SCF Barometer 2018/2019

Entering a New Era of Maturity and Solutions Dr. Simon Templar Board member – SCF Community

Foreword First of all, the Community and PwC, would like to thank the contributors to the 3rd annual survey, their feedback is incredibly important and without their contribution there would not be a 2018/2019 barometer. The barometer provides an extremely useful ‘snapshot’ based on those actually planning or operating SCF programmes enabling us to reflect where the Supply Chain Finance industry has come from, its current reality and highlights the factors, which will influence and shape the industry’s future direction. Michiel Steeman in his forward to the 2017/2018 barometer emphasised that the Supply Chain Finance industry is “going through a growth phase and change phase”, this still remains the case. optimisation is seen as an essential driver for the adoption of Supply Chain Finance. Reverse factoring is the most common solution currently and will continue to expand. The findings from the study also highlight that dynamic discounting is a “favourite for future implementation”. Looking forward, the barometer highlights a number of challenges and opportunities facing the industry. Emerging technology such as the block chain and artificial intelligence are going to have an increasing impact on every aspect of our business and personal lives. Therefore, the Supply Chain Finance industry needs to innovate, developing new solutions that will satisfy the future expectations of the marketplace. The barometer findings suggest that SCF landscape is also changing with the arrival of new entrants including platform providers, suppliers and logistics service providers. The survey’s feedback also highlighted the continue need to invest in training, building and enhancing relationships between buyers and suppliers and increased functional involvement in the adoption of supply chain finance initiatives. From my perspective, Supply Chain Finance industry will have an increasing and significant role in enabling the development of financially sustainable supply chains and networks.

PwC | SCF Barometer 2018/2019 2 Index

Introduction 05 1. General status 07 2 Supply Chain Finance adoption 13 3. Costs and benefits 17 4. Drivers and barriers 20 5. Technology and funding 23 6. Future plans and ambition 28

PwC | SCF Barometer 2018/2019 3 Supply Chain Finance (SCF) Barometer Introduction

Goal of the survey Type of questions Respondents profiles • Understand the current status • Implementation features • >80 responses of which c. 50% and key developments are running a SCF programme • Solution and supplier selection • Present (perceived) successes • Diverse range of functions • Drivers and barriers for the and challenges adoption of SCF • Variety of industries and size • Identify major costs and benefits • Key stakeholders involved • Global footprint • Share key market insights • Future plans and developments • Different levels of maturity

PwC | SCF Barometer 2018/2019 4 Supply chain finance

Supply Chain Finance (SCF) LSP improves working capital management by looking at the entire supply chain to identify and address company-wide issues and can be used as a tool to optimise financial structures, working capital and payment flows in company networks. Supplier Platform Buyer The aim of SCF solutions is to create added value between suppliers, purchasing companies, and external financial and logistics service providers by adopting a holistic approach to financial processes. Funder

Note: see appendix for overview of different SCF solutions

PwC | SCF Barometer 2018/2019 5 SCF Barometer Key findings

Most common SCF solutions: • reverse factoring • bank funded • collaborative, high volume suppliers

Working capital optimisation key common driver

Growing interest in (innovative) SCF, mainly at SME’s

Overall SCF perceived as successful

PwC | SCF Barometer 2018/2019 6 General status

Profile Awareness Solutions Adoption Survey findings represent a diverse, global view Participants are from a variety of sectors and regions

Sectors Regions

USA. 6% Other Manufacturing 17% 15% Northeast Asia. 6%

Technology Southeast Asia. 4% Consumer 15% goods Northern Europe. Metals 15% 47% 5%

Chemicals 5%

Utilities and Transportation Mining & Logistics 11% 6% Energy Southern Europe. Other 6% Engineering & 26% 9% Construction 7% Sectors which typically have relatively high levels of SCF adoption are well Survey participants remain largely in Northern European, followed by represented in the survey; Consumer Goods, Transportation & respondents from Southern Europe and Asia. Manufacturing.

PwC | SCF Barometer 2018/2019 8 Survey participants differ in size The finance function remains top functional respondent

Size Functions €25,000m - €100,000m > €100,000m 4% 1%

Other. 16%

€5,000m - < €250m €25,000m 22% 15%

Supply Chain & Finance & Controling Procurement. & Credit €1,000m - €5,000m €250m - €500m 15% Management. 52% 27% 17%

€500m - Treasury. 17% €1,000m 14%

Size still matters Survey respondents have diverse roles ranging from CEO to Supply >50% of respondents have an annual revenue size of >1 billion Euro. Chain Manager. Like in previous years of our SCF Barometer study the Finance department represents the top functional respondent category.

