Johnson Controls International plc (JCI), is a global leader in smart, healthy and sustainable buildings, serving a wide range of customers in more than 150 countries.
The challenge
Johnson Controls International plc (JCI) sources materials from a diverse network of suppliers across APAC and a supply chain finance (SCF) programme can help unlock working capital from its supply chain. At the same time, JCI can support its upstream suppliers’ cash flow and financing requirements while improving its own business resiliency. A large part of JCI’s suppliers are small- and medium-sized corporates who could face challenges in obtaining finance at favourable rates or accessing finance based on its own credit worthiness.
JCI had already implemented a SCF programme for its suppliers in APAC with Bank of America in 2019, covering China, Hong Kong, India, Singapore, Malaysia, Taiwan, Thailand and Australia. It had also established host-to-host (H2H) connectivity with the bank’s SCF platform via its shared service centre.
Since then, JCI has expanded its supplier base – particularly in China and India – and had plans to extend SCF to these new suppliers. Having been through the process previously, it was familiar with the challenges and wanted to address one of the major pain points during the implementation programme; the supplier on-boarding process as, on average, the process takes a few weeks depending on supplier response time.
The solution
Working with the bank, JCI decided to migrate its SCF programme to an alternative structure, called the SCF Corporate Payment Undertaking (SCF CPU). Under this arrangement, Bank of America offers suppliers an option to receive early payment for their receivables at a discount, based on an irrevocable payment undertaking from JCI. In terms of the supplier on-boarding process, it is significantly simpler and faster due to the lighter documentation requirements, while providing all the benefits of a conventional SCF programme.
As a result, the turnaround time for supplier on-boarding is shortened from at least two weeks to mere days with documentation requirements drastically streamlined to the minimum for suppliers.
The migration to the SCF CPU structure has helped JCI resolve a major bottleneck in the supplier on-boarding process, leading to an improved supplier adoption rate.
“With the new programme in place in China and India, we are ready to replicate its success in other markets in due course,” explains Ariel Liu, Treasury, APAC.
“Receiving the Adam Smith Award Asia reinforces our commitment to transformative financial solutions that drive growth and resilience. This recognition fuels our dedication to creating impactful strategies that not only optimise processes but also contribute meaningfully to our industry’s advancement.”
Ariel Liu, Treasury, APAC
Best practice and innovation
The SCF CPU is a new variant of SCF whereby the bank acts as the payment agent for JCI responsible for making early payment, net of early payment charges, to suppliers for approved invoices based on an irrevocable payment undertaking from JCI.
As there is no purchase of receivables, the supplier on-boarding process is comparatively lighter, primarily due to simpler documentation. With more than 80 new suppliers in China and India on-boarded to the programme in just one week, this is the clearest proof of the success of this change.
To make the programme even more attractive to its suppliers, JCI also included a new option for suppliers to set their own financing tenor based on their working capital needs, providing greater flexibility and transparency. Other reasons for the improved supplier adoption rate can be attributed to the relaxation of minimum annual spend for suppliers to qualify for SCF and the use of analytic tools to segment and prioritise suppliers for on-boarding.
Key benefits
Cost savings.
Headcount savings.
Process efficiencies.
Increased automation.
Exceptional implementation (budget/time).
Improved key performance indicator (KPI) metrics.
The Adam Smith Awards Asia are the industry benchmark for best practice and innovation in corporate treasury. The 2024 awards attracted 406 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia
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