Facilitate Your Supply Chain Finance RFP Process

By now, literally 100s of companies have implemented some form of approved invoice Supply Chain Finance scheme.  While program and contractual details are held private, the process to put a program in place and select platform partners can be quite tedious. I have seen companies go out with a 50 page questionnaire.  The time and effort involved on all parties to respond to the request is massive.

Quite simply, the purpose of a Request for Proposal (RFP) is to obtain information to assist in evaluating the Supply Chain Finance initiative to meet your objectives.   Based on my observations and direct conversations with vendors, knowledgeable consultants, and the companies themselves, the process can be a whole lot better.  In the spirit of simplification, I describe the RFP process in the form of three “Es”– Education, Establishment, and Execution.

Program Discovery / Education

Supply Chain Finance programs involve multiple internal departments and can easily be met with resistance by other departments like IT, Legal, and Accounting that have many other priorities.  Successful programs require an Internal Champion to navigate resistance that will come up in multiple areas.  We believe that person should be from Procurement.

There should be clear Program Objectives – are you looking just to extend terms (let’s face it that is the reason these program are deployed) or do you see a way to allow your emerging market suppliers access cheap Libor based finance or even a way to manage your supplier diversity or supplier risk initiatives?

A Counterparty analysis should be done that helps segment suppliers into different categories to tailor solutions.  Third party purchases can be categorized into production materials including raw material purchases (domestic and imported), packaging materials, production equipment and capital expenditure items.  General procurement (egs. office supplies, uniforms, advertising) has its own sourcing stream.

Procurement needs a tool to get comfortable to negotiate financial terms.  While no tool is perfect, things like a supplier’s percentage of a buyer’s business, cost of supplier debt, etc. can help guide internal discussions.  For example, many suppliers have pledged assets including accounts receivable to secure loans, securitization programs or commercial paper programs, making it difficult for them to participate in programs.

How these programs impact their Deductions / Chargebacks accounting is also something to collect data on upfront. While SCF Payable programs may resolve this issue due to approved invoices and credit note adjustments, understanding historical merchandise and chargeback claims with the supply base is important.

Tomorrow we will look at the biggest issue in evaluating these programs – do you go single bank, multi-bank, or do you use a platform provider and their funding providers?

If you are interested in comparing notes, please contact me at dgustin at tradefinancingmatters.com

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First Voice

  1. Joe Rau:

    To some extent, centralizing the RFQ and RFP process will help to reduce maverick purchases by other internal parties such as engineers looking to expedite the manufacturing process. However, with large companies that rely on a multitude of manufacturing sites, this can be difficult. Companies should invest some time in understanding and choosing the best balance between a centralized procurement group (which can manage and deploy information and supplier evaluation requirements) with site autonomy, as to not create a long, drawn out purchasing/sourcing process. Good read!

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