In April 2013, Procter & Gamble (P&G), the world’s largest consumer packaged goods (CPG) company, announced that it would extend its payment terms to suppliers by 30 days. At the same time, P&G announced a new supply chain financing (SCF) program giving suppliers the ability to receive discounted payments for their P&G receivables. Fibria Celulose, a Brazilian supplier of kraft pulp, joined the program in 2013 but was re-evaluating the costs and benefits of participating in the SCF program in the summer of 2015. The firm’s treasury group and its US country manager must decide whether to keep using the program and, if so, whether to keep their existing SCF banking relationship or start a new relationship with another global SCF bank.

1. P&G
Yasser Elsedawy
Edoardo Cataldi
Marie Rose Egbreghts
Javier Higuera
Jianing Zhang
Management of Built
Environment
Supply Chain Management

2. ▪ Procter & Gamble Co. (P&G) founded in 1837 by British American William Procter and Irish American James
Gamble.
▪ It’s the world's largest maker of consumer packaged goods.
▪ The headquarter is in downtown Cincinnati, Ohio,
▪ In 2017, P&G recorded $65.1 billion in sales.
▪ Today P&G is recognized leader in development, distribution and marketing of Fast-moving consumer goods
(FMCG)
▪ P&G has more than 300 brands, 5 billion consumers in 160 countries

3. The Partnership Years.
William and James
launched their new
enterprise.
P&G introduced Tide. It
quickly became an enormous
success – It helped fund the
Company’s rapid growth into
new markets around the
world.
In 2000, P&G
experienced one of the
most demanding
challenges in its history.
The Company's stock
declined dramatically,
resulting in a loss of
nearly $50 billion in
market capitalization.
Making Zero Waste A Reality:
During production, use, and after use
of P&G products, solid waste may be
generated. In 2013, P&G announced
during Earth Week that 45 P&G sites
around the world had achieved zero-
manufacturing-waste-to-landfill status.
In 2016, Head & Shoulders, the world’s
#1 shampoo brand, announced it is
producing the world’s first recyclable
shampoo bottle made from up to 25%
recycled beach plastic.
By 1890, P&G was selling
more than 30 different types
of soap, To meet the
increasing in demand, the
Company expanded its
operations with a plant in
Kansas City, Kansas, & in
Ontario, Canada.
A Global Company.
P&G expanded its
globalization plans. The
Company established a
worldwide research and
development network, in
the United States,
Europe, Japan and Latin
America.
P&G established itself as
one of the ten most
valuable companies in
the world by respecting
the consumer as boss
and fulfilling its Purpose:
touching lives and
improving life every day.
1837-1890 1945-1980 2000 Today
1890-1945 1980-1999 2005

4. 03
0402
01 Manufacturing
Firms
North America, Western & Central
Europe, Asia, Latin America,
Middle East and Africa.
E-commerce
E-commerce is now a $3 billion annual
business for P&G, which equates to
just under 5% of sales
Retail Stores
Located in US, Canada, China,
Mexico, Australia and more
Distribution
Centers
Located in Texas, Ohio, Kensas and
more.

5. P&G’s competitive advantage in it’s supply chain voted
no.1 in SCM for 3 years by PowerRanking INDUSTRY
P&G went from supply chain to supply network
resulting 50% reduction in cycle time and
inventory
The company has
over 90.000 suppliers.
Has more than 150
manufacturing plants.
P&G has set up
control towers to help
manage logistics.
P&G has set up
control towers to help
manage logistics.

