The fifth annual Supply Chain Finance Community Forum got underway in Amsterdam with a case study presented by Claudia Duckstein, project manager of the SCF team for Schwarz Group, the German retailer perhaps best known for the Lidl chain.

Schwarz has been introducing dynamic discounting across 27 countries in Europe. Duckstein began with a quote by the 17th century English political leader Oliver Cromwell, which she says still holds true today: “He who stops being better, stops being good.” As she noted, “It’s still up to date and our corporate philosophy. Everyone within the group strives to be better.”

“We wanted to support them, particularly in times of financial crisis”

The €86bn revenue Schwarz Group’s two main brands are the Lidl and Kaufland supermarket chains, with more than 11,000 stores across 27 European countries. In June 2017, Lidl opened its first US stores.

Before embarking on its dynamic discounting programme, the group canvassed opinion from its suppliers. “We evaluated our relationship with our suppliers to identify common interests,” said Duckstein. “We wanted to support them, particularly in times of financial crisis. We’re always looking for alternative options for investment, particularly in the current low interest rate environment.

“Suppliers want to find keen interest rates, while we want parameters for our liquidity management. They also want an information platform that’s free of charge, while we want to keep inquiries on invoice status to a minimum,” she said.

Schwarz decided years ago that it wanted “to be free from financial institutions,” Duckstein said. “We didn’t seek to become a bank, while we also wanted to be free from legal restrictions and to have international scalability. So, we didn’t want to get involved in customer loans, factoring, reverse factoring or setting up a financing platform. This left dynamic discounting as the best option.”

The key is simplicity

Duckstein said that the key to dynamic discounting is simplicity. “The supplier still sends invoices and goods to us. When the invoice is approved, it goes to an internet portal, to which he/she has access and can view the invoice’s status.

“The discount is calculated via the annual interest rate and how early the invoice is paid, with a discount given in return for early payment against discount. A cash planner allows the supplier to request a desired amount on a desired date; useful, for example, if they have a tax payment due.”’s Q&A with Claudia Duckstein

Q: The introduction of the platform in 2015 that you outlined took place at a time of stable – and very low – interest rates. Will there be more of a challenge once rates start to rise again?
A: I don’t think so, because the low interest rate environment helped us as a company to look at different investment options. Whenever the interest rate rises again, suppliers will have a greater need for various financing options. So, it’s fairly irrelevant what interest rates are at the moment.

Q: You use the Taulia platform for the programme at present. Do you see it transforming over the next few years as fintech evolves? You mentioned blockchain – will that change the way in which the platform operates?
A: Not in the near future, but of course digitalisation is proceeding very fast and we’ll have to take that into consideration whenever we develop the platform over the years ahead.

Q: How do you regard the benefits of dynamic discounting, having seen how well it works?
A: Since I’ve experienced the benefits and the values for both our group and also for our suppliers – and also because it actually strengthens the supply chain relationship – I’d certainly recommend it to any other company.

The programme piloted in 2015 in two countries and with seven suppliers; “crucial for establishing a smoothly running system before rolling it out to 25 other countries,” said Duckstein. “We’ve since onboarded 200 suppliers and gone live in 14 European countries, with the remaining 13 to follow.”

The process has involved a number of challenges, including the fact that a number of different departments were involved in setting up the programme. “So different interests and personalities had to be considered and good communication skills were needed,” she said.

There was also a relatively low recognition among suppliers as to what dynamic discounting involves. Together with Taulia Group, the group developed convincing marketing materials to explain the concept. “It was crucial to have a standardised approach, which we developed during the testing phase,” added Duckstein. “We identified colleagues in each country to implement the system with their specialised know-how, which also helped meet various local legal requirements.”

The new IT platform underwent a test phase with a limited number of suppliers, who evaluated the platform and rated it highly for ease of use, managing an average score of 1.9 on a scale from 1 to 6 with 1 as extremely easy.
Among the benefits gained from dynamic discounting are a strengthening of the supply relationship; the optimising of liquidity management and greater transparency.

“What are the next steps?” said Duckstein. “To return to Cromwell’s dictum, we’re not finished yet and there are new challenges and opportunities to become better. We want to go live in the remaining 13 countries as quickly as possible.

“The ultimate goals are to reach all of our suppliers, go live with other countries and get the platform firmly established as a source of information. We want to reach out to all suppliers and get them onboarded on the portal, but there’s no compulsion on them to do so. We want to use our resources as efficiently as possible.”

This means focusing particularly on the group’s smaller suppliers. “We have onboarded some bigger suppliers in addition to the small and medium-sized ones,” said Duckstein. “However, as bigger multinationals can access a lower refinancing rate, we can’t always be as competitive.”

Key highlights and case studies from SCF Forum 2017