Supply Chain Finance 101: Payment Terms, what is 2/10 net 30? $100K+/yr by age 30: simecurkovic.com

Follow me at: / sime.curkovic . $70K per year & $100K+ by 30! Visit: simecurkovic.com
I just created a website & it gives you access to hundreds of my blogs, job postings, & hours of lecture videos. Just let me know if you want some material that requires a membership & I will send it to you free of charge.
Read: Do you know what this means? 2/10 net 30 (now employers want you to be Finaciers!!??) The good news is that they will pay more for more strategic skills...
A Purchase Order is a contract between a buyer and supplier. Over half of our students get their first full-time jobs in procurement/purchasing/sourcing in a buyer type of role. One of those job responsibilities will be to negotiate payment terms upon which you pay a supplier. When you pay for a product or service in your own personal life, you typically pay for it upon receipt or delivery of the good/service. However, in business-to-business transactions, the supplier usually does not get paid right away. Usually, the buyer will receive the goods/parts/material first, and then the buyer will pay for it later, sometimes very later. Buying organizations are often cash strapped, or simply put, they are cheap and greedy. Buyers will try to negotiate not paying for something as long as 30, 60, 90, 120 days after they actually get the stuff. Suppliers are not thrilled with this, but if you trust the buyer and know that you will eventually get paid, why not? Usually, large buying organizations have this kind of leverage over smaller suppliers. So, what is the current standard protocol for payment terms with buyers and suppliers? See below.
• 2/10 net 30
- 2% discount if paid within 10 days, full payment required within 30 days
So, if you buy $100 worth of parts from a supplier, you have to pay them at the latest, $100 30 days after you get the parts. However, if you pay them within ten days of getting the parts, you only pay $98. Here is the thinking part of this reading assignment. I think there are a lot of VP’s of SCM and VP’s of Finance that are not talking to each other very much. My impression is that most companies are obsessed with negotiating payment terms with net 30, 60, 90, and 120 days. This makes sense to me if a company is cash strapped, but I do not think most are. It also makes sense if you are broke and would have to borrow from a bank to pay the supplier (and if the cost of borrowing is really high). So, wait as long as possible to pay the supplier with our own cash (and hopefully you can make enough money in 30-120 days to pay your suppliers). If you cannot, then you have major cash flow issues and your margins are probably too tight to keep you in business. In which case, the bank might not even loan you any money.
I think most companies have some cash on the sidelines (The Great Recession of 2008) and why would you sit on that cash for 30, 60, 90, and 120 days? Why not pay your suppliers early and make cash (in the form of discounts - a dollar saved is the same as adding one dollar of pre-tax profit to your company’s bottom line). You might argue that keeping the money in the bank and collecting interest on it makes you more than the price discount that the supplier is willing to give you for early payment. However, here is my point - have you seen how low interest rates are and how low the cost of borrowing is in America? They are at record lows! You can borrow money to buy a house and only pay 2-3% in interest today. So, what is the strategic SCM opportunity here? How about this:
• 4/10 net 30
- 4% discount if paid within 10 days, payment required within 30 days
Let’s say you could actually negotiate these payment terms with a supplier, which I think they would go for if they could get their money sooner, especially if you are a buyer that does not pay them until 30, 60, 90, or 120 days out. As a buyer, even if you did not have the cash to pay them within 10 days, couldn’t you even borrow money from a bank to pay early? You still come out ahead because your cost of borrowing from the bank (1-3%) is less than the discount given to you by the supplier (4%). I also bet you there a lot of banks out there that would do all of this for you (all you have to do is sit back and enjoy the cost savings, and look like a superstar to your boss).
SCM is a very cross-functional discipline. Effective SCM requires working with your suppliers, their suppliers, your customers, their customers, and internally with engineering, sales/marketing, and even finance. For the first time in American history, interest rates and the cost of borrowing is at record lows, combined with money actually out there in the system to be borrowed. I personally feel corporate America (on the procurement side) is leaving money on the table with its antiquated payment terms with suppliers.

[@simecurkovic]

Read: Do you know what this means? 2/10 net 30 (now employers want you to be Finaciers!!??) The good news is that they will pay more for more strategic skills... A Purchase Order is a contract between a buyer and supplier. Over half of our students get their first full-time jobs in procurement/purchasing/sourcing in a buyer type of role. One of those job responsibilities will be to negotiate payment terms upon which you pay a supplier. When you pay for a product or service in your own personal life, you typically pay for it upon receipt or delivery of the good/service. However, in business-to-business transactions, the supplier usually does not get paid right away. Usually, the buyer will receive the goods/parts/material first, and then the buyer will pay for it later, sometimes very later. Buying organizations are often cash strapped, or simply put, they are cheap and greedy. Buyers will try to negotiate not paying for something as long as 30, 60, 90, 120 days after they actually get the stuff. Suppliers are not thrilled with this, but if you trust the buyer and know that you will eventually get paid, why not? Usually, large buying organizations have this kind of leverage over smaller suppliers. So, what is the current standard protocol for payment terms with buyers and suppliers? See below. • 2/10 net 30 - 2% discount if paid within 10 days, full payment required within 30 days So, if you buy $100 worth of parts from a supplier, you have to pay them at the latest, $100 30 days after you get the parts. However, if you pay them within ten days of getting the parts, you only pay $98. Here is the thinking part of this reading assignment. I think there are a lot of VP’s of SCM and VP’s of Finance that are not talking to each other very much. My impression is that most companies are obsessed with negotiating payment terms with net 30, 60, 90, and 120 days. This makes sense to me if a company is cash strapped, but I do not think most are. It also makes sense if you are broke and would have to borrow from a bank to pay the supplier (and if the cost of borrowing is really high). So, wait as long as possible to pay the supplier with our own cash (and hopefully you can make enough money in 30-120 days to pay your suppliers). If you cannot, then you have major cash flow issues and your margins are probably too tight to keep you in business. In which case, the bank might not even loan you any money. I think most companies have some cash on the sidelines (The Great Recession of 2008) and why would you sit on that cash for 30, 60, 90, and 120 days? Why not pay your suppliers early and make cash (in the form of discounts - a dollar saved is the same as adding one dollar of pre-tax profit to your company’s bottom line). You might argue that keeping the money in the bank and collecting interest on it makes you more than the price discount that the supplier is willing to give you for early payment. However, here is my point - have you seen how low interest rates are and how low the cost of borrowing is in America? They are at record lows! You can borrow money to buy a house and only pay 2-3% in interest today. So, what is the strategic SCM opportunity here? How about this: • 4/10 net 30 - 4% discount if paid within 10 days, payment required within 30 days Let’s say you could actually negotiate these payment terms with a supplier, which I think they would go for if they could get their money sooner, especially if you are a buyer that does not pay them until 30, 60, 90, or 120 days out. As a buyer, even if you did not have the cash to pay them within 10 days, couldn’t you even borrow money from a bank to pay early? You still come out ahead because your cost of borrowing from the bank (1-3%) is less than the discount given to you by the supplier (4%). I also bet you there a lot of banks out there that would do all of this for you (all you have to do is sit back and enjoy the cost savings, and look like a superstar to your boss). SCM is a very cross-functional discipline. Effective SCM requires working with your suppliers, their suppliers, your customers, their customers, and internally with engineering, sales/marketing, and even finance. For the first time in American history, interest rates and the cost of borrowing is at record lows, combined with money actually out there in the system to be borrowed. I personally feel corporate America (on the procurement side) is leaving money on the table with its antiquated payment terms with suppliers. I hope this makes sense to you. Please let me know if not.

[@simecurkovic]

Systems contracts: AKA annual contracts, national contracts, corporate contracts, pricing agreements, blanket orders, open-end orders, etc. Goal is to reduce costs by reducing the paperwork for numerous small orders and increasing the supplier’s total volume of business. May be used for items like stationary supplier, MRO (maintenance, repair, and operating) items. Some may refer to systems contracts as “Stockless purchasing”.

[@simecurkovic]

Advice to college grads: when you start working...Spend some serious time watching your company's product be built from beginning to end (from the time materials come in until the finished product leaves the facility). Further, study in detail how a customer order is processed (from the time the order is made until your customer has the product/service in their hands). If you put several hours into this, and perhaps even map out the details, you will become a SCM genius and help your employer do all things SCM related better, faster, and cheaper. If you do this, chances are, you will identify a lot of low hanging fruit to generate deliverables and results (for your employer and your resume).

[@simecurkovic]

www.simecurkovic.com/posts-page/ www.simecurkovic.com/membership/ - Supply chain knowledge for everyone. Explore, learn, & connect - Do your job better, faster, & cheaper - Join my network to reach thousands of SCM students, faculty, & professionals - Hot Market: Over 25,000 SCM internships and > 250,000 full-time jobs Join to get access to endless current SCM content and job postings. Bring your SCM needs and questions, and I will provide you with timely and thorough feedback. If you join our growing community today, you will have access to Sime Curkovic’s expertise through blog posts, articles and videos. You’ll also gain access to Dr. Curkovic for one-on-one advice. Dr. Curkovic (please do not call me Dr.) has more than 30 years experience working to shape the future of SCM professionals. Check out this intro lecture (>217K views). Have access to > 50 hours of timely SCM content with > 4,400 KZbin & > 20K LinkedIn followers, & thousands of views daily.

[@simecurkovic]

Fixed price contracts: Firm Fixed Price (FFP) is most desirable from the buyer’s perspective. Minimum administration, and all risk borne by supplier. Fixed Price with escalation If large changes in material or labor costs are expected over the life of the contract, then an escalation clause can be useful. Should avoid inflation of price due to uncertainty Should allow for upward and downward adjustments. Continued--Fixed Price with Escalation Should base on well known, published indices Bureau of Labor Statistics Producer Price Index Bureau of Labor Statistics Wage Increase Series by Standard Industrial Classification Should put a cap on adjustments. Apply only to Labor and Materials, not overhead or profits. Labor adjustment should allow for learning curve improvements. Fixed price with redetermination A fixed price is set, and the price is renegotiated at some later point when better information is available on costs and quality. Firm fixed price level of effort For R&D contracts where the work cannot be specified or results predicted. The supplier agrees to perform a specified level of effort (labor hours, computer time) for a specified period for a specified price. Note that while this contract is called a “fixed price” type of contract, the supplier really has no risk involved. Incentive contracts: Fixed Price Incentive (FPI) The main components in this type of contract are the ceiling price and the share line. Graphically, this type of contract looks like…(see next). Frequently used by department of defense Buyer must monitor and verify the supplier’s costs Cost Plus Incentive Fee (CPIF) Similar to FPI but with a Max fee and, possibly, a Minimum fee in addition to the share line.

