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The Force (of Payables) Awakens! - How Payables Working Capital Will Change the Game in 2016 for Finance AND Procurement

Not so long ago, in a galaxy not too far away, procurement and finance organizations lived safely in their silos with separate goals only loosely connected to each other. But with many companies now turbo-laser focused not only on savings, but on working capital improvement, both groups are being called on to contribute to larger corporate goals. This session will highlight the power that finance and procurement teams can access by combining the forces of supply chain finance, dynamic discounting, and AribaPay with a comprehensive supplier strategy to deliver benefits that directly impact balance sheet positions and earnings per share.

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The Force (of Payables) Awakens! - How Payables Working Capital Will Change the Game in 2016 for Finance AND Procurement

  1. 1. The Force of Payables Awakens - How Payables Working Capital Will Change the Game in 2016 Bill Dulin, Discover Brent Kinman, VP, SAP Ariba Alan Cohen, VP, SAP Ariba / March 15, 2016 Public
  2. 2. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 2© 2016 SAP SE or an SAP affiliate company. All rights reserved. 2Public Agenda • SAP Ariba’s Strategic Payables Vision • Why Procurement Should Care (Nitor) • Why Payables Matters? • Financial Value of Payables…and Getting Started • Wrap Up / Q&A
  3. 3. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 3© 2016 SAP SE or an SAP affiliate company. All rights reserved. 3Public Discover intro DISCOVER TO ADD CONTENT
  4. 4. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 4© 2016 SAP SE or an SAP affiliate company. All rights reserved. 4Public Changes are creating new realities “Old School Payables Thinking” • Invoices are liabilities: Just “pay ‘em” • Procurement measured on savings • Non strategic spend is the core focus • Disparate capital market approaches • Point P2P solutions “New School Payables Thinking” • Invoices are strategic assets… discounts, cash-flow, APR, etc.. • Procurement measured on EVA • All spend “on the table”… various APRs • Collaborative capital market approaches • One platform: Source, Buy, Pay
  5. 5. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 5© 2016 SAP SE or an SAP affiliate company. All rights reserved. 5Public SAP Ariba’s strategic payables vision To become the world’s preferred platform for digitized business-to-business payments and the premier marketplace for secure, real time, intelligent B2B financial transactions Ariba Network Electronic Invoicing Dynamic Discounting Supplier Payment Supply Chain Financing 2000 2005 2007 2012 SAP Acquires Ariba 2014 2016 Card Settlement Global Expansion Multiple Financing Strategies Data Yields Optimal Rates Beyond 2016
  6. 6. Nitor Slides – SAP Ariba Live 3/11/2016 Proprietary & Confidential 6
  7. 7. Nitor Model 3/11/2016 Proprietary & Confidential 7 Spend Analytics Category Management Strategic Sourcing Contract Management Supplier Management Purchasing Invoice & Payment Financial Management Advisory. Consulting. BPO. Key Messages: 1. Nitor is a Procurement Services Firm with deep experience in consulting and technology 1. We span the lifecycle of any Procurement engagement, from Advisory (what should you do?) to Consulting (how to do it) and arriving at BPO (let’s maximize value) 2. Nitor is the only Procurement Services firm with this laser focus on Source-to-Pay, offering engagement solutions that fit every need Source-to-Pay People - Process - Technology
  8. 8. Procurement Toolbox 3/11/2016 Proprietary & Confidential 8 Upstream - Creating Value Downstream - Delivering Value Spend Analytics Category Management Strategic Sourcing Contract Management Supplier Management eProcurement Invoice & Payment Financial Management