7. P&G aims to deliver local agility by dividing their global operations
into five regions; Asia, Western Europe, Latin America, Eastern
Europe, and North America. For this reason, P&G has established
relationships with suppliers all around the world and owns
manufacturing sites with distribution centers in each of the different
markets it covers. This approach gives benefits of scale and gives
a local focus, enabling the company to responder fast to the local
consumer needs and the dynamic demands of the market.
More than 90,000 suppliers
all around the world provide
P&G their raw materials to
produce all their different
products.
P&G has manufacturing
plants all around the world
including Asia, Western
Europe, Latin America,
Eastern Europe, and North
America. Innovation
Centers with the presence
of specialized scientists are
created to test different
technologies and are also
present all around the
globe
Distribution centers
and service centers
are located all around
the five regions of
coverage; Asia,
Western Europe, Latin
America, Eastern
Europe, and North
America.
Unsold products from retailers.
Defective products or wrong
orders from customers/to
suppliers.

8. Source
Stocked
products
S1 Make to
StockM1
Deliver
Stocked
Product
D1
PLAN
Source
Return
Deliver
Return
S.1.1: Schedule Materials
deliveries
S.1.2: Receive Materials
S.1.3: Verify Materials
S.1.4: Transfer Materials
S.1.5: Authorize suppliers
payment
SUPPLIERS&
MANUFACTURERS
RETAILERSCONSUMERS
M.1.1: Issue products
M.1.2: Produce and test
M.1.3: Package products
M.1.4: Stage product
M.1.5: Release Product to
deliver
M.1.6: Waste disposal
D.1.1: Receive, Enter & Validate Order
D.1.2: Determine Delivery Date
D.1.3: Consolidate Orders
D.1.4: Route Shipments
D.1.5: Receive Product from Source or
Make
D.1.6: Pick Product
D.1.7: Pack Product
D.1.8: Ship Product
D.1.9: Receive and verify Product
D.1.10: Install Product
D.1.11: Invoice
Unsold products
Defective orders
Wrong orders
Defective products
Wrong orders

9. Demand Predictable
Product lifecycle Long
Gross profit margin High, around 50%
Variety Low
Average forecast error Very Low
Average stockout rate Low
End of season markdown Medium
Leadtime for MTO products NA
Functional Product

10. Primary purpose Provide products with high quality and customers satisfaction at
the lowest possible cost
Manufacturing focus Flexibility of choosing suppliers according to demand level
Inventory strategy Minimize the inventory throughout the SC and at the same time
generating high turns of this inventory
Lead-time focus Minimize lead-time as much as possible without increasing costs
Supplier selection Suppliers are selected primarily based on cost and quality
Product design strategy Product design strategy: Simple design with the aim of maximize the
performance and minimize all costs.
Physically Efficient

12. Hau Lee’s model
The production has
Fixed phases
Medium-Term
contracts for
suppliers
Stability in supply of
raw materials
Technology and
Automation are
mature processes.
Next step we try to understand the stability of the process.
(2) Process stability
Stable Process

13. ▪ As economy slowed following the financial crisis in 2008 and fell into a global recession,
P&G’s growth and profit stalled. The company CEO announced a 5-year cost cutting program
in 2012.
▪ P&G conducted a review of its working capital management practice by comparing financial
metrics against other CPG companies. The benchmark analysis showed 30-55 day quicker
payment to suppliers above industry average. (P&G 45 days and industry average 75-100
days)
▪ A company mandate was issued to extend contracted payment terms by at least 30 days.
▪ Implication for suppliers: wait longer to receive funds.
▪ Solution: a supply chain finance (SCF) program that would provide an option for suppliers to
be paid more quickly.
▪ ‘ Win-win-win’ solution for P&G, external business partners and SCF bank.

14. ▪ Design:
Supplier
P&G
Bank web
platform
Bank
Payment(discounted
proceed)
Payment by debt
Shipment
of goods
and invoice
commercial
contract
service contract
financing contract
MIS
MIS
Acceptance
Invoice
upload
Financing
request
1
2
3
4
5
6

15. ▪ Design Highlights
▪ 1.three bilateral contracts: commercial contract, service contract and financing contract
▪ 2.Cost of funds is based on P&G credit rating (AA-) : higher the difference between P&G
and supplier, more benefits the supplier get.
▪ 3.At least two participating banks to choose from: ensure competitive financing rate.
(Citigroup, Deutsche and JPMorgan)