PwC | SCF Barometer 2018/2019 9 Most respondents have or are considering SCF Reverse factoring is by far the most implemented solution

SCF Solutions and awareness of respondents are running a SCF 14% 13% 55% 21% 24% 22% programme.

of respondents are 37% running more than 23% 60% one SCF programme. 64% 57% 63%

of respondents who 41% are not running a 49% SCF programme are 27% 19% considering or 16% 14% implementing a SCF REVERSEReverse FACTORINGfactoring InventoryINVENTORY financing PrePRE-approved-APPROVED PurchasePURCHASE order ORDER DynamicDYNAMIC programme. withWITH suppliers SUPPLIERS andFINANCING asset based AND invoiceINVOICE financing FINANCING financingFINANCING (pre (PRE- - DISCOUNTINGdiscounting with WITH ASSET BASED SHIPMENT) suppliersSUPPLIERS lendingLENDING shipment) Note: see appendix for explanation of different SCF solutions Adopted/Under Implementation Considering/Aware Unaware

PwC | SCF Barometer 2018/2019 10 RF is by far the most implemented SCF solution Some smaller sized companies are still unaware of this solution

Reverse factoring

Respondents show different levels of SCF maturity. 10% 19% Larger companies are more likely to 2% 2% 2% be running Reverse Factoring (RF), but mid-market is growing. 6% 6%

12% 12% 9% 6% 7% 1% 2% 1% < €250M €250M - €500M - €1,000M - €5,000M - €25,000M - > €100,000M €500M €1,000M €5,000M €25,000M €100,000M Adopted/Under Implementation Considering/Aware Unaware

PwC | SCF Barometer 2018/2019 11 Reverse Factoring is the preference SCF solution followed by Dynamic Discounting

Industry and common prevalent SCF solution Region and most common prevalent SCF solution

100%

100% Dynamic Dynamic 90% Dynamic Discounting Discounting Dynamic Discounting 90% Dynamic 80% Discounting Discounting 80% 70% 70% 60% 60% 50% Pre- 50% approved 40% 40% Reverse financing 30% 30% Factoring Reverse Reverse Reverse 20% 20% Factoring Factoring Reverse Factoring 10% Reverse 10% Factoring Reverse Factoring Factoring 0% 0% Consumer Goods Manufacturing Other Northern Europe Southern Europe Asia USA

Reverse Factoring Inventory financing and Pre-approved invoice Purchase order financing Dynamic Discounting asset based lending financing (pre-shipment)

PwC | SCF Barometer 2018/2019 12 Supply Chain Finance adoption

Actors Relationships Size Functions The trend for SCF roll-outs continues to grow often driven by the finance function

Year of implementation

100% Smaller companies are beginning to introduce Supply Chain Finance. Prior to 2012, SCF 80% programmes were predominantly implemented in 60% companies with revenues >€1bn. 40%

20%

0% Involvement per function in SCF initiation Before 2010 2011 2012 2013 2014 2015 2016 2017 2018

< €0.25b €0.25b - €0.5b €0.5b - €1b €1b - €5b €5b - €25b €25b - €100b > €100b LEGALLegal

ICTICT PURCHASEPurchase Finance and Procurement are the departments most involved in SALESSales the adoption of SCF solutions. LOGISTICSLogistics Logistics and Sales, not surprisingly, had most limited FinanceFINANCE contribution.

ADMINISTRATIVEAdministration

No contribution1 2 3 4 Key5 contribution

PwC | SCF Barometer 2018/2019 14 SCF: still a game for the big players? Size of spend and strategic relationships are key drivers for supplier selection

SCF solutions are often still not available to suppliers with limited spending, financial issues 15% of these suppliers are eligible for SCF solutions. and/or poor access to credit; i.e. those probably most interested in SCF. 26% of the spend is covered by a SCF solution.

