Supporting key suppliers is a win-win strategy
The lack of low cost working capital, lengthening payment terms, pressure to raise procurement prices – all make it difficult for the wheels of the supply chain to run smoothly. To decrease the friction, the postal and logistics services provider Posti Group launched a supply chain finance program in cooperation with OpusCapita.
Ville Vasunta, Sourcing Manager, Transportation, Posti Oy, explains that Posti’s aim is to build strong cooperation relationships with suppliers. Posti has over 7,000 active suppliers in Finland, the majority of which are small and medium-sized companies.
“We want to be known as a good purchaser, customer and partner for suppliers, which will give us access to the best solutions and services. We are also seeking ways of reducing supplier risk and of supporting transport companies in particular as we know times are hard for them.”
Posti’s Sourcing unit offered transport companies a supplier package with tire, fuel and insurance policy contracts with benefits based on the purchasing volumes of a large company and also a supply chain finance program launched with OpusCapita.
“As a large company we are able to negotiate financing, on average, more easily and more cheaply than small companies. The supply chain finance program allows us to share this benefit with our supply chain and also reduce the pressure on suppliers to raise their prices,” says Vasunta.
Suppliers joining the program can quickly receive finance for purchase invoices that have been approved by Posti in only a few days and at a low cost, as the finance is based on Posti’s credit rating. Posti will then provide the financer with payment for the invoice the supplier has traded on the original due date.
The solution frees up operating cash flow in the supply chain and in this way improves the operating conditions of both parties. Ville Vasunta explains that supply chain finance helps Posti achieve its strategic target to improve its own working capital.
“In terms of sourcing it means the standardization of our payment practices. There has been a lot of variation in our payment terms. The rapid repatriation of receivables is important for many of our suppliers and the lengthening of payment terms would be problematic for them. Supply chain finance allows us to offer a helping hand to our suppliers.”
“The benefit is genuinely mutual,” says Jukka Pöytälaakso, director of one of Posti’s suppliers, Kuljetusliike Pöytälaakso Oy.
The haulage company that specializes in contract and food deliveries was one of the first companies to join Posti’s supply chain finance program. Posti’s deliveries make up a considerable share of Kuljetusliike Pöytälaakso’s annual turnover of around EUR 7 million.
Pöytälaakso considers supply chain finance to be a cost-efficient alternative to other finance options. Supply chain finance does not tie up collateral or have an effect on the company’s balance sheet, which is a huge benefit.
“The chance to finance sales invoices strengthens and balances our liquidity at a time when payment terms are generally getting longer in the sector. However, we have the freedom to choose, based on the situation, whether to wait until the receivable’s due date or whether to take early payment.”
“I consider supply chain finance to be part of our close cooperation, which helps to develop our operations and service to the purchaser and our common customers,” says Pöytälaakso.
Published in OpusCapita Journal 1/2016. Read the whole magazine here.
READ MORE on supply chain finance: “Keep the cash moving”.