Published: May 14, 2014
At Liberty Global, we pride ourselves on being an innovator in our use of technology, and the quality of customer service that we offer. This commitment to innovation and efficiency is apparent across the whole business, which includes treasury and finance. Consequently, two years ago, we started to increase our focus on trade and working capital management to improve our financial efficiency and increase the resilience of our supply chain. One of the most significant outcomes of this was to implement an innovative and highly successful supply chain finance programme with ING.
As a business operating largely in the B2C space with a large proportion of direct debit receivables, we recognised that we had limited opportunity to optimise collections further to enhance our working capital position. Instead, we could achieve the most significant improvements by extending supplier payment terms, particularly for suppliers of large capital items. One option was to negotiate new payment terms directly with each supplier, but this would have taken time and potentially jeopardised our relationship, in direct contrast with our objective to improve the resilience of our supply chain. The other, preferred option, was to introduce new standard payment terms across our organisation, but to launch a supply chain finance (SCF) programme concurrently, in order to avoid any negative impact on our key suppliers.
We appointed ING as our partner bank for two of our three SCF programmes for a variety of reasons. ING is one of our core banks, which was an initial requirement, and we have had a long, successful relationship during which we have been impressed by their knowledge of our business and of the wider industry. The ING team has been consistent in listening to our needs and responding with robust, innovative solutions that meet our requirements. Working with ING, we identified a number of key objectives for the SCF programme:
Firstly, we wanted to achieve working capital benefits by substantially extending payment terms up to 360 days;
Secondly, the programme should be attractive to key suppliers in order to cement our relationships with them and enable our procurement team to negotiate favourable pricing;
Thirdly, the programme needed to be scalable to support our long-term business plan.
We put a great deal of thought into project management, resourcing and new business processes in advance of the project. This allowed us to implement our two SCF programmes very rapidly: the first took three months between contractual completion and the first invoice financed through the programme, the second took only six weeks. There were a variety of reasons why we were able to implement the programmes so quickly and successfully, which is not always the case with SCF programmes:
Cross-functional collaboration
A project of this nature can be very challenging to implement, not least because various departments are involved, including treasury, finance, IT, legal, procurement and accounting. Therefore, while the resource requirement is not excessive, each department needs to prioritise the project, share common objectives and co-ordinate activities. We worked hard to establish this cross-functional dialogue before the start of the project to ensure common objectives and expectations. While ING played an instrumental role throughout the project, it was important that we took ownership from the start.
Review and enhance processes
Another key success criterion was to define and document the business processes to be adopted once the SCF programme was in place. We assessed our existing purchase-to-pay framework, including receiving, validating and processing invoices, and identified changes and improvements that we could make as part of the implementation, particularly to accelerate the period between receiving the invoice and submitting it to the SCF programme. We established ‘VIP lines’ for suppliers that were part of the programme in order that these invoices could be flagged for priority processing.
Identify target suppliers
Finally, it was important to identify clearly the target list of suppliers. With around 15,000 suppliers, it was not feasible to onboard our whole supplier base, so we focused initially on key suppliers with the highest invoice value and with which we have a medium- or long-term relationship. We identified our top 20 suppliers of capital equipment and explored their profile and relationship with Liberty Global, including contracts in place, any disputes, requests for proposal outstanding etc. With a high degree of confidence in high-value, recurrent business, we derive the most value by onboarding these suppliers onto the programme first. Having identified key suppliers, we then designed an onboarding strategy which was handled by a specific team from our procurement function, including a timeline for each supplier and specific collateral to support the onboarding process.
This approach was very successful and we onboarded 95% of our target suppliers on time; there is now only one of our target suppliers who has not yet joined the programme. Our suppliers recognise that the new economic realities put pressure on working capital for all organisations, and they have welcomed our SCF programme as a means of enhancing their own liquidity position and cementing our relationship with them. In addition to our internal onboarding team, ING played an important role in supporting the process, maintaining project momentum and remaining responsive to our needs.[[[PAGE]]]
With circa. $3.8bn Capex spend and even larger Opex spend each year, representing large potential of working capital improvement, we have already experienced significant working capital benefits as a result of implementing our SCF programmes.
We have also successfully consolidated our relationships with suppliers which offers the opportunity for more favourable pricing. In addition to the direct benefits of the programme, we have leveraged the opportunity to improve our purchase-to-pay processes which in turn has proved a catalyst for other working capital and process optimisation initiatives.
SCF programmes will increasingly become a normal part of doing business, a fact that our suppliers also recognise. While the SCF product is well-established, however, it is important to focus on the company’s own objectives and work with an experienced partner bank to structure a solution accordingly. In particular, there is still a common impression that a SCF programme only benefits small and medium-sized suppliers and/ or those that lack access to liquidity, whereas this is no longer the case.
It is worth being ambitious when defining objectives. The time, cost and resource will be similar whether extending payment terms from 30 to 60 days or up to 360 days, so it is better to derive as much value from the programme as possible. In addition, evaluating the target supplier base carefully and defining processes are essential in order to maximise project success. While it is critical to work with the right banking partner, the company needs to take ownership of the project throughout and apply the right resources, which will typically be across business functions and disciplines. Depending on the organisational model, achieving the right level of management support may be a critical factor in engaging these diverse business functions within a single project and with common objectives and priorities.
Looking ahead, we are seeking to grow our SCF programmes further to include more suppliers and funding participants. We continue to identify key candidate suppliers, which now includes second and third tier suppliers. We are also investigating ways to diversify our sources of capital. We continue to challenge our banks to find new opportunities for improvement and innovation, and consequently, we are well-positioned to meet our future working capital targets and further develop our competitive position.
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