Page 19 - Supply-Chain-Finance-Full-Report

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The Netherlands’ leading telecoms and IT service provider,
Royal KPN, designed and implemented a supply chain
finance (SCF) solution in under a year. Despite having only
come into force in Q4 2008, the SCF programme at KPN is
already delivering measurable savings. Finance Manager
for Corporate Procurement Toon Huiskes and Willem van
Oppen, who was CPO at the time of the SCF implementation,
explain more about how they did it.
Orders from above
The initial impetus for SCF came from the very top.
Willem van Oppen told us how at the end of 2007 KPN’s
board of directors announced an objective to improve cash
flow performance in order to secure the business against
competition and improve market manoeuvrability. After
initial consultation with suppliers to increase payment
terms, SCF was identified as a possible solution.
Despite having the tight deadline of implementing the so-
lution by year-end 2008, van Oppen and his team had one
major thing in their favour – they already had the support
of senior management. Initial opposition from the internal
accounts payable department was overruled by the CFO, who
pushed through the changes. Due to the cross-departmental
nature of SCF, Huiskes noted that sitting down with all the
different departments – including IT, accounts and opera-
tions – and ensuring that they understood the concept was,
while time consuming, very important.
SCF partners
The bank chosen to provide the financing was IBM. A
seemingly unconventional choice, a key factor in the decision
to use IBM was their ability to meet all of KPN’s needs
within the constrained timeframe. Interestingly, IBM is also
one of KPN’s suppliers. Having been approached by KPN
regarding payment terms, IBM offered the services of their
global financing arm as a possible solution. The technology
provider KPN uses is PrimeRevenue, chosen primarily for its
independence from a banking alliance.
Supplier onboarding
KPN has succeeded in getting its two main suppliers on
board with the SCF solution, with three more suppliers due
to sign up this quarter. KPN originally wrote a letter to all
of its suppliers stating that, as of the beginning of March
2008, payment terms would increase to a non-negotiable
90 days. While existing contracts were obviously respected,
KPN made it clear to non-strategic suppliers that they would
not be favoured for future business if they did not accept the
new terms.
KPN only offered SCF to a select group of strategic suppli-
ers – and even then only after initial negotiations to extend
payment terms had stalled. Suppliers who already had fac-
toring arrangements in place and/or access to a competitive
cost of capital were understandably less inclined to switch
to the new scheme – global technology giant Siemens was
a notable example, having a better credit rating than KPN.
To help communicate the mutual benefits of SCF to suppli-
ers, KPN arranged a demonstration of the proposed solution,
together with a joint presentation with PrimeRevenue. Key
to successful negotiations was the level at which they took
place, with Toon Huiskes explaining that it was very impor-
CASE STUDY 1
ROYAL KPN
case study 1: Royal KPN
At a glance...
SECTOR: TELECOMS
KEY FINANCIALS FY08
€billion
Revenue
14.60
EBITDA
5.06
Net Profit
1.33
FCF
2.60
Increase since 07
11%
Working capital
0.42
Increase since 07
156%
SCF SOLUTION
Technology provider
PrimeRevenue
Bank
IBM
Time scale*
1 year
SCF main objective
To improve working capital
Implementation
Only offered SCF to key suppliers
SCF only offered after initial consultation to extend payment terms stalled
Main problems
Time constraints
Tax/VAT issues with suppliers, specific to the Netherlands
Suppliers who were bigger than KPN
Main benefits
Improved working capital
Improved efficiency of procure-to-pay process
More accurate forecasting
Future developments
The supplier as the buyer
* From design through to implementation
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