Essay About High School Student And P&G

Mgrl Write Up
Tanya WadhawanMGRL Business ManagementProfessor Rando 9/27/17Procter & Gamble Case QuestionsSupply chain finance, or supplier finance, is a set of solutions that businesses institute towards their customers that optimizes cash flow by allowing businesses to lengthen their payment terms to their suppliers while providing the option for their suppliers to get paid early. This results in a win-win situation because the buyer now has working capital to invest and the supplier generates additional operating cash that minimizes risk across the supply chain. P&G extended payment terms for suppliers in April of 2013 in order to launch the new supply chain finance program and give eligible suppliers the ability to receive discounted payments for their receivables in 15 days or less. They launched the program simultaneously because it afforded them the ability to use the money that they received to invest and grow. This allowed P&G to pay back the suppliers and make a profit. However, suppliers are also happy because they receive discounted payments so it is a win- win situation. DPO means days payable outstanding which indicates how many days on average a company pays off its accounts payable during an accounting period. It is calculated using the amount a business has in accounts payable or owes creditors, divided by the cost of goods sold and then multiplied by 365 since that’s how many days there are in a year. So, for a high school student to understand, I would say 69.8 is the average days it takes P&G to pay back your money owed by a company to its creditors. According to the article, it is Days of Payable Outstanding= Accounts Payable/ (Cost of Goods Sold/ 365). It would be ($7,920,000,000/ ($41,411,000,000/365) which equals 69.8.If the DPO was 90 in 2012, that means that P&G got faster at paying their accounts payable back. High DPO’s are looked at favorably because it indicates firms are using the cash that would have gone straight to the suppliers for other uses. However, extremely high DPO’s indicate liquidity issues which is negative and low DPO’s indicate ineffective cash management. The average is 37 so P&G should feel good with theirs. Fibria should continue to use P&G’s Supply Chain Financing program because having cash and cash management in general is important and the goal for company’s such as P&G is to convert their invoices to cash more quickly. There are issues with SCF because Fibria wants to convert his inventory to cash as early as possible and P&G wants to optimize the cash and stretch payment terms as long as possible. However, this can be a win-win solution for all Fibria, P&G, and the bank they use because they get discounts as well. This SCF program is important because it allows benefits for all parties while maintaining their financial stances.