Dynamic Discounting: New Opportunities for No-risk, High-yield Cash Returns
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This document discusses dynamic discounting and working capital management strategies that can provide companies with no-risk, high-yield cash returns. It describes how Ariba offers collaborative commerce solutions that help companies buy, sell, and manage cash better through improved spend control, sales acceleration, and working capital management. Case studies are presented on how Republic Services and Dollar Tree have leveraged Ariba's dynamic discounting solutions to capture early payment discounts, drive new discount adoption, and increase cash flows.
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Dynamic Discounting: New Opportunities for No-risk, High-yield Cash Returns
- 1. MC Dynamic Discounting and Working Capital Management: New Opportunities for No-Risk, High-Yield Cash Returns ยฉ 2012 Ariba, Inc. All rights reserved.
- 2. Erin Chumbley Republic Services, Supervisor Ariba Platform Tim Bennett Dollar Tree, Director of Strategic Sourcing and Procurement T.D. Eureste ONEOK, Director of Treasury and Finance Matt Suggs Mediafly, Vice President Enterprise Sales 2 ยฉ 2012 Ariba, Inc. All rights reserved.
- 3. Ariba Offers Collaborative Commerce Solutions to Help Companies Buy, Sell and Manage Cash Better Buyers MANAGE Sellers BUY SELL CASH Improve spend control and The discipline of using Accelerate sales through Sourcing & performance with reduced collaborative solutions to efficient processes Sales & Procurement costs, lower risk, improved make your money work for fostering stronger Marketing and you and your trading relationships with new and enhanced compliance. partners existing customers. Finance Finance Collaborative Working Capital Collaborative Accounts Finance Management Procurement Accounts Payable Receivable Electronic Invoicing Discount Professional PO Automation Scanning & Workflow Receivables Finance Supplier Portal Matching & Compliance P-Card Settlement Supplier Enablement IT IT Payment Automation Assessment Services Connectivity Services 3 ยฉ 2012 Ariba, Inc. All rights reserved.
- 4. Working Capital Tension Situation and Objectives of Buyers and Suppliers Buyers Suppliers Historic Cash Reserves: $1.9T+* Payment Terms Stretched Low Interest Rates: 0% - 0.3% Working Capital Tension Limited bank credit Investor pressures for greater returns Low visibility into cash flows Supply Chain Risk Cash flow is critical 4 ยฉ 2012 Ariba, Inc. All rights reserved.
- 5. Best Practice: Increase Discount Capture Capture Missed Discounts & Increase New Discounts 5x Ariba solutions drive early payment discount adoption Enroll suppliers at enablement Engage right supplier audience Recent Aberdeen study shows 50% of pre-negotiated 3x Introduce sliding scale discount discounts are never captured Include net term invoices 2x < Capture missed discount opportunities through Smart Invoicing < 50% currently captured 5 ยฉ 2012 Ariba, Inc. All rights reserved.
- 6. Pillars of Success Technology, Community and Services combine to deliver value Technology Community Services โข Cash Optimizer โข Largest B2B โข Diagnostics & โข Flexible network Strategy Integration to โข Active resource โข Rapid Ramp ERP โข Active community โข Program โข Dynamic Management discounting 6 ยฉ 2012 Ariba, Inc. All rights reserved.
- 7. Republic Services Early Payment Program Erin Chumbley ยฉ 2012 Ariba, Inc. All rights reserved.
- 8. Republic Services, Inc. โข Leading provider of solid waste collection, transfer, recycling and disposal services โข Provide solid waste services for commercial, industrial, municipal, and residential customers โข Serve markets in 39 states and Puerto โข Approximately 30,000 employees โข Recent largest merger was in 2008 between Allied Waste and Republic Services 8 ยฉ 2012 Ariba, Inc. All rights reserved.
- 9. Deployment Strategy 2010 โข Efforts of onboarding vendors onto the Ariba invoicing module to have one Procure-to-Pay system โข Engaged in conversations with vendors about the Early Payment Program towards the end of 2010 2011 โข Grew onboarding efforts from 45% of addressable invoice count at the beginning of the year to 62% at the end of the year โข Grew number of vendors participating in the Early Payment Program nearly 500% 9 ยฉ 2012 Ariba, Inc. All rights reserved.
- 10. Leveraging the Early Payment Discount Program โข Worked with Treasury Department for acceptable hurdle rate โข Identified target vendors based on annual spend, commodity type and current payment terms โข Supplier Enablement Team partnered with Procurement Commodity Managers to assist in identifying priority vendors โข Cleaned up any aging payables of target vendors as part of outreach program โข Sold benefit of improved cash flow and flexibility of Standing Offer or Dynamic Offer 10 ยฉ 2012 Ariba, Inc. All rights reserved.
- 11. 2011 Discount Savings $1M 11 ยฉ 2012 Ariba, Inc. All rights reserved.
