global trade management and supply chain finance

1. 1 Global Trade Management and Supply Chain Finance Delivering Competitiveness in Global Supply Chains June 2nd, 2008

2. 2

3. 3 Value Chain Convergence

4. 4 What is GTM, Really ? GTM = Supply Chain Management & Supply Chain Risk Management Integration of Financial & Physical Supply Chains focused on delivering cost efficiency Accelerated by technology and inter-corporate process integration Importance heightened by off-shoring and increasing complexity of SCs What does it mean to: Added points: Note that many companies are compelled to invest in GTM because their off-shoring activities have failed yield the anticipated savings by as 50% to 75% due to inefficient SC processes Large Corporates: Issue for the likes of Bombardier, Magna, Cdn Tire, Nike etc. Increasing importance of CFO, CPO, SC exec collaboration and involvement in SC strategy Untie capital occurs through inventory optimization and extension of DPO Mid-market: Most GTM models focus on large buyers at the expense of the mid-market – therefore they are underserviced Many want to reduce DSOs, but are being as for discounts for early payment Assuming greater risk can lie in issues like cross-border inventory, VMI, being tied more closely to buyer demand forecasts that are notorious inaccurate, lastly large corporates are also pushing product development and integration risk onto their suppliers Mid-market companies are more likely to suffer from serious SC mgmt skills gaps relative to their bigger customers and competitors placing them at a disadvantage FIs Note that Canadian FIs failure to embrace SC risk disintermediation from global value chains – therefore they need to be reintegrated While they are hubs and process integrators, they are being forced there by the major corporates who require process integration in the payment and SCF parts of Sc enablement EDC EDC is not a stranger to SCs – look at what 2 years of FT research achieved in terms of clear understanding of the sector dynamics and allowed the create of specialized SC products (support for tool and die cos., insolvency protection for GM suppliers in case of Chapter 11, etc.) Added points: Note that many companies are compelled to invest in GTM because their off-shoring activities have failed yield the anticipated savings by as 50% to 75% due to inefficient SC processes Large Corporates: Issue for the likes of Bombardier, Magna, Cdn Tire, Nike etc. Increasing importance of CFO, CPO, SC exec collaboration and involvement in SC strategy Untie capital occurs through inventory optimization and extension of DPO Mid-market: Most GTM models focus on large buyers at the expense of the mid-market – therefore they are underserviced Many want to reduce DSOs, but are being as for discounts for early payment Assuming greater risk can lie in issues like cross-border inventory, VMI, being tied more closely to buyer demand forecasts that are notorious inaccurate, lastly large corporates are also pushing product development and integration risk onto their suppliers Mid-market companies are more likely to suffer from serious SC mgmt skills gaps relative to their bigger customers and competitors placing them at a disadvantage FIs Note that Canadian FIs failure to embrace SC risk disintermediation from global value chains – therefore they need to be reintegrated While they are hubs and process integrators, they are being forced there by the major corporates who require process integration in the payment and SCF parts of Sc enablement EDC EDC is not a stranger to SCs – look at what 2 years of FT research achieved in terms of clear understanding of the sector dynamics and allowed the create of specialized SC products (support for tool and die cos., insolvency protection for GM suppliers in case of Chapter 11, etc.)

5. 5 Key Data from EDC Research Canadian “Bar-Bell” Procurement / supply chain management remains a buying function for most SMEs Limited view of strategic role of supply chain management Many manufacturers live in the “area code” supply chain model Going offshore seen as important, but.. Limited skill and capacity engage in global sourcing Inventory investment required due to long lead times Fear of quality / performance / delivery risk Most are underinvested in technology, yet recognize its value in participating in global supply chains.

