February 2017

Deutsche Bank and Jumbo Supermarkten celebrate working capital management success with the Global Finance Award for the best Customer Implementation of Supply Chain Financing Solutions 2017. Flow Insights takes a closer look at what helped them get there.

This remarkable retail business had its beginnings in 1921 with the entrepreneurial family Van Eerd – a wholesaler in colonial goods. The first shops were set up in the 1970s. The number of shops grew further until father Karel and his children Colette, Frits and Monique opened a unique store in 1996 in the belief that it could be done better, differently and less expensively.

Rapid growth

From day one, Jumbo was regarded as a resounding success. It made possible what was deemed impossible – a store that combines the largest selection, lowest prices and best service. Since then, the family, along with a growing group of enthusiastic and involved colleagues, decided to expand this winning formula.

The journey progressed to the acquisition of competitors Super de Boer in 2009 and C1000 in 2012. In addition, the acquisition of the La Place restaurant business (announced at the end of January 2016) has widened Jumbo’s reach beyond the Netherlands into Belgium, Indonesia, Germany and the US. Now, some 21 years after the first store was opened, Jumbo has become the second largest supermarket chain in the Netherlands. Putting the customer first is a firm belief shared by everyone who is part of Jumbo – and this attitude, say observers, played a significant part in this supermarket’s success.

So what makes up this Jumbo formula? The answer is pretty straightforward – the lowest price, the biggest range of products and the best service. With a headcount of around 65,000, the company is one of the largest employers in the Netherlands. Being a family business that has the interests of future generations at heart, the company strives to operate as sustainably as possible.

With a number of retail industry awards such as ‘Best retail chain’ (Stichting Retail Jaarprijs) under its belt, Jumbo’s working capital strategy caught the attention of Global Finance magazine. The retail giant’s partnership with Deutsche Bank landed the duo ‘Best customer implementation of supply chain financing solution’ for the 2017 awards presented at the BAFT Trade Finance conference on 18 January 2017 in Madrid, Spain.

All aboard

Effective management of supply chains is business critical to retail giants such as Jumbo, whose business models are predicated on high volume/ low ticket (compared with, say, the aviation industry) transactions in a business to consumer market.

While supply chain management disciplines have come a long way as a result of advances in technology – inventory optimisation, cost and quality control and end-to-end visibility along the supply chain – being the main areas of transformation, the inclusion of supply chain finance within these transactional value chains has been gaining traction relatively recently.

The reason? All too often the risk profile of SME suppliers has meant that bank credit has either been very expensive or simply not available. As Peter van Erp (pictured), finance director of Jumbo explained in Elsevier’s Supply Chain Management ‘special’ published in August 2016 i,  “In our search for ways to help suppliers and reduce their dependence on bank financing, we ended up with supply chain finance solutions. Supplier finance enables suppliers to avail simpler and cheaper financing.”

This was confirmed in a Deutsche Bank FSC (Financial Supply Chain) white paper during 2015, “Treasurers need to harness internal liquidity sources more effectively by improving their cash conversion cycle but must do so in a manner that strengthens trading relationships.”

It continues, “A corporate implementing FSC can unlock idle capital without disadvantaging its trading counterparty. Such capital is not only cheaper than other sources of funding but actively strengthens the supply chain by creating benefits for both buyer and seller.”

Anil Walia, EMEA FSC Head at Deutsche Bank AG offers the following working definition: “Supply chain finance creates financial efficiencies by providing liquidity to the entity in the supply chain that needs it the most; at a pricing that reflects the strongest entity’s creditworthiness.”

Sustainable growth

While the initiative for choosing supplier finance as a solution to protecting supply chains came from the finance team at Jumbo, the project of making the programme happen involved finance, IT, and procurement teams.

Deutsche Bank won the mandate to provide the service, with its supplier on-boarding support being one of the deciding factors for Jumbo. “The key to the success of a supply chain finance programme is the level of acceptance by the suppliers. This means ensuring the experience of ‘on-boarding’ is intuitive and hassle-free,” says Walia.

The interaction between all stakeholders was one of the key success factors of setting up the Jumbo supply chain finance programme with the bank. Clear targets and personal approach with the help of Deutsche Bank’s programme managers on the ground resulted in a smooth and fast growth by on-boarding dozens of suppliers. This enabled all stakeholders to benefit within a relatively short period.

“The programme should fit and requires tight integration into existing systems,” says Van Erp. In addition to training the procurement, finance and commercial teams, the bank and Jumbo organised ‘supplier days’ in advance of the launch to help suppliers familiarise themselves with how to use it and understand the value of off-balance sheet liquidity.

The Van Eerd family had its beginnings as a small business and thus has a particular commitment to supporting SMEs. “We understand what it is like to grow a business and that empathy can be seen in the way we work with our partners in the market”, explains Van Erp.

Architecture and workflow

flowchart

Figure 1: Supplier finance – workflow and platform

  • Step 1-2: Supplier delivers goods and invoice to Jumbo
  • Step 3-4: Jumbo uploads approved invoices on to Deutsche Bank’s FSC portal which automatically notifies the supplier
  • Step 5: Supplier submits an online request to discount the invoice
  • Step 6: Deutsche Bank pays the supplier in an automated process
  • Step 7: Jumbo repays the invoice on maturity

Figure 1 sets out how the workflow and platform actually functions. Deutsche Bank operates as the fronting and agent bank, and the funding consortium includes three other banks.

The success of the solution is supported by the enthusiasm of Jumbo and the eagerness of the suppliers to join the programme. Around 18 months into the project, the objectives have nearly all been achieved and Jumbo has met the working capital optimisation targets it has set itself. At Deutsche Bank, tens of thousands of invoices approved by Jumbo are discounted every week, delivering quick, efficient liquidity to hundreds of suppliers.

Note: For further details of Deutsche Bank’s Financial Supply Chain Management services click here.

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i
Peter van Erp’s comments and photograph have been extracted with publisher’s (Pulse Media Group) permission from Supply Chain Management special August 2016, which is published once a year as an enclosure with the weekly news magazine Elsevier (in Dutch, 100.000 editions)

Anil Walia

Financial Supply Chain Head - EMEA, Deutsche Bank AG

Anil Walia

Peter van Erp

Finance Director, Jumbo Supermarkten

Peter van Erp

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