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Best Supply Chain Finance Solution Winner: Johnson Controls International

Published: Jan 2020

 

Photo of Dino Albuquerque, Bank of America and Roger Sun, Johnson Controls International.

Roger Sun

Vice President – APAC Treasurer

Shanghai, China

Johnson Controls International (JCI) is a global diversified technology company with 105,000 employees in more than 150 countries and annual revenues of more than US$23bn. JCI is also listed on the NYSE.

in partnership with

Freeing up US$7m from regional supply chains in just six months

The challenge

Like many growing companies, Johnson Controls International (JCI) has a focus on working capital and had decided to use supply chain finance (SCF) as a way of freeing up cash from its supply chain. In North America, the firm had put in place a programme with a specialist SCF technology vendor. As a listed company, the investors would pay a lot of attention to their working capital metrics and efficiency.

With Asia accounting for around a quarter of JCI’s global revenues, it was important to bring the benefits of SCF to the region. JCI had put in place aggressive working capital management KPIs. More importantly, with tight bank funding conditions facing suppliers in the region, a local SCF programme was ideal to help support its key suppliers.

The solution

Roger Sun, Vice President – APAC Treasurer, was tasked with the challenge of rapidly developing and rolling out an SCF programme that would cover at least 30 buying entities in eight countries, available in local currency, and completing it within a challenging time frame.

JCI decided to run a request for proposal (RFP) for the regional supplier finance project and, after a tough selection process, mandated Bank of America as its provider for Asia. The resulting programme has already seen over US$100m in procurement spend processed, with more growth expected. It has allowed JCI to extend its payment terms while ensuring that suppliers have fast, easy access to finance at a low cost.

Best practice and innovation

The speed and efficiency with which suppliers were added to the programme mark this project out as a great example of best practice in SCF. It took just six months for more than 80 suppliers to be on-boarded across 33 JCI buying entities and in four jurisdictions, each with its own local regulations.

This was made possible by very close co-operation between JCI and Bank of America. From the moment the RFP was concluded, daily and weekly implementation calls connected JCI’s treasury, procurement and payment teams with its banking counterparts. As the programme rolled out, the partnership organised 14 supplier events and engaged more than 130 suppliers directly.

An essential part of this stage was Bank of America’s ability to translate supplier agreements for Chinese suppliers, which make up the majority of JCI’s APAC supplier spend, to understand the terms of the programme.

Another key component was the detailed work of liaising with JCI’s auditors to ensure that the SCF programme did not raise any balance sheet issues – for example, ensuring that trade payables were not reclassified as debt.

Finally, where some SCF programmes are developed as a separate project, JCI was determined that its own supplier finance programme would be tightly integrated with its existing systems – having developed a centralised procurement function and shared services centre for Asia, it did not want to lose those benefits when it came to supplier finance.

As a result, host-to-host connectivity was established between Bank of America’s SCF platform and JCI’s complex ERP systems and operational workflows were customised to align with JCI’s existing payment processes.

Key benefits

  • Extended payment terms by an average of 30 days, freeing up US$7m in working capital from its regional supply chains, all within just six months. US$35m working capital benefit is expected when the programme is fully ramped up.
  • A value proposition that would address and generate working capital improvement for JCI and its suppliers.
  • JCI’s suppliers have access to funds on a faster basis.
  • Does not impact JCI’s own banking relationships and existing credit facilities.
  • Invoice assignment and payment process is more efficient and paperless.
  • Streamlined discounting requests and in local language.

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