AGCOs Working Capital Mandate brings success with SCF

I recently had a conversation with AGCO’s Director of materials and logistics for North America Dustin Barney.   Dustin has responsibility for all direct materials that go into AGCO North American factories and AGCO has some pretty strong brands, including Massey Ferguson, Valtra, GSI, and Fendt. They have become a very diversified agriculture company , selling machinery, grain handling and storage solutions, swine and poultry houses, as well as pulp feeders and hot houses.

The Working Capital Mandate

When management looked at the working capital of the group, they realized they were lagging behind the industry in terms of DPO.   Here’s where a big question arises – do you want to be in line more with the industry or do you want to pay quicker and build strong supplier relationships and invest in your strategic suppliers, especially when you have access to cheaper capital market funds?   I have written about those dilemmas, see - Why Walmart Does Not Delay Payment by One Day , Are you Financing Your Competition, and Techniques and Approaches for accelerating Cash in the Supply Chain.

In short, the incentives to push suppliers on term extension are compelling from a working capital perspective if you can get large spend suppliers to sign up, but the implications are equally problematic if not handled properly.

AGCO knew it would create cash flow issues for their suppliers, such as their key hydraulics and bearing suppliers who worked with various divisions of AGCO. So they created a cross-functional team to look at various early pay techniques to soften the blow.

Selecting a Technique

AGCO took a hard look at all the solutions out there – they looked at dynamic discounting, pcards, C2FO, bank and non bank supply chain finance. Dustin claimed they took a look at every type of solution out there for their supply base and sat down as a group with a cross functional team – purchasing, accounting, IT, Treasury, and finance.

They ultimately selected supply chain finance and PrimeRevenue’s solution. Dustin mentioned that  “PrimeRevenue helped us by looking at our supply base. Working capital issues might be different for a bearing supplier versus a metal fabrication supplier. PrimeRevenue helped  us understand what is common in the industry and markets they serve.  So we segmented our suppliers by the industries they serve and their size.”

Implementation

AGCO’s implementation is impressive from both the speed and the spread across divisions. Together with PrimeRevenue, Global Finance magazine awarded AGCO the Best Customer Implementation of Supply Chain Financing at a recent conference run by BAFT in Madrid, Spain.

What made the implementation so impressive is AGCO did this across multiple facilities in North America and across multiple ERP systems and multiple Account Payable practices. The program was fully functional in a matter of a few months.

But as we know, establishing a program is one thing. Getting suppliers to use it is another. Dustin mentioned that he spoke to others who had implemented programs that struggled, sometimes having problems getting more than 10 suppliers on in a year. For AGCO, they have been able to move the needle with a lot of spend and suppliers quickly.  Dustin gives a lot of credit to PrimeRevenue for strong project management & IT support.

It’s an interesting sidebar that this trend of large corporate payment term extension is hitting Asian suppliers as well. Many high-profile companies such as Samsonite have negotiated a payments extension from 60 to 105 days in return for supply chain finance. Ford Motors is looking for a bank that could help with its’ India-based suppliers.

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