Presentation on theme: "Optimize Working Capital: Strengthen Trading Partner Relationships Brook Ballard – Sysco Corporation Scott Hughes – Wells Fargo April 4, 2011."— Presentation transcript:
Optimize Working Capital: Strengthen Trading Partner Relationships Brook Ballard – Sysco Corporation Scott Hughes – Wells Fargo April 4, 2011
Working capital management Goal: Fund necessary day to day operations and invest assets optimally Inventory, cash, receivables and payables management are all levers of WCM Internal FactorsExternal Factors Size and growth rateBanking Services Organizational structureInterest rates Level of working capital management Technology and products Borrowing and investing positions and activities Economy and competitors
How do you extend Days Payable Outstanding (DPO)? How do you shorten Days Sales Outstanding (DSO)? How do you optimize Days Inventory Outstanding (DIO)? 4
Industry challenges (cont.) 94% of CFOs consider cash flow optimization to be important or very important 1. 59% of CFOs rated better cash management as their top priority 1. 1.The Working Capitalist, REL, YEAR
Management Buy In System Enhancements Customers willingness to accept change What is in it for me? Check to ACH Check to Card Maintain check but extend terms Challenges to Converting Accounts Payable to more Cost Efficient Methods
Maturity framework of electronic payments 13 Definition of Maturity Class Mean Class PerformanceCost* Best-in-Class: Top 20% of aggregate performers 80% of overall payments processed by electronic methods $3.53 3.5 days to process Industry Average: Middle 50% of aggregate performers 30% of overall payments processed by electronic methods $11.19 16.0 days to process Laggard: Bottom 30% of aggregate performers 7% of overall payments processed by electronic methods $35.56 27.1 days to process Source: Aberdeen Group *Overall processing cost per payment
How does Sysco Calculate the value of AP? AP-DPO calculation Calculating Cash Flow Impact 2010Current PeriodChange AP1,900,0002,000,000 DPO17.0517.70.65 Cost of a Day111,437112,99473,446 Why is this important?
Trading partner tension Maintain or extend DPO Inefficient trading partner relationships results in higher cost of procurement & payables Inability to forecast accurately Paper intensive processes Inability to capture early payment discounts Resource intensive purchase to pay Reduce fraud Buyers’ Objectives Aim to reduce DSO Inefficient receivables posting, cash application and collection processes. Heavy use of Lockboxes Inability to forecast accurately Paper intensive invoice delivery and receivables Manual/inefficient dispute resolution Resource intensive order to cash Suppliers’ Objectives VS.
Payables Optimization Analysis Payables focused, demonstrates how much liquidity can be realized by improving the purchase-to-pay processes Provides intelligent routing to expedite payment, minimize costs and DSO but maintain DPO Provide insight for dynamic discount management Factors in time value of money
Payables Optimization Analysis Overview 1.Gather Data 2.Control Data Review 3.Intelligent payment routing output 4.Recommended Actions 1.Gather Data: Master Vendor File is uploaded 2.Control Data Review: Cost per disbursement, DPO, float, cost of funds, discounts available, average ticket, quick pay vs. slow pay. 3. Output shows total hard dollar savings, broken out by payment issuance savings, cost of funds impact, additional rebate and early payment discount all based on a best-in-class target mix 4. Recommended actions are tailored to improve trading partner relationships
Payables Optimization Analysis: Data elements needed MandatoryOptional Annual SpendD & B DBASite ID Early Payment Discount (%)Vendor ID Early Payment Discount Threshold (days) Contact Name Payment TypeAddress (City, State, Zip) TXN CountMCC Code Vendor IDTel TIN
Segregated Vendor Population System Rollout Training Resistance to change Negotiating Terms Sysco Payment Conversion Challenges
Supplier Onboarding Migrate suppliers from check to more beneficial payment forms and terms Reduced disbursement costs Optimized DPO Payment status visibility for suppliers Improved Vendor Relations and Maintenance of supplier payment information 22
Recommendations for success Involvement of executives is critical to achieve goals Segmentation of vendors Tracking working capital metrics Automation and standardization of payment processes Creation of a compensation system based on improving working capital