[@simecurkovic]

Cash Discounts: 2/10 net 30 2% discount if paid within 10 days, payment required within 30 days This is a significant discount - paying 20 days early is just like earning 36.5% interest EOM (End of Month) 2/10 EOM - 2% discount if payment made within 10 days from the end of the month Cash discounts are one area where negotiation is possible - even if the price is non-negotiable

[@simecurkovic]

Today in class: 120 days?...A student asked me if these payment terms were an issue for smaller sub-tier suppliers (young students can be very observant). “20 years ago, when a supplier delivered a finished product to a commercial aerospace customer, it generally was paid w/i 30 days. In the early 2010s, major OEMs increased terms to 60 days. By the late 2010s, terms reached 90 days, & today the standard is 120 days. (Great read by Kevin Michaels)” I had another student ask me if it was unethical to pay someone 120 days later. Hmm. Opinion: Reduce Aerospace OEM-To-Supplier Payment Terms aviationweek.com/aerospace/manufacturing-supply-chain/opinion-reduce-aerospace-oem-supplier-payment-terms ___ Sidenote, I encourage my Supply Chain majors to minor in Accounting (rather than Finance). Agree? College Accounting (i.e., Cost & Managerial) to me feels like Supply Chain Finance. The Accounting Minor for our SCM majors seems like a great fit. Long term in their careers, understanding SCM Finance will be critical. The worlds of Finance & SCM have collided. Your opportunities are endless if you learn how to talk to the CFO…My thoughts: lnkd.in/gtUMdsiT lnkd.in/eJnVHrsM My discussion on why I recommend a Finance graduate degree for SCM students: lnkd.in/ewNBvPf and lnkd.in/ewA2yq7. Long term in your careers, understanding SCM Finance will be critical. At the end of the day, SCM executives are evaluated on generating shareholder value (bottom line financial kind of stuff, of which has gotten very creative and complicated). Also, more and more SCM VP’s (C-suite types) are reporting directly to the CFO of the company (because SCM is that important to the bottom line). Students often ask me, if they go on to get a graduate degree, what should they get it in. I say get a graduate degree in something you are weak in but will matter in your career (especially long term). You will hit a ceiling professionally if you do not understand SCM Finance. So, I would give that serious consideration in your graduate education. The Monthly Metric: Cash Flow From Operations: lnkd.in/erfZdWk Do you know what this means? 2/10 net 30 (now employers want Supply Chain Managers to be Financiers!!??) lnkd.in/e2TztjY Here it comes: lnkd.in/eNdih2e2. Supplier financing disclosure would be required under proposed accounting rule. Creative Payment Terms & Buyer-Supplier Financing: lnkd.in/eJnVHrsM. A great book read for CFO types that want to understand SCM types (or the other way around?): "Supply Chain Metrics that Matter" CFO to CFO: Finance & SCM...lnkd.in/gFv3gqgn. I could not help myself & asked chatGPT- Why do so many c-suite executives have graduate degrees in Finance? See: lnkd.in/g3PDJwSG. I had a student ask: Shouldn’t I major in Finance or Accounting if I want to become a CEO? I said...lnkd.in/gT-6EjjB. hashtag#supplychain hashtag#finance hashtag#cfo

[@simecurkovic]

Contact Information: Sample Lectures & Should You Major in Supply Chain Management? wmich.edu/supplychain/academics/lectures Dr. Sime (Sheema) Curkovic, Ph.D., Professor, Operations/Supply Chain Pat Daugherty Supply Chain & Lee Honors College Fellow Associate Director, Center for Integrated Supply Mgmt Western Michigan University, Haworth College of Business Schneider Hall Room 3246, Kalamazoo, MI 49008-5429 Tel.: [phone]; E-Mail: [e-mail] "Better, faster, cheaper"; www.wmich.edu/supplychain "WMU Integrated Supply Management (ISM)...Nation's best undergraduate SCM program (Gartner 2014); 2nd in SCM technology (SoftwareAdvice 2015); 2nd in top global SCM talent (SCM World 2017) Vitae: wmich.edu/supplychain/directory/curkovic

[@simecurkovic]

Our students are going into a job market inundated with outdated processes. Manual and labor-intensive operations will force them to spend hours every week doing repetitive tasks that could be automated for much greater efficiency and accuracy, allowing them to focus on more fulfilling work. The majority of their time will be spent gathering data, while much less will be spent analyzing and providing insights to support strategic decision-making. For example, during these inflationary times, it is time for business faculty to start teaching the lost art of Price Analysis and Strategic Cost Management (in very different ways). I have asked a lot of business managers how they “prepare” to negotiate price increase requests from their suppliers. In particular, I was curious about how and where they get their data from (i.e., Chicago Board of Trade (CBOT), Chicago Mercantile Exchange (CME), Commodity Exchange (COMEX), London Metals Exchange (LME), New York Mercantile Exchange (NYMEX), etc.). Many said their suppliers provide that information. I am not convinced that using data from your suppliers is a form of “Preparation” for the negotiation process. Surprised by price increases? As much as 70% of current contracts have price increase provisions! In the WMU supply chain management program we teach our students to track commodity forward price curves. We now look at raw material market data from multiple sources, visualize and analyze historical pricing scenarios, and simulate planned purchases and what-if scenarios against forward price curves. How do we better prepare our business students to be job ready day one? Procurement organizations need processes and “tools” to mitigate and negotiate on these price increase requests in a strategic, data-driven manner (and academics need to do a better job of teaching it). Traditionally, we have worked very hard to help our students develop very sophisticated data analytics skill sets to manage these very large and complicated forms of information. Employers place a premium on these business analytics skill sets and would include: Advanced Excel (power query & pivot) & macros; 2. Data visualization (Tableau, Power BI & python w/ seaborn & matplotlib); 3. Data mining/RapidMiner, machine learning & data science; 4. Python & Jupyter notebook (data analytics & statistical libraries such as pandas, numpy); 5. Relational data models (Excel data model); 6. Graphic & statistical libraries (Seaborn, Matplotlib, Pandas, & Plotly). See our Business Analytics minor at: wmich.edu/infosystems/academics/analytics However, I would recommend complimenting the above skill sets with bringing in some cloud-based software and technology that gets us beyond manually updating and coding giant colored Excel spreadsheets. For example, I have been collaborating with N-Alpha and they have a cloud platform called materialx that I am bringing into the classroom (n-alpha.com/solutions/decision-support/). It gets us away from manually updating spreadsheets. Further, these technology software companies tend to be very supportive in helping faculty and students as these students will eventually become the future business professionals that actually use the technology (win-win-win, right?). And the technology is out there! We will soon have some white papers from our WMU SCM program based on the following price analysis & strategic cost management research. Some of our alumni are already testing and / or implementing these cloud-based services that allows procurement organizations, finance, and all other organizations that are exposed to raw material pricing changes, to stay on top of market pricing from multiple sources and proactively assess its impact on future raw material purchases. These technologies are also now serving as the basis for addressing price indexing implementations (formulas, alerts, etc.). It can all be done automatically and updated daily, saving hours from manually updating spreadsheets. These tools are quick and easy to use to prepare for price negotiations with suppliers, and often returns its investment (which is minimal to begin with) rapidly. These technologies also allow organizations to replace multiple spreadsheets and email threads with one tool that tracks pricing, facilitates collaborative decisions, revisiting past decisions and what led to them, and capturing organizational knowledge. I have asked many of my former students what are the most prevalent technologies used in your supply chain and business role. The two most common answers are Excel spreadsheets and email. It is 2023 now and we need to move further along. You could make a strong case that using antiquated business tools was a major source of supply chain disruptions the last few years. My former students keep telling me they are the “Excel Spreadsheet” generation. Excel works and they have very advanced spreadsheet skills. They also tell me that it gives them a competitive advantage in the workplace (i.e., people depend on their monthly report outs per se and very important people read them). The older managers have very weak Excel skills and even the younger graduates coming in have to play catch up to the people that are in their 30s and 40s (that have very advanced Excel skills). My former students also feel very comfortable with Excel. Many of these spreadsheets are their own creation and they find it empowering. In general, it works, it works well, it gets the job done, they feel comfortable with this version of technology while most others do not feel comfortable with it, the technology itself is cheap, and it gives them job security. Some said it took years to build up these spreadsheets, and now they are up and running. However, as I teach my current students, there are alternatives rooted in technology that will allow you to do things better, faster, and cheaper. Final Thought In talking with a colleague, we both agreed that many hiring managers do not have a full understanding of the Artificial Intelligence (AI) skill sets associated with our graduating students. Our business students told us many times that their hiring managers valued only the traditional Excel capabilities (i.e., lookup functions, pivot tables, etc. - however, that is NOT AI). Managers also greatly overlook the opportunities from other analytical solutions (skill sets that our students have). This makes it a bit difficult to sell the analytical techniques taught in classes that go beyond our Advances Excel and Predictive Analytics courses. For example, our data mining class is essentially a machine learning class for business, which is the core of AI. The course is designed to solve the problems that Excel falls short on. Hopefully we do a better job of training our students to “sell” the AI skills and managers become more open to embracing the benefits (which might require a culture change). Embracing and trying new technologies requires leadership that is willing to try new things. Otherwise, we keep using spreadsheets and email to manage very large and complicated data sets.

[@simecurkovic]

Cost-type contracts: Cost Plus Percentage of Cost Illegal for government contracting due to its obvious disincentive to reduce costs. Cost Plus Fixed Fee Buyer pays all costs and a fixed fee. While the incentive to reduce costs is not as great as with incentive contracts, there is an incentive to reduce costs so profit margin is high. Cost Plus Award Fee Supplier gets fee as determined by the buyer - usually there is a minimum fee and a maximum fee (based on size of award pool) Cost without Fee Used with nonprofit organizations like universities Cost Sharing Used when buying firm and supplying firm can both benefit from development of product or technology. Time and materials Used in situations like repairs where extent of work is not known. How does this differ from cost plus percentage of cost? Letter Contracts A preliminary contractual authorization so that work can begin immediately. Should be converted to a definite contract as early as possible.

[@simecurkovic]

Join: simecurkovic.com I just created a website and it gives you access to hundreds of my blogs, job postings, hours of lecture videos, and class/research material. Also, there is a Q & A and contact section. You can contact me for any purpose any time and I will get back to you quickly. The subscription is only $25 for an entire year. You are under no obligation to join, but I think the investment would pay for itself. Also, even if you do not join, you can of course still reach out any time. I would be grateful if you considered joining. Free sample view of one blog (see Elon’s resume and get resume ideas): www.simecurkovic.com/2021/04/30/does-your-resume-make-it-obvious-that-you-know-how-to-solve-problems/ Please join at: www.simecurkovic.com/membership/ Thank you again! Sime

[@simecurkovic]

Delivery schedules: Definite Delivery-Type Contracts Quantities and timing are specified. Indefinite Delivery-Type Contracts: three types are... Definite quantity contracts Requirements contracts Indefinite Quantity Contracts Definite Quantity Contracts Quantity is known, delivery schedule provided later. Requirements Contracts Buyer agrees to purchase all of its (unspecified) requirements for materials or services for a specified time period from the supplier. Might specify a minimum quantity. Should specify that neither party can terminate as long as performance is satisfactory and buyer continues to require product. Indefinite Quantity Contracts Quantities and delivery dates are not specified, but high and low quantity limits may be specified.

[@simecurkovic]

