.
He has participated in many training courses, workshops and conferences in cooperation with international and authorised training and consultation companies.
Quoting Dr. Aboelgheit, the success and prosperity of any organisation lies in the human element, hence training and continuing education is the only guarantee for the progress of societies.
26 June 2020
Senior Vice President Global Purchasing Fabric, Dish Care & BA Europe
Questions For Filippo Milanese
How is technology helping you to build stronger relationships with your suppliers? What kind of challenges are you facing in regards to this?
We have an array of technological solutions that help streamline and reduce administration with our suppliers through data exchange, as well as by sharing platforms with our business partners. This enhances communication, transparency and speed, while allowing for data traceability and supporting internal governance with a well-structured flow. Moreover, technology plays a key role in sustaining preventive actions through data analytics elaboration, which lets us formulate different scenarios and plan accordingly.
On the other hand, with the surge in interest in digitalisation across functions, it is vital to set clear company priorities in order to optimise resources. At the same time, the full potential of digitalisation has yet to reach to be realised. We believe that an agile cycle of reiterations is the best way to move forward.
We are finding that the different levels of technological readiness among our suppliers must also be taken into account; for many good reasons, it is difficult for all our business partners to move in step as IT accelerates.
Lastly, there is the people element: we need to allow for the rapid shift in mindset that technology requires. For some age groups, this is a radical change. Here we are finding out that a good way to move forward is to mix experienced colleagues with younger people: it is a great opportunity for both to learn from each other.
How is value creation driving innovation within your company?
To super-charge innovation we need, as a company, to be recognised by our suppliers as a “customer-of-choice”.
To earn this recognition, there are different elements in relationships needed to create the right conditions. These we have brought together under our value-based sourcing methodology.
The relationship model we have established with strategic suppliers rests on long-term agreements. This encourages trust and openness, which allows our suppliers to invest in resources and automation. Together, we set development programmes based on knowledge- and competence-sharing where suppliers are involved at the early in the development cycle: at the concept and project initiation phase. This helps us to develop solutions which offer the best possible consumer experiences.
In this virtuous cycle, it is of utmost importance to share the company’s future direction with key suppliers and to make them part of strategic decision-making through a well-structured communication plan.
All this creates a fertile breeding ground for innovation that fosters products, processes and relationships.
How are you using sustainable sourcing to improve brand image and increase revenue?
Electrolux has been a leader in sustainability for over a decade. Sustainability is at the core of the group’s purpose and business model. Our sustainability framework, For the Better, guides us by focusing on three key areas: better solutions, better operations and better society.
We are determined to continually improve in terms of sustainability and to make smarter, more resource-efficient solutions available for everyone. We develop better operations for our co-workers and the communities around us, while striving to always act ethically and to respect human rights. In fact, sustainability is increasingly turning out to be a competitive advantage.
With such a heritage, it is natural for us to transfer our accumulated expertise, and to demand the same focus and commitment from our supplier base.
At the moment, we are further developing a sustainable procurement programme which covers a number of aspects. These range from code of conduct and human right ethics, through lower impact use of resources, to the implementation of recycled materials, for example.
Our ambition is to make sustainability more and more a key element when it comes to making sourcing decisions and building business relationships.
What are the challenges within implementing digital solutions faster?
The effective implementation of digital solutions is linked to two main key success factors: resources and adaptability.
Limited resources and, in some cases, decentralised budgets make it very difficult to develop all solutions at the same time – and to scale them at a global level. We run many successful pilots but only a few see a global roll-out.
Moreover, as mentioned, it is also an adaptability issue: we tend to underestimate the time needed to modify ways of working, behaviours and an approach. In other words, we always need to consider the level of maturity of the organisation for each proposed solution.
However, things are changing: Electrolux has embraced a global approach in order to accelerate the group towards cutting-edge global standards with the aim to further speed up our digital transformation.