How can you keep control when outsourcing part or all of your procure-to-pay process

Siemens Supply Chain
Finance Program

Copyright © Siemens AGAG 2012. All rights reserved.
Copyright © Siemens 2012. All rights reserved.
Page 1 Financial Services

Agenda

 Global Shared Services

 Siemens DPO

 Supply chain finance and working capital organization

 Critical success factors and key learnings

 Different SCF models

 Win/win
Copyright © Siemens AG 2012. All rights reserved.

Global Shared Services (GSS)
North America P2P Statistics

 GSS processes over 2.1 million invoices per year
 Front Office is located in Orlando, Florida
 Back Office (transactional activity) is located in Bangalore, India
 225 GSS employees supporting P2P processes for North America in the
US and India


SCCs Basic Role in Siemens

Global Financing Services
Corporate
Inhouse Treasury Markets & Investment
Pensions (PEN)
(SFS TRE IHT) (SFS TRE GM) Management (FIM)

BEIJING
Treasury SFSL
Center, In-house
Bank, Pension
DEN HAAG, NL Manager
SFM 24h Global presence
Capital and
SIEMENS Financial
Businesses ISELIN, NJ Markets
SCC HONG KONG
SFA

EUR
MUNICH
SFS GmbH

Siemens DPO in a competitors’ benchmark

Working Capital Benchmark : Study Results

Cash Conversion
DSO Comparison DPO Comparison DIO Comparison
Cycle
Benchmark
4th 3rd 2nd 1st 4th 3rd 2nd 1st 4th 3rd 2nd 1st 4th 3rd 2nd 1st
Comparison

Median 68 45 46 70

Siemens 68 36 67 99

General Electric 58 69 44 33

ABB 101 59 52 94

Philips 58 45 46 59

Schneider 71 51 50 70

Emerson 63 34 32 61

Honeywell 70 43 43 70

Source: The Hackett Group 2010 REL working capital DSO = days sales outstanding Lagging 4th 3rd 2nd 1st Leading
Medians are based on industry segment DPO = days payables outstanding
DIO = days inventory outstanding
-
Cash Conversion Cycle = DSO – DPO + DIO


SCF and Working Capital Organization – The CCC

Acme Inc. Cash Conversion Cycle Competitor Cash Conversion Cycle

DIO 47.65 DIO 51.50
+ +
DSO 18.19 DSO 15.20
- -
DPO 30.88 DPO 62.46
= =
CCC 34.96 CCC 4.24
0 10 20 30 40 50 60 0 20 40 60 80
Days Days

• Acme is at a ~30 day working capital disadvantage to Competitor


SCF Removes Negative Effects of Terms
Extension

Invoice Buyer makes Payment
Received via SCF Provider

Buyer Suppliers
Day 0 Day 10 Day 30 Day 60
Supplier is Paid Non-
recourse by SCF Provider

Grant Suppliers access to on-demand cash
Reduce Supplier’s financing costs
Reduce Suppliers’ days sales outstanding (DSO)
Put downward pressure on costs of goods
Put upward pressure on cost of goods
Strengthen Buyer – Supplier partnership with “win-win” offering


Critical Success Factors / Key Learnings

Challenge Key Learning

• Resource Allocation • Upfront Budgeting

• Internal Incentive Alignment • Creation of KPIs & Integration
into Procurement Performance
• COGS vs. Terms
Mgt.

• Marketing Message • Strong Delivery of Term/Price
Movements
• Sourcing SCF Pipeline Data • Defined Supplier On-Boarding
Goals Agreed Upon Upfront

• Tracking SCF Attributed Success • SCF Templates - Define
Incremental Value Due to SCF


Implementing SCF

Business Model Review/Approval
Risk/Reward Analysis – supplier relations and operations
In House Platform vs. 3rd Party Provider
RFP process, if required
Procurement organization – defining the supplier targets
Supplier outreach – marketing message


What are the different SCF models

Selecting from 3 SCF Models:

 Single-Bank Model

 Multi-Bank Model

 Universal Funding Model


Example of a discount charge

Suppliers or Sub-contractors pay a discount charge when they choose to sell receivable and receive cash early. Below is an

example of a Discount Charge in the Siemens SCF Program for a supplier has annual sales of at least $500K with Siemens.

Payment Terms with Siemens: 90 days
Siemens Approved Payment Amount: $10,000.00
Annualized SCF Discount Rate: 2.00% (Assumes Libor @ .50% + 1.50%)

Auto-Discount Scenario
Invoices Submitted = Day 0
Payment Approved by Siemens and Shared with SCF platform = Day 15
Receivable Sold to Orbian by Supplier or Sub-contractor = Day 15
Cash Received by Supplier or Sub-contractor = Day 17
Number of Days Cash Received Early = 73 days
Discount Charge Paid by Supplier or Sub-contractor = $41 (73/360) x .0200 x $10k
Discount Charge as a Percentage of the Receivable = 0.41%
Cash Proceeds Received by Supplier or Sub-contractor on Day 17 = $9,959


The SCF “Win-Win”

Buyer
 Increases Payment Terms from traditional to extended
 Increase DPO, improving CCC
 Improve cash management (100% certainty of payment timing / amount)

Supplier
 Accelerate payments
 Cut receivables financing costs with low SCF rate
 Decrease DSO, improving CCC
 Reduce A/R operating costs
 Improve cash management (100% certainty of payment timing / amount)


Contact

Douglas Schoch
Siemens Capital Company, LLC

VP, Relationship Manager
In-House Treasury (TRE)
Douglas.Schoch@siemens.com
732-590-6582 office


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