Ready for a HW assignment that will sharpen your SCM Finance skills?... Students: See the one-page financial statement on ROI at: wmich.edu/sites/default/files/attachments/u56/2023/LectureROIHandoutPDF.pdf Let’s say you just started working for this company and you are a problem-solver that is obsessed with finding ways to do every part of your job better, faster, and cheaper. Over a six-month period, you work very aggressively to reduce your organization’s direct material purchases/costs by 5%. For example, you figured out a way to consolidate your purchases by reducing the number of suppliers you use. So, you are giving a fewer number of suppliers larger amounts of business and volumes. By the way, that is called supply base deproliferation and it usually results in lower prices from economies of scale for suppliers. Suppliers are very OK with lowering their prices if you give them higher volumes of business (suppliers reduce their costs that way and share the cost savings with you by charging you less per part). Question #1 (fill in the blanks): Here is the question: what impact does reducing your employer’s direct material (DM) costs by 5% have on its ROI (use the numbers on the attachment)? Note, if you reduce your DM costs by 5%, it also reduces your inventory value by 5% (in other words, it will also increase your asset turnover rate - so you have to recalculate profit margin and asset turnover rate). Such a cost reduction (5%) would increase profit margins from __% to __% and ROI from 10% to __%? This equals a __ percentage point increase improvement in return on investment for each 1 percentage reduction in material costs…Hint, (new ROI - old ROI)/5. My thoughts…The 5% reduction used in this example is certainly a realistic expectation if the firm hires a high performer and if the SCM operation in this firm is not particularly progressive/strategic or well run. In a well-managed supply chain organization, a more realistic target might be a 2-3% cost reduction. However, this new post covid inflationary environment has made trying to cut costs VERY difficult. Remember, I said earlier that a dollar saved in SCM is the same as a dollar of new profit. However, an additional dollar of income from sales is NOT a new dollar of profit. Applicable expenses (your costs) must be deducted from the sales dollar to determine the remaining profit. Question #2 (fill in the blanks): Back to the financial statement…A 5% reduction in direct material costs produces a profit increase of $____? If the same profit increase had to be increased by sales, what sales increase would you need? At the existing 8% profit margin, the following calculation provides the answer: Profit increase (plug in the number from the blank above in Question #2) = New sales x .08 New sales = $______ This represents a sales increase of: ($_____/$5,000,000) x 100 = ____% So, for comparative purposes, in this case study, the same absolute profit improvement can be achieved by reducing material costs by 5% or by increasing sales ___%, approximately a ratio of ___ to 1. My thoughts: If the profit margin were greater than 8%, the ratio would be somewhat less; if material costs, as a percentage of sales, were higher, the ratio would be somewhat greater. Look, most progressive/strategic (long term thinking) managers strive to improve the firm’s profit position by both increasing sales revenue (if possible in global saturated hyper competitive markets) and by reducing the various elements of operating costs (which is always a viable option since most costs come from the supply chain!). Sales and Marketing majors: Yes, selling more stuff to make more money is great, especially stuff with wide margins, but cutting costs can be a way more viable and effective option. In practice, the cost of materials can easily vary as much as 10%, depending on the skill sets of your supply chain management organization. This is why typically there are more opportunities available for reducing purchasing costs 5% per se than there are for increasing sales volume by 20-30%. Also, additional profit from purchasing savings can normally be made without increases in expense. If an increase is required, it is usually for hiring more Broncos which pays for itself because they are trained to be problem solvers that do things better, faster, and cheaper. On the other hand, additional profit from increased sales volume normally entails increases in both expenses and increases in risk of capital. Additional expenses are incurred for such things as expanded sales and/or workforce, expanded advertising budget, additional plant capacity, overtime production pay, or some combination of these factors. Additional profit from sales, therefore, entails increased capital risk and increased managerial effort. Additional profit from purchasing/supply chain management normally only entails increased managerial effort, plus an occasional modest increase in management expense (hiring Broncos). What’s wrong with hiring a high performer for $70K/year ($100K/year with benefits and bonuses) if they save you hundreds of thousands of dollars annually (maybe millions in savings). Question #3 (start over with the case study): Go back to the original financial statement on ROI. Let’s say you start working for this company and you tell the owner of the company that you need around six months to reduce direct material costs by 5%. You tell the owner that it will make the ROI go up by X% (your answer to question #1 above). The owner says that is great but he/she does not have that much time and wants instant cost savings results. This company is privately owned and family run. That means they are not publicly traded (you cannot buy stock in the company). The hourly workforce in the factory is also not represented by a union. So, the owner said he/she is going to cut direct labor costs by 5%. How much will doing so improve the owner’s ROI? How effective do you think that is and what might be the consequences? What would you have done if this was your company and you were dealing with low, thin, and tight margins? My notes (I keep giving you my notes): How can Supply Chain Management (SCM) increase company profit? For the typical firm, SCM is responsible for spending well over half of every dollar the firm receives as income from sales. More dollars are spent for purchases of materials and services than all other expenses combined, including wages, taxes, dividends, and depreciation. The fact that SCM is responsible for spending well over half of most companies’ total dollars highlights the profit-making possibilities of SCM. Every dollar saved by SCM is equivalent to a new dollar of profit. Note, almost all of my students that go into SCM, are immediately bonus eligible. That is management’s way of saying Broncos will get extra money added to their salary if they help the company save money (saving money is the same as making money). Top management’s performance is frequently evaluated on the basis of the rate of return management is able to earn on the total capital invested in the business. A firm’s profit margin reflects management’s ability to control costs relative to revenue. The asset turnover rate reflects management’s ability to effectively utilize the firm’s productive assets. Hence, a firm’s management (SCM) can improve ROI (and managerial performance) in three ways: 1) by reducing costs relative to sales; 2) by getting more sales from available assets (or increasing sales proportionately faster than investment); or 3) by some combination of the two. As seen from the handout, SCM can contribute to ROI by both increasing the profit margins and/or increasing the asset turnover rate. That’s it! Email me if you want the answer key. Thank you. Sime

[@simecurkovic]

Follow my Blogs at: medium.com/@sime.curkovic

[@simecurkovic]

Here it comes: www.supplychaindive.com/news/supplier-disclosure-rule-financial-accounting-standards/603044/ Supplier financing disclosure would be required under proposed accounting rule The trade payable arrangements, which help companies manage cash, typically aren’t publicly reported even though they pose a liquidity risk.

[@simecurkovic]

Great read: www.ismworld.org/supply-management-news-and-reports/news-publications/inside-supply-management-magazine/blog/2021/2021-01/the-monthly-metric-cash-flow-from-operations/ The Monthly Metric: Cash Flow From Operations By Dan Zeiger The speed of change and the severity of challenges facing supply management organizations show no signs of abating, especially as a once-in-a-century pandemic remains uncontrolled. So, it makes sense that measurements of organizational procurement and supply chain performance should be reevaluated to reflect changing priorities and tailor to company-wide goals. That is the focus of Metrics of the Future: Moving Supply Management Beyond Cost Reduction, a report released in September by CAPS Research, the Tempe, Arizona-based program in strategic partnership with Arizona State University and Institute for Supply Management® (ISM®). This space covered an accompanying webinar and suggested that analytics detailed in the report would be the subject of future editions of The Monthly Metric. That process begins this month, appropriately, with a measurement that has increased in importance at many procurement organizations, due in part by the coronavirus (COVID-19): cash flow from operations (CFFO). As the pandemic restricted businesses and slowed supply chains, cash flow became a critical issue for many companies - and especially suppliers, says Lisa M. Ellram, Ph.D., MBA, C.P.M., Rees Distinguished professor of supply chain management at Miami University in Oxford, Ohio. Ellram, one of the CAPS Research report’s authors, says that, unlike during the Great Recession of 2008-09, companies generally did not extend payment terms, a trend confirmed by surveys from ISM Research & Analytics. “Many companies actually paid their suppliers faster - it was a matter of survival because their suppliers needed the cash flow more,” Ellram says. “So, it started to get attention and become a topic of conversation, and it’s continued to evolve since then. And part of that discussion is the role that procurement plays, and how much money is tied up in accounts payable to suppliers.” While the report focuses on measuring and improving a procurement organization’s performance beyond cost savings, that remains a high priority for companies. Cash flow is the lifeblood of a business, Ellram says, and payment terms are a big driver of procurement’s contribution to it, though it’s not the only one. “It’s a metric that finance loves,” she says. “It helps get more attention on procurement and the contributions it makes. But it’s important to look at this metric in a holistic way, so the impact of supply chain financing on suppliers is considered. Because it can affect those relationships.” Meaning of the Metric The formula for calculating cash flow from operations can vary by company, but Ellram says there is consensus on where procurement organizations look first to increase it: by adjusting payment terms with suppliers. The most common adjustments involve (1) extension of payment terms, (2) discounts, (3) dynamic discounts, in which a supplier can opt to be paid sooner in exchange for a lower price, and (4) supply chain financing, facilitated by a bank or third party. While adjusting payment terms can provide cash-flow rewards on a financial statement, Ellram says, there can be risk to supplier relationships. She cites a decision by Anheuser-Busch InBev in January 2009 - the heart of the Great Recession - to extend payment terms from 30 days to 120 days with little warning for suppliers. That created US$824 million in working capital for the St. Louis-based brewing and beverage behemoth, but its suppliers lost that capital, and most incurred substantial financing costs. A global company like Anheuser-Busch InBev can risk alienating a key supplier; most smaller organizations do not have that luxury. In her research, Ellram found a company that extended payment terms but in later contracts with the supplier, was charged for services previously provided for free. “It will look good for the bottom line, but how will it affect other aspects of performance?” Ellram says. “I’ve talked to plenty of suppliers, and they’ll tell you when things get tight, they won’t always work harder for companies that (adjust payment terms). So, there can be competing issues at work.” Inventory management is another vehicle to free up cash flow, usually through stock reductions or a consignment agreement with a supplier. Though CFFO measurements can be broken down by specific payment-terms or inventory-management process, Ellram says most companies prefer to capture all aspects of cash flow. Synergy With Finance is Critical Ellram says that CFFO can be a “dysfunctional” metric when the allure of increased short-term cash flow results in companies paying more in the end. “In many cases, it’s not free money,” she says. If a supplier is aware that payment terms could and will change, it will work that into the price. This is especially prevalent, she adds, in dynamic discounting, in which a buyer pays the full invoice amount at the end of a payment term and a discounted price if the supplier opts to be paid early. “Suppliers will make an (overall price) calculation based on what makes a dynamic discount worthwhile for them,” Ellram says. “If they didn’t, they wouldn’t stay in business. I could argue that with people in finance until I’m blue in the face.” That makes a holistic view of CFFO important, she adds, meaning that the procurement and finance departments must be aligned on cash-flow objectives. “It’s critical for procurement to be able to explain why the company should offer dynamic discounting and when it’s beneficial to pay a supplier more quickly,” Ellram says. “I’ve found that in a lot of cases, procurement extended payment terms because it was told to, and there was no discussion about the broader implications of it.” The opportunity for supply management practitioners to influence organizational cash-flow decisions has likely never been higher, due in part to a pandemic that has raised awareness of the function’s importance at many companies. “It’s important for procurement to work closely with finance to protect those supplier relationships, and procurement is in a good position to do that,” Ellram says. “That will not only improve relationships with finance and suppliers. And when finance understands that procurement is looking at cash flow in such a strategic way, that will only elevate the position of procurement in the company.”

[@simecurkovic]

“Over time, more companies are choosing to draw from their SCM team when they are looking to fill the CFO role. Therefore, a background in SCM is the perfect preparation for a CFO career path-& possibly even the job of CEO.” CFO to CFO: Finance and Supply Chain Management: lnkd.in/gsCibmeT I really push my supply chain students to learn CFO talk. College Accounting to me feels like Supply Chain Finance. The Accounting Minor for our SCM Majors seems like a great fit & has grown on me. Long term in your careers, understanding SCM Finance will be critical. The worlds of Finance & SCM have collided. Your opportunities are endless if you learn how to talk to the CFO…lnkd.in/eJnVHrsM My discussion on why I maybe recommend a Finance graduate degree for SCM students: lnkd.in/ewNBvPf and lnkd.in/ewA2yq7. The good news is that industry will pay more for more strategic skills (i.e., Finance)… Long term in your careers, understanding SCM Finance will be critical. At the end of the day, SCM executives are evaluated on generating shareholder value (bottom line financial kind of stuff, of which has gotten very creative and complicated). Also, more and more SCM VP’s (C-suite types) are reporting directly to the CFO of the company (because SCM is that important to the bottom line). Students often ask me, if they go on to get a graduate degree, what should they get it in. I say get a graduate degree in something you are weak in but will matter in your career (especially long term). You will hit a ceiling professionally if you do not understand SCM Finance. So, I would give that serious consideration in your graduate education. The Monthly Metric: Cash Flow From Operations A great read: lnkd.in/erfZdWk Do you know what this means? 2/10 net 30 (now employers want Supply Chain Managers to be Financiers!!??) lnkd.in/e2TztjY Here it comes: lnkd.in/eNdih2e2 Supplier financing disclosure would be required under proposed accounting rule. The trade payable arrangements, which help companies manage cash, typically aren’t publicly reported even though they pose a liquidity risk. Creative Payment Terms & Buyer-Supplier Financing Industry often sees suppliers complaining about cash-flow issues. But the supplier havoc, for the most part, does not need to happen. The solution might be as simple as robust payment terms & creative buyer-supplier financing. Large OEM buying orgs often try to negotiate not paying suppliers for as long 90-180 days after they actually receive material &/or services. As a function of being the customer & often larger, buying orgs often have this kind of leverage. Many large OEMs currently have cash on the sidelines & appear to be very liquid. Sitting on that cash for several months might not be necessary all the while suppliers in...for rest of story, see... lnkd.in/eJnVHrsM #supplychain #finance #cfo

[@simecurkovic]