16. ▪ Rolling out Highlights
▪ 1.Good communication: roll out team created to travel around the world, meeting suppliers and explaining
the program
▪ 2.Explanation of program benefits:
▪ 1) quicker payment in 15 days
▪ 2) greater flexibility: option between 15 or 75 days according to cash flow need of suppliers
▪ 3) healthier balance sheet: lower level of account receivables
▪ 4) access to capital: no burden to suppliers’ existing credit lines
▪ 5) visibility
▪ 3.SCF invoice discount= (LIBOR+spread)*(additional days financed by suppliers/360)
▪ 1) SCF invoice discount determined by SCF financing rate and length of funding period
▪ 2) Spread compensated SCF bank for P&G credit risk and administrative cost as well as a profit margin

17. ▪ Announcing
• CPO
introduced
the program
• Pilot to 40
North
American
suppliers
April,2013
• 700
suppliers
anticipated
• Another 100
in the
process of
joining
Mid-2015
Second phase
of rollout to
next tier of
suppliers
Next step
▪ Achievements:
▪ 1) P&G understands suppliers better and forms richer and more collaborative relationship with them.
▪ 2) Driving a great business to its key banks
▪ 3) Enhancing efficiency and predictability of payment system.

18. Year Revenues (
in $ mln)
Account
Receivables (
in $ mln)
Account
Payables ( in
$ mln)
Inventory
( in $ mln)
Cost of
products sold
( in $ mln)
2011 $ 81.104 $ 6.275 $ 8.022 $ 7.379 $ 39.859
2012 $ 82.006 $ 6.068 $ 7.920 $ 6.721 $ 41.411
2013 $ 80.116 $ 6.508 $ 8.777 $ 6.909 $ 39.991
2014 $ 80.510 $ 6.386 $ 8.461 $ 6.759 $ 40.611
2015 $ 76.279 $ 4.861 $ 8.257 $ 5.454 $ 38.248
The inventory cost has decreased.Account receivables has decreased.
The reason for this is that the company has decided to cut its cost after the
financial crisis in 2008.

19. Year DIH1 DSO2 DPO3 CCC4
2011 67,6 28,2 73,5 22,4
2012 59,2 27,0 69,8 16,4
2013 63,1 29,6 80,1 12,6
2014 60,7 29,0 76,0 13,7
2015 52,0 23,3 78,8 -3,5
The main aim for the cost-cutting
program is to reduce the CCC. Hereby
there is 3 ways to shorten the cycle;
1. Manage receipts from customers;
account receivables collected
faster
2. Manage payments to suppliers;
account payables disburse slower
3. Inventory management more
efficiently, so turn inventory in cash
faster.
Once again the decreases can be
noticed.
1. DIH (Days Inventory Holding) = DIO (Days of Inventory Outstanding)
2. Days of Sales Outstanding
3. Days of Payables Outstanding
4. Cash to Cash Cycle = Cash Conversion Cycle

20. After the financial crisis in 2008, P&G
decided to start cutting cost. The company
has focused by reducing the DIH. So
reducing the stock holding inventory.
DSO has decreased in 2015 but over the
time span it has maintained constant.
While the DPO has a constant increasing
trend.
-10
0
10
20
30
40
50
60
70
80
90
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
DaysofWorkingCapital
DIH
DSO
DPO
CCC

21. Net Operating Working Capital (NOWC)
Year NOWC ( in $ millions)
2011 $ 5.632
2012 $ 4.869
2013 $ 4.640
2014 $ 4.684
2015 $ 2.058
Cash to Cash Cycle (CCC)
Year CCC
2011 22,4
2012 16,4
2013 12,6
2014 13,7
2015 -3,5
P&G was able to even reach a negative CCC.
This means that the company was able to sell
products before paying its suppliers. Thus, hold
longer on the money.
P&G has a low NOWC even though the revenue
hasn’t decreased drastically. This is mainly due to the
fact that the SCF program was implemented to more
suppliers. So this reduced NOWC determine that the
company is successful in effectively using cash flow to
operate.

