Game-change: how unlocking working capital can drive growth

Organized by US-based supply chain finance (SCF) specialist Taulia, this year's Working Capital Summit was a response to a need within the industry for a forum in which expertise and information around working capital can be exchanged and discussed in an environment that fosters innovation and best practice.

6 November 2018

This article was originally published on our sister site Global Treasurer.

The Working Capital Summit, held jointly in San Francisco and Chicago in October, was a game-changer for the industry in more ways than one.

As Taulia’s Matthew Stammers explains, “In Europe, there are lots of events for senior financial professionals that help the industry understand how they can use working capital to help their business thrive. When I came over to North America last April, I found that there weren’t really any events designed to help senior treasurers, procurement professionals and CFOs understand one of the most important assets for their business: their cash.

“The Summit was set up to help them find out how they can improve liquidity not just across their own business, but across their supply chain as well. The rationale behind it wasn’t to hold a traditional technology vendor user conference, but to provide a forum where we can help people get together to showcase what they’re doing and to exchange ideas. We packed it with the best speakers we could find to talk about what they were doing within their companies to change the game around working capital.”

We packed it with the best speakers we could find to talk about what they were doing within their companies to change the game around working capital

The existence of the Working Capital Summit is indicative of an increased understanding that no business is an island, and no organization exists within a vacuum. As businesses face up to the potential risks of rising economic protectionism and threats such as Brexit, instability in the Middle East and runaway inflation, there is a growing sense that the best way to navigate the choppy waters of an uncertain future is to find means of ensuring that the global financial supply chain is robust, and works to the benefit of as many interconnected parties as possible.

This understanding of the imperatives of the wider supply chain is essential if a business is going to be able not just to thrive, but to survive at all.

Game-changers

In addition to John Ferguson from the Economist Intelligence Unit, whose presentation outlined some of the macroeconomic trends mentioned above, speakers at the Summit included Telstra’s George Papanikolopoulos, who discussed how the telco giant is using working capital to make itself match-fit to meet the challenges of tomorrow. It is doing this by unlocking capital trapped in its supply chain to finance investments in essential technologies such as 5G.

Crucially, Papanikolopoulos highlighted how the company’s efforts to improve cash liquidity are not coming at the expense of suppliers – by putting an early payment programme in place, for example – but rather in a way that suits their own individual business needs. As Stammers points out, “It’s a really good forum for companies like Telstra to showcase what they’re doing, and how they’re making it work not just for their own business but for their supply chain as well.”

Understanding the needs and priorities of all of the players that comprise the supply chain – be they big or small, buyers or suppliers – was central to the Summit’s aims. “We had a small supplier in San Francisco talking about how almost unwittingly, big businesses make their life hell through the payment terms that they impose,” says Stammers. “We deliberately wanted to put a supplier on stage and effectively provoke buyers to focus on the people they should be looking after.”

At one end of the scale you’ve got really small suppliers whose lives are made easier by early payments, and at the other you’ve got big companies with global partnerships

At the other end of the spectrum, says Stammers, “We had Huawei, who have a huge amount of efficiencies that they want to gain. Their payment reconciliation process was previously about a month and a half – 27 working days – and using technology, they’ve brought that down to about five working days.

“At one end you’ve got really small suppliers whose lives are made easier by early payments, and at the other you’ve got big companies with global partnerships; it can make a really big impact there as well.”

The theme of unlocking working capital to confront the challenges of tomorrow was picked up in a presentation by AstraZeneca’s Andrew Wilson, who spoke about how after a period of under-investment in innovation, the pharmaceutical multinational’s top-line revenues were in decline. The company therefore needed to find the cash to invest in new products. Since it can cost up to a billion dollars to bring a new drug molecule to market, AstraZeneca desperately needed to get liquidity into its supply chain. In order to do this, it used Taulia’s services to decouple when it wanted to pay from when its suppliers got paid.

