Introduction Supply Chain Finance (SCF) Lecture # 9

1. IntroductionSupply Chain Finance (SCF)Lecture # 9 Jan H Jansen E-mail: jan.jansen@han.nl

2. Lectures period 2 or 4

3. Round#2 The Cool Connection

4. Recap Lecture 8

5. Supply Chain Finance: How it all fits together (developed by JH Jansen)

6. Levels of SCF instruments Source: SCF, its practical relevance and strategic value, Boer de, R. et al, SCF Community, 2015 Adapted by the author)

8. Value concept in business = NOPAT – WACC * Capital

9. EVATM (Stern & Stewart)

10. Economic Value Added = + β * -

11. Lecture TCC

12. The Cool ConnectionSupply Chain FinanceSimulation game

13. Goals of The CooL Connection • For a subject as vital as (Financial) Supply Chain Management, it is not enough to tell students what needs to be done. They must experience it. The Cool Connection is a different way of learning that puts participants at the heart of a lifelike simulation so they can experience the impact of every decision they make, not just in their own ‘silo’ but across the business. • By team experience, participants measure their own performance against others and receive constant feedback from those leading the simulation. Between rounds, participants reflect on what just happened, are introduced to new concepts and then go back to put what they have learned into practice in the next round. It is this Magic Circle that makes The Cool Connection so powerful. ( Source: https://www.thecoolconnection.org/education/training/concept/)

14. Didactical approach of TCC • To optimize the learning the user interface is extremely important. Participants need to navigate easily and intuitively. Background information must be found in a moment. And management information should be instantly available. • Most important precondition when we started: no manuals. A manual drains energy levels of students at a crucial moment: the start. So all help information is integrated in the screens and can be read on a need to know basis.

15. The Magic Circle(Source: Klabbers, The Magic Circle, Principles of Gaming & Simulation, 3rd Ed, 2009) Source: https://www.thecoolconnection.org/education/training/concept/

16. Kolb’s learning cycle Source: http://osls.emory.edu/leadership_emory/tools_resources/kolb.html

17. Single & Double Loop Learning (Argyris& Schön) Source: http://www.selfleadership.com/blog/leadership/reflecting-and-leaning-2009-to-2010/

18. Learning of the team Logbook Each round • Strategy & Δ • Decisions • Sales • Procurement • Supply Chain Management • Finance • Evaluation decisions based on the simulated outcome • Learning Next round of decisions

19. VP Company (Manufacturing company of personal care products) Issues: • Loss making • High debt level • Broken supply chain Challenges for the new MT! Decision making (Strategic, Tactical & Operational) in an uncertain & volatile environment

20. MT of The Cool Connection • Sales • Purchasing • Supply Chain Management • Finance Every decision a participant makes has trade-offs, both within and across roles, so participants will only succeed if they align all the disciplines

21. MT of The Cool Connection: Sales • Responsible for marketing strategies • Responsible fornegotiations with a range of different types of customers, concerning: • Servicelevels • Incoterms • Payment behaviour

23. Creditworthiness TCC’s clients Source: The Cool Connection , Trainer’s manual

24. MT of The Cool Connection: Purchasing • Responsible for defining the purchasing strategies and the selection of and the negotiation with suppliers from various regions. • Responsible for negotiations concerning: • Service reliability • Incoterms • Payment terms • Quality & Time • Price

26. MT of The Cool Connection: Supply Chain Management • Responsible for production and warehousing: • Undertaking intelligent stock planning for components and products • Optimize both production process and working capital

28. Inventory management Source: The Cool Connection , Trainer’s manual

29. MT of The Cool Connection: Finance • Responsible for: • Cash management and financing • Negotiates with both banks and credit insurers. • These negotiations include the allocation of collateral and the level of credit limits for customers.

32. Financing: Real estate, Machines & Working capital Source: The Cool Connection , Trainer’s manual

33. Haircut(Source: https://www.ecb.europa.eu/home/glossary/html/glossh.en.html) ‘A risk control measure applied to underlying assets whereby the value of those underlying assets is calculated as the market value of the assets reduced by a certain percentage (the “haircut”)’ ‘Haircuts are applied by a collateral taker in order to protect itself from losses resulting from declines in the market value of a security in the event that it needs to liquidate that collateral’ The amount by which a collateral asset’s market value is reduced in secured lending, expressed in per cent. A haircut of 5% would result in a secured loan of 95 when the value of the collateral asset pledged is 100. Source: http://www.bis.org/publ/cgfs36.pdf Source: http://www.englishblog.com/2011/10/cartoon-greek-haircut.html#.VmVhn9KFPuh

34. GOALS: • Build internal or external teams • Understand the importance and relevance of a company and supply chain strategy • Translate strategy into action • Learn to ‘speak the same language’ with other value chain partners, internally or externally • Experience the power of a professional and well-structured Sales & Operations Planning process • Supply Chain Risk Management • Appreciate cross-functional trade-offs in the value chain • Learn how to manage risks in the supply chain in a coordinated way • Experience the power of a well designed set of KPIs • Create a better understanding of working capital management • Assess the implications of international trade • Learn what the benefits could be from a Supply Chain Finance solution

35. SCM (Flows of goods & services) & SCF (Financial flows) Source: Supply Network management as defined by Slack, A. et al. (Slack, 2011)

36. Porter’s Value Chain (Adapted from (Weele van, 2010) by JH Jansen with Finance as a new support activity)

37. Net Working Capital in Logistics / SCM / SCF Note that NWC is not the same as: Current assets - Current liabilities! Liabilities & Net Worth Assets Accounts payable (A/P) Cash Short-term debt Accounts receivable (A/R) Inventory Current assets Current liabilities NWC = ( A/R + Inventory ) - A/P

38. Operating cycle and Cash Conversion Cycle (Arnold, 2008)(Berk, 2007)