22. DSO has stayed constant The company receives payment from customers approximately
constant.
DPO has increased The company pay suppliers later. From 45 days to 75 days.
DIH has decreased The company keeps inventory short time.
CCC has decreased The company keep its money longer.
Since 2012 the company has executed the plan to reduce its cost in the working capital
management. This has benefit the business position of P&G and successfully shorten the
CCC. Although a problem that it causes is that the DPO is higher and will also increase the
DSO for P&G’s suppliers. For this reason, the company has decided to implement SCF
program. In this way help to mitigate the risk of suppliers by sharing the risk over its whole
supply chain. Which will be further discussed in the following part.

24. • P&G purchases represented
approximately 10% of Fibria’s total sales
in 2014 ($300 millions)
• Since Fibria Celulose paid its supplier in
approximately 40 days, it needed to
fund approximately 100 days of net
working capital associated with its sales
with P&G
SUPPLIER CUSTOMER
• Harvested tree let dry in the field (+40
DAYS)
• Harvested tree processed (+1 DAY)
• Bales of bleached wood pulp
transpoted by cargo ship tu U.S. ports
and then by rail or truck to P&G
facilities (+30/40 DAYS)
40
D
AYS 60
DAYS
APPROX. 80 DAYS
R$ $

25. Through its North America subsidiary Fibria
joined the SCF program in its 2013 contract
renwal process with P&G. The payment terms
were extended from 60 to 105 days with the
option to utilize the SCF program.
Citigroup, the bank provider they adopted
offered Fibria an invoice discount of 0,35% with
the release of the invoice in 5 days on average.
M. Carmo (Fibria General Manager North
America): “Prior to the SCF program, we would
have had to secure a credit line to fund our
P&G receivables, tipically at a US dollar rate of
2% to 3%”.
55 days
reduction in
CCC

26. 57
78
36
40
82 86 82 96
30
40 39 42
109
124
78
93
0
20
40
60
80
100
120
140
2012 2013 2014 2015
DSO DSI DPO CCC
This graph shows the whole company Cash to Cash Cycle
and how the situation changed over the years.
The success for the North America subsidiary that joined
P&G (that accounts for the 10% of Fibria Celulose S.A.
sales) SCF program probably reflected over the whole
group and we can see how the amount of days of sales
outstanding which reflects a faster collection for the
invoices.