“Half our member respondents (50%) said they would take a “Data Analytics” class to continue their growth as supply chain leaders. Second on the list was taking a “Finance” class (33%).” lnkd.in/eEEVhWEX. “Knowledge workers were the hardest positions to fill. With the explosion of data in supply chains and the richness of that data, many companies are starting to understand the value of that information. This is causing tremendous demand for people to analyze the data, and companies aren’t able to fill those roles.” lnkd.in/eGp6xXJG. Do not be a victim of technology. You could make the case that every Business major should minor in Data Analytics. These skill sets would perhaps include: lnkd.in/dQABdsXc Employers place a premium on - 1. Advanced Excel (power query & pivot) & macros; 2. Data visualization (Tableau, Power BI & python w/ seaborn & matplotlib); 3. Data mining/RapidMiner, machine learning & data science; 4. Python & Jupyter notebook (data analytics & statistical libraries such as pandas, numpy); 5. Relational data models (Excel data model); 6. Graphic & statistical libraries (Seaborn, Matplotlib, Pandas, & Plotly). lnkd.in/dtqV-HqE. Note, (I encourage my SCM students to get an Accounting minor): College Accounting to me feels like Supply Chain Finance. The Accounting Minor for SCM Majors seems like a great fit & has grown on me. Long term in your careers, understanding SCM Finance will be critical. lnkd.in/gBPZJsVq lnkd.in/guejd-vi. Two classes in our Accounting minor, good fit for SCM types, right?: 3220: Cost & Managerial Accounting and ACTY 4220: Cost Mgmt & Analytics. FYI, we make EVERY business major take FIN 3200 - Business Finance Decisions. More: lnkd.in/gtUMdsiT. hashtag#supplychain hashtag#finance hashtag#bigdata hashtag#cfo hashtag#dataanalytics

[@simecurkovic]

Surprised by raw material price increases? At the WMU ISM supply chain management program we teach our students to track commodity forward price curves. Here's a quick video of Net Alpha's cloud based materialx Decision Support service that is being made available to our students in class as they prepare to become future SCM managers. Some of our alumni have experienced this new service and love it. It looks at raw material market data from multiple sources, visualizes & analyzes historical pricing scenarios, & simulates planned purchases & what-if scenarios against forward price curves. Our grads will be ready. Hey Supply Chain Management professionals, here's a one min video showing how easy it is to track changes in forward price curves of commodities and seeing how they may impact your future purchasing decisions. All done automatically and updated daily. Customers that have subscribed to our new materialx Decision Support service love it. www.linkedin.com/posts/sime-curkovic-61617a115_materialx-decision-support-accessing-and-activity-6916784411074080768-qFLD? www.prleap.com/pr/283694/net-alpha-announces-materialx-decision-support-a-cloud-based-service-for-supply-chain-management-organizations-that-enables Birmingham, MI - Net Alpha Financial Systems, LLC, the technology company developing solutions that are transforming the way manufacturers, producers, distributors, and brokers transact in raw materials, today announced materialx® Decision Support, a new cloud-based subscription service that enables supply chain management organizations to make better raw material purchase decisions. materialx Decision Support is designed to make pricing data for raw materials more accessible and usable to procurement and other supply chain management professionals. The service combines access to a rich set of market data sources with powerful analytical tools, data visualization, collaboration tools, simulation, and tracking capabilities, enabling more informed and collaborative decision-making than previously possible. With materialx Decision Support, companies can unlock new levels of organizational transparency to the impact of raw material pricing on their purchasing plans, easily involve all stakeholders in purchase decisions, deeply understand the potential economic outcomes of those decisions, and continuously improve decision-making processes by analyzing the impact of past decisions utilizing the data that was available at the time such decisions were made. "We've listened to dozens of procurement teams of various sizes in different industries that time and time again communicated similar challenges, especially following the last two years of the COVID-19 pandemic," said Eyal Mizrahi, CEO and Co-Founder of Net Alpha Financial Systems. "Procurement teams are often asked when they knew about a substantial price change for a critical raw material, how they reacted to it, and how the change was communicated internally. We built materialx Decision Support to enable answering such questions. Procurement teams that have seen our solution have recognized immediately how it can transform their current processes which usually involve partial data, many spreadsheets, and email threads. The new service can also allow them to capture and harness organizational knowledge in a way that wasn't previously possible." materialx Decision Support includes information feeds from Chicago Board of Trade (CBOT), Chicago Mercantile Exchange (CME), Commodity Exchange (COMEX), London Metals Exchange (LME), and New York Mercantile Exchange (NYMEX), with additional data sources to be offered in the immediate future, all of which can be evaluated, analyzed, modeled, and tracked through a single intuitive interface. Like all materialx platform solutions, it is a cloud-based service, so there is no software for customers to build, deploy, or manage, allowing customers to onboard within minutes. For more information on materialx Decision Support, please visit: n-alpha.com/solutions/decision-support About Net Alpha Financial Systems and materialx Net Alpha has developed a suite of software tools that help buyers and sellers of raw materials realize digital transformation with minimal investment. The company's materialx platform provides a suite of cloud-based services that transform how raw materials with variable and negotiated prices are evaluated, transacted, and settled. The services include materialx Decision Support for procurement and supply chain management organizations that wish to maximize the strategic value of raw material pricing data and collaborative decisions, as well as materialx Sales Engine, a transactional platform designed for raw material producers, distributors, and brokers that look to grow revenues by deploying a competitive online presence. The materialx platform-as-a-service is a low cost, rapidly deployable alternative to developing and managing expensive in-house systems. The platform was purpose-built to meet the information and transaction needs of buyers and sellers of raw materials through advanced evaluation and analysis, collaboration, negotiation, execution, and tracking tools. For more information, or to arrange a demonstration of a materialx solution, please visit www.n-alpha.com

[@simecurkovic]

CFO to CFO: Finance and SCM...lnkd.in/gFv3gqgn. Note, (I encourage my SCM students to get an Accounting minor): College Accounting to me feels like Supply Chain Finance. The Accounting Minor for SCM Majors seems like a great fit & has grown on me. Long term in your careers, understanding SCM Finance will be critical…lnkd.in/gBPZJsVq. lnkd.in/guejd-vi. Two classes in our Accounting minor, good fit for SCM types, right?: 3220: Cost & Managerial Accounting and ACTY 4220: Cost Mgmt & Analytics. FYI, we make EVERY business major take FIN 3200 - Business Finance Decisions. More: lnkd.in/gtUMdsiT. #supplychain #ceo #csuite #cfo

[@simecurkovic]

120 days?... aviationweek.com/aerospace/manufacturing-supply-chain/opinion-reduce-aerospace-oem-supplier-payment-terms A student asked me if these payment terms were an issue for smaller sub-tier suppliers (young students can be very observant). “20 years ago, when a supplier delivered a finished product to a commercial aerospace customer, it generally was paid w/i 30 days. In the early 2010s, major OEMs increased terms to 60 days. By the late 2010s, terms reached 90 days, & today the standard is 120 days. (Great read by Kevin Michaels)” I had another student ask me if it was unethical to pay someone 120 days later. Hmm. ___ Sidenote, I encourage my Supply Chain majors to minor in Accounting (rather than Finance). Agree? College Accounting (i.e., Cost & Managerial) to me feels like Supply Chain Finance. The Accounting Minor for our SCM majors seems like a great fit. Long term in their careers, understanding SCM Finance will be critical. The worlds of Finance & SCM have collided. Your opportunities are endless if you learn how to talk to the CFO…My thoughts: lnkd.in/gtUMdsiT lnkd.in/eJnVHrsM My discussion on why I recommend a Finance graduate degree for SCM students: lnkd.in/ewNBvPf and lnkd.in/ewA2yq7. Long term in your careers, understanding SCM Finance will be critical. At the end of the day, SCM executives are evaluated on generating shareholder value (bottom line financial kind of stuff, of which has gotten very creative and complicated). Also, more and more SCM VP’s (C-suite types) are reporting directly to the CFO of the company (because SCM is that important to the bottom line). Students often ask me, if they go on to get a graduate degree, what should they get it in. I say get a graduate degree in something you are weak in but will matter in your career (especially long term). You will hit a ceiling professionally if you do not understand SCM Finance. So, I would give that serious consideration in your graduate education. The Monthly Metric: Cash Flow From Operations: lnkd.in/erfZdWk Do you know what this means? 2/10 net 30 (now employers want Supply Chain Managers to be Financiers!!??) lnkd.in/e2TztjY Here it comes: lnkd.in/eNdih2e2. Supplier financing disclosure would be required under proposed accounting rule. Creative Payment Terms & Buyer-Supplier Financing: lnkd.in/eJnVHrsM. A great book read for CFO types that want to understand SCM types (or the other way around?): "Supply Chain Metrics that Matter" CFO to CFO: Finance & SCM...lnkd.in/gFv3gqgn. I could not help myself & asked chatGPT- Why do so many c-suite executives have graduate degrees in Finance? See: lnkd.in/g3PDJwSG. I had a student ask: Shouldn’t I major in Finance or Accounting if I want to become a CEO? I said...lnkd.in/gT-6EjjB. #supplychain #finance #cfo

[@simecurkovic]

www.simecurkovic.com/wp-content/uploads/2024/05/1WithSCMRCoverCurkovicPriceRIskSCMR2024a.pdf It might be time for price risk sharing in these buyer-supplier relationships: lnkd.in/eRm5Cdxw. Also, get ready for another supply chain disruptor: no succession planning…Do not forget where most of the supply chain is: Small Businesses. From HBR article: “The U.S. has an opportunity to do more than just get its supply chains back on track. It can prevent future disruptions by fundamentally improving how they operate...Supply chain companies - defined as those that sell their output primarily business-to-business (B2B) - represent about 44% of U.S. private employment…Companies with fewer than 500 employees make up 98% of supply chain firms and over 20% of U.S. private employment.” Small Businesses Play a Big Role in Supply-Chain Resilience: lnkd.in/eY_zBxqz. Biden will convene his new supply chain council and announce 30 steps to strengthen U.S. logistics: lnkd.in/gKbkNhpE. I hope the WH council has tons of industry representation, including small and family owned businesses. Get ready for another supply chain disruptor: no succession planning. My thoughts: lnkd.in/grPgwwPV. lnkd.in/gxWRefNu Some Practices that Can Make Your Commodity Related Supply Chain Job More Fun and Rewarding ($$$): lnkd.in/gwPfkdkK. The WMU Supply Chain Program has been talking to many of our alumni and doing research in the field of commodity pricing and how such pricing is used in internal business processes. Here are some findings: Working with commodity pricing data doesn't have to be a drag. See the below presentation with some recommendations and insights for professionals in the space. For a copy of our initial results on...Managing inflationary price risks in supplier-buyer contracts through indexing: Operational challenges and solutions - lnkd.in/eUfxt_P9 I look forward to any other suggestions and comments. Join the WMU Supply Chain Program to gain the edge in your SCM career. Managing inflationary price risks in supplier-buyer contracts through indexing: Operational challenges and solutions…Work smart and be effective. How? To work smartly and effectively, leverage technology to streamline business processes and automate repetitive tasks. lnkd.in/eigvjJnr Use cloud-based tools for storage, collaboration, and processing, which offer seamless integration and remote access, maintaining productivity from any location. Begin by identifying key indices and data points for your price indexing contract, then set up automated tools to manage this process. AI language models can also automate the reading of proprietary data. Various tools can automate data collection, perform calculations based on schedules, add time stamps, and share results with stakeholders. These tools often include data visualization, simplifying complex data into actionable insights. By adopting such automation strategies, you enhance efficiency and can focus on strategic tasks. For example, the N-Alpha’s MaterialX platform used in WMU’s Supply Chain Management program connects to multiple data sources and automates formula calculations and updates, eliminating the need for spreadsheets to calculate the “quarterly price per part.” lnkd.in/eigvjJnr We are talking about this in class right now (along w/ Negotiation): “OEMs had an avg profit margin of 8.1% in the 1st quarter, more than 2% higher than auto suppliers…while suppliers stabilized between 5-6%...The challenge for suppliers is that they’re suffering from higher material & energy costs, which they can only partially pass on to OEMs.” lnkd.in/gY__BVRs Almost 1/2 of U.S. employees do not feel confident in their negotiation skills: lnkd.in/eRM-mJ6J Also: Toyota, Honda and GM Best Automakers to Work With, Suppliers Say: lnkd.in/gkU5R3qW Notice: “Cost recovery mechanisms should not be judged in isolation. Inflation-driven cost increases & adjustments need to be addressed in a timely manner that is consistent, tested, & institutionalized & supported by OEM & supplier cost reduction efforts.” 70% of new supplier agreements contain inflation driven economic adjustment clauses with the use of indices being the most common. lnkd.in/g_ByzrNU. It might be time for price risk sharing in buyer-supplier relationships. lnkd.in/gwPfkdkK I have asked a lot of SCM managers how they “prepare” to negotiate price increase requests from their suppliers. In particular, I was curious about how and where they get their data from (i.e., CME, COMEX, etc.). Many said their suppliers provide that information. I am not convinced that using data from your suppliers is a form of “Preparation” for negotiation. What are buyers to do? Procurement orgs need processes & “tools” to mitigate & negotiate on these requests in a strategic, data-driven manner (& we/I need to do a better job of teaching it). Some of our alumni are already testing and / or implementing automated business processes based on such tools, serving as the basis for addressing price indexing implementations (formulas, economic adjustments, etc.) & we're following these implementations from an academic perspective (so that we can teach it). lnkd.in/gNrUtNU5