Suppliers involvement in SCF adoption very

importance of driver

limited Suppliers with long-term Suppliers with a significant Suppliers with a key impact in Suppliers with a key impact in Suppliers with a key impact in Suppliers with poor access to Suppliers with financial Suppliers with a limited alliances and cooperative spending (€) terms of quality of your final terms of costs of your final terms of differentiation of your credit issues/challenges spending (€) relationships product product final product

PwC | SCF Barometer 2018/2019 15 Is the SCF landscape increasing? Moving from traditional providers to an integrated ecosystem of influencers

Influencers involved and their contribution level to the Banks and Factors remain important financial adoption of the SCF solution(s) actors involved in the adoption process of a SCF solution. CONSULTANCYConsultancy FIRM firm However, also strong involvement of ‘non Logistic service provider LOGISTIC SERVICE PROVIDER traditional providers’: MY SUPPLIERMy supplier 1. Significant presence of platform providers INFORMATIONInformation PROVIDER provider 2. Suppliers, and PLATFORMPlatform PROVIDER provider 3. Logistics Service Providers INSURANCEInsurance COMPANY company who seem to play an important role in the PRIVATEPrivate INVESTOR investor SCF adoption.

INVESTMENTInvestment FUND fund

FACTORFactor

BANKBank

No contribution Key contribution

PwC | SCF Barometer 2018/2019 16 Costs and benefits

Selection Implementation Financial Economical Costs of SCF Implementation and use above all else

Relevance of costs

Management and control costs The costs for implementing and running SCF solutions are more Financial costs relevant than the costs to assess and select the solution. Contract management costs Among specific costs drivers, the Change management costs most relevant is the financial cost of using SCF, followed by contract System purchase and set-up management and change costs management costs. Consultancy services costs Consultancy and vendor selection Vendor selection/evaluation are the least relevant costs. costs

Strongly Strongly relevant irrelevant

PwC | SCF Barometer 2018/2019 18 Working capital optimisation is the most important benefit of implementing a SCF programme

Both Buyer and Supplier improve their working capital, but also their mutual relationship. The supplier has a higher benefit in reduced cost of debt and default risk, and better access to credit. Economic benefits are less important.

Benefits comparison – Buyer versus supplier strongly agree = Buyer

= Supplier

strongly disagree

NOWC C2C ROI Better Credit Cost of Lower Better Processes Better Enhancement Relationships Improvement Purchasing Increase in ROE Rating Debt Default Risk Access to efficiency Effectiveness of with in Costs Revenues Credit Relationships Banks Sustainability

Financial Benefits Operational Benefits Supply Chain Benefits Economic Benefits

PwC | SCF Barometer 2018/2019 19 Drivers and barriers

Resources Stakeholders Technology Process Key drivers for a successful SCF solution adoption …

SCF Drivers

Buyer-supplier cooperation

Change of trade finance instruments Market SCF programme key success drivers New enabling technology

factors: Increased competition • Close cooperation Buyer – GlobalizationGlobalisation andand tradetrade growthgrowth Supplier • External pressure for working ExternalExternal pressure pressure for working for working capital capital optimisation. optimizationcapital optimisation Financial drivers Lower access capability to credit Intensified compliance regulations

Strongly Strongly disagree agree

PwC | SCF Barometer 2018/2019 21 … factors that hamper adoption of a SCF solution

SCF Barriers

Economic- Lack of enough transaction volume financial Low supplier's interest rate Top 3 potential obstacles to barriers Cost of adoption manage well as part of a Resistance to information sharing successful SCF programme: Lack of enabling technology

• Supplier interest rate Supply Poor collaboration within the firm • Sufficient transaction volume chain Poor collaboration between (other) firms barriers Uncertainty about supplier/buyer operations • Alignment of buyer and Lack of top management commitment supplier objectives. Different buyer-supplier objectives Cultural Lack of training barriers Strongly Strongly disagree agree

PwC | SCF Barometer 2018/2019 22 Technology and funding

ERP Fintech Banks E-invoicing A bank operated platform remains by far the most widely used SCF option

SCF solution Most used SCF platform Platform adopted for SCF implementation (in % of total per SCF solution) Reverse Factoring Bank operated (52%) Own in-house developed platform Dedicated Early Payment / 4% Dynamic Discounting platform Treasury Management 2% System Inventory Financing/ Bank operated (83%) 11% Asset Based Lending

Procurement to-Pay / E- invoicing platform Bank operated platform Pre-approved Bank operated (40%) 11% 46% Invoice Financing

Purchase Order Bank operated (24%) Financing Enterprise Resource Planning System Dynamic Bank operated 12% Discounting platform/Dedicated Early Payment/Dynamic Discounting Other SCF platform platform (40%) 14%

