For a global corporate, offering a supply chain finance programme is challenging; this company found a solution
Philips’ existing SCF programme started in 2009. It was a bank-led reverse factoring scheme, leveraging Philips’ balance sheet for its strategic suppliers. Though still successful, it doesn’t suit all suppliers. Philips sought a solution capable of satisfying every supplier, at the right time, at the right price, at the right underlying currency, whilst also satisfying the needs of every internal stakeholder.
It also wanted to cover its huge spend in a short timeframe, even though that spend was dispersed across an IT landscape of multiple ERP systems which itself has been under pressure from the company’s biggest ever standardisation programme. Furthermore, Philips wanted to support various government initiatives promoting access to liquidity for SMEs.
In response to the creation of the Philips Early Payment Programme, C2FO was the chosen technology provider. Its innovative solution uses artificial intelligence to help Philips turn its trade payables into EBITDA. It is also cited as very easy to use and flexible, with options for suppliers to choose how they want to discount, and rapid payment processing to assist these suppliers’ cash flow planning.
Best practice and innovation
In the first nine months of operation, the programme delivered hundreds of registered suppliers, facilitating a significant amount of accelerated payments to SMEs across multiple countries around the globe. The success of the solution helped evolve a mindset change, both from within Philips and spreading across the entire value chain.
Project success was aided because none of the internal stakeholders disagreed with the objectives: everybody who embraced it became part of that success. All teams involved (including treasury, finance, procurement, business and markets, IT, tax, information security, accounting operations, purchase-to-pay and external shared services) put Philips first. This overcame obstacles pertinent to individual KPIs, placing the overall benefit of the company as paramount.
The project team established collaborative working groups, educated various departments on the programme, and found solutions able to navigate challenges and support each other. The programme is fully resonant with the company’s “Digital Solution Creation and Automation” competency; this is one of the key strategic priorities for Philips Finance until 2020.
The Philips Early Payment Programme was delivered on time, within budget and ahead of plan. Instead of piloting the programme to one ERP system, at one buying entity, and with a few suppliers of limited volume of transactions, the company went ahead with a major roll-out. It was able to technically capture a substantially high percentage of Philips’ total spend globally across six different ERP systems.
As this was a combined business and IT-driven large-scale project, the cost perspective should not be overlooked. The programme’s innovative and light-touch technical approach prevented Philips from engaging in an unnecessary deep ERP-integration exercise. This made internal and external implementation costs significantly lower, allowing investment in additional roll-outs which scaled-up the programme tremendously, resulting in a surprisingly high ROI.
Philips has also changed its thinking about its suppliers. For example: although its traditional bank-led reverse factoring programme is designed to cover the needs of its top spend suppliers, the C2FO programme also appeals to its large suppliers. One of its strategic suppliers in the personal health sector of its business, with a double-digit million spend per annum, is actively using the new programme to manage its domestic currency fluctuation and poor performance versus euro. Ultimately, the objective is to provide the programme to more than 50,000 Philips suppliers.
Implemented in ten weeks across multiple countries globally.
Project payback period in less than 30 days.
Technical connection of six SAP kernels.
Hundreds of eligible suppliers onboarded to date.
Accelerated significant value of early payments to SMEs.