Innovative Supply Chain Finance program at Rolls-Royce helps small tooling companies

Rolls-Royce has offered a supply chain finance program in partnership with Citibank since 2010.  The Program was made available to suppliers across the globe that had business with Rolls Royce valued at more than $150,000 per annum and the indicative pricing at that time was LIBOR + 3.5%.  Suppliers from Rolls Royce North American and European Finance Service Centers were offered the program.

I thought it interesting when in 2012 Rolls Royce complained publicaly that their bankers were starving many of the small companies which supply it with vital parts. See Daily Mail piece here

All that public badgering must have worked. Rolls Royce won the GT News 2014 Award for best Supply Chain/Trade Finance solution.

The award went to a program established to help a new three-year supplier tooling finance program. The project, called ‘funding the unfundable’ was to alleviate this pressure by providing trade finance at competitive rates for a term of up to three years. Launched in all parts of Rolls-Royce, suppliers can access finance in three currencies: US dollars, British pounds and euros.

The tooling process in the automotive business is a huge pain point. Tooling has a lot of R&D and prototype building that is difficult to borrow against. Historically in the auto sector, as a tool or gauge builder, you got one-third down in cash, and then as you get 50% done and the engineers certified your work, perhaps you get an additional progress payment. Depending on your margins, perhaps you can wait for payment after delivery and perhaps you cannot. The Citibank program appears to address some of that pain.

By the way, Rolls-Royce is one of the signatories on Obama’s SupplierPay program. Perhaps they can discuss this program in the upcoming meeting on 17-November at the White House.

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