PwC | SCF Barometer 2018/2019 24 Due to significant developments in recent years more platform solutions are becoming mainstream and driving more diverse adoption

Year and the SCF platform implemented

100%

90%

80%

70%

60% Since 2016 there is an increased

50% usage of multiple platform solutions driven by a wider range of SCF 40% solutions becoming more mainstay. 30%

20%

10%

0% 2011 2012 2013 2014 2015 2016 2017 2018

Bank operated Platform Other SCF platform Own in-house developed platform Enterprise Resource Planning system Procurement to-Pay / E-invoicing platform Treasury Management System

PwC | SCF Barometer 2018/2019 25 Most SCF platforms offer a wide range of functionalities

Functionalities of the adopted platform

None of the above 1

Advanced business intelligence analytics and simulations 2

Transaction Risk Management (TRM) 3

Credit Risk Management 5 The vast majority of the adopted SCF Mobile access to the system 6 platforms however, is still rather Support to international relationships 7 limited in the use of more advanced CustomisationCustomization of the SCF service 7 functionalities like business/artificial Communication tool between financial provider and client 10 intelligence, mobile access and Cash planner 11 customisation. Supplier on-boarding 15

Real-timeReal-time visibility visibility on of onvoices'’ statusstatus 20

DigitalizationDigitisation andand dematerializationdematerialization ofof documentsdocuments 20

Integration with ERP and management systems 21

Report automation and data analysis 25

Track of historical information 27

PwC | SCF Barometer 2018/2019 26 Funding for SCF solutions is still predominantly provided from banks

Visibility of funder’s supply chain financing 100%

90% 23%

80% 4% 2% 70%

74% 76% ‘Banks’ and ‘Factors’ are the most 60% 23% 85% important financers for ‘Reverse 90% 50% Factoring’ solutions.

40% For other SCF solutions the vast majority of respondents have no 30% visibility of its (potential) financers. 47% 2% 20% 5% 12% 2% 2% 10% 19% 2% 2% 12% 2% 5% 7% 0% Reverse Factoring Inventory Financing and Pre-approved Invoice Purchase Order Finance Dynamic Discounting Asset-Based Lending Financing

Bank Factor Investment Funds Private Investors Focal Company N/A, no visibility

PwC | SCF Barometer 2018/2019 27 Future plans and ambitions

FinTech Technology Growth Operational SCF programmes are generally viewed as a success with Dynamic Discounting favourite for future implementation

• 54% of the respondents are satisfied with the SCF SCF solution in place solution in place, 42% are “neutral”. Just 4% are dissatisfied with their SCF solution. 54% 42% 4% • Most respondents are looking forward to expand or continue their Reverse Factoring programme. • Dynamic Discounting is favorite for additional future 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% implementation. Satisfied Neutral Dissatisfied

Future SCF plans 100% 11 80% Unsurprisingly, satisfaction is key for 1 2 24 131 30 60% 32 34 expansion, with most respondents 12 stating that they will continue, expand 40% 3 21 17 12 1 6 current solutions or implement new 20% 6 1 38 8 6 11 ones. SCF engagement drops with 8 6 29 0% 1 3 lower levels of satisfaction from their Reverse Factoring Inventory Financing Invoice Financing Purchase order Dynamic Any SCF solution Financing Discounting current SCF programme. Implement Continue Extend Downsize Stop No plans

PwC | SCF Barometer 2018/2019 29 New emerging technologies are expected to significantly impact SCF in the near future

27

19 In terms of new emerging 15 technologies ‘artificial intelligence’ 14 13 and in particular ‘blockchain’ are 11 10 expected to have the most impact on 9 9 7 SCF in the near future.

4 2

ARTIFICIALArtificial INTELLIGENCEintelligence BLOCKCHAINBlockchain INTERNETInternet ofOF things THINGS

Large Impact Little Impact Neutral No Impact

Stages in the Liquidity-oriented SCF solutions Technology and networking Physical and financial integration development of 1 (e.g., Letters of Credit 2 capability driven SCF solutions 3 of SCF solutions SCF solutions: and Factoring) (e.g., Reverse Factoring) (e.g., Block Chain, AI)

PwC | SCF Barometer 2018/2019 30 Authors of the SCF Barometer Study

Rob Kortman William Extra Danny Siemes PwC is a network of member firms. PwC’s Partner Director Director Working Capital Management Network PwC - Germany PwC - United Kingdom PwC - The Netherlands consists of a global network of experienced +49 170 987 9253 +44 7803 455 643 +31 6 3024 5711 [email protected] [email protected] [email protected] working capital and supply chain finance specialist dedicated to delivering sustainable working capital and cash flow improvement across operations.