[@simecurkovic]

This great student got this great job. He majored in “Supply Chain” & minored in “Business Data Analytics” & “Accounting”. Note, college accounting to me is SCM Finance (a hugely important skill set for your long term advancement opportunities lnkd.in/e2TztjY). Supply Chain Data Scientist (>171,000 jobs on LinkedIn - that's all). Supply Chain Finance (>25,000 jobs on LinkedIn - that's all). __ Leveraging learning for supply chain success (lnkd.in/dBpmWj2j) Senior Brian Guadarrama has found a strong link between WMU’s integrated supply management program and incredible career opportunities. Through his classes, team projects and other hands-on experiences, he has discovered a passion for working with suppliers and customers to solve complex problems in the supply chain field. Brian, who also minors in business analytics and accounting, is ready to bring his ideas and expertise to the field, all while striving to meet customer satisfaction in an evolving industry. He has already landed his ideal job, and after graduating in December 2021, he will begin his career with Steelcase as a supplier quality engineer. “I am especially eager to use my knowledge in data modeling to provide fast solutions,” Brian says. “The variables are always changing. What was right and works today will not necessarily work tomorrow. This daily challenge of meeting customer expectations in a fast-paced environment is what I am most excited about.” Brian has been able to build a robust professional portfolio at Western. The Business Bronco has been an active member in the Supply Chain Management Association and Phi Sigma Pi national honor society and has participated in many events through the Zhang Career Center. In fact, Brian’s favorite experience at WMU Haworth has been the career exploration process, including practice interviews, resume critiquing and career fairs. A valuable part of those experiences was hearing feedback from professionals and discovering roles that would be a great fit for his goals and interests. “I have spoken with the top leadership at Steelcase, and they are moving into a unique space of data modeling to help with decision making,” Brian explains. “During my business analytics courses, we covered topics like data modeling and mining. I am excited to see where I can leverage these skills from the classroom to my career.” Another experience that stands out to Brian is an A3 project that he worked on in Dr. Sime Curkovic’s class. Used by many supply chain professionals, A3 is a continuous-improvement process that applies a strict, simple procedure to problem solving. The assignment allowed him to collaborate on real ideas, plans and goals with an existing company, which was a bonus on his resume for employers. “When I was doing interviews, this A3 course project I worked on was gold. Employers love to see you demonstrate your skills,” Brian says. Brian has some words of advice: lnkd.in/dBpmWj2j

[@simecurkovic]

Is a law degree a good fit for my supply chain students (any advice from lawyers and/or SCM pros would be appreciated)? FYI: 50% of the World’s Lawyers are American (we are 4% of the global population)! Also: U.S. Tort Costs as a % of GDP: 2.40% (the avg for industrialized nations is .8%) POs & Advanced Contract Mgmt (now they expect you to be lawyers?!) Does a law degree make sense in Supply Chain? For a copy of my version of the basic terms/conditions in a SCM P.O., see: lnkd.in/eE25asK A contract between a buyer and supplier is often referred to as a Purchase Order (PO). The terms & conditions on that PO are often referred to as the Boilerplate. Most employers would like you to understand the basic terms & conditions associated with a PO. It is generally accepted that SCM types such as yourself lack legal skills & that is why most SCM organizations have to go to a corporate lawyer when tort (liability) issues arise. As you think about your graduate education goals, it might be worthwhile to consider pursuing a Juris Doctorate (J.D., a law degree). Very few SCM professionals have a legal background, let alone a law degree. I always say, any time you can bring a skill set into the workplace where demand exceeds supply, then that is going to command a premium in terms of pay & job security. Getting into Law School requires that you take the LSAT & most law programs are 3 years in length. I personally think you would be very well served if you graduated with a supply chain degree and then eventually obtained a JD with a concentration in contract management per se. As supply chain students, we require that our students take LAW 4860 (Adv Contract MGMT) so that they can learn the basic terms & conditions associated with buyer-supplier contracts. The instructors are actual lawyers & they customize the class for SCM students. LAW 4860 - Marketing And Sales Law The course examines the law as it applies to the sale of goods, warranties affecting such sales and the methods of financing those sales. Legal obligations imposed upon and risks assumed by the seller are emphasized. Does the law part of business and/or SCM appeal to you? Remember, a huge part of your career will be creating long-term strategic relationships with suppliers (i.e., the automotive OEMs teaming up with smaller technology suppliers to bring autonomous vehicles to the market). Just imagine the legal terms and conditions of those contracts. For example, how do you establish joint ownership of all design & mfg capabilities. That is a major reason why Negotiation is also the fastest growing class in our program: lnkd.in/eCwzQ5h I consider this to be the basic terms and conditions associated with most Purchase Orders. It lists all the most common terms and conditions typically associated with most industrial buying organizations and their suppliers. lnkd.in/ekhu3YHA - Yes, WMU HCoB has one of the best business colleges in the world

[@simecurkovic]

Another awesome post Ms. Labes, thank you. Just curious as to where people think the supply chain function should sit within this chart, especially in regards to the CFO. Assume mfg orgs where direct material purchases (from their supply chain) are 50-80% of each dollar in sales revenue. www.linkedin.com/posts/sime-curkovic-61617a115_entrepreneur-finance-business-activity-7038161272391036928-VZap? FYI, per chatGPT: On avg, what % of each mfg sales dollar is in direct material costs? The % of each mfg sales dollar that is in direct material costs varies depending on the industry & the product being manufactured. However, a commonly used benchmark is the Cost of Goods Sold (COGS) metric, which includes direct material costs, direct labor costs, & overhead expenses associated w/ production. According to the National Association of Manufacturers, the avg COGS as a % of sales for U.S. manufacturers was 64.7% in 2020. However, this % can vary sig depending on the industry, w/ some industries such as food/bev having a higher % of direct material costs, while others such as software/technology having a lower %. In summary, while it is difficult to determine an exact % for direct material costs as it varies across industries & products, a common benchmark is the COGS metric, which is typically around 65% of sales for U.S. manufacturers. __ Remember, ROI = profit margin * asset turnover rate (ATR). ATR = sales/total assets total assets = current assets + fixed assets current assets = inventory + accounts receivable + cash. I keep telling my students if they can widen margins (i.e., reduce direct material costs since that is where most of your costs come from) and/or increase ATR, then ROI will go up. So, if you can reduce your total assets without changing sales and/or increasing sales, then ATR goes up. For example, reduce your inventory and your ATR will go up and ROI will go up. If you can do more with less, then your ATR will go up. Arguably (in mfg orgs), no other major/function (SCM) has a greater impact on what goes into the ROI calculation. That is why SCM graduates will likely be immediately bonus eligible and their highest ranking functional area (SCM) leader will have a VP in front of their name. WHAT IS THE FORMULA FOR ROI? Return on Investment equals Profit margin * asset turnover rate. WHAT IS THE FORMULA FOR PROFIT MARGIN? (Sales - cost of sales)/Sales or Net Income/Sales Keep this simple, take your company’s total annual sales revenue and subtract your costs (DM, DL, & OH). Take that number and divide it by your total annual sales revenue. So, how do you widen margins? Cut costs. Where do most of your costs come from? Direct material purchases. This is what they are majoring in. Why do you want to widen margins? To increase ROI (Return on Investment). ROI is PM multiplied by Asset Turnover Rate (ATR). What is ATR? Doing more with less (i.e., reducing inventory, getting customers to pay sooner, buying less expensive stuff…OUTSOURCING?). Details: lnkd.in/e9j33EQ #outsourcing #supplychain #cfo

[@simecurkovic]

Great post..., The CFO Checklist,You just started as a new CFO? www.linkedin.com/posts/bouchernicolas_the-cfo-checklist-you-just-started-as-a-activity-7005123334635986944-SdfA? Here are 20 things you need to do to be a successful CFO: 1. Establish a working relationship with the board of directors 2. Develop a strategic plan for the next 3-5 years 3. Assess the current financial position of the company 4. Evaluate existing financial systems and processes 5. Identify areas for cost savings and revenue growth 6. Develop a comprehensive budget for the upcoming year 7. Review short-term and long-term financial goals 8. Establish financial policies and procedures 9. Review the company’s banking relationships 10. Develop a cash flow management plan 11. Develop a capital expenditure plan 12. Review current investments and make recommendations 13. Evaluate current tax strategies and make recommendations 14. Develop a risk management strategy 15. Establish internal controls to ensure compliance with applicable laws and regulations 16. Develop a financial reporting system 17. Establish a system to track key performance indicators 18. Evaluate current contracts and make recommendations 19. Develop a strategy for debt management 20. Review existing compensation plans and make recommendations 👉What esle would you add?

[@simecurkovic]

Data Analytics + Finance = Strong SCM Skill Sets. talkinglogistics.com/2023/11/06/back-to-school-classes-supply-chain-leaders-should-take/ Back To School: Classes Supply Chain Leaders Should Take “Half our member respondents (50%) said they would take a “Data Analytics” class to continue their growth as supply chain leaders. Second on the list was taking a “Finance” class (33%).” lnkd.in/eEEVhWEX. “Knowledge workers were the hardest positions to fill. With the explosion of data in supply chains and the richness of that data, many companies are starting to understand the value of that information. This is causing tremendous demand for people to analyze the data, and companies aren’t able to fill those roles.” lnkd.in/eGp6xXJG. Do not be a victim of technology. You could make the case that every Business major should minor in Data Analytics. These skill sets would perhaps include: lnkd.in/dQABdsXc Employers place a premium on - 1. Advanced Excel (power query & pivot) & macros; 2. Data visualization (Tableau, Power BI & python w/ seaborn & matplotlib); 3. Data mining/RapidMiner, machine learning & data science; 4. Python & Jupyter notebook (data analytics & statistical libraries such as pandas, numpy); 5. Relational data models (Excel data model); 6. Graphic & statistical libraries (Seaborn, Matplotlib, Pandas, & Plotly). lnkd.in/dtqV-HqE. Note, (I encourage my SCM students to get an Accounting minor): College Accounting to me feels like Supply Chain Finance. The Accounting Minor for SCM Majors seems like a great fit & has grown on me. Long term in your careers, understanding SCM Finance will be critical. lnkd.in/gBPZJsVq lnkd.in/guejd-vi. Two classes in our Accounting minor, good fit for SCM types, right?: 3220: Cost & Managerial Accounting and ACTY 4220: Cost Mgmt & Analytics. FYI, we make EVERY business major take FIN 3200 - Business Finance Decisions. More: lnkd.in/gtUMdsiT.

