Photo of Steven Ramsey, Mel Holbrook, Nadia Pelekanos and Nick Feaviour, DS Smith, Erik Savola and Kyle Ramey, Citi.

DS Smith Plc has implemented a robust supply chain finance (SCF) programme which includes all of its suppliers including many SMEs that were unfamiliar with SCF. Read how they have onboarded 270 suppliers in just 12 months with their preferred provider.

DS Smith has been working closely with Citi in recent years to establish a number of supply chain financing (SCF) programmes to support suppliers globally. To date, the company has put in place SCF solutions for more than 350 suppliers across 27 countries and over $1bn of payments have already been processed.

The challenge

DS Smith planned to establish a new business within its group, utilising a business model which is primarily a sourcing service to provide customers with instore marketing and display materials globally.

“We wanted to minimise the working capital investment associated with the new venture,” says Nick Feaviour, Group Treasurer, DS Smith “and therefore it seemed appropriate to target a zero working capital model.”

A zero working capital model from start-up is unusual given the initial costs associated with any new business and the complexity involved in establishing standardised credit arrangements with a new supplier base. To achieve its ambitious goal, the default payment mechanism for all suppliers working with the new venture would be through the SCF platform; it would then be at the discretion of the suppliers as to whether they would sell their receivables to Citi.

To compound the challenge, as this was a new venture, DS Smith did not have existing relationships with many of the suppliers and, given the nature of the business as a sourcing service, could not guarantee an offer of work in the future. Therefore, although the SCF programme would offer attractive benefits enabling suppliers to be paid within 15 days (significantly faster than the credit terms), it was anticipated that some suppliers would be reluctant to take part.

However, achieving a critical mass of suppliers in the first four months of trading was essential to achieving the ambition of zero working capital whilst ensuring that disruption to the establishment of the new business was kept to a minimum. It was also important for the future strength of DS Smith’s relationships with suppliers that its initial contact with them be managed effectively to create a favourable first impression.

The solution

To overcome these challenges, DS Smith worked closely with Citi to adapt and refine its pre-existing SCF programme model for a much larger number of smaller suppliers.

Citi worked with DS Smith to simplify its communications strategy, including creating a supplier-facing website, to educate a supplier base that was in many cases unfamiliar with SCF and the benefits that it provided to suppliers. Citi also streamlined its documentation processes and other onboarding processes to accelerate the time taken for each supplier to join, so that DS Smith could reach its targets.

Best practice and innovation

• Given the tight timeframe, the large number of suppliers and the unique challenges of the programme, both DS Smith and Citi committed to openness and plain speaking, which served to underpin the successful collaboration and develop a truly innovative partnership. The experience, Feaviour says, “made us appreciate what is possible when you are prepared to work closely with a bank.”
• DS Smith effectively acted as a consultant advising on ways to improve the onboarding experience – which Citi will implement for future SCF programmes.
• They developed a rigorous timetable with close scrutiny of milestones and clear escalation paths.
• Achieved strong, centralised management with a dedicated manager in treasury that oversees its SCF programmes across the world, including this new programme, ensuring visibility and control.

“The legacy of the programme is significant,” says Feaviour. “Demonstrating that SCF could be used as a single payment mechanism for the new business not only optimised working capital, but also reduced the costs associated with accounts payable and provided our suppliers with valuable liquidity.”

Key benefits

• Rapid implementation/onboarding of suppliers – 270 in just 12 months.
• Zero working capital.
• Lower costs from simplified accounts payable infrastructure.

Key takeaways

Challenge the status quo – supply chain financing as a payment mechanism for all suppliers can work. If you are prepared to work in partnership with a bank you can achieve a better solution in a shorter timeframe.