Operation Management HW#5 - P&G - Jeffrey Chan
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5550
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Industrial Engineering
Date
Dec 6, 2023
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1
Uploaded by DeaconOtterPerson230
Jeffrey Chan
Operation Management
HW #5 – P&G
1) Describe the reverse factoring program used by P&G.
This is a 5-year cost cutting program starting in 2012. This program has three steps in the facoing
process: Design, announcement, and rollout. The players in this program are supplier, the financial
institution, Bank Wed Platform, and P&G. According to the article, P&G asked for extension of payment
by 30 days, which is an option of quicker payment from bank in 15 days at interest rate based on P&G
AA-credit rating.
2) Explain how and why the program leads to win-win-win for P&G, its suppliers, and the financial
institution.
This program is a win-win-win for P&G, its suppliers, and ban institution because the supplier can get
paid quicker and access finance at a lower cost than the regular bank borrowing. The ability to use P&G
program as a flexible buffer is available to many suppliers. In addition, it enables them to optimizetheir
financial ratios, as well as have lower levels of receivables.
Siemens: Improve Cash Flow, Reduce Supply Chain Risk, Strengthen Supplier Relationship and
Streamline Processes
Supplier: Improve Cash Flow, Optimize Working Capital, Enhance Debt Capacity, and Increased
Transparency & Reduced Costs
3) What are the potential barriers in implementing the reverse factoring program?
There are risks in implementing the reverse factoring program. The four risk types are credit risk,
dilution risk, credit risk, and performance risk. For credit risk and dilution, the anchor can default on
contractual obligations to supplier and bank by failing to make payments. Also, the anchor can reduce
value of outstanding invoice. For credit risk and performance risk, spoke defaults on contractual
obligations to bank by failing to make payments. This is typically less relevant as the products are based
on credit risk of larger anchor. In addition, the spoke and supplier could fails to meet obligations to the
buy.
4) HP sells computers via its reseller network. Many resellers (especially in developing countries) are
small and medium enterprises with poor credit ratings and high financial costs. How can HP help its
resellers to mitigate their liquidity issues without hurting HP’s own liquidity? Can reverse factoring be
helpful in HP’s supply chain? If not, can you think of something else?
If HP sells computer via its reseller network, then HP can mitigate their liquidity issue using the reverse
factoring which could reduce the issue in HP’s supply chain. In addition, HP could also consider using
dynamic discounting. As days outstanding increases, the discount rate available to the buyrer for early
payment is gradually reduced.
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