[@simecurkovic]

I could not help myself & asked chatGPT- Why do so many c-suite executives have graduate degrees in Finance? Answer: see comments. Join faculty & program leaders to learn about the WMU M.S. in Finance program. Various info sessions are offered in a HyFlex format. You can register to attend virtually on Zoom or in person in the Greenleaf Trust Trading Room (2145 Schneider Hall). See options at: lnkd.in/gffH3_dK. FYI: Michigan’s legislation requires that all high school students take a "HALF" credit course in personal finance before they graduate. lnkd.in/gVSmSSUg Also, we make every business major take FIN 3200 (& I think every business major should learn how to talk to a CFO): FIN 3200 - Business Finance Decisions Presents a basis for understanding the financial management function of the business enterprise. Includes experiential learning so students gain an understanding of the financial decisions req'd in planning & controlling profitability & liquidity of assets, planning capital structure and cost of capital, & utilizing financial instruments & institutions for capital raising. But... Charlie Munger: 'Every time you hear 'EBITDA' substitute it w/ 'bull**** earnings''. Every business manager w/ advancement aspirations should watch this & teach themselves to understand it (it can be self-taught). I will be walking my students through it. lnkd.in/gU4VZGyE Only (sarcasm) 26K unfilled SCM Finance jobs on LinkedIn. Earn more with a WMU MS in Finance in one year. lnkd.in/gNMBtB9B Just in case you missed this great 2021 read on Supply Chain Management (from Bloomberg): lnkd.in/gfd2NFQR “Forget Finance. SCM Is the Pandemic Era’s Must-Have MBA Degree”. - I kind of disagree as I think SCM Finance is VERY important (just ask CFOs). College Accounting to me feels like Supply Chain Finance. The Accounting Minor for SCM Majors seems like a great fit & has grown on me. Long term in your careers, understanding SCM Finance will be critical. The worlds of Finance & SCM have collided. Your opportunities are endless if you learn how to talk to the CFO…lnkd.in/eJnVHrsM Do you know what this means? 2/10 net 30 (now employers want Supply Chain Managers to be Financiers!!??) lnkd.in/e2TztjY My discussion on why I maybe recommend a Finance graduate degree for SCM students: lnkd.in/ewNBvPf and lnkd.in/ewA2yq7 The good news is that industry will pay more for strategic skills (i.e., Finance)…lnkd.in/gzQnq6xR The Monthly Metric - Cash Flow From SCM Operations Creative Payment Terms & Buyer-Supplier Financing lnkd.in/erfZdWk lnkd.in/eJnVHrsM lnkd.in/eNdih2e2 Supplier financing disclosure would be req'd under proposed accounting rule. The trade payable arrangements, which help companies manage cash, typically aren’t publicly reported even though they pose a liquidity risk. What is EBITDA? lnkd.in/gz7kZmx5 #finance #cfo #graduateschool

[@simecurkovic]

Advice that I give my SCM students on grad school: kzbin.info/www/bejne/gnenYoVmecqSsLM and kzbin.info/www/bejne/jYTXaaGkgdNrgcU

[@simecurkovic]

The Monthly Metric - Cash Flow From SCM Operations Creative Payment Terms & Buyer-Supplier Financing Long term in your careers, understanding SCM Finance will be critical. Do you know what this means? 2/10 net 30 (now employers want Supply Chain Managers to be Financiers!!??) lnkd.in/e2TztjY The worlds of Finance and SCM have collided. Your opportunities are endless if you learn how to talk to the CFO…lnkd.in/e7_Bu9q My discussion on why I maybe recommend a Finance graduate degree for SCM students: lnkd.in/ewNBvPf and lnkd.in/ewA2yq7 The good news is that industry will pay more for more strategic skills (i.e., Finance)… Long term in your careers, understanding SCM Finance will be critical. At the end of the day, SCM executives are evaluated on generating shareholder value (bottom line financial kind of stuff, of which has gotten very creative and complicated). Also, more and more SCM VP’s (C-suite types) are reporting directly to the CFO of the company (because SCM is that important to the bottom line). Students often ask me, if they go on to get a graduate degree, what should they get it in. I say get a graduate degree in something you are weak in but will matter in your career (especially long term). You will hit a ceiling professionally if you do not understand SCM Finance. So, I would give that serious consideration in your graduate education. ________________________ The Monthly Metric: Cash Flow From Operations A great read: lnkd.in/erfZdWk Here it comes: lnkd.in/eNdih2e2 Supplier financing disclosure would be required under proposed accounting rule. The trade payable arrangements, which help companies manage cash, typically aren’t publicly reported even though they pose a liquidity risk. _______ Creative Payment Terms & Buyer-Supplier Financing Industry often sees suppliers complaining about cash-flow issues. But the supplier havoc, for the most part, does not need to happen. The solution might be as simple as robust payment terms & creative buyer-supplier financing. Large OEM buying orgs often try to negotiate not paying suppliers for as long 90-180 days after they actually receive material &/or services. As a function of being the customer & often larger, buying orgs often have this kind of leverage. Many large OEMs currently have cash on the sidelines & appear to be very liquid. Sitting on that cash for several months might not be necessary all the while suppliers in their supply chain might be experiencing serious cash flow issues. Why not pay at risk suppliers earlier & perhaps also make cash (in the form of discounts)? Yes, having this kind of visibility will require that you partner with your Tier Is to map & measure your Tier II supply base & beyond. The key will be determining which...lnkd.in/eJnVHrsM

[@simecurkovic]

Here is a way to be very proactive and even stay one step ahead of your suppliers (and customers). lnkd.in/gMuhMNf6 and lnkd.in/gQZ7HfWb Surprised by raw material price increases? At the WMU ISM supply chain management program we teach our students to track commodity forward price curves. Here's a quick video of Net Alpha's cloud based materialx Decision Support service that is being made available to our students in class as they prepare to become future SCM managers. Some of our alumni have experienced this new service and love it. It looks at raw material market data from multiple sources, visualizes & analyzes historical pricing scenarios, & simulates planned purchases & what-if scenarios against forward price curves. Our grads will be ready.

[@simecurkovic]

Smaller suppliers’ finances have deteriorated since pre-pandemic Large buyers have been pressuring suppliers, dragging down smaller, private firms’ operational efficiency, according to RapidRatings analysis. www.supplychaindive.com/news/financial-risk-health-supply-chains-suppliers-buyers-pre-pandemic-Rapid-Ratings/708789/ It might be time for price risk sharing in these buyer-supplier relationships: lnkd.in/eRm5Cdxw. Also, get ready for another supply chain disruptor: no succession planning…Do not forget where most of the supply chain is: Small Businesses. From HBR article: “The U.S. has an opportunity to do more than just get its supply chains back on track. It can prevent future disruptions by fundamentally improving how they operate...Supply chain companies - defined as those that sell their output primarily business-to-business (B2B) - represent about 44% of U.S. private employment…Companies with fewer than 500 employees make up 98% of supply chain firms and over 20% of U.S. private employment.” Small Businesses Play a Big Role in Supply-Chain Resilience: lnkd.in/eY_zBxqz. Biden will convene his new supply chain council and announce 30 steps to strengthen U.S. logistics: lnkd.in/gKbkNhpE. I hope the WH council has tons of industry representation, including small and family owned businesses. I am guessing not. Get ready for another supply chain disruptor: no succession planning. My thoughts: lnkd.in/grPgwwPV. lnkd.in/gxWRefNu hashtag#familyownedbusiness hashtag#familybusiness hashtag#successionplanning hashtag#supplychain hashtag#smallbusiness

[@simecurkovic]

Supply chains top CFO business risk concerns: "#1 - raw material costs" lnkd.in/gK2nRVUs It seems like Strategic Cost Management (i.e., Price Analysis) has become a lost art. Pre-covid: According to a Deloitte 2019 Global Survey of over 1,200 execs directly involved in cost mgmt, cost reduction remained an essential business practice all around the world, with the vast majority of surveyed companies (71%) planning to cut costs over the next 24 months (2020-22). Hmmm, how did that go? www.cfo.com/budgeting-planning/strategy-budgeting-planning/2022/08/challenges-inflation-recession-hiring-labor-technology-supply-chain-data-automation/ lnkd.in/guZexE_s I have asked a lot of SCM managers how they “prepare” to negotiate price increase requests from their suppliers. In particular, I was curious about how and where they get their data from (i.e., CME, COMEX, etc.). Many said their suppliers provide that information. I am not convinced that using data from your suppliers is a form of “Preparation” for the negotiation process. What are buyers to do? Procurement organizations need processes and “tools” to mitigate and negotiate on these requests in a strategic, data-driven manner (and we/I need to do a better job of teaching it). In the Fall, we will also be looking at raw material market data from multiple sources, we will visualize & analyze historical pricing scenarios, & do some simulating on planned purchases & what-if scenarios against forward price curves. It beats updating color coded excel spreadsheets. lnkd.in/gMuhMNf6 lnkd.in/gQZ7HfWb FYI: SPCEA’s virtual conference is November- learn how to deal w/ inflationary pressures on material cost. lnkd.in/g-37V6Zn ___ Great read & spot on - Rising Interest Rates: Maybe It’s Time to Bring Back the Forgotten Art of Price Analysis | Robert Handfield Ph.D. lnkd.in/gTjJfyaQ Charlie Munger: 'Every time you hear 'EBITDA' substitute it with 'bull**** earnings''. Every business manager w/ advancement aspirations should watch this & teach themselves to understand it (it can be self-taught). I will be walking my students through it. lnkd.in/gU4VZGyE Only (sarcasm) 26,000 unfilled SCM Finance jobs on LinkedIn. Earn more with a WMU Master of Science in Finance in one year. lnkd.in/gNMBtB9B Just in case you missed this great 2021 read on Supply Chain Management (from Bloomberg): lnkd.in/gfd2NFQR “Forget Finance. SCM Is the Pandemic Era’s Must-Have MBA Degree”. - I kind of disagree as I think SCM Finance is VERY important (just ask CFOs). College Accounting to me feels like Supply Chain Finance. The Accounting Minor for SCM Majors seems like a great fit & has grown on me. Long term in your careers, understanding SCM Finance will be critical. The worlds of Finance & SCM have collided. Your opportunities are endless if you learn how to talk to the CFO…lnkd.in/eJnVHrsM #priceincrease #rawmaterials #priceanalysis #supplychain

[@simecurkovic]

A study from World Commerce & Contracting (a non-profit) from July 2022 that surveyed 443 respondents found that ~70% of new supplier agreements contain inflation driven economic adjustment/indexing clauses. 70% of contracts have price INCREASE provisions? It’s a new world in SCM. lnkd.in/g_ByzrNU www.linkedin.com/posts/sime-curkovic-61617a115_what-ceos-talked-about-in-q32022-economic-activity-6994287627285786624-e30I? Supply chains top CFO business risk concerns: "#1 - raw material costs" lnkd.in/gK2nRVUs It seems like Strategic Cost Management (i.e., Price Analysis) has become a lost art. Pre-covid: According to a Deloitte 2019 Global Survey of over 1,200 execs directly involved in cost mgmt, cost reduction remained an essential business practice all around the world, with the vast majority of surveyed companies (71%) planning to cut costs over the next 24 months (2020-22). Hmmm, how did that go? lnkd.in/guZexE_s I have asked a lot of SCM managers how they “prepare” to negotiate price increase requests from their suppliers. In particular, I was curious about how and where they get their data from (i.e., CME, COMEX, etc.). Many said their suppliers provide that information. I am not convinced that using data from your suppliers is a form of “Preparation” for the negotiation process. What are buyers to do? Procurement organizations need processes and “tools” to mitigate and negotiate on these requests in a strategic, data-driven manner (and we/I need to do a better job of teaching it). This month, we will also be looking at raw material market data from multiple sources, we will visualize & analyze historical pricing scenarios, & do some simulating on planned purchases & what-if scenarios against forward price curves. It beats updating color coded excel spreadsheets. lnkd.in/gMuhMNf6 lnkd.in/gQZ7HfWb See #2 at: lnkd.in/g7t_sky7 Key upcoming theme: Raw materials. Several CEOs (3%) talked about copper (+30% compared with Q2/2022), and 2% talked about lithium (+13%). These two raw materials are part of a long list of other raw materials, such as lumber, nickel, and cobalt, all of which experienced increased price volatility in the past three years. Great post & read. Our SCM program is fortunate to be working w/ industry partners such as N-Alpha. lnkd.in/gyux_4ne Stay tuned for some white papers from the WMU SCM program based on price analysis & strategic cost management research... Some of our alumni are already testing and / or implementing automated business processes based on such tools, serving as the basis for addressing price indexing implementations (formulas, economic adjustments, etc.) by champions in a few larger orgs, and we're following these implementations from an academic perspective. #supplychain