  9. 9. Traditional Challenges 1. Savings reporting is still a negotiation. 2. We are not always engaged at the right time. 3. Deliver more savings with less…everything. 4. Often diminishing returns on categories already strategically sourced 5. Harder to find ways into non “Corporate” categories The REAL Challenge: Where can we add incremental value over the next 5-10 years? 3/11/2016 Proprietary & Confidential 9 Procurement Challenges
  10. 10. 3/11/2016 Proprietary & Confidential 10 Characteristic Metric Global Economy $80 Trillion US Economy $18 Trillion (23.8%) US Debt $19 Trillion US Personal Debt $17 Trillion Credit Card Swipes 20 Billion Credit Card Dollars $19 Trillion Average Transaction $88 dollars Invoices Outstanding $19 Trillion Summary 1. The Global Economy will grow at a moderate pace. 2. Financing & Trade, continue to be cornerstones of growth. 3. Global and National growth means more trillions of dollars will be traded annually. 4. Banks want to expand toolsets to monetize commercial dollars. Global Finance
  11. 11. 3/11/2016 Proprietary & Confidential 11 1. Personal Finance Principles to your Company? 2. Menu of tools to achieve Working Capital? 3. Deliver expanded/new value streams to your organization that are unquestionable and massive? 4. YOU - could single-handedly grow the Economy… What If…
  12. 12. 3/11/2016 Proprietary & Confidential 12 Your Company Invoices Pay Net 60 $100MM Supplier Financing ($10MM) Net to Supplier $90MM Net 60Day 15 60 Day Credit on $100MM @ 3% Net $90M Supplier pays average 2M/month interest If your suppliers had most of this available as working capital on Day 15 - what would they do? The $10M Question Monetizing Payables - A Win/Win
  13. 13. 1. There is $19T in locked up Capital globally - because it’s the way we have always done it. 2. Viral model both from a Macro and Micro-economic lens. 3. Creates Partnership while also creating Leverage. 4. This truly has Speed-to-Market. 5. Game-Changing addition to Procurement Toolbox. 3/11/2016 Proprietary & Confidential 13 Priority Strategy - Here is Why
  14. 14. Proprietary & Confidential We have one goal in mind - helping our clients achieve procurement excellence Client Success 3/11/2016 14
  15. 15. Why Payables Matters?
  16. 16. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 16Public The case for payables: “Invoices as strategic assets” Better for Buyers and Suppliers EARN EARLY PAY DISCOUNTS: Net Income $ EXTEND PAYMENT TERMS: Free Cash Flow PREVENT PAYABLES FRAUD Risk Management BETTER COLLABORATION: Competitive Advantage FASTER COLLECTIONS Lower DSO LOW COST, ON DEMAND CASH FLOW: Reduce Costs, No Debt$ FinancialValue LOW HIGH PAYMENT VISIBILITY & REMITTANCE Trust & Adoption Buyers Suppliers
  17. 17. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 17Public AnnualSpend # of Suppliers • Focus on high spend suppliers • >~75% of buyer value 300 2,000 10,000+ • Focus on tail suppliers with low spend • Trx’l enablement and / or DPO Mgmt Traditional SCF* Payment Terms Mgmt & Discounts** • Payment Terms Mgmt: Supports program strategy, increases DPO • Discounts: Dynamic, buyer or supplier initiated P-Card or Virtual / Settlement Card * Planned Supply Chain Finance Offering ** Available today via SAP Ariba Multiple payables working capital strategies Address core & tail suppliers AribaPay Card
  18. 18. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 18© 2016 SAP SE or an SAP affiliate company. All rights reserved. 18Public Working Capital Management Advisory & Supplier Services (Payment Terms Standardization, Rationalization, Extension, Supplier Outreach) SAP Ariba Working Capital Management Solutions Buyer Banks & Capital Markets ERP & Procurement & Invoice Automation Supply Chain Finance  Supplier sells approved invoices to Funder at a discount rate based on Buyer’s credit worthiness Suppliers Targeted: Direct Spend Large to Mid-size Discount Pro  Supplier accepts to be paid by Buyer at a prorated discount before Due Date Suppliers Targeted: Indirect Spend Small-Medium Size …Pay RightBuy Right... AribaPay  Electronic payments to suppliers  Bank account data stored externally  Supplier self manages bank account data  Rich remittance info to match invoices with payments  Track & trace status Funded by SAP Ariba strategic payables solutions Supports all invoice, & funding scenarios, complementing SAP Ariba’s P2P, SAP ERP, and other ERP solutions ERP SCF PARTNEROperated by
