Treasury'S Strategic Role In The Digital Transformation Of The Supply .
T R E A S U R Y ' S S T R AT E G I C R O L E I N T H E D I G I TA LT R A N S F O R M AT I O N O F T H E S U P P LY C H A I N E C O S Y S T E MOctober 2021
CONFIDENTIALYour presentersChris RamsayDave KosovecExecutive DirectorPayables Solutions SpecialistJ.P. MorganHead of Product 85) 698-4788dave.kosovec@taulia.com(412) 312-09731
CONFIDENTIAL2020’s dynamic environment has been a wake-up call and a reckoningDynamic shifts in the landscape disrupting businesses and organizationsEnd-to-End digitaltransformationAdoption of all things digitalestimated 6 years of leap forwardRenewed urgency forflexibility and agilityNice-to-Haves to Must-Havesfrom digital processes to business modelsNew Commercemodels as winnerseCommerce accelerantDue to stronger digital ecosystemTranslate values totangible resultsSpotlight on social valuesincreasingly factor into purchasing decisions2
CONFIDENTIALJ.P. Morgan Working Capital Index 2021In 2020, the Working Capital Index rose to its highest level in 10 yearsOf companies in the S&P 150064% saw a 6.3 days deterioration orlengthening in CCC of which: 86% showed a lengthening in DSO 87% experienced an increase in DIOThe pandemic caused significant challenges with the global supply chain and working capital.Some treasurers resorted to tactical short-term measures like delaying payments.In 2021, working capital levels are trending lower as consumer demand returns.There remains a significant amount of liquidity tied up in supply chains across the S&P 1500companies. 507 Billion in working capital released Estimated value if S&P 1500 had moved to the next performance quartile for DSO, DPO andDIO in 2020.Source: J.P. Morgan Working Capital Index 20213
CONFIDENTIALOrganizations are elevating digital transformation as a top priorityBoard of Directors69%Accelerated digital businessinitiatives after COVID 1Executives88%Of CFO’s are investing in digital solutionsto help cash flow management2Treasury & Payments64%Will accelerate digitaltransformation after COVID2Digital transformation in organizations have been estimated to accelerate by 6 years4Source: 1. Gartner 2020; 2. PYMNTS.com; Next-Gen AP&AR Digitization Report; 4. Overall estimate of enterprise’ digital transformation – Twilio via Forbes 2020 (link)4
CONFIDENTIALEnd-to-end digital transformation is critical to address the needs across the organizationBusiness Keep on top of industrytrends: for new constituentand supplier needs Create cross-organizationsupport and buy-in fromkey stakeholders Manage business modelpivots: as industries aredisruptedPaymentsTreasury Standardize Pay Terms toextend DPO Offer monetizedacceleration options tosupport supplier DSO needs Optimize payments:leverage data and AI tomake the right payments atthe right time Ensure optimal use ofliquidity and minimizeworking capital Achieve operationalefficiency: to help focus onstrategic insights Develop an innovationecosystem: to proactivelyexplore new technology andsolutionsChallenge your organization and your bank partners to accelerate your transformation together5
CONFIDENTIALEmerging technologytransforming across the organization to enable change6
CONFIDENTIALThe financial services industry is undergoing a movement to enable optionality of connectivityThird-party and Fintech partnershipsbringing the best-in-class capabilities with speed and at scaleRegulatory driven opportunitiesenabling new connectivity and functionalitiesOrganic movement to enable bank connectivityto enhance digital interactions with bank partners7
CONFIDENTIALDigital-driven business model shiftsCovid-19 has acted as an accelerator and has led digital adoption at a never seen before scaleGreater quantum of digitalofferings across businesses4% share of products &services that are digitizedWide-reaching mobileconnectivity1Moving towards a cashlesssociety2Explosion of connecteddevices3% of world population coveredby mobile internet# of non-cash transactions inglobal markets growing at11.5% CAGR# of IoT devices installedgrowing at a CAGR of bnJune May2017 201821%CAGRDec. July2019 20202019APACEMEA2025AmericasTo address the changing expectations from these trends, organizations are adopting new business modelsPay “as you go”“as a service”Subscription Car insurance Infrastructure Media/Content Utilities/Electricity Mobility Software Cloud services LogisticsSource: 1ITU State of Mobile Internet Connectivity 20192World Payments Report 20203IoT Analytics – State of IoT (2020)4McKinsey8Ecosystem/ platform play Multi-industry expansionfrom core business, e.g.Grab, Alibaba, Amazon
