Category: FMCG, food and beverage
Winner: ICA Gruppen – Sweden
Summing up: A programme that had supply chain sustainability as a core objective, while releasing cash flow across the whole of the value chain.
What the judges said: “An example of great governance and cross-functional best practice! Truly a ‘win-win’ as seen from the suppliers’ high ratings for the SCF programme.”
- Payment terms doubled to match those of European peers
- Significant cash flow freed up for ICA and for suppliers has enabled both to expand
- Positive feedback scores from suppliers reflect the financial benefits and the smooth onboarding process
The mission at leading Swedish grocery chain ICA Gruppen is “Making every day a little easier” – and that applies to customers and the supply chain. A strong customer offering is provided by focussing on entrepreneurship, innovation and social responsibility across the supply chain.
To drive growth built on that ethos and to prepare for growing competition in the market, ICA set out to improve cash flow for significant investments by doubling payment terms for some suppliers – aligning them with those of ICA’s European grocery retail peers – while also partnering with PrimeRevenue to offer suppliers a supply chain finance platform that would enable them to secure early payment.
Piloted in 2016, the programme was expanded in 2017 as more than 20% of ICA’s spend was onboarded within 12 months, providing a SEK1bn working capital improvement.
The cash flow improvement has helped ICA expand and revitalise its store network, develop its digital processes and consumer offering and to gain more insights from the resultant data. This is enabling ICA to adapt to changing consumer needs.
One challenge is that payment terms are typically very short in Sweden, so some supplier resistance was anticipated. But ICA was determined that its stance should be seen as supportive and not aggressive.
In fact, supply chain sustainability was enhanced as suppliers were able to access finance at a lower cost than they could secure by themselves because of ICA’s superior credit rating. This reduced their total finance costs and improved cash flow across the value chain. Suppliers have been able to reduce their own DSO (days’ sales outstanding) by as much as 60 days or even more. One supplier, for example, was able to invest in extra capacity, which is enabling it to double its sales to ICA from SEK500m in 2018 to SEK1bn by 2020.
The PrimeRevenue platform also provided an opportunity for suppliers to move to digital rather than manual invoice processes, speeding up invoicing-handling while reducing costs and errors.
So far, suppliers on the programme are trading 94% of their invoices, achieving significant working capital improvements. In fact, the current rate of rollout and take-up has surpassed expectations in the initial business plan and suppliers have given a satisfaction score for the SCF programme of 5.5 out of 7. ICA’s procurement people and PrimeRevenue have provided education and training to explain the workings of the programme, ensuring a swift and seamless onboarding process and encouraging a number of once-reluctant suppliers to embrace the scheme.
A key aspect of the programme’s success has been the cross-functional approach, encompassing senior sponsors from not only treasury and procurement, but also finance, accounts payable, accounting, legal and IT, thereby ensuring ownership and commitment from key stakeholders, led by a dedicated senior supply chain finance manager. ICA stakeholders and PrimeRevenue executives are members of a steering committee which ensures that the programme continues to deliver its objectives.
Main image credit: AleWi – https://commons.wikimedia.org.