Federico Caniato Luca Gelsomino Antonella Moretto The Supply Chain Finance Full Professor Senior Researcher Assistant Professor Community is a not-for-profit School of Management Windesheim University of School of Management association of all those involved in Politecnico di Milano Applied Sciences Politecnico di Milano supply chains. Its founder members are +39 02 2399 2801 +31 88 469 6088 +39 02 2399 3976 23 business schools across Europe [email protected] [email protected] antonella.moretto supported by corporations, banks, @polimi.it consultancies and technology vendors.

Agostino Bonzani Renate Corten Stephan Dellermann Laura Monagan Alessio Ronchini Co-authors of the study Research fellow Manager Senior Manager Manager Research fellow Politecnico di Milano PwC – The Netherlands PwC – Germany PwC – United Kingdom Politecnico di Milano [email protected] [email protected] [email protected] [email protected] [email protected]

PwC | SCF Barometer 2018/2019 31 Global supply chain finance and working capital network

PwC Supply Chain Finance Community Australia Belgium Denmark www.scfcommunity.org James Fowler Jeroen Theys Rene Brandt Jensen • The Supply Chain Finance Community is an independent global community [email protected] [email protected] [email protected] consisting of knowledge institutions, corporations, and supply chain finance professionals who share best practice and new research in an open, collaborative environment. • The aim of the SCF Community is to promote and accelerate the understanding, France Italy Malaysia development and implementation of supply chain finance models. François Guilbaud Domenico Dimita Ganesh Gunaratnam • Its founder members are leading business schools supported by corporations, banks, [email protected] [email protected] [email protected] consultancies and technology vendors. • In 2013 the SCF Community held its first conference at Nyenrode Business University in The Netherlands. Since then, the SCF Community Forum has evolved into an annual event that brings together more than 200 participants from corporates, Middle East Singapore Switzerland business schools, banks, technology firms and governments. At the same time, the Mihir Bhatt Caroline Clavel Benjamin.rutz Community itself has expanded to include more than 1,500 SCF practitioners in [email protected] [email protected] [email protected] every continent. • Today the SCF Community supports research projects conducted by institutions connected to the Community and endorses several SCF initiatives such as the Global Student Challenge and the SCF Academy. From 2016 the SCF Community’s activities are expanding to include a global awards scheme, enhanced digital USA Vietnam www.pwc.com resources and events in both Europe and Asia. Bruno Lopes Mohammad Mudasser • The SCF Community is a not-for-profit institution managed by an executive board [email protected] [email protected] consisting of leading professionals and scientists in the field of supply chain finance.

PwC | SCF Barometer 2018/2019 32 SCF Barometer 2018/2019

pwc.com

© 2019 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. Key terms and explanations

• C2C: Cash conversion cycle between outgoing and incoming payments. • Dynamic Discounting (DD): dynamic settlement of invoices where for every day of advanced payment with respect to a pre-defined baseline, the supplier grants to the buyer a discount on the invoice nominal value. • Inventory financing and asset based lending: lender (usually a bank) loans money to a firm with the maximum amount of the loan linked to the firm’s assets in the form of cash, inventory, and accounts receivable. • LSP: Logistics Service Provider. • NOWC: Net Operating Working Capital; i.e. working capital required for business operations minus current liabilities (often equated with liabilities from suppliers and services. • Pre-approved invoice financing: factors purchase accounts receivables from suppliers upon buyer receiving invoice and based on data driven likelihood of buyer ultimately meeting payment obligation. • Purchase order financing (pre-shipment): lender (usually a bank) loans money to a supplier for the sourcing, manufacture or conversion of raw materials or semi-finished goods into finished goods which are shipped to a buyer, having as guarantee purchase orders. • Reverse factoring (RF): provides a supplier with the option of receiving the discounted value of an invoice prior to its actual due date or of an account payable due to be paid by a buyer to the supplier at a future date. • ROE/ROI: Return on Equity/Return on Investments. • SCF: Supply Chain Finance.

PwC | SCF Barometer 2018/2019 34