Adam Smith Awards 2018 Client Casebook

HIGHLY COMMENDED WINNER Best Trade/Supply Chain Finance Solution How integrating two supplier finance models delivers support for business of all sizes Company profile With annual turnover of nearly €3bn, Metso is among Finland’s biggest multinationals. It provides the world’s mining, aggregates, recycling, oil, gas, pulp, paper and process industries with industrial machinery. The challenge Metso’s supply chain extends to more than 30,000 firms. The group has been actively working on supply chain finance (SCF) solutions that respond to the needs of all of its suppliers. It wanted to provide them with the option of leveraging supplier finance solutions – regardless of their size and position in the supplier spend portfolio. In addition to making itself a more attractive customer to do business with, Metso also wanted to improve its own working capital position and drive higher yield on its cash. The solution The combination of Citi’s SCF on-boarding process and C2FO’s dynamic discounting solution structure is unique. Instead of relying on traditional buyer-defined top down discount rates, and pushing these onto suppliers, Metso’s suppliers are invited to offer the rate that they are happy to discount their invoices at for early payment. C2FO optimises these offers, based on a set of parameters controlled by Metso, such as cash available and yield. The result of this is to maximise benefits for both suppliers and Metso, as opposed to old-fashioned early payment options where rates are set by buyers or third parties, attempting to second-guess supplier needs. The SCF project structure is based on Metso maintaining control of which early payment solutions is offered to which supplier and provides the company with the flexibility to assess and update its selection process over time. When onboarding the company’s suppliers, it was vital that the local purchasing managers, who are responsible for supplier relationships, were able to manage the programme. This enabled them to promote the SCF concept to suppliers from the outset. Metso and Citi share a single point of contact for SCF onboarding and Citi provides training for Metso procurement. This ensures that Metso is able to leverage SCF to the maximum as a tool in negotiations with its suppliers. The ‘two clicks to cash’ basis of the platform makes it easy for suppliers to join the platform and accelerate invoice payments. The SCF programme receives off balance sheet accounting treatment. For the dynamic discounting programme, discounts are taken as either a reduction in cost of goods sold (COGS) or operating expenditure (OPEX), depending on which product line item the discounted invoice is associated with and directly increasing earnings before interest, tax, depreciation and amortisation (EBITDA). A pilot of the project was tested in Finland, to identify specific issues that needed to be addressed before it was rolled out to other regions. The programme was then piloted in 2017 in Finland, Sweden, Denmark, Germany and the UK before being rolled out globally. Best practice and innovation SCF programmes have historically bypassed SMEs. Recognising that different tools were required to address this challenge, Metso combined Citi’s SCF and C2FO’s marketplace based dynamic discounting to give coverage to its entire supply chain, whilst successfully contributing to its balance sheet and P&L objectives. The C2FO dynamic discounting model uniquely puts suppliers in the ‘driving seat’, enabling them to decide whether to make an offer for early settlement, and what associated discount to offer. While treasury was tasked with developing a framework for the programme, it was recognised that working internally across all functions would be vital in developing a successful solution. Sixty percent of the total supply base in scope for this solution has been on-boarded. Metso Corporation Helsinki, Finland Minna Helppi, Senior VP, Group Treasurer Key benefits • Delivered Metso an average payment term extension of 80 days. • Improved return on capital employed (ROCE). • SCF programme provides balance sheet improvements. • Dynamic discounting marketplace provides lower cost of goods sold directly. • Metso able to negotiate longer payment terms from its suppliers. • Suppliers use SCF to receive payment early. • Suppliers gain full visibility on when they can expect to receive payment. • Builds trust and an opening for negotiations on other buyer/supplier matters. Andrew Burns, C2FO, Natasha Condon, Citi and Mikko Vainikka, Metso Corporation 12 | treasurytoday Adam Smith Awards © August 2018