CONFIDENTIALIoT continues to drive towards an increased appetite for on-demand, visibility, and efficiencyOn-demand Constituent: On-demandengagement through any channel(incl. IoT) Treasury: Easily accessibleinformation and connectivityData visibility Constituent: Explosion of datathrough each new IoT device toprovide a customized experience Treasury: Visibility intooperations and resource data9Efficiency Constituent: Increased ease ofuse for the consumer experience Treasury: Automation andoptimization using connectivityand available data
CONFIDENTIALEmerging technologies are converging to transform across the organizational value chainOptimize analyticswith data scienceEnhance clientexperience with AI10Innovate infrastructurewith blockchain
CONFIDENTIALData science can optimize analytics and data usage to provide actionable insightsUse CaseClassification1Payment insights Optimize payment performance throughAnomalyDataSciencehistorical and predictive analysis on: Authorization Cost of payment Dispute resolutionPrediction2Consumer insights Identify customer clusters and optimizecustomer view based on behavior acrossacquiring and issuing dataClustering3Cash flow forecasting Forecasting via historical data and adjustmentsRecommendation11
CONFIDENTIALInnovate infrastructure by leveraging blockchain as the foundations of a new ecosystemRecord, track, verify, andaggregate informationUse CaseFortify and secure datamanagement Scalable use case of blockchain to linkConnect multiple sourcessilo’d datasets A single-source for all customer dataBlockchainpoints collected and updated by disparateplatformsForm smarter predictions Long-term vision is to build a platformecosystem with value-added applicationsBuild decentralized apps“If you aren’t networking your data, your opportunity costs increase exponentially”Steve Turk, Chief Data & Analytics Officer, J.P. Morgan12
CONFIDENTIALArtificial intelligence and machine learning can enhance operations without sacrificingclient experienceUse CaseHyper-personalizationVirtual assistantAutomation andautonomous systemsAI & MachineLearningImage and patternrecognitionResource optimization Queries are answered intuitively andimmediately; and is constantly improving Automate routine and repetitive tasksFederated learning13
CONFIDENTIALWhen applied to the right use cases, technology can be a critical enabler for transformationFundamental transformation As consumer shifts continue toaccelerate and also gain footholdin the wholesale space,businesses need end-to-endflexibility and agilityRight use case Finding the right use case iscritical to scaling the applicationof emerging technology It is also one of the largestbarriers to adoption14Technology as an enabler Applying emerging technologyacross the value chain can helpenable organizations to: Offer optionality Engage real-time Gain efficiency Optimize data
CONFIDENTIALFlexibility, agility, and efficiency enabled by technology will be the keys to success1On-demand engagement2Real-time experience3Optionality and choice4Data-driven insights5Technology as an enabler Constant connectivity allowing constituents and suppliersto engage whenever End-to-end real-time infrastructure to support real-timepayments, visibility, and experience across your organization Payment, capability, and connectivity optionality asconsumer demands gain traction in wholesale Data visibility and usage of data for value-add to optimizeoperations and to enhance insights Find the right use cases to scale emerging technology andenable change across your organization15
CONFIDENTIALDigital Transformationand the implications for Treasury16
CONFIDENTIALTreasury & finance transformationThe pandemic has highlighted the Treasurer’s strategic importance and accelerated the shift to digitalBusines Model Pivots% of corporations cite businessmodel pivots as the primarydriver of their priorities1Topics of interest for treasurers innext 12-24 months1Real-timeinformationInnovations that treasurers useor plan to do so over the next12 ging innovationto transform treasuryTreasury on DemandReal-timepaymentsand ility15%Cryptocurrenciesto treasury 2020 – 2021 ReportBenchmark Research Treasury Review neys2AssetOthers25%API47%Function benefitting due toapplication of technology262%RPA47%Technology drivestreasury22%9%2%Supplychain6%Cash forecasting8%Liquidity14%Receivablesmanagement16%
CONFIDENTIALAdapting treasury to business model shiftsOFFLINEOffline to Online – Five “Future-Proofing” Considerations for TreasuryLimited paymentmethodsBatchprocessingActive liquiditymanagementHigher velocity& volumes ofB2C salesAlternative paymentmethods, andchannelsReal timeprocessingDynamic liquiditymanagementCost focusONLINEB2B salesSource: J.P. Morgan18User experience
CONFIDENTIALImplications for treasurersLaying the groundwork for“real time”Leverage newtechnologiesCyber-security& fraudOffline-to-OnlineEnhanced focus oncapital optimizationESG focusPerennial Treasury PrioritiesEnhanced cashvisibilityCross currencymanagementOptimizing liquidity19Cash forecasting
CONFIDENTIALSupply Chain HealthHow the transformation to digital can free up cash20