“The customers that we work with understand that the only way they are going to win in the marketplace is if they think about themselves as supply chain ecosystems, and if they make their supply chain more competitive than others,” says Stammers. “It stops being about a one-dimensional cash discussion. This isn’t about short-term working capital hits onto the balance sheet, this is about optimizing cash throughout the entire supply chain to provide the fuel that makes the supply chain much more competitive, which allows these companies to thrive in the global marketplace.”

Industry revolution

As well as being a response to macroeconomic shifts, the growth of interest in SCF can be attributed to developments in technology. As Stammers puts it, “We’re really at the start of a cash flow revolution. In the past, businesses have just thought about their supply chain, their purchase-to-pay process and their treasury departments as cost centres. They’ve woken up to the idea that the way in which cash flows through the supply chain can be a strategic asset, not just for big, global organizations, but also for their suppliers as well. And the only way to scale a standard process and unlock the cash in your supply chain is to use technology.”

Summit speakers and delegates alike consisted of those who understand this and have grasped the opportunity to drive change within their organizations. “They are the people who are the next wave of pioneers and they want to take their company from a place where it’s not fit to face the future to one where it’s much more agile and is being enabled by the technology that’s being put in place – and they’re really keen to hear about how they might do that,” says Stammers.

One big area of focus for the Summit was invoicing – and how many organizations have been approaching the invoicing process in the wrong way. “Companies have taken an internal approach and they’ve thought about invoicing as a cost centre. The problems they’ve faced are mountains of paper, and have been asking themselves ‘how do we get rid of the paper?’ That’s the wrong way to think about it,” argues Stammers.

“You need to think about invoicing as the rails to optimise cash flow. Companies need to be able to digitally exchange financial information – purchase orders, invoices, goods receipts, shipping notes – so they can understand how to efficiently order the goods they need and manage the supply chain around that in a really efficient way. To be able to offer financing from when a purchase order is issued, for example, not just from when an invoice is approved.”

Treasurers in control

Traditionally, a large part of a treasurer’s role involves mitigating risk around cash management; but Stammers believes that is just the “table stakes”. “There’s an opportunity for people in treasury to understand that cash isn’t just something you need to mitigate risk around, it can be a strategic asset that can be unlocked for a business, which can fuel the business transformation that companies need,” he says. “Treasurers can be a real game-changer in this.

“The core purpose of the Summit is to bring together the people who are, and aspire to be, game changers – who understand that cash can be a really strong strategic asset for their business and want to know how to unlock it. It stops being just about companies, which are amorphous entities, it’s about bringing people together to hear from game-changers who are already leading huge change in their organizations, and saying to them ‘look, you can do this too’.”

Cash isn’t just something you need to mitigate risk around, it can be a strategic asset that can be unlocked for a business

“We’re only just getting started,” Stammers exclaims when asked about plans for next year’s event. “The top 2,000 businesses in the world trade about $120trn annually, and there’s about $19trn of outstanding payments at any one time. There’s about $14trn trapped in global supply chains. At the moment the current SCF solutions are releasing about $800bn, so we’re not even touching the edges.

“The opportunity is to get into that and unlock it, and the way to do it is to give companies true visibility of how their working capital is deployed, to give them a set of levers to unlock cash, and give them the ability to do that not just for their own business but for their whole supply chain as well. Critically, they need to be able to do that in real time.”

It is something of an anachronism to see industry as siloed groups of ‘buyers’ and ‘suppliers’ – the vast majority of companies will occupy both roles at one time or another, and they are all inextricably linked in the complex symphony that is the global supply chain. At its heart, the Working Capital Summit is an acknowledgement of this. “It’s not about bringing buyers and suppliers together, it’s about bringing companies together,” says Stammers. “We all need to work effectively together if we’re going to survive and thrive in the marketplace. Technology is an enabler to this, but the key thing is to have a movement where people can come together and drive real change in their organizations.”

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