Here is my second favorite video from the “Made in Asia” seminar organized by the French Chamber of Commerce in Hong Kong.
This panel entitled “Financial best practices to optimize your sourcing”. It will be of interest to midsize and large importers.
Here are what I considered to be the most interesting insights, from SEB Asia’s financial director:
How they reduced their current suppliers’ MOQ (minimum order quantity) [part 1, 25 minutes and 25 seconds in]
- Two years ago, they took the initiative to develop a tighter relationship with some of their long-term suppliers.
- SEB worked hard to give clear and accurate order forecasts.
- SEB helped the factories with lean implementation.
- SEB had to be very selective. They only worked on this with suppliers whose management was very involved for the long term.
- The benefits for SEB are lower prices (since the suppliers have lower costs and share these savings with SEB) and more flexibility in production scheduling (i.e. lower MOQ).
How they negotiated 60 to 90 days (after shipment) payment terms, and how they helped their suppliers’ financing [part 1, 35 minutes and 15 seconds in, and continued in part 2]
- Pre-shipment vendor financing is quite risky, because the supplier might actually not ship out. A much less risky type of vendor financing is post-shipment.
- The suppliers can cash in the receivables before maturity. In other terms, they can get the advance payment of up to 100% of the amount of an invoice, after they have shipped the goods.
- The supplier can get this advance from SEB’s bank, and benefit from SEB’s good credit standing in the eyes of that bank.
- SEB had to select some reliable suppliers (30% of their total purchases) for this program, and promise to their bank to never cancel the payment of an invoice after they have approved it.
- SEB tries to detect the early signals of a supplier’s financial distress — when more and more payments are asked in advance.
- A challenge is that imposing fines to suppliers is very difficult.
Information about the participants:
- Thierry Bellamy, Finance Director, SEB Asia
- Christophe Bataille, Finance Director, Tesco International Sourcing Ltd
- Thomas H S Poon, Head of Strategy and Planning, HSBC
- Chris Warner, Head of Merchandising – GM Sourcing – Hong Kong Regional Office, Marks & Spencer (Asia Pacific) Limited