Supply Chain Finance SCF Lecture 7 Jan H

Supply Chain Finance (SCF) Lecture # 7 Jan H Jansen E-mail: jansen@han. nl

Lectures period 1 or 3 Lecture 1 Topic 2 Introduction SCF & Elements of SCF: SCM, Purchase, APS, ERP and ICT Financial ratios 3 Du. Pont Analysis & Value 4 Working Capital 5 Working Capital Management Dynamic Discounting 6 SCF instruments Introduction The Cool Connection Cool connection round 1 Risk management in SCF Cool connection round 1 (evaluation) 7 Preparation Assignment 1 Annual reports 2016 & 2017 Unilever, Philips & Heineken The Power of SCF Annual reports 2016 & 2017 Unilever, Philips & Heineken Assignment 2 Case study KPN Assignment 3 Case study SCF EU Assignment 4 Case study ACCA Standard definitions for Techniques of SCF EBA SCF Assignment 5 Standard definitions for Techniques of SCF EBA SCF

Lectures period 2 or 4 Lecture Topic Preparation 8 Introduction to value Cool connection round 2 Assignment 6 9 CAPM & EVA Cool connection round 3 Assignment 7 10 SCF instruments Cool connection round 4 Assignment 8 EBA SCF 11 12 13 14 Cool connection round 5 Cool connection round 6 Cool connection round 7 Cool connection round 8 Test exam Case Philips Case Unilever Case Heineken Test exam (Agrifac) Exam case: Basware https: //www. basware. com/en-us

Intro to The Cool Connection (TCC) https: //www. youtube. com/watch? v=3 t. PM_Dah. ROg

The Cool Connection

Recap Lecture 6

Supply Chain Finance: How it all fits together (developed by JH Jansen)

Supply Chain Finance Instruments (‘Umbrella’) Source: Standard definitions for techniques of Supply Chain finance, 2015

Definition SCF (Source: SCF – European Banking Guide, EBA, 2014)

New pattern in trade flows Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum. , 2014

Source: Standard definitions for techniques of Supply Chain finance, ICC Global SCF forum. , 2014

Supply Chain Finance Instruments (‘Umbrella’) 1. Accounts payable / Buyer centric a. b. 2. 3. 4. Reversed factoring (Confirming / Approved payables financing) Dynamic discounting Inventory centric a. b. Pre-shipment Purchased Order-based finance Accounts receivable / Supplier centric a. b. c. d. Receivables purchase Invoice discounting Factoring Forfaiting Related a. b. c. d. Documentary trade finance Bank payment obligation (BPO) Asset-based lending Payments & Foreign exchange

Lecture 7 Risk management SCF

Why Risk Management? Fraudulent Financial Scandals: • Enron • AOL • Merrill Lynch • Royal Ahold (Albert Heijn) • Lehman Brothers Audit firms involved: • • • KPMG PWC Deloitte & Touche Arthur Andersen Ernst & Young Coopers Lybrand

COSO ‘The Committee of Sponsoring Organizations of the Treadway Commission (COSO) is a joint initiative of private sector organizations listed and is dedicated to providing thought leadership through the development of frameworks and guidance on enterprise risk management, internal control and fraud deterrence. ’ Source: www. coso. org/ Committee of Sponsoring Organizations of the Treadway Commission Chairman: James C. Treadway, Jr.

COSO Cube Bron: www. sox-online. com

Risk management Risk categories according COSO: • • Strategic Operations Reporting Compliance

Risk management Organisation structure according COSO: • • Entity level Division Business Unit Subsidiary

Risk management Internal Environment • Objective setting • Event Identification • Risk Assessment • Risk Response • Control Activities • Information & Communication • Monitoring

Philips annual report 2014 • Chapter 4 Our strategic focus • Chapter 7 Risk management • Chapter 9 Corporate governance Research Unit Logistics & Alliances

Philips annual report 2014 Research Unit Logistics & Alliances

Philips annual report 2014 Research Unit Logistics & Alliances

Philips Business Control Framework (BCF)

Supply Chain Risk Management Waters, D Kogan Page London (UK) 2 nd edition 2011

Supply Chain Risks Price risks: • Currency risk • Commodity price risk • Interest rate risk

Supply Chain Risks • Internal Risks • Late deliveries • Excess stock • Poor forecasts • Minor accidents • Human errors • ICT system faults • Etc. • External Risks • Hurricanes, earthquakes etc • Fluctuating prices • Financial irregularities • Shortage of raw materials • Outbreak of disease • Problems with trading partners • Etc.

Supply Chain Risk Management Supply Chain Vulnerability Uncertainty Risk Possible events Risk Management Decisions Alternative responses Consequences

Enterprise Risk Management ERM is the culture, processes and tools to identify strategic opportunities and reduce uncertainty. It is a comprehensive view of risk both from operational and strategic perspectives and is a process that support from reduction of uncertainty and promotes exploration of opportunities Source: www. rims. org

Your personal predisposition to risk? Source: www. theierm. org

Your personal predisposition to risk: Risk appetite

Risk Appetite ‘The risk of loss that a firm is willing to accept for a given risk-reward ratio (over a specified time horizon at a given level of confidence)’ Source: Bunden cs, Mastering Operational Risk

Source: www. theirm. org

Risk appetite Source: www. riskscorecard. net

Heat Map I M P A C T PROBABILITY

Source: www. deloitte. com

Integral risk management approach • • Identify and control risks Continues process Whole organisation Connected to organisational goals

Interactive Control Systems • • • Strategic uncertainties Emerging threaths and opportunities Could invalidate current assumptions and thereby current strategy New action plans? Depends on: • Technology • Regulations • Complexity of value creation • Ease of tactical response

Macro environment Market environment Factors internal organisation Politics Suppliers Strategy Economic Buyers (Macroeconomic) Style Social / Ethical Substitutes Skills Technological Competition Structure Environment Entrants (potential) Systems Legal

Strategic risk • Unexpected • Reduces significantly • Ability to implement business strategy

Basic sources of strategic risk 1. Operations risk 2. Asset impairment risk • Book Value > Market Value (Future Cash Flows) 3. Competitive risk

1 Operations risk • • Consequence of breakdown in core operations Becomes strategic risk when failure in critical process Often triggered by employee error First step in assessment of all critical parts of the value chain: input > process> output • Leads to: standardisation, TQM, benchmarking

2 Asset impairment risk • Resource to generate future cash flow • Significant loss of current value • Financial impairment • Decline in market value (eg financial markets) • Credit risk • Impairment of intellectual property • Patent infringement • Formulas • Manufacturing procedures • Physical impairment • Fire • Flood • Terrorist action

3 Competitive risk Changes in the competitive environment: • Actions of competitors • Regulations • Shift in customers desires • Changes in supplier pricing

Risk Appetite Source: http: //coso. org/documents/2014 -2 -10 -COSO%20 Thought%20 Paper. pdf

Risk Analysis Risk Assessment Risk Management Risk Monitoring Identification Control It Process Level Measurement Share or Transfer It Activity Level Prioritization Diversify or Avoid It Entity Level Source: Business Risk Assessment. 1998 – The Institute of Internal Auditors