The challenge
In 2020, the North American division of Diageo decided to review its existing supply chain finance (SCF) programme and put the business out to tender. The programme aimed to strengthen the supply chain by offering early payment of invoices to suppliers. Diageo’s treasury and procurement functions were keen to re-invigorate the programme and were open to a fresh approach as a result. The goal was to have more suppliers taking up early payment, thus spreading the benefits of enhanced cash flow to more companies.
The solution
Diageo turned to Bank of America for a replacement SCF programme to widen and deepen take-up among suppliers. The first step was to review Diageo’s supplier database and call on the bank’s broad pool of market data to understand which suppliers were most likely to take advantage of the early payment offer. Diageo’s finance and procurement teams worked in close partnership with the bank to identify those suppliers who would benefit most from a SCF programme, after which the bank’s ‘white glove’ service would be there to help manage the supplier relationship for the lifetime of the programme. Eighteen months into the programme, more than 130 supplier entities are already taking advantage of early payment. Encouragingly, Diageo achieved significantly increased utilisation; many of those direct and indirect suppliers were in areas that had previously not tended to accept early payment. By the end of 2021, the value of invoices for which early payment is taken had grown by 25% and is on course to be almost 50% greater than the old programme by the end of 2022.
Best practice and innovation
With a very clear and strong focus from Diageo they worked closely with their bank to create a supplier onboarding programme that:
- Used bank analysis and market data to identify groups of suppliers that were most likely to benefit from the offer of early payment.
- Partnered with the bank to reach out to those suppliers directly, on a person-to-person basis to explain the benefits of SCF.
- Offered both easy set-up and a simple-to-use portal, with a ‘white glove’ response to any queries that is both fast and effective.
Diageo’s North American SCF programme is an excellent example of supplier finance done right. With a clear focus from Diageo to make this a success from the outset, with bank analysis and market data to identify groups of suppliers that were most likely to benefit from the offer of early payment through the close cooperation between Diageo and its bank in onboarding suppliers and managing queries, this solution demonstrates best practices in SCF.
Key benefits
Since launching the new SCF programme, Diageo has seen the value of invoices accepted for early payment increase by 25% and that growth is being sustained as the programme expands. Accessing early payment has become faster and easier for suppliers, who can now be onboarded in as little as ten days.
Providing the option to take early settlement of invoices supports the cash flow of critical suppliers, makes Diageo’s supply chain more robust and encourages loyalty amongst suppliers that are often essential to Diageo’s operations.
“Looking forward, we have plans to widen the scope of our SCF offering, emphasising better environmental, social, and governance (ESG) behaviours of our supplier base and supporting even more minority-owned businesses,” explains Amanda Lawrence, Procurement Manager.