  19. 19. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 19© 2016 SAP SE or an SAP affiliate company. All rights reserved. 19Public WIFM…What’s in it for me? Payables stakeholders & outcomes DPO & Discounts are 12–14x more valuable than transaction automation (Source: Blue Hill Research) CEO CFO Suppliers Accounts Receivable • Increase margins and earnings per share • Extend DPO: Income Statement & Balance Sheet Benefit • Transform A/P from a cost center to profit center • Enhance controls / risk mitigation Payables Outcomes  > touchless invoices  > discounts earned  < A/P Inquiries  Optimize DPO  Investment return: 12% - 36%, risk free  Risk Mitigation: Bank Account Mgmt  Provide suppliers early pay alternative  Payment visibility  Engage suppliers VP Shared Services Director, Accounts Payable Corporate Controller Assistant Controller Treasurer Assistant Treasurer CPO / VP Supply Chain Dir, Sourcing / eBusiness CIO Director, Finance I/T  1 platform: Buy Right, Pay Right  Lower TCO  Get paid faster  Easier reconciliation  Improve cash flow forecasting
  20. 20. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 20© 2016 SAP SE or an SAP affiliate company. All rights reserved. 20Public Buyer Benefits Total: $7,200,000 Controls Reduce supplier inquiries Discounts yield high APR (12% - 36%) Supplier Benefits Low Cost, On Demand Financing On-line Payment Visibility Accelerated Payments Income Statement Impact Free Cash Flow ImpactInvoices & Payments: 300,000 A/P Automation Savings: $1,200,000 Savings Per Transaction $4.00 Increased DPO: 15 Day Extension Free Cash Flow: $120 Million Return earned: 3% Return Earned: $3,600,000 15 Day DPO Extension DPO Extension Free Cash Flow: $120 Million Added Benefits Illustrative Payables Business Case Discounts on $3 Billion Spend 5% Adoption: $150 Million Avg. Discount: 1.60% Discounts: $2,400,000
  21. 21. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 21© 2016 SAP SE or an SAP affiliate company. All rights reserved. 21Public Now what…“playbook” to getting started Step1: Define Initial size of the prize to educate and excite colleagues • “Back of the envelope estimate” in “CFO Speak” i.e. Balance Sheet, Income Statement Cash Flow Impact of “$X”, alternative revenue needed to get same benefit Step 2: Governance: Who is the executive sponsor? “Day-to-Day” Lead? • Bring together leads from Procurement, Treasury & Accounts Payable Step 3: Distribute agenda for initial cross-functional team meeting? • Why is “XYZ Industries” thinking about Payables Working Capital? • What is Payables Working Capital? • How does Payables Working Capital impact / benefit “XYZ Industries? • Who is impacted and how? Procurement, A/P, IT, Treasury, Operations, Suppliers • Alignment: Are People Supportive of Developing Payables Working Capital Strategies? • Next Steps: Defining “XYZ Industries” Payables Working Capital Priorities
  22. 22. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 22© 2016 SAP SE or an SAP affiliate company. All rights reserved. 22Public Why SAP Ariba? + Global Successes & References: Buyers, Suppliers, Funders Bank’s core competency: lending money SAP Ariba’s core competency: facilitating B2B Commerce Selecting SAP Ariba is NOT deselecting a client’s bank + SAP Ariba (Largest B2B) Network User Experience + 1 Experience Across Sourcing, Buying, & Payables: Accelerates Adoption, Minimizes Risk, Lowers TCO + Proven Success & Expertise
  23. 23. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 23© 2016 SAP SE or an SAP affiliate company. All rights reserved. 23Public Please complete session survey Locate Session Click Surveys Button Select Breakout Survey Rate Session

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