[@simecurkovic]

Has Price Analysis become a lost art? Aside from the precious metals, every other commodity managed double-digit increases. U.S. suppliers’ price increases picked up (11.3%!) in June & remained near historic highs. Producer-level inflation showed an 11.3% annual rate, 7th straight month of double-digit gains. lnkd.in/g_pFJ_QH www.visualcapitalist.com/the-periodic-table-of-commodity-returns-2012-2021/ What happened to Strategic Cost Management? (I need to teach this better). Time to stay on top of this stuff (both on the way up & down). Supply chains top CFO business risk concerns: "#1 - raw material costs" lnkd.in/gK2nRVUs. Pre-covid: According to a Deloitte 2019 Global Survey of over 1,200 execs directly involved in cost mgmt, cost reduction remained an essential business practice all around the world, with the vast majority of surveyed companies (71%) planning to cut costs over the next 24 months (2020-22). Hmmm, how did that go? lnkd.in/guZexE_s I have asked a lot of SCM managers how they “prepare” to negotiate price increase requests from their suppliers. In particular, I was curious about how and where they get their data from (i.e., CME, COMEX, etc.). Many said their suppliers provide that information. I am not convinced that using data from your suppliers is a form of “Preparation” for the negotiation process. What are buyers to do? Procurement organizations need processes and “tools” to mitigate and negotiate on these requests in a strategic, data-driven manner (and we/I need to do a better job of teaching it). In the Fall, we will also be looking at raw material market data from multiple sources, we will visualize & analyze historical pricing scenarios, & do some simulating on planned purchases & what-if scenarios against forward price curves. I have been collaborating with Net Alpha and they have a cloud platform called materialx that I am bringing into the classroom. It beats updating color coded excel spreadsheets. lnkd.in/ghjfe3gh lnkd.in/gMuhMNf6 lnkd.in/gQZ7HfWb Great read & spot on - Rising Interest Rates: Maybe It’s Time to Bring Back the Forgotten Art of Price Analysis, May 4, 2022 | Robert Handfield Ph.D. lnkd.in/gTjJfyaQ Given the Fed's announcements of increasing rates, maybe it's time that firms started to re-institute a Price Analysis team to keep track of markets and what is happening. Our student team research study also finds it's high time to bring Price Analysis back into the toolbox for procurement. Price analysis is a subject that is often overlooked in supply chain education, (although it is certainly a big part of our chapter on Strategic Cost Mgmt in Purchasing and Supply Chain Management). The issue is particularly important, given the massive inflation rates we have seen,...lnkd.in/gTjJfyaQ A great read on the "exciting" world of competitive bidding & RFQs. Malpractice? lnkd.in/g8xsaKTa #rawmaterials #priceanalysis #supplychain

[@simecurkovic]

My discussion on why I recommend a Finance graduate degree for my SCM students: kzbin.info/www/bejne/gnenYoVmecqSsLM and kzbin.info/www/bejne/jYTXaaGkgdNrgcU

[@simecurkovic]

I was glad to see Cost Mgmt on this list (but I thought it would rank higher). Has Price Analysis become a lost art? Aside from the precious metals, every other commodity managed double-digit increases. lnkd.in/g-Np6BnA. U.S. suppliers’ price increases picked up (11.3%!) in June & remained near historic highs. Producer-level inflation showed an 11.3% annual rate, 7th straight month of double-digit gains. lnkd.in/g_pFJ_QH www.linkedin.com/posts/sime-curkovic-61617a115_rawmaterials-priceanalysis-supplychain-activity-6962172672201949184-9rdJ? What happened to Strategic Cost Management? (I need to teach this better). Time to stay on top of this stuff (both on the way up & down). Supply chains top CFO business risk concerns: "#1 - raw material costs" lnkd.in/gK2nRVUs. Pre-covid: According to a Deloitte 2019 Global Survey of over 1,200 execs directly involved in cost mgmt, cost reduction remained an essential business practice all around the world, with the vast majority of surveyed companies (71%) planning to cut costs over the next 24 months (2020-22). Hmmm, how did that go? lnkd.in/guZexE_s I have asked a lot of SCM managers how they “prepare” to negotiate price increase requests from their suppliers. In particular, I was curious about how and where they get their data from (i.e., CME, COMEX, etc.). Many said their suppliers provide that information. I am not convinced that using data from your suppliers is a form of “Preparation” for the negotiation process. What are buyers to do? Procurement organizations need processes and “tools” to mitigate and negotiate on these requests in a strategic, data-driven manner (and we/I need to do a better job of teaching it). In the Fall, we will also be looking at raw material market data from multiple sources, we will visualize & analyze historical pricing scenarios, & do some simulating on planned purchases & what-if scenarios against forward price curves. I have been collaborating with Net Alpha and they have a cloud platform called materialx that I am bringing into the classroom. It beats updating color coded excel spreadsheets. lnkd.in/ghjfe3gh lnkd.in/gMuhMNf6 lnkd.in/gQZ7HfWb Great read - Rising Interest Rates: Maybe It’s Time to Bring Back the Forgotten Art of Price Analysis, May 4, 2022 | Robert Handfield Ph.D. lnkd.in/gTjJfyaQ Given the Fed's announcements of increasing rates, maybe it's time that firms started to re-institute a Price Analysis team to keep track of markets and what is happening. Price analysis is a subject that is often overlooked in supply chain education, (although it is certainly a big part of our chapter on Strategic Cost Mgmt in Purchasing and Supply Chain Management). The issue is particularly important, given the massive inflation rates we have seen,...lnkd.in/gTjJfyaQ A great read on the "exciting" world of competitive bidding & RFQs. Malpractice? lnkd.in/g8xsaKTa #rawmaterials #priceanalysis #supplychain

[@simecurkovic]

Why Finance Executives Rely on Supply-Chain Finance: A Guide to the Financing Tool www.wsj.com/articles/why-finance-executives-rely-on-supply-chain-finance-a-guide-to-the-financing-tool-11614820691#:~:text=Why%20Do%20CFOs%20Rely%20on,sheet%2C%20unlike%20a%20traditional%20loan. Why Finance Executives Rely on Supply-Chain Finance: A Guide to the Financing Tool Companies are setting up programs to improve working capital and cut costs while disclosing few details The struggles of Greensill Capital have shone a light on the increasing use of supply-chain financing, a tool that gives companies the ability to extend their payment terms to vendors. Regulators and standard-setters are closely watching if and how companies disclose their use of the financing tool, which has come into focus amid the recent problems seen at Greensill, a major provider of supply-chain finance, which plans to file for insolvency in the U.K. this week and is facing regulatory scrutiny. How Does Supply-Chain Finance Work? As part of a supply-chain finance agreement, banks provide funding to pay a company’s supplier of goods and services. The supplier is then paid earlier-but less-than it would be paid without the agreement. For small suppliers, the financing can provide money for their operations without having big companies extend their payment terms, potentially by months. The company pays the money it owes the supplier to the bank, often later than it would have paid its supplier. The bank keeps the amount it doesn’t pay to the supplier in exchange for its services. Supply-chain finance has been around for decades. Companies started using it more frequently after the 2008 financial crisis, when many businesses wanted to preserve cash on-hand by extending payment terms with vendors. Since then, the market for this short-term borrowing tool has expanded, with banks and other providers offering digital tools to help companies manage related processes, such as procurement, according to professional services firms KPMG LLP, PricewaterhouseCoopers LLP and the Hackett Group Inc. Which Companies Can Use Supply-Chain Finance? Large manufacturers, such as airplane manufacturer Boeing Co., and other global companies, including soft drinks producer Keurig Dr Pepper Inc., are avid users of supply-chain financing to extend payment terms. But there tends to be a barrier to entry for some businesses, especially those with weaker credit ratings. These ratings help determine the discount rate applied to the payment the supplier receives. The better the credit rating of a company, the cheaper it is for the supplier to participate in the program. “Smaller companies have to just deal with the fact that their discount rates are fairly high,” said Rudi Leuschner, associate professor of supply chain management at Rutgers University. It is unclear how many companies have supply-chain finance programs. Twenty-seven companies in the S&P 500 disclosed in their 2020 annual reports they are using the tool, up from 13 the previous year, according to data provider MyLogIQ. Between 2015 and 2019, an average of about eight companies in the S&P 500 said they used supply-chain finance. Who Are the Providers? Large financial institutions, including JPMorgan Chase & Co. and Citigroup Inc., are the most frequent providers of supply-chain financing. Banks provide capital and run the programs for companies. Financial technology and logistics firms in recent years also have started to provide such funding, sometimes through a partnership with a bank, along with other invoicing and procurement services, advisers at KPMG, PwC and Hackett said. Greensill, a provider in this space, is backed by SoftBank Group Corp.’s Vision Fund and targets lesser-known, higher-risk borrowers as well as investment-grade companies such as Ford Motor Co. and AstraZeneca PLC. It is unclear how large Greensill’s supply-chain program is compared with those at major banks. Credit Suisse Group AG on Monday froze $10 billion in investment funds Greensill uses for supply-chain finance deals, and Greensill’s banking subsidiary then came under day-to-day supervision in Germany. Germany’s top financial regulator BaFin on Wednesday said it banned activity at the bank after an audit was unable to provide evidence of receivables purchased from GFG Alliance Group. The financial startup plans to file for insolvency in the U.K. this week as it works to sell its operating business to Apollo Global Management Inc. Why Do CFOs Rely on Supply-Chain Finance? The financing arrangement frees up cash without much cost and effort, which is an advantage for chief financial officers looking to hold money for longer. They record the owed amount as accounts payable on their balance sheet, unlike a traditional loan. Doing so makes their companies’ liquidity position appear stronger. Coca-Cola Co., for example, has been working to better manage its payables through supply-chain financing, CFO John Murphy said in November. The company launched its program in 2014, but didn’t disclose it until last year because it didn’t have a material impact on its liquidity, Coca-Cola told the Securities and Exchange Commission. Coca-Cola made disclosures about the program in July after the SEC questioned the company about it in June. Coca-Cola declined to name the two financial institutions it is using for its supply-chain finance program, but a spokesman for the company said it doesn’t have any involvement with Greensill. What Happened During the Pandemic? The pandemic accelerated the use of the tool, corporate advisers and accountants said. Supply-chain finance provided companies with a key source of cash as they were battling the fallout from the pandemic, while enabling them to continue to pay important suppliers. “Supply-chain finance fundamentally is about managing cash. And cash is king, especially now in light of the strains we’re seeing on supply chains,” said Mark Hermans, a managing director for operations consulting at PricewaterhouseCoopers who focuses on supply-chain finance. Where Do Regulators Stand? U.S. companies aren’t required to disclose supply-chain financing arrangements in their filings, but the SEC in recent months has been asking some of them to provide more information to help investors assess potential risks. The regulator last June issued guidance urging companies to provide robust, transparent disclosures on supply chain and other short-term financing during the pandemic. The Financial Accounting Standards Board, which sets accounting rules for U.S. companies and nonprofits, last October launched a project to explore potential disclosure requirements. FASB hasn’t produced a proposal on the subject yet. The lack of information about companies’ supply-chain programs impact key financial metrics used to assess the health of a business, and so can cause issues for shareholders and other users of financial statements. “Some companies tell you that they’re participating and they tell you the size, but there’s plenty of others that don’t,” said David Zion, head of accounting and tax research firm Zion Research Group.

