At a short morning session on the final day of the Association for Financial Professionals’ (AFP) annual conference 2014 in Washington DC, Martin Schlageter, head of treasury operations at Swiss global healthcare company Roche and Heiko Stangenberg, the company’s senior cash manager, discussed what they had learned from implementing a global supply chain finance (SCF) programme.
Schlageter explained that the company had built an SCF programme into its payments factory as they identified that supplier financing is an effective instrument to support companies in their fight to improve their working capital ratio.
While onboarding the suppliers should be pretty straightforward, the Roche representatives explained that the reality is more complex. For a start, with day’s payables outstanding (DPO), Schlageter advised that treasurers need to consider the average accounts payable (AP), the average over the annual period. In addition, with AP itself, the effect on notes, AP trade and third parties should be considered.
It is also important to keep a close eye on key performance indicators (KPIs). Do finance, procurement and treasury share the same KPIs? Are these measured on cash flow or working capital, for example? If the KPIs of different departments are at odds, implementing an SCF programme may expose the stresses between entities. Schlageter explained that, at the time his team was setting up the company’s SCF programme, procurement did not report to the chief financial officer (CFO), and so there were management issues to overcome in order for the programme to set up successfully.
Another consideration for treasurers is that SCF promotes electronic invoicing (e-invoicing). The average time of invoice processing is critical. Schlageter said that shared service centres (SSCs) may well find that suppliers push them to process invoices faster.
A Harmonised Programme
An area that Schlageter said the Roche programme did best in was to achieve scalability. The company needed its SCF programme to be global. He stressed that it is important to build a harmonised programme from the start. A harmonised master document with appendixes for the different countries that the organisation is operating in should be drawn up at the start of the implementation process.
Schlageter closed proceedings by outlining the key takeaways that the treasury team at Roche had learned from implementing a global SCF solution. These included the following points:
- Get the auditors on board. You must still be able to record your payables as payables, for example. Don’t begin implementing an SCF programme without this approval.
- Payment terms – ensure that clear ownership and group strategy is defined at the start.
- KPIs – ensure that cash flow is relevant (DPO, for example) and measurable.
- Documentation – you just want one master document with local amendments.
- Training the procurement department and the supplier is vital. Involve your bank with this.
- Ensure that the process is harmonised with the purchase-to-pay workflow.
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