When Eric Woons, global head of cash management at SABIC, the Saudi Arabian petrochemicals producer, first raised the idea of setting up a supply chain finance programme he met with some resistance, or at least a lack of awareness of the product.
From his perspective, a supply chain finance programme was an effective way of helping better manage the company’s working capital needs as well as responding to a rising number of business enquiries about potential supplier finance schemes.
As he began work on the project, he realised there was still some work to be done to fully convince his peers in other departments.
“One of the things you come across a lot is the lack of knowledge about supplier financing,” he says.
“If you have worked with it [supply chain finance] for a long time it sounds like a no-brainer. But I have experienced that it is often an exercise that you need to explain in detail what’s going on,” he adds.
Woons is based in Amsterdam and joined the Riyadh-headquartered company in 2013, bringing with him years of experience as a senior cash management consultant at RBS and ABN Amro.
With SABIC considered one of the leading global producers of chemicals and plastics, recording annual revenues of $40 billion and operating in more than 50 countries, setting up a supply chain finance platform was always going to be a challenge.
The original plan was to start small, focusing on a group of suppliers within one area of procurement before expanding globally.
One of the initial hurdles Woons faced was to explain why it was necessary to involve banks in the relationship with SABIC’s suppliers.
“The first question you will get is why do we have to put a bank in between,” he says.
He explains to sceptical peers there are three options for the company’s supply chain.
Option one is that “We don’t do anything, and nothing will change,” he says, with the status quo being that suppliers have to just wait for their money.
The second option is for the company to directly approach the suppliers.
“We will pay you within ten days for instance, instead of 40 days, but I need a big discount,” noting this option can cause havoc with the buyer’s working capital.
“If we want the most optimal situation here, a ‘win-win’ situation for suppliers, better relationships with suppliers and to help you as a company optimise its working capital, you need to put the bank in between,” Woons explains.
The process of winning over different departments is a vital stage in setting up a supply chain finance programme, Woons insists.
The IT team, the procurement department and the legal team all “need to be on the same page,” before you start approaching external providers.
“Procurement is key to get on-board. Without procurement’s help, you don’t have reliable data. [You need to build] your business case together with procurement.”
He says he worked well with SABICs procurement team.
“Because of the buy-in of procurement – they were happy and able to share a lot of information and that helped us and the possible providers,” he said.
Having won internal company support, Woons then brought in supply chain finance advisory firm Capital Chains to consult on the RFI [Request for Information] document.
“These guys helped us to set up the right questions on the RFI document to show upfront what we wanted to know,” he said.
Steven Van der Hooft, CEO of Capital Chains, said he was impressed Woons had ensured that there was already mutual agreement about their SCF strategy within the company.
“Sabic was ready. They had the right people at the table. We moved very quickly,” he says.
“This also makes it a fun project for all involved as if you have that buy-in, it becomes more interesting to participate in. Meetings aren’t dragged along.”
The amount of information SABIC was prepared to share with potential providers was noted positively by Van der Hooft.
“We have worked with clients that are quite hesitant to share information about where they are going [with their SCF programme] with vendors. [This] makes it really difficult [for the provider] to assess the opportunity,” he said.
For Woons, the technological capabilities of bidding companies were a priority during the tendering process. If the on-boarding process was too manual and time-consuming for the suppliers, it is unlikely they would commit to the programme.
“It was the technology that was important and where can the provider support us get as many suppliers on board as soon as possible,” he said.
The ever-changing world of fintechs also makes putting together an RFI a particularly tricky task.
Whether to opt for the latest tech-savvy fintech provider or fall back on familiar bank names is a common hurdle for treasurers and cash management teams.
“We would look at the names, and we think we know the banks, we know perhaps little specifically about their SCF capabilities,” noting his team knew even less about the fintech market.
“The insights that Capital Chains could provide us has helped us dramatically in selecting the right providers. They could tell us that this bank, for instance, has partnered up with this fintech firm you also are considering.
“Or, this fintech might have been top notch at the start, but now we have seen a change in management or investment. That insight is needed,” adds Woons.
Van der Hooft adds that the RFI format was key to the success of the process, noting it was important to make sure the RFI responses were easily comparable with each other.
“The more information you get, you are able to figure out how far along on their maturity process they are. Do they have the experience and resources to work with a company like SABIC? Are we project number 50 or are we project number 3?” he explains.
The tendering process has been relatively swift, taking around four months to complete, according to Woons. He and his team are now waiting for board sign-off on the programme and are readying for a speaking slot at the SCF Forum Europe conference in Amsterdam on 29th November.
To hear the full story of SABIC’s RFI process, you can register to attend SCF Forum Europe at a 10% discount with this link.