[@simecurkovic]

www.tradefinanceglobal.com/posts/supply-chain-finance-tarnished-beyond-redemption-only-if-we-collectively-allow-it/ Supply Chain Finance: Tarnished Beyond Redemption? …Only if We Collectively Allow It The very public implosion of a high-flying boutique finance firm has left ripples in the Supply Chain Finance industry. Should we reverse this outcome? VIEW ALL ARTICLES BY CRAIG WEEKS BY CRAIG WEEKS TUESDAY MARCH 9, 2021 Recent market events related to the very public implosion of a high-flying boutique finance firm have the potential to do irreversible damage to a set of financing techniques that play a critical role in enabling global trade flows, and supporting the success of international and domestic supply chains. The economic value of these commercial activities is in the trillions annually. Some will argue that the consequences, already rippling wider, will destroy Supply Chain Finance (SCF), and that it is too late to reverse this outcome. Not so. Industry sectors, capital markets, national and global economies have experienced major failures, unprecedented incompetence or fraud and huge losses, and have bounced back. SCF has too much potential, and, properly used and structured, generates and sustains too much value, to be allowed to disappear. Payables Finance (also referred to as Reverse Factoring), one of several techniques or structures under the umbrella term SCF, is at the core of the current controversy. It is also one of the fast-growing structures with clear potential to strengthen supply chains and to help drive financing to SMEs involved in domestic or international supply chains. This includes SMEs based in emerging markets, where the need is critical. Briefly, a Payables Finance Program involves:  Large buyer and bank/financing entity create SCF program, extending or delaying payment terms to a subset of suppliers (for example, from 30 to 90 days). The extension should be in line with industry sector practices  The program should be designed with the health of the supply chain in mind, not as a predatory approach to squeezing suppliers. One US-based buyer refers to theirs as a “Supplier Wellness Program”  Suppliers can choose to wait, or to have approved invoices “discounted” by the bank for immediate payment. The discount rate (effectively, a financing rate) is most commonly set based on the credit standing of the buyer and is thus usually less expensive for the supplier  The buyer pays the bank when invoices are due, settling the outstanding loan Source: ITFA, TFG and Global Supply Chain Finance Forum. Read more about Payables Finance here. While such programs, can be abused or used to perpetrate fraud (like any other type of financing), SCF solutions aim to support trade, strengthen supply chains, engage SMEs and advance development. They are not inherently designed to facilitate fraud, nor are they meant to misrepresent the financial health of any participating company. SCF, including Payables Finance Programs should absolutely require appropriate disclosure, proper financial reporting in line with how material the program is for a particular buyer and supply chain. Prudent risk assessment and credit practice must be part of these programs, no matter how innovatively they are applied. When the extension of terms is reasonable and aligns with an industry sector’s working capital cycle, and the dynamic between buyer and seller is collaborative, these programs can play a critical role in ensuring the health and viability of supply chain ecosystems (buyers, suppliers and service providers that can number in the multiple thousands). They improve the cash flow and financial health of buyers as well as suppliers. The role of the financier in setting the tone for prudent structuring and appropriate commercial behaviour is important. The existence of such programs should be appropriately reported and recorded, especially if they are material. Adequate disclosure and proper accounting treatment have been part of industry dialogue on Payables Finance for several years, and it is the abuse of these elements of certain programs that is at the root of all of the sensational financial failures and fraud now associated to Payables Finance, and by extension to SCF. Payables Finance programs are not inherently predatory, as some have suggested in obvious pursuit of political “points” or attention-grabbing headlines. But they can be. Payables Finance programs are not inherently predatory, as some have suggested in obvious pursuit of political “points” or attention-grabbing headlines. These programs are not designed to understate the debt owed by a company or to misrepresent its financial health. But they can and have been used precisely for that purpose in a small but visible number of known cases. SCF as it exists today is still evolving. It does not yet have the benefit of mature industry practice and guidance, like Documentary Letters of Credit which are commonly subject to a global set of rules first published in 1933 by the International Chamber of Commerce. There have been efforts to distinguish SCF and Payables Finance from other forms of lending, and to “ring fence” what is considered prudent and proper practice in the structuring of these solutions. It is clear that those efforts need to be redoubled. The firm currently in crisis has actively sought to build its brand and market visibility around SCF, with significant press coverage over several years, encouraging and facilitating that linkage. It will be found however, that perhaps 10% of this entity’s structures look anything like Payables Finance or even SCF, and that fundamental questions will arise about governance, credit, risk and financing practices. This latest failure does come on the heels of several very visible bankruptcies, frauds and financial misrepresentations, including oft-cited instances in Spain, the UK and the UAE among others. In hindsight, more should have been done, more decisively, to differentiate these cases from the thousands of successful, prudent and appropriately structured trade finance, SCF and Payables Finance transactions that take place daily all over the world. The more important issue now, is to ensure that stakeholders focus on the value and potential of Payables Finance Programs and SCF, and not allow an aberration - no matter how large and visible - to destroy a set of techniques that enable trillions in commercial and trade flows annually, all over the globe. This is particularly important given the role that trade must play in the post-COVID recovery and in making up the massive lost ground in poverty reduction that has resulted from the pandemic. There is a big picture and a larger question to consider, and trade-related financing, including SCF, has a very important role to play. The larger question touches more than banking and finance. It is a matter of robust global trade, public policy, economic recovery, international development and inclusion, as well as the engagement of SMEs in trade and global supply chains. This is a moment for leadership and vision, a moment to champion and advance prudent practice while continuing to support constructive and thoughtful innovation. Financiers, clients, positive disruptors, regulators and standards bodies face a stark choice: retreat or over-react, or come together to chart a constructive, balanced way forward in the financing of commercial and trade activity. The way forward must be informed, the overall response to current circumstances, measured, strategic and devoid of sensationalism. All of this with a collective awareness of the larger context in which Payables Finance and SCF create value and have their impact. SCF can end up irreparably tarnished and damaged beyond redemption, or it can be, as it should be, decoupled from a series of negative, even reprehensible events, to be more properly structured, managed and reported on, so that it can make the necessary and critical contribution to global economic recovery and inclusion. The nascent state of SCF and Payables Finance programs in particular is illustrated by several facts: that the “Big Four” accountancy firms co-signed a letter seeking guidance from the Financial Accounting Standards Board on appropriate treatment of these structures; that industry practice and rule sets around SCF do not yet exist as they have done for eighty years or more, in traditional trade finance; and that basic definitions related to SCF were only published as recently as 2016. SCF, including Payables Finance, properly structured, appropriately reported upon and disclosed, and managed with the right stewardship mindset, remains a valuable, promising and viable component of the global trade financing toolkit.

[@simecurkovic]

Inflation: A number of goods have actually gone down in the index, including: lnkd.in/gR4rzPEm. Which countries have the highest inflation? lnkd.in/guK88cW8. 70% of current contracts have price increase provisions?! lnkd.in/g_ByzrNU. www.linkedin.com/posts/sime-curkovic-61617a115_us-inflation-how-much-have-prices-increased-activity-7015651447627284480-9mNW? Great post & read below. Our SCM program is fortunate to be working w/ industry partners such as N-Alpha. This Spring our students are looking at raw material market data from multiple sources. We will visualize & analyze historical pricing scenarios & do some simulating on planned purchases & what-if scenarios against forward price curves. It beats manually updating giant color coded Excel spreadsheets. Stay tuned for some white papers from the WMU SCM program based on price analysis & strategic cost management research... Some of our alumni are already testing and / or implementing automated business processes based on such tools, serving as the basis for addressing price indexing implementations (formulas, economic adjustments, etc.) by champions in a few larger orgs, and we're following these implementations from an academic perspective. __ Eyal Mizrahi• CEO and Co-Founder of N-Alpha • lnkd.in/gyj4aJSQ Economic adjustments and price increase provisions come up very often in our discussions with companies. Inflation has become a pain point for companies of all shapes and sizes. In fact, this 2022 study from World Commerce & Contracting, which interviewed 443 respondents across 23 different industries, found that around 70% of current contracts have price increase provisions. A supplier / customer is requesting economic adjustments for raw materials price exposure. How will you manage this? With our operating system for raw materials pricing driven business processes, we automate custom data, calculations, time stamps, and alerts. Talk with us and avoid building and maintaining monster spreadsheets. __ Great read & spot on - Rising Interest Rates: Maybe It’s Time to Bring Back the Forgotten Art of Price Analysis | Robert Handfield Ph.D. lnkd.in/gTjJfyaQ #inflation, #procurement, #rawmaterials, #supplychain, #scm, #indexing #ppi #producerpriceindex

[@simecurkovic]

Read: Do you know what this means? 2/10 net 30 (now employers want you to be Finaciers!!??) The good news is that they will pay more for more strategic skills... A Purchase Order is a contract between a buyer and supplier. Over half of our students get their first full-time jobs in procurement/purchasing/sourcing in a buyer type of role. One of those job responsibilities will be to negotiate payment terms upon which you pay a supplier. When you pay for a product or service in your own personal life, you typically pay for it upon receipt or delivery of the good/service. However, in business-to-business transactions, the supplier usually does not get paid right away. Usually, the buyer will receive the goods/parts/material first, and then the buyer will pay for it later, sometimes very later. Buying organizations are often cash strapped, or simply put, they are cheap and greedy. Buyers will try to negotiate not paying for something as long as 30, 60, 90, 120 days after they actually get the stuff. Suppliers are not thrilled with this, but if you trust the buyer and know that you will eventually get paid, why not? Usually, large buying organizations have this kind of leverage over smaller suppliers. So, what is the current standard protocol for payment terms with buyers and suppliers? See below. • 2/10 net 30 - 2% discount if paid within 10 days, full payment required within 30 days So, if you buy $100 worth of parts from a supplier, you have to pay them at the latest, $100 30 days after you get the parts. However, if you pay them within ten days of getting the parts, you only pay $98. Here is the thinking part of this reading assignment. I think there are a lot of VP’s of SCM and VP’s of Finance that are not talking to each other very much. My impression is that most companies are obsessed with negotiating payment terms with net 30, 60, 90, and 120 days. This makes sense to me if a company is cash strapped, but I do not think most are. It also makes sense if you are broke and would have to borrow from a bank to pay the supplier (and if the cost of borrowing is really high). So, wait as long as possible to pay the supplier with our own cash (and hopefully you can make enough money in 30-120 days to pay your suppliers). If you cannot, then you have major cash flow issues and your margins are probably too tight to keep you in business. In which case, the bank might not even loan you any money. I think most companies have some cash on the sidelines (The Great Recession of 2008) and why would you sit on that cash for 30, 60, 90, and 120 days? Why not pay your suppliers early and make cash (in the form of discounts - a dollar saved is the same as adding one dollar of pre-tax profit to your company’s bottom line). You might argue that keeping the money in the bank and collecting interest on it makes you more than the price discount that the supplier is willing to give you for early payment. However, here is my point - have you seen how low interest rates are and how low the cost of borrowing is in America? They are at record lows! You can borrow money to buy a house and only pay 2-3% in interest today. So, what is the strategic SCM opportunity here? How about this: • 4/10 net 30 - 4% discount if paid within 10 days, payment required within 30 days Let’s say you could actually negotiate these payment terms with a supplier, which I think they would go for if they could get their money sooner, especially if you are a buyer that does not pay them until 30, 60, 90, or 120 days out. As a buyer, even if you did not have the cash to pay them within 10 days, couldn’t you even borrow money from a bank to pay early? You still come out ahead because your cost of borrowing from the bank (1-3%) is less than the discount given to you by the supplier (4%). I also bet you there a lot of banks out there that would do all of this for you (all you have to do is sit back and enjoy the cost savings, and look like a superstar to your boss). SCM is a very cross-functional discipline. Effective SCM requires working with your suppliers, their suppliers, your customers, their customers, and internally with engineering, sales/marketing, and even finance. For the first time in American history, interest rates and the cost of borrowing is at record lows, combined with money actually out there in the system to be borrowed. I personally feel corporate America (on the procurement side) is leaving money on the table with its antiquated payment terms with suppliers. I hope this makes sense to you. Please let me know if not.