Treasury Today Country Profiles in association with Citi

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Rolls-Royce, Winner, Best Financial Supply Chain Solution

Photo of Andrew Leach and Bart Ras, Citi

Rolls-Royce has a very large number of vendors, many of which are small businesses producing highly technical and specialised parts for use in its products. Were any of these companies to cease production through the lack of finance, it could impact production for Rolls-Royce. For this reason, Rolls-Royce began planning a finance programme to support its global supply chains.

Photo of Andrew Leach and Bart Ras, Citi.

Andrew Leach

Executive Vice President – Purchase Finance

Rolls-Royce is a world-leading provider of power systems and services for use on land, at sea and in the air, and has established a strong position in global markets – civil aerospace, defence aerospace, marine and energy. The company employs over 40,000 people globally and reported annual underlying revenues of £11.3 billion in 2011.

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The purpose of the programme was to enable suppliers to benefit from the company’s superior credit rating and gain access to funds at lower interest rates than they would ordinarily have access to. Safeguarding the Rolls-Royce supply chain through one of the most volatile periods the financial markets have known, was also of paramount importance.

“The project represents a vital element in our strategy to ensure financial stability to key segments of our supply chain, particularly smaller and more vulnerable suppliers,” explains Andrew Leach, Executive Vice President – Purchase Finance at Rolls Royce. “The crucial requirements we had for the programme from the start were that it should remain cost competitive and sustainable in the longer term.”

In addition to the original requirements and objectives that were delivered by the Citi proposition, the project resulted in an improved payment approval process and enabled suppliers to get the maximum early payment through the supply chain finance programme. Rolls-Royce has also prompted improvements to Citi’s processes that have reduced the time taken to bring in suppliers and improve suppliers’ experience on all Citi programmes.

“This is now being seen in improved relationships with suppliers,” says Leach. “Our last supplier relationship survey showed a significant improvement in supplier relationships associated with the improved payment processes. This in turn motivates suppliers to give priority to Rolls-Royce over other customers, on issues ranging from access to new technology through to cost reduction.”

Unlike many traditional programmes, which generally focus on the pure economic driver of working capital release, the Rolls-Royce programme stood out in helping to minimise disruptions from supplier failure for a highly specialised supply chain and for products that require the highest levels of safety standards. Operationally, a programme objective was to enable Rolls-Royce to standardise payment terms – before the programme was in place Rolls-Royce had nearly 100 payment terms in place with its vendors. The company has now reduced this down to less than ten standard payment terms, which has contributed to an improved payments approval process and improved strategic relationships with its suppliers.

The programme has now been made available on a global basis in multiple currencies for both suppliers and Rolls-Royce. It initially covered major UK suppliers, and was subsequently extended to suppliers serviced by the Rolls-Royce European finance centre, North American finance centre and to suppliers servicing the Nordic business. In 2012, Rolls-Royce expanded the programme to include Asia and has gone live with its first supplier to its facility in Singapore.