In managing a world of suppliers, the Australian conglomerate has a platform that allows it to play its banks like it’s conducting an orchestra. Group treasurer Cliff Allison explains.
Australian conglomerate Wesfarmers is a big and complex operation. It runs supermarkets, hotels, department stores and retailers of liquor, office supplies and conveniences.
Its industrials division stretches from fertilisers and energy to chemicals and coal. It employs 220,000 people and last year had total revenues of A$68 billion ($53 billion).
With a supply chain that has to coordinate 2,628 suppliers for seven entities – including some of the largest retailers in Australia – across 33 jurisdictions involving four currencies and six banks, keeping all the elements of its supply chain functioning is an operation of withering complexity.
PrimeRevenue
Six years ago, the conglomerate turned to PrimeRevenue – a working capital financial technology solutions provider – for a multi-funder supply chain finance programme that could leverage its relationship with banks to support its extensive supply chain network.
Today that programme has as much as $500 million in payments outstanding at any one time.
For Wesfarmers group treasurer Cliff Allison the main feature of the platform is that, as well as offering competitive pricing, it gives its suppliers and businesses flexibility.
“We entered into this arrangement with PrimeRevenue with a view to offering it to our businesses such that they make the decision themselves whether they want to use it or not and how they roll it out,” Allison told CT.
“Some did it on a mass basis and some do it on a case-by-case basis, so for every business it was different. It’s taken quite a few years to roll it out to where it is now, and there are still quite a lot of opportunities.”
“At Wesfarmers we have sales revenue of approaching A$70 billion and payments to suppliers of A$65 billion and at the moment on this platform we are trading about A$2.5 to A$3 billion a year.”
Pricing perfect
Allison says the platform is primarily targeted at its overseas suppliers who, he says, are better able to accept the concept of supply chain finance as opposed to Australian suppliers who have less flexible rebate arrangements and payment terms.
“One of the things we wanted to do with this supply chain platform was provide the best pricing possible,” Allison said. “Basically the pricing Wesfarmers gets from its banks is the pricing we want to give to the suppliers – so it’s as cheap as possible for them.
The only benefit we get out of the platform is by extending payment terms. As long as the calculation is such that the cheap financing offsets expensive financing of the supplier then there’s a benefit.”
Unlike some companies, Wesfarmers, he says, has no intention of using the platform squeeze its suppliers. “I know with some supply chain financing platforms the provider adds on margins and gets money out of it, but that just seems pointless to us,” he said.
“Most of our businesses run every day low prices models so every cost you introduce into the supply chain eventually ends up in the cost of the product – that’s our philosophy.
“I guess that’s why it’s been taken up quite easily by our suppliers,” he said. “The feedback we get is that they think it’s fantastic.
“They like the pricing and it’s really just the click of a button – it’s just so easy to operate.
“If one of our businesses extends their business terms from 30 to 60 days, even though there’s an extra 30 days cost to the supplier it’s easily offset by being able to get their money early.”
Orchestrating funding
Wesfarmers now has six banks on the platform – BNP Paribas, Westpac, National Australia Bank, ANZ, Bank of America Merrill Lynch and Commonwealth Bank – allowing its businesses to choose the right bank at the right time.
“Having multiple banks on the platform make life a lot easier,” Allison said. “You’ve got competitive tension between the banks so you can get good pricing, but also each bank has its own strengths and weaknesses.
“Some banks are able to deal with certain suppliers in certain countries, some banks can deal with suppliers in any country, some banks can only deal in certain currencies – some in US dollars and some in Aussie dollars.
“It’s terrific having different banks that can provide different strengths and weaknesses. When you have just one bank’s platform you’re very much beholden to that bank and its strengths and weaknesses.”
KYC challenges
While the platform runs smoothly, Allison said regulatory issues surrounding the supply chain environment were emerging as a challenge for suppliers.
“Each of the funding providers has to go through a KYC [know-your-customer] process into the suppliers and that KYC process is becoming more and more onerous for suppliers,” he said.
“In the past few years, some banks have decided they need to do it on a more regular basis like every three years and they’re digging deeper and deeper – they need to know beneficial ownership and that kind of thing.”
Homebase blues
Wesfarmers itself has not been without recent challenges, not least it’s a $1 billion writedown of British retailer Homebase, which it acquired for A$705 million in 2016.
Allison did not want to comment on the high-profile case, saying as treasurer he was only involved to the extent of providing short and long-term funding to the UK retailer.
Ultimately, he said, Wesfarmers was big enough to absorb the challenge.
“My job is to provide the debt capital for the businesses to operate and I just continue to do that,” he told CT. “We’re Standard & Poor’s rated A- and Moody’s is A3.”
He said the impact on the business was reflected in the sang froid of the rating agencies response to the Homebase writedown.
“S&P made a release after our announcement saying there’d be no impact and Moody’s decided not to make a release at all.”
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