Treasury Today Country Profiles in association with Citi

Whirlpool Corporation

Whirlpool Corporation, Winner, Best Supply Chain Finance Solution

Photo of Chetan Talwar, J.P. Morgan, Abhish Jain and Steven Lai, Whirlpool Corporation.

By standardising settlement methods and payment terms with suppliers, the entire SCF solution is expected to deliver over US$10m in working capital benefits for Whirlpool, of which US$5.5m has been realised since the solution went live in China and Hong Kong.

Photo of Chetan Talwar, J.P. Morgan, Abhish Jain and Steven Lai, Whirlpool Corporation.

Janet Chen

Finance Controller

Whirlpool Corporation is one of the world’s largest manufacturers of home appliances, with US$21bn in annual sales in 2016. In China, the firm distributes its products under Whirlpool, Sanyo, DIQUA, Royalstar and KitchenAid brands.

in partnership with

Smart solution fixes a BAD problem

The challenge

Whirlpool in China has earned a reputation for delivering reliable, high-performance and user-friendly home appliances by incorporating western designs and technology to meet the needs of its local Chinese customers.

However, as Whirlpool grew, so did the complexity of its supply chain. The firm worked with many suppliers globally and adopted different payment terms and settlement methods, creating inefficiencies in its processes.

In particular, Whirlpool issues Bank Acceptance Drafts (BAD) – a common form of payment in China which works like post-dated cheques that can be cashed after the delivery of goods – to its local suppliers. However, the issuance of BADs required substantial documentation as stipulated by China’s banking regulations, adding administrative burdens, exposing the firm to potential risks and increasing costs.

To overcome these issues, Whirlpool wanted to:

  • Standardise settlement methods across the region through open account (OA) terms – with payments made on a deferred basis after receipt of goods, and replace its dependence on BAD issuances in China.

  • Align supplier payment terms with market standards, by potentially extending terms with selective suppliers to optimise its overall cash flows. At the same time, Whirlpool wanted to further optimise its cash conversion cycles and improve its working capital.

The solution

Recognising that suppliers require a regular flow of operating funds and may be reluctant to accept later payments, Whirlpool decided to explore the option of supply chain financing, a solution that allows the firm to standardise its payment terms, whilst providing an alternative financing tool to its suppliers at favourable rates.

J.P. Morgan was appointed as Whirlpool’s trade banking provider and aided the company as it launched its own SCF programme, the first by a white goods firm in China. Whirlpool used the solution as a tool to facilitate discussions with suppliers to standardise payment terms and settlement methods.

By leveraging a single global banking platform, Whirlpool is also able to:

  • Further strengthen controls in managing the entire payment process.

  • Minimise workload and human error in invoice processing and reconciliation, due to host-to-host connectivity established between the firm’s ERP system and J.P. Morgan e-platform.

  • Benefit from scalability as the firm extends the solution to other countries in the region as well as across the regions in the future.

  • Provide alternative financing tools for its suppliers beyond regular payment terms.

Best practice and innovation

By standardising settlement methods and payment terms with suppliers, the entire SCF solution is expected to deliver over US$10m in working capital benefits for Whirlpool, of which US$5.5m has been realised since the solution went live in China and Hong Kong.

“My team and I feel so proud and excited to win the Adam Smith Asia Award. It has been a great honour and a good opportunity to share our case and get to know other companies’ success stories.”

By getting suppliers in China to switch to OA payment terms, the firm has saved over US$29,000 in BAD issuance fees, reduced administrative burdens and minimised its risk exposures. Whirlpool’s suppliers have also benefited from the solution through stable access to additional liquidity at favourable rates, more predictable cash flows and improved days sales outstanding.

Through the collaborative partnership between Whirlpool and J.P. Morgan, the firm successfully conducted its first SCF transaction within a short timeframe of three weeks from the time the SCF agreement was signed, a strong testament of how Whirlpool successfully managed its relationships with its suppliers.

Key benefits

  • Extending payment terms by 100% and 60% among its suppliers in China and Hong Kong respectively, improving days payable outstanding and aligning payment terms with market standards.

  • Unlocking US$5.5m in cash from its supply chain to go towards working capital.

  • Over US$29,000 in cost savings by converting BAD issuance to OA terms with 20 of its suppliers in China.

  • Reduced workload associated with managing multiple payment processes and administrative work required for BAD issuance in China.

  • Standardised onboarding and documentation processes for all of its suppliers.

Key learning points

  • Identify all stakeholders’ needs and come up with a solution beneficial to all related parties, which will make it easier to get alignment and execute the solution.

  • Comprehensive communication with stakeholders what the solution means to them and how we will implement it is also very important to the success of the solution.

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