Supply Chain Finance and Payables Discount Management (SCF/DM) initiatives need a framework to ensure that programs are approached on a strategic basis that bridges both the Supply Chain and Finance organizations. PayStream’s analysts are working on such a framework to help enterprises implement an “integrated” Supply Chain Program, and have created the Eight Building Blocks of SCF/DM framework to get our clients started. Just as a map helps you understand the context of your journey (the roads you need to navigate and alternative routes), so the SCF/DM framework helps enterprises make decisions about the best route and objectives for their situation.

To build on this theme, PayStream will host an educational conference “Supply Chain Finance - Discount Management Summit” in June 2008 to bring together supply chain and finance executives to explore the future opportunities in working capital. The theme of this year’s SCF conference is Uncovering Working Capital in your Supply Chain. PayStream has also created the Supply Chain Finance Excellence Awards to recognize those companies which show leadership in their working capital optimization programs.

SCF/DM is a business strategy that optimizes working capital and supply chain collaboration for both buyer and supplier relationships by seeking tailored payment terms for services and materials. As an example, a Paystream Client, a multi-national services company with over a billion in annual domestic spend approached us to help them define the opportunity for a FSC-DM program. With less than $400,000 in set up costs, our client will generate over a million dollars per year in hard dollars benefit from working capital improvement AND the project will turn a positive ROI in only 8 months. SCF/DM/DM includes both structured financing programs and early payment discounting for supply chain payments, fostering working capital centric processes.

SCF/DM programs enable:

• Greater payables and receivables visibility
• Increased access to payment scheduling
• More effective supply chain interactions
• Integration throughout all supply channels and back-office billing and invoice functions.

To achieve the long-term value of Supply Chain Finance and Payables Discount Management (SCF/DM), organizations must adopt a strategy that integrates both Procurement and Finance. Therefore initiatives should be approached at an enterprise level. Recent research shows that many enterprises are still implementing SCF or DM programs, but not truly integrated projects.

A cohesive and integrated vision starts with an overall Supply Chain Finance value proposition. The responsibility for creating the SCF/DM vision clearly lies in the CFO & Treasury Suite. The most fertile environment is one in which the chief finance officers understand what SCF/DM means and is receptive to new ideas and ways of working. The SCF/DM vision must be well-known and accepted throughout the enterprise and the supplier base. With this in mind, it is useful to have a meaningful, company-specific definition of Working Capital goals.

Following an analysis of several enterprises, PayStream Advisors has created a SCF/DM framework, or map, called “The Eight Building Blocks of SCF/DM” to help enterprises see the big picture, to make their business cases and to plan their implementation.

The framework can be used for internal education and debate in developing the SCF/DM vision and SCF/DM strategies. It can then be the basis of an assessment of the enterprise’s current and required SCF/DM capabilities, to help understand its current position and future strategy. Using this framework, PayStream Advisors is currently profiling several enterprises that are great examples of SCF/DM at work. The eight building blocks in the model are the fundamental components for effective integrated SCF/DM. Beneath each component are a variety of interlinked capabilities. A key feature of the framework is to emphasize the need to create a balance between the requirements of the company and the working capital.

Integrated SCF/DM is an enterprise-wide initiative, where the enterprise knows how it wants to manage working capital and supplier interactions and puts all relevant capabilities in place to achieve those goals.

A solid SCF/DM vision and strategy Supportive set of integrated initiatives in the areas of,

• Supply chain and finance collaboration
• Working capital compression goals
• Invoice visibility processes
• Automated payments
• Supporting technology
• Measurement & improvement metrics

The eight building blocks in the model are the fundamental components for effective integrated SCF/DM. A key feature of the framework is to emphasize the need to create a balance between the requirements of the supply chain and working capital – a task that is easier than many think.

Last 5 posts by Henry Ijams

• Invoice Automation & Discount Management -- the New Look of Accounts Payable - June 23rd, 2008
• The Eight Building Blocks of Supply Chain Finance & Discount Management - December 28th, 2007
• eProcurement - Moving from Technology to Execution - December 6th, 2007
• Building a Bulletproof Business Case for Paperless Technology - August 25th, 2007
• What is Dynamic Payables Discounting? - August 7th, 2007

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