The challenge
Honeywell was looking to globalise a supply chain finance programme it rolled out in the US in 2019 as part of its strategy to stabilise its supplier base as well as free up internal sources of working capital, in response to the widespread dislocations in supply chains worldwide as a result of the rising geopolitical tensions in recent years.
The need became more urgent at the start of 2020, especially for its Asia Pacific business, when the COVID-19 crisis further disrupted supply chains amid country lockdowns and movement restrictions in the region. This prompted Honeywell’s customers, hurt by a slump in business, to ask the firm for better payment terms. With Honeywell’s aerospace business bearing the brunt due to the travel downturn, freeing up internal working capital became even more pressing for the firm to meet its operational costs.
At the same time, the leading producer of personal protective equipment (PPE), like face masks, faced the challenge of having to rapidly manufacture PPE to meet the immediate demands of the healthcare industry at the forefront of the fight against the pandemic. That meant ensuring a stable and efficient supply chain to ensure the timely procurement of materials became even more critical.
The solution
Honeywell knew it had to act quickly, and in partnership with J.P. Morgan, launched a large-scale supply chain finance (SCF) programme across Asia Pacific, with total eligible procurement spend of US$900m across more than 260 suppliers. The first phase of the rollout took place across four countries, China, India, Singapore and Malaysia, and was completed in record time. The launch of the second phase including other markets like Hong Kong and Thailand is currently under way.
Through the SCF programme, Honeywell suppliers can opt to be paid early, as the bank can convert outstanding invoices into cash, at a discount. It can also leverage Honeywell’s outstanding credit quality to access cheap and sustainable funding from the bank. At the same time, in exchange for earlier credit to suppliers, Honeywell can extend the payment terms to release working capital.
As a result of this solution, Honeywell suppliers who opt for the programme can receive payment as early as seven days from the invoice date, without having to wait until the payment maturity date, which could be as long as 180 days. The suppliers can also discount invoices across an array of currencies, including but not limited to CNY, USD, EUR, MYR, INR, SGD, and soon HKD and THB.
Best practice and innovation
Despite the scale of the programme which spanned four markets and involved 260 suppliers, Honeywell was able to implement the solution within just six weeks per market.
The company leveraged the bank’s proprietary global electronic platform and standardised documentation processes to on-board suppliers electronically, using e-signatures for the digital execution of contracts. As the entire SCF programme was facilitated digitally, the time taken to bring each supplier on board was reduced dramatically from three to six weeks to one to two weeks.
A fully automated procurement-to-payment (P2P) mechanism was used to optimise and streamline Honeywell’s end-to-end processes across enterprise resource planning systems (ERPs) in multiple countries via a single host-to-host connection.
Key benefits
- Freed up a projected US$35m in working capital.
- Stabilised its supply chains to facilitate timely procurement of materials.
- Provided its suppliers the option to be paid early.
- Allowed suppliers to discount invoices across an array of currencies.
- Reduced administrative costs.
- Improved transparency.
“The SCF programme proved to be a win-win solution for both ourselves and our suppliers during this unprecedented crisis,” says Freya Yao, Senior Treasury Analyst.
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