A dual approach of SCF and dynamic discounting provides a win-win solution for the company and its supply chain
Finland’s Metso Corporation is a world-leading industrial company with annual turnover of nearly €3 billion and provides the mining, aggregates, recycling, oil, gas, pulp, paper and process industries with industrial machinery. The company operates in 50 countries worldwide with a network of 80+ service centres and a 12,000-strong workforce. Its supply chain is equally impressive, extending to more than 30,000 firms.
Metso developed a supply chain finance strategy to meet the needs of all its suppliers. The project won the Gold Award at the 2017 Supply Chain Finance Awards and the Best Trade/Supply Chain Finance Solution Award at the 2018 Adam Smith Awards. Metso was chosen from a shortlist of five and won in the manufacturing and industrial category. The judges commended its twin-track approach in devising a comprehensive prompt payment solution covering the entire supply chain by coupling conventional SCF with dynamic discounting from C2FO; providing the most appropriate option for each supplier.
Meeting all needs
“Metso wished to offer two solutions that would enable it to capture the whole spend curve, from ‘big spend’ suppliers to medium and small-sized,” says Ville Svens, category director from Metso’s procurement and the programme manager.
“Traditionally, SCF programmes have secured financing for a buyer’s largest suppliers and assist the success of its own working capital initiatives. Too often this has been achieved by failing to address the full spend curve — in particular, small and medium-sized enterprises (SMEs).”
“There’s no ‘one-size-fits-all’ solution to cover all suppliers’ needs,” adds Minna Helppi, SVP and group treasurer. “Our approach was to find a combination that would work to help a substantial number of our suppliers. Building this from scratch, we were able to go to market to source best-in-class solutions.”
Metso already had an established SCF programme for bigger suppliers and decided a comprehensive early payment programme was best achieved by extending it to more users, while adding a dynamic discounting solution for small and medium-sized suppliers.
Specific financial targets were set for the expanded programme. A main balance sheet and profit and loss (P&L) objective was improving return on capital employed (ROCE).
“From the outset, it was important for the new programme to attract cooperation from each business department,” says Helppi. “While treasury was tasked with developing a framework, it was recognised that working across many functions would be vital in developing a successful solution.”
Speed to results with dynamic discounting from C2FO
Metso’s strategy complemented Citi’s SCF programme with the C2FO dynamic discounting marketplace to achieve a global reach and easily scalable platform that would suit all sizes of suppliers.
For dynamic discounting, C2FO managed the entire supplier onboarding process, from education to ongoing support to suppliers. A co-branded email campaign and a dedicated C2FO supplier relationship management team informed Metso’s suppliers that dynamic discounting was available, tailoring their approach to individual profiles and needs.
The platform’s ‘two clicks to cash’ basis makes it easy for suppliers to join and accelerate invoice payments. The dynamic discounting programme was piloted in 2017 across Finland, Sweden, Denmark, Germany and the UK before being rolled-out globally.
A holistic supplier finance strategy ensured successful results
The programme’s SCF/dynamic discounting combination captures the whole spend curve. C2FO’s solution provides an innovative, market-based approach to early payment discounts. Suppliers offer the rate at which they are comfortable in discounting their invoices for early payment. C2FO optimises these offers based on a set of parameters – such as cash available and yield – controlled by Metso.
Both solutions give Metso improved ROCE. Citi’s SCF programme provides balance sheet improvements, while C2FO’s dynamic discounting marketplace provides a lower cost of goods sold and directly increases EBITDA. Suppliers, in turn, can receive payment early without using their own credit facilities. In addition, they gain full visibility on when payment can be expected.
The award win demonstrated the programme’s success to Metso’s stakeholders and employees and has generated considerable interest.
Both solutions have scope for further scalability. C2FO’s dynamic discounting programme showed rapid adoption by suppliers. Twenty percent of Metso’s eligible supply base registered in the first month. The programme has now been extended from Europe to North America.
“As it becomes established and both the suppliers and Metso’s procurement see the resulting benefits and gain a full understanding of the Citi and C2FO products, the programme will sell itself,” says Svens.