Idea Briefing - Supply Chain Finance
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This document discusses supply chain finance as a third type of financing for organizations, in addition to debt and equity. It presents four levers - strategic sourcing, purchasing programs, inventory management, and sourcing negotiations - that can be implemented to improve an organization's balance sheet, income statement, cash flow, revenue and costs. An example is given of applying these levers to a $50 million manufacturer, showing how $1 million could be added to its bottom line by reducing material costs, SG&A expenses, inventory levels, and days in the cash-to-cash cycle.
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- 1. Idea Briefing – SUPPLY CHAIN FINANCE Knowledge is a process of piling up facts; wisdom lies in their simplification. - Martin H. Fischer Supply Chain Finance … a 3rd type of financing An organization currently funds itself Implementing these levers, 1. with DEBT in exchange for INTEREST PAYMENTS 2. with EQUITY in exchange for A SHARE OF THE PROFITS/ EARNINGS PER SHARE LEVER 1 - Strategic Sourcing adding 3. LEVER 2 - Purchasing Programs LEVER 3 - Inventory Management LEVER 4 - Sourcing Negotiationsprovides cash flow back into the organization by applying the savings levers ORGANIZATION SUPPLY CHAIN FINANCE BALANCE SHEET IMPROVED CAPITAL INTENSITY (Invested Capital) INCOME STATEMENT HIGHER PROFITS IMPROVED CASH FLOW REVENUE INCREASEDthroughput OPTIMIZED,reliable suppliers DECREASED line shut-downs& missed revenueopportunities COST REDUCED purchased costs IMPROVED on-time delivery IMPROVED quality Lever 1 WORKING CAPITAL (cash + inventories + A/R) – Current Liabilities INCREASEDinventory turns REDUCED inventorylevels IMPROVED cashflow IMPROVED cash-to-cashcycle TECHNOLOGY REDUCED overheadcosts (SG&A) IMPROVED productivity Lever 2 Lever 3 Lever 4
- 2. An example of applying the Supply Chain Finance Levers For a $50 Million manufacturer, $1 Million is added to the bottom line! The process is simple … we can apply the comprehensive lever roadmap for any size and type of business. After implementing the levers, you start reaping the benefits. MiCyn Consultancy cellular: (814) 341-0168 email: micyn2@gmail.com BEFORE Lever % of Revenue % of Revenue delta Revenue 100.0% 100.0% Cost of Goods Sold 73.0% 67.3% 1 Material 57.0% Reduce 10.0% 51.3% (5.7%) Labor 12.0% 12.0% OH 4.0% 4.0% Gross Margin 27.0% 32.7% 5.7% Operating Expenses R&D 4.5% 4.5% 2 SG&A 15.6% Reduce 5.0% 14.8% (0.8%) Depreciation (1.0%) (1.0%) Other Expenses Interest 1.5% 1.5% Income Before Taxes 6.4% 12.9% Income tax provision (39.1%) (2.5%) (5.0%) NET INCOME 3.9% 7.8% 3.9% CASH-TO-CASH CYCLE (days) 77 50 (34.6%) BALANCE SHEET REFERENCE Cash 13.8% 3 Inventory 20.6% Reduce 10.0% A/R 36.6% 4 A/P 24.9% Increase 10.0% AFTER