6. 6 The Supply Chain Framework This slide provides the introductory framework to discuss the product mapping. It is an animated slide and therefore the talking points below relate to the animation: Animation #1 – Buyer / Supplier Supply Chains. The notion of supply chains lies at the heart of the integrative trade paradigm and shapes EDC’s view of the market place. In conducting business, buyers and suppliers interact through an interdependent and inter-related series of value creating activities such as: sell / buy, ship / receive, pay / collect, etc. Additionally, one cannot only view the transactional elements that occur in the creation and execution of an order, it is critical to understand that planning and investment decisions are key precursor elements that can also affect the operation of the supply chain and often provide the foundation from which transactions occur. Animation #2 – Cash & W/C Mgmt One of the overriding factors that affects many of the decisions taken in the course of executing supply chain transactions lies in cash & W/C management. Companies will make supply chain management decisions to optimize their cash flows and minimize their investments in W/C. This appears to be a growing trend due to the levels of buyer/supplier integration and technology advancement in supply chains. Many of the decisions that occur at the procurement stages and during the logistics phases are specifically designed to lengthen payment terms (which is diametrically opposed to the suppliers’ desire to minimize their outstanding A/R) and to optimize inventory levels. As such, there exists significant need and opportunity to financially intermediate buyer /supplier processes to allow both to meet their objectives. Animation #3 – Product Categories Finally, integral to these supply chain activities lies a set of key elements including: financing, risk management, compliance, and connectivity (to exchange information), and information and trade development services that govern the effectiveness and efficiency within a supply chain. These elements form the basis around which solutions are offered to facilitate the execution of transactions. EDC and other intermediaries solutions have been mapped to this model. This diagram provides a frame of reference to show how the market is serviced.This slide provides the introductory framework to discuss the product mapping. It is an animated slide and therefore the talking points below relate to the animation: Animation #1 – Buyer / Supplier Supply Chains. The notion of supply chains lies at the heart of the integrative trade paradigm and shapes EDC’s view of the market place. In conducting business, buyers and suppliers interact through an interdependent and inter-related series of value creating activities such as: sell / buy, ship / receive, pay / collect, etc. Additionally, one cannot only view the transactional elements that occur in the creation and execution of an order, it is critical to understand that planning and investment decisions are key precursor elements that can also affect the operation of the supply chain and often provide the foundation from which transactions occur. Animation #2 – Cash & W/C Mgmt One of the overriding factors that affects many of the decisions taken in the course of executing supply chain transactions lies in cash & W/C management. Companies will make supply chain management decisions to optimize their cash flows and minimize their investments in W/C. This appears to be a growing trend due to the levels of buyer/supplier integration and technology advancement in supply chains. Many of the decisions that occur at the procurement stages and during the logistics phases are specifically designed to lengthen payment terms (which is diametrically opposed to the suppliers’ desire to minimize their outstanding A/R) and to optimize inventory levels. As such, there exists significant need and opportunity to financially intermediate buyer /supplier processes to allow both to meet their objectives. Animation #3 – Product Categories Finally, integral to these supply chain activities lies a set of key elements including: financing, risk management, compliance, and connectivity (to exchange information), and information and trade development services that govern the effectiveness and efficiency within a supply chain. These elements form the basis around which solutions are offered to facilitate the execution of transactions. EDC and other intermediaries solutions have been mapped to this model. This diagram provides a frame of reference to show how the market is serviced.

7. 7 Key drivers in Global Supply Chains Global Trade Management (GTM) and Supply Chain Finance (SCF) are emerging as increasingly critical areas of focus as supply chains evolve in terms of global reach and complexity.

8. 8 Supply Chains – Managing the Working Capital

9. 9 What is Supply Chain Finance? The primary Financial Supply Chain trend in the past decade has been the growth in Open Account (O/A) transactions, or “trading on O/A terms” Combination of financial services and technology solutions that Links Buyers, Suppliers & Financing providers Reduces financing costs Increase credit availability throughout the supply chain Links logistics and goods tracking to financing decisions Leverages visibility into supply chain events to mitigate risk