CONFIDENTIALSupplier payables innovation & transformationThe limiting factor of any working capital opportunity in AP is the ability to approve invoices quicklySupplier payables transformation70%of digital champions use financial datato make supply chain decisions226%11%Year-on-year % change inadoption of datavisualization tools1Year-on-year % change inadoption AI/machine learning129%25%Year-on-year % change inadoption of cloud-basedprocurement applications1Year-on-year % change inadoption of advanced analyticsand modeling tools21. PWC Supply Chain 2025, 42020 The Hackett Group21
CONFIDENTIALInnovation in payments breeds working capital opportunitiesSales Growth Freeing up cash trapped in unpaid invoices to maintain output is vital to capture market demandAcquisition funding There are inorganic growth opportunities in the market and financing solutions can have a role toplay in pre and post acquisition capital structures and liquidity portfolioStimulus phase out As government stimulus packages are phased out additional working capital is essential tomaintaining outputTreasury revenues Demand for supplier early payment is high; however, using cash to fund a DD program may limitgrowth – using financing tools to generate cash to redeploy in DD programs can generate treasurygains22
CONFIDENTIALSuppliers need help They face liquidity issues and challengesdue to disrupted supply chains They face demand spikes and fulfillmentdifficulties They face employment or technologyshortages and outages23
CONFIDENTIALSuppliers, not buyers, dictate the success (adoption) of a payment solutionSupplier Priorities*Buyer Priorities Support working capital needs but givesuppliers sustainable acceleration options Easy integration with existing systems Minimize effort associate with supplieradoption and support Support ESG goals and initiatives More automation and improved userexperience 56% of suppliers want to get paid early 37.5% of suppliers are consistently paidlate Primary supplier DSO pain points:1.Cash flow gap: 34%2.Payment predictability: 20%3.Improve working capital: 15%4.Ease of use: 11%*Taulia 2020 annual supplier surveySolutions that are mutually beneficial for both you and your suppliers24
CONFIDENTIALKeep your supply chain healthy You need to be able to get the goods youneed when you need them You want your suppliers to reflect yourvalues You need to know your suppliers will bethere25
CONFIDENTIALProviding an early payment option for suppliers is critical to Supply Chain health50% of small businesseshave fewer than 15 cashbuffer days*Firms with irregular cashflows are nearly twice aslikely to exit as those withregular cash flows**Source: JPMorgan Chase Institute26
CONFIDENTIALTop performers leverage digital transformation to optimize supply chain paymentsSupply chain segmentation and payment terms standardization form the foundation for optimizationPurchasing Card andMobile Virtual CardREBATEWORKING CAPITALCOGS REDUCTIONSupply ChainFinanceWORKING CAPITALSupplier spendCOST SAVINGSREBATEDynamicDiscountingVirtual CardSupplier and BuyerInitiated PaymentsTacticalTail-endCost and Operational EfficienciesBank Account Transfer andCheck Print Outsourcing27Strategic
CONFIDENTIALCritical components of a best-in-class solutionWorking capital platformAutomation and integrationAnalytics and intelligenceSupplier valueScalabilityUniversal success management28
CONFIDENTIALFuture-proofing your cash flow in a dynamic supply chain environmentWhat does Supply Chain success look like in 2025?The Vision:A connected, autonomous and self-optimizing supply chain ecosystemThe Benefits:Digital Champions reduced costs by 6.8% and grew revenue by 7.7% 1Key takeawaysThe Digital Revolution is enabling Supply Chaintransformation through API’s, AI, BlockchainLeveragingdigitally transformed P2Pprocesses makes strongeconomic sense and supportssupply chain health byenabling mutually beneficialpayment relationships.The Pandemic has accelerated the transformation todigital by an estimated 6 years2A Standardized Payment Terms Strategy coupled with earlypayments programs releases cash and supports SupplyChain healthA lesson from history: During the 2008-2011 global financial crisiscompanies with top performing Cash Conversion Cycle’s grewrevenue 58.8% and bottom performers saw revenue shrink 13.2%3Sources:1. PWC; Connected and autonomous supply chain ecosystems 20252. Overall estimate of enterprise’ digital transformation – Twilio via Forbes 20203. J.P.Morgan Working Capital Index 202129
1. PWC Supply Chain 2025, 42020 The Hackett Group Year-on-year % change in adoption of data visualization tools1 29% 25% 11% 70% 26% Year-on-year % change in adoption AI/machine learning1 Year-on -year % change in adoption of cloud-based procurement applications1 Year on year % change in adoption of advanced analytics and modeling tools2
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