27. Current ratio decreased which since it remained at a
value of around 1,3 as of December 31 2013 it could
means that company invested the extra liquidity they
had compared to 2012.
Fiscal year ending December 31
Fibria Celulose Balance sheet (millions) 2012 2013 2014June 30, 2015
Assets
Cash and ST Investments R$ 3.296 R$ 2.099 R$ 745 R$ 1.386
Accounts receivable R$ 964 R$ 1.477 R$ 695 R$ 875
Inventory R$ 1.183 R$ 1.266 R$ 1.239 R$ 1.455
Other current assets R$ 803 R$ 966 R$ 583 R$ 147
Total current assets R$ 6.246 R$ 5.808 R$ 3.262 R$ 3.863
Net PP&E R$ 14.291 R$ 13.224 R$ 12.959 R$ 12.810
Goodwill&Intangibles R$ 4.717 R$ 4.634 R$ 4.552 R$ 4.521
Other LT assets R$ 2.890 R$ 3.085 R$ 4.822 R$ 5.308
Total non current assets R$ 21.898 R$ 20.943 R$ 22.333 R$ 22.639
Total assets R$ 28.144 R$ 26.751 R$ 25.595 R$ 26.502
Liabilities &net worth
Accounts payable R$ 436 R$ 587 R$ 593 R$ 637
Accrued expenses R$ 139 R$ 129 R$ 135 R$ 111
Short-term borrowings R$ - R$ 196 R$ 263 R$ 153
Current portion of LT debt R$ 1.138 R$ 2.777 R$ 703 R$ 741
Other current liabilities R$ 762 R$ 760 R$ 405 R$ 445
Total current liabilities R$ 2.475 R$ 4.449 R$ 2.099 R$ 2.087
Long term debt R$ 9.630 R$ 6.801 R$ 7.361 R$ 8.121
Other LT liabilibies R$ 869 R$ 1.010 R$ 1.518 R$ 1.730
Total non-current liabilities R$ 10.499 R$ 7.811 R$ 8.879 R$ 9.851
Total liabilities R$ 12.974 R$ 12.260 R$ 10.978 R$ 11.938
Total equity R$ 15.170 R$ 14.491 R$ 14.617 R$ 14.564
Liabilities+equity R$ 28.144 R$ 26.751 R$ 25.595 R$ 26.502
2012 2013 2014 2015
NOWC (millions) R$ 1.711 R$ 2.156 R$ 1.341 R$ 1.693
2012 2013 2014 2015
Current ratio 2,52 1,31 1,55 1,85
Net operating working capital increased in 2013, which
could be probably due to the fact that the account
receivables increased due to a higher volume of
revenues. Lowering the NOWC is good if is due to a
reduction of trade receivables (e.g. thanks to a SCF
program at a low financial interest rate). From 2014
situation seemed to be better as trade receivable
decreased letting Fibria to operate a lower NOWC.

28. Fiscal year ending December 31
Fibria Celulose Income Statement (millions) 2012 2013 2014Last 12 months to 6/30/15
Revenue R$ 6.174,00 R$ 6.917,00 R$ 7.084,00 R$ 8.054,00
Cost of product sold R$ 5.237,00 R$ 5.383,00 R$ 5.546,00 R$ 5.560,00
Gross profit R$ 937,00 R$ 1.534,00 R$ 1.538,00 R$ 2.494,00
SG&A expense R$ 579,00 R$ 642,00 R$ 644,00 R$ 703,00
Other operative expense R$ 13,00 -R$ 21,00 -R$ 766,00 R$ 94,00
Operating income R$ 345,00 R$ 913,00 R$ 1.660,00 R$ 1.697,00
Net interest expense R$ 530,00 R$ 479,00 R$ 385,00 R$ 356,00
Currency exchange gains -R$ 735,00 -R$ 933,00 -R$ 722,00 -R$ 1.926,00
Other non-operative incomes -R$ 70,00 R$ 154,00 -R$ 531,00 -R$ 617,00
Profit before tax -R$ 990,00 -R$ 345,00 R$ 22,00 -R$ 1.202,00
Income tax expense -R$ 292,00 R$ 354,00 -R$ 141,00 -R$ 762,00
Minority interest -R$ 7,00 -R$ 9,00 -R$ 7,00 -R$ 9,00
Net income -R$ 705,00 -R$ 708,00 R$ 156,00 -R$ 449,00
Performing good but hurt by
US dollar appreciation
2012 2013 2014 2015
S&P debt rating BB BB+ BB+ BBB-
Achieving better rating investment grade would
enable Fibria to diversify its financing sources,
allow timely access to the capital markets, lower
financing costs, and ultimately create value to
stakeholders
2012 2013 2014 2015
Debt to equity 0,86 0,85 0,75 0,82
Debt to equity ratio slightly decreased over time which
reflect the group’s commitment to decrease the financing for
their operation on issuing debts. Less interest cost then are
going to be paid on their finance.
Average exchange rate (Reais/USD)
2012 2013 2014 2015
1,9550 2,1605 2,3547 2,5989

