2005 Supply & Demand Chain 100 Case Study  Tools Manufacturer / Orbian Corp.

Profiles in Supply Chain Enablement: Worldwide company increases accounts payable leverage and working capital efficiency with trade payables solution

Profiles in Supply Chain Enablement: Worldwide company increases accounts payable leverage and working capital efficiency with trade payables solution.

Company: Manufacturer of Tools, Hardware and Specialty Hardware Products (Northeastern U.S.)
Company Size: Large
Company Sector: Manufacturing
Area(s) of Enablement: Payment, Supply Chain Integration & Infrastructure
Enabler: Orbian Corp. (Norwalk, CT)

SDCE 100 2005Case Study: This worldwide supplier of tools, hardware and security solutions for professional, industrial and consumer use was under constant pressure to improve cash flow and its working capital efficiency. The company wanted to find a way to more fairly distribute the working capital burden with their suppliers, while providing incentives for collaboration at the same time.

The manufacturer's desire to reduce working capital led the company to implement a terms extension program with its suppliers. Driving working capital financing down the supply chain, however, typically resulted in an increased cost of working capital for suppliers. The company's challenge was to find a solution that would alleviate the impact of increased capital cost on the supply chain while providing vendors a tangible reward for terms extension.

The Solution

Orbian implemented a plan that provided the manufacturer's suppliers with access to Orbian's low-cost receivables discounting and the ability to settle through its proprietary electronic payment services. The product presented a win-win scenario for both ends of the supply chain. The manufacturer adopted the Orbian system as a new payment type in its accounts payable system in which, the moment an invoice was approved, a payment instruction was issued through Orbian.

For the supplier, the Orbian system provided the vendor flexibility regarding the timing of payment. Suppliers could choose to be paid from the day after approval of the invoice through the due date. The cost of discounting was substantially lower than the standard market rate available in the industry.

For many of the manufacturer's vendors, that translated into reduced costs, regardless of term extensions. It also gave suppliers visibility into the manufacturer's invoice approval and payment process, as well as control over when they were paid.

ROI for Both Sides

By leveraging trade payables, the manufacturer was able to significantly reduce working capital requirements. The company achieved a dramatic increase in accounts payable leverage and the desired effect of reallocating working capital in the supply chain.

The company's treasurer and vice president explained: "Orbian was the tool we needed to support re-approaching our vendors with an extension of payment terms. The result is that we achieved our change of terms without harming our supplier's cash position, and in many cases providing needed cash flow to the supply-chain."

He added: "In addition, our vendor base has grown quite happy with the Orbian program. We have even found that many of the vendors who elected to initially accept extended payment terms without Orbian, have subsequently moved over to the Orbian program."

Delivering progress for both ends of the supply-chain, Orbian integrates perfectly with the manufacturer's reputation as an innovator. "Orbian allows our vendors to get invoice-level financing at a cost that is closer to my cost of funds than theirs," said the company's treasurer. "It's a major innovation."

This executive sees it as a winning solution for both sides. "Vendors can get paid any time they want while we can do business with less working capital," he said, "and the effect on the vendor is even greater since they can do business with zero investment in accounts receivable."

For more stories of successful supply chain implementations, read the "2005 Supply & Demand Chain Executive 100" article in the June/July 2005 issue of the magazine. Also watch the Today's Headlines section of SDCExec.com every Tuesday and Thursday for more in depth best practices drawn from this year's Supply & Demand Chain Executive 100.