- 12. Five Key Learning Points โข Alignment with all departments โข Need to establish an approach with vendor participation โข Instill robust vendor training program โข Manage your users through Key Performance Indicators โข Provide role specific tools/training for system users 12 ยฉ 2012 Ariba, Inc. All rights reserved.
- 13. MC Dollar Tree: Adding Value to P2P Initiative Tim Bennett ยฉ 2012 Ariba, Inc. All rights reserved.
- 14. Company Info Dollar Tree, Inc. (NASDAQ: DLTR) โข Leading operator of discount variety stores selling everything for $1 or less โข Headquartered in Chesapeake, Virginia โข Sales $6.6 billion (FY11) โข 4,351 stores (FY11) โข No price increases to our customers in 25 years for Dollar Tree stores 14 ยฉ 2012 Ariba, Inc. All rights reserved.
- 15. Dynamic Discounting โข Ariba Background Implemented Sourcing in 2004 Invoice Automation live July 2010 for Merchandise, live April 2011 for Indirect P2P live February 2011, phased rollout Dynamic Discount capture fueled the ROI for P2P 15 ยฉ 2012 Ariba, Inc. All rights reserved.
- 16. Dynamic Discounting โข Organization All procurement takes place with the Store Support Center Procurement Department is responsible for all supplier enablement for Indirect spend Procurement Department performs all marketing for early payment programs for Indirect spend 16 ยฉ 2012 Ariba, Inc. All rights reserved.
- 17. Dynamic Discounting โข Metrics 900+ indirect suppliers and 600+ merchandise suppliers currently transacting on the Ariba Network Within the first 12 months, 92% of suppliers enable were transacting on the Ariba Network 100 suppliers participated in early payment discounts in 2011 Dollar Tree offers both dynamic and standing discount plans Annual return is 14 - 40% depending on discount plan and terms Dollar Tree was able to pay back P2P investment in under one year with early payment discount capture 17 ยฉ 2012 Ariba, Inc. All rights reserved.
- 18. Dynamic Discounting โข Lessons Learned Must market the early payment program to the CFO / Controller Target the right companies Supplier on-boarding โ include discount detail Email marketing Dedicated web page on dollartree.com High level of customer service required 18 ยฉ 2012 Ariba, Inc. All rights reserved.
- 19. MC ONEOK: Ariba Rapid Ramp ROI Delivery T.D. Eureste ยฉ 2012 Ariba, Inc. All rights reserved.
- 20. ONEOK Today A Premier Energy Company โข Assets that fit and work together Integrated operations Connecting prolific supply basins to key markets โข Proven ability to grow profitably โข ONEOK Partners is ONEOKโs primary growth vehicle โข ONEOK Partnersโ cash distributions drive ONEOK shareholder value โข Demonstrated financial flexibility ONEOK Natural Gas Distribution and discipline ONEOK Energy Services โข Two Companies โ OKE $8.8 Leased Pipeline Capacity Leased Storage Capacity billion market cap., OKS $11.7 ONEOK Partners General Partner billion market cap ($14.8 billion 43.4% ownership (as of Mar. 2, 2012) annual sales โ 2011) Page 20
- 21. Business Segments Provide Stability and Opportunity ONEOK Partners โข ONEOKโs primary growth vehicle โข Growth at OKS benefits OKE โข Generates primarily fee-based earnings โข Provides non-discretionary services to producers, processors and customers Natural Gas Distribution โข Provides low-risk, stable cash flow โข Rate strategies have improved sustainable earnings and returns Energy Services โข Provides premium services to customers through contracted: โ Natural gas supply โ Transportation โ Storage Page 21
- 22. ONEOKโs Accounts Payable Journey Prior to 2010 ONEOK and ONEOK Partners accounts payable organization was decentralized, paper based and with a manual entry method โข Our vision of a best-in-class accounts payable organization included the following: Centralized structure Profit center versus a cost center Transition accounts payable from manual entry method to an online, automated method with coding/approval workflow Outsource invoice scanning to capture the โlong tailโ invoice suppliers that are not participating in electronic invoicing process Transition manual check request process to an automated process with workflow Ability to have dynamic discounting available to our suppliers โข ONEOK centralized the accounts payable organization in August 2010 โข ONEOK needed a strategic partner to complete our vision especially as it relates to dynamic discounting Discounting returns are a key component in business case Page 22
- 23. Strategic Partner - ARIBA โข Currently in implementation phase of the following with expected go live June 2012 Invoice/PO automation Invoice professional Invoice conversion services โข Discount professional services (Rapid Ramp Service) โ started immediately after contract signing โ October 2011 First wave approximately 500 suppliers โ First calling campaign quickly returned an incremental $1.1 million in potential discounts Offered the following terms: 1.5% 15Day Net 30, 1% 20Day Net 30, 0.5% 25Day Net 30, or Net 45 (message: discount our extend our DPO) โ Will be more robust once we are transacting electronically Ariba instrumental helping target the right suppliers, strategy of how we structured the calling campaign and flexible on the message to our suppliers Page 23
- 24. MC MediaFly โ Supplier View into Ariba Network Cash Flow Opportunities Matt Suggs ยฉ 2012 Ariba, Inc. All rights reserved.