29. Fibria joined the SCF program launched by P&G in June 2013 at the pilot stage as the company identified it as an
opportunity to improve free cash flow while reducing working capital at a very competitive cost.
It was also motivated because the program has brought an opportunity to bring mutual value to Fibria and P&G
And it offers an efficient and reliable web-based platform to manage account receivables with the ensurance and safety
provided by first class financial institutions.
Before this, the debt acquired in 2009 merger plus the gobal recession that brought both to a depressed demand for pulp
and customers to pay invoices in longer times led Fibria to raise liquidity by selling assets and by reducing accounts
receivable through factoring and forfaiting programs.
SCF positive outcomes
• Easier access to short term financing
• Lower cost of financing
• Lower NOWC need with the same service level
Fibria was able to acces to better rates because of the good position of P&G (AA- S&P rating)

30. Previous situation on short term financing
Factoring
Financing solution initiated by the supplier (Fibria). The covered value is
around 70-85% and the financial fee depends on the supplier rating.
Forfaiting
The customer’s foreign bank issues a letter of credit/letter of guarantee to
the supplier’s local bank
The supplier receives a discounted advance payment by its local bank in
exchange for the invoice
The local bank is guaranteed by the foreign bank and the customer pays at
maturity through the foreign bank.
Two financial institution involved (Higher financial costs)
Digital reverse factoring
Financing solution initiated by the customer (P&G) in order to help
his suppliers to finance their receivables more easily and at a lower interest rate
than what they would normally be offered
Unlike traditional factoring, where is the supplier who initiates the process, in this
case the customer takes the initiative.
It covers the 100% of the invoice
Current situation on short term financing
Supplier Costumer Supply chain
P&L Financial interests
NOWC
Trade receivables
Trade payables
Supplier Costumer Supply chain
P&L Financial interests
NOWC
Trade receivables
Trade payables
Still better than factoring because
interest rate is based on P&G better
rating with respect to Fibria and it was
1,27% per annum in 2013 applied by
Citigroup

31. ▪ The Importance of selection of efficient suppliers:
The success, strength and flexibility of your Company’s Supply Chain is directly
related to the success, strength and flexibility of your Suppliers Supply Chain. The
weakest link is not only the one present directly on your company, but that on the
whole supply chain of your product, because all the companies along the Supply
Chain suffer the consequences if something goes wrong.
▪ “Win-win-win” strategy:
The SCF program benefits all the parties. Suppliers receive their payments faster at
lower cost. P&G disburse to the suppliers in longer terms. SCF banks receive a fee
for their service.

32. ▪ A good communication throughout the supply chain:
Rollout teams were setup to travel around to different suppliers to explain the
advantages and consequence of the SCF program.
▪ Being innovative:
The third party is in charge of providing a digital platform to facilitate the exchange
of data and information in the whole supply chain. Through this interface companies
involved are able to reduce cost and time, giving them the better possibility to focus
on the core businesses.

33. ▪ http://highered.mheducation.com/olc/dl/255639/10rwc3.pdf
▪ https://www.slideshare.net/NishuJain5/pg-supply-chain-72563517
▪ https://www.pg.com/en_US/downloads/media/Fact_Sheets_Operate.pdf
▪ https://rctom.hbs.org/submission/pg-end-to-end-supply-chain-model/
▪ https://vivauniversity.files.wordpress.com/2011/09/pg-case-analysis.pdf
▪ https://us.pg.com/who-we-are/heritage/history-of-innovation#
▪ https://www.pgsupplier.com/en-US/current-suppliers/invoicing#invoicingMet
▪ http://www.vault.com/company-profiles/personal-care/the-procter-gamble-company/company-overview
▪ http://resources.lloydsbank.com/insight/gameplan/three-ways-to-improve-your-cash-conversion-cycle/
▪ http://blog.concannonmiller.com/4thought/shorten-your-cash-conversion-cycle-to-boost-your-businesss-bottom-line
▪ https://www.investopedia.com/ask/answers/102315/what-does-low-working-capital-say-about-companys-financial-prospects.asp
▪ https://www.investopedia.com/articles/06/cashconversioncycle.asp