10. 10 SCF Types

11. 11 Supply Chain Visibility is key SCF

12. 12 Other Country Models: Korea Initiated 15 years ago, rank number 1 paperless trade model and best practices. Built on a legal framework started in 1991 – Trade Facilitation Act (reviewed in 2004) – 6 major acts (E tx, E Trade tx, Customs, Trade tx, Digital signature, Foreign trade) Facilitated by a strong national governance and execution structure: National eTrade facilitation Com chaired by the Prime Minister, Execution Office managed by the Mistry of Commerce/Industry/Energy, Adm. Com. Chaired by Vice-Minister of MOCIE, eTrade Fac center headed by former Minister of Science & Technology etc… National standardisation of 8 critical trade documents – national trade assets. Expected economic effect of platform is 1,7 USD B$ annually (791 new growth, 952 cost reduction) Tumbstone business data supplied and maintained by KCC Integrate global trade development services and global trade management services and trade finance services. Examples: 1: Verbal coverage, standards-messaging (XML, certification) 2: Trade development/Secure trusted trade 4 E MPs (EC21, Kita.net, BuyKorea.org, ECPlaze.net), some transactional other informational, connecting to 30 trade content providers. Objective – create a trusted trade network (number one demand from traders – e.g.Mexico) Kita.net: total services IT to suppotr trade, real time videoconference, product info, 100,000 leads to Korean traders. BuyKorea.org: B2BMP, info on 120 countries, 52 Mbuyers, 370,000 active users, 1 stop trading service, sales mediation, buyer search and contract settlement. Offering blogging , ecatalog-enegotiation-econtrat-epayment. Recuced SME hit ratio from 1/35 to 1/5. Match-making online costs 10% offline match-making. Offering escrow payment services – advanced payment in partnership HSBC. Next: Buyers black list, SME credit facilities, target 100,000 Korean traders linked to 2M buyers… EC21: 60,000 traders, 240 nations, premium services emarketing-promotion, info on 500,000 buyers, create e-catalog. 3: Verbal Coverage (eL/C, eL/G, trade payments) 4/5: Open platform/Hub and spoke – access to other Trade management platforms, PAA (Pan Asian Alliance), ASEAL (Same PAA for EU), NE Asia SCM Hub for SMEs – suply chain to supply chain connectivity (marketing, demand forecast, settlement)Initiated 15 years ago, rank number 1 paperless trade model and best practices. Built on a legal framework started in 1991 – Trade Facilitation Act (reviewed in 2004) – 6 major acts (E tx, E Trade tx, Customs, Trade tx, Digital signature, Foreign trade) Facilitated by a strong national governance and execution structure: National eTrade facilitation Com chaired by the Prime Minister, Execution Office managed by the Mistry of Commerce/Industry/Energy, Adm. Com. Chaired by Vice-Minister of MOCIE, eTrade Fac center headed by former Minister of Science & Technology etc… National standardisation of 8 critical trade documents – national trade assets. Expected economic effect of platform is 1,7 USD B$ annually (791 new growth, 952 cost reduction) Tumbstone business data supplied and maintained by KCC Integrate global trade development services and global trade management services and trade finance services. Examples: 1: Verbal coverage, standards-messaging (XML, certification) 2: Trade development/Secure trusted trade 4 E MPs (EC21, Kita.net, BuyKorea.org, ECPlaze.net), some transactional other informational, connecting to 30 trade content providers. Objective – create a trusted trade network (number one demand from traders – e.g.Mexico) Kita.net: total services IT to suppotr trade, real time videoconference, product info, 100,000 leads to Korean traders. BuyKorea.org: B2BMP, info on 120 countries, 52 Mbuyers, 370,000 active users, 1 stop trading service, sales mediation, buyer search and contract settlement. Offering blogging , ecatalog-enegotiation-econtrat-epayment. Recuced SME hit ratio from 1/35 to 1/5. Match-making online costs 10% offline match-making. Offering escrow payment services – advanced payment in partnership HSBC. Next: Buyers black list, SME credit facilities, target 100,000 Korean traders linked to 2M buyers… EC21: 60,000 traders, 240 nations, premium services emarketing-promotion, info on 500,000 buyers, create e-catalog. 3: Verbal Coverage (eL/C, eL/G, trade payments) 4/5: Open platform/Hub and spoke – access to other Trade management platforms, PAA (Pan Asian Alliance), ASEAL (Same PAA for EU), NE Asia SCM Hub for SMEs – suply chain to supply chain connectivity (marketing, demand forecast, settlement)

13. 13 Other Country Models: Mexico

14. 14 Corporate Leadership in GTM Early adopter of SCF/GTM solutions realize significant benefits

15. 15 GTM and SCF Benefits - Today Cost Savings SCF seeks to eliminate cost from the supply chain – NOT shift it Utilizing a SCF solution can automate manual processes SCF solutions are often cheaper than traditional trade finance solutions Service Improvements/Risk Mitigation Sharing of data provides visibility to mitigate risk and speed responsiveness SCF solutions help customers share or mitigate risk by re-introducing trade banks into the supply chain equation Bank trade services are now offered on web-based platforms reducing the need for expensive ERP solutions Automated trade transaction processing and reporting capabilities Financing Solutions Financing solutions can be offered at each step of the trade transaction