- 25. โItโs a game-changerโฆโ The impact of Dynamic Discounting on Growing Suppliers ยฉ2012 Mediafly, Inc. | Confidential
- 26. ยฉ2012 Mediafly, Inc. | Confidential
- 27. Mediafly: By the Numbers ๏ 2006: Founded by Carson Conant ๏4 Fortune 100 customers ๏ 22 Team members in US, Ukraine, Uruguay ๏ 100% Staff growth over next 12 months ๏ 850% Projected revenue increase โ10-โ12 ยฉ2012 Mediafly, Inc. | Confidential
- 28. Benefits of Ariba ๏ Visibility ๏ก Facilitates better planning for ๏ HiringStaff ๏ Feature Enhancements ๏ Cash Acceleration ๏ก Dynamic Discounting ๏ Quick access to cash ๏ 100% Factoring ๏ Competitive Fee Structure ยฉ2012 Mediafly, Inc. | Confidential
- 29. Example: Entertainment Industry ๏ Fortune 100 Entertainment Company A ๏ก Ariba Dynamic Discounting ๏ก One-click collection: Easy, within 14 days of PO ๏ก Flexibility: Mediafly gets choice to accelerate ๏ก Visibility: Cash planning improved ๏ Fortune 100 Entertainment Company B ๏ก Traditional A/P process ๏ก Collection Cycle: Resource intensive, 45-60 days ๏ก Fixed contract terms: Slow access to cash ๏ก No visibility: Cash planning on worst case scenario ยฉ2012 Mediafly, Inc. | Confidential
- 30. Three Winners Large Buyer ยฉ2012 Mediafly, Inc. | Confidential
Editor's Notes
- Most companies have some level of traditional early pay discounts built into some of their contracts (i.e. 2/15 net 45). But those discounts typically cover less than 5% of their supplier base. And due to inefficient, paper-based invoice processing, according to Aberdeen, the Hackett group, and what we have seen in our customers, most companies capture at the most only half of those discounts because they canโt approve the invoice in time.ย By implementing eInvoicing, our customers are able to get invoices approved in 2-3 days or less, and so are able to double their discount savings simply by removing the inefficiencies from the process. Essentially picking up money previously left on the table.ย But beyond that, best practice companies are able to increase their savings by capturing new discounts through Dynamic Discounting. Utilizing Aribaโs Discount Pro product, our customer are able to give their suppliers visibility into the opportunity for accelerated cash flow through the Ariba Networkโs cash flow portal, so that those suppliers can take advantage of Ad-hoc early payment (or discounts given on invoices sometimes, as needed), and Automatic early payment (or discounts given always, automatically as soon as the invoice is approved).ย Ariba helps you maximize discount capture in three ways: 1st we help you capture pre-negotiated discounts by automating your invoice process and eliminating paper. 2nd we offer suppliers dynamic discounting, which aligns their need for cash with your cash use and savings objectives. And 3rd, we expand the savings pie even by connecting you to nearly 1 million suppliers in the Ariba Network, many of whom you are already doing business with. For the other targeted suppliers, Ariba has the largest team of professionals dedicated to targeting, onboarding, and supporting suppliers. This effort is often underestimated by companies who choose to attempt this on their own. Ariba also assigns a customer management executive who helps measure your success against the stated objectives for continues performance measurement and program adjustments. ย The result is an increase of 3x-5x in your early payment discount savings, earning you an APR of anywhere from 10-36% while providing needed liquidity to your suppliersโฆa much better use of cash that sitting in a short term liquidity fund earning next to nothing.
- At ONEOK and ONEOK Partners:We have assets that fit and work together.. connecting prolific supply basins to key marketsA track record ofโฆ and commitment toโฆ disciplined growthโฆ in and around our operating footprintโฆ which now includes approximately $3 billion of investments planned through 2014โฆ and a $1 billion-plus backlog of unannounced projects.And a proven ability to create value for our investors and customersโฆ
- The diversity of our business segments provides us with both stability and opportunity:ONEOK Partners provides non-discretionary services to producers, processors and customersโฆ generating predominately fee-based earningsโฆ and significant cash to ONEOK.The distribution segment adds value by generating cash and anchoring our investment-grade credit ratingโฆ Execution of rate strategies over the last few years has led to an increase in sustainable earnings and closed the gap between actual and allowed returns.Our Energy Services segment โ adds value through natural gas supply contractsโฆ and leased transportation and storage capacityโฆ aligned with our premium-services customers, primarily utilitiesโฆ providing those utilities with secure, reliable natural gas supply.