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2020 Manufacturing and Industrial Highly Commended: Volvo Car Corporation

Rebecca Spong

date: November 19, 2020

Interesting insights on the SCF programme of Volvo Car Corporation, a Highly Commended participant of the 2020 SCF Awards Manufacturing & Industrial category.

Category: Manufacturing & Industrial

Highly Commended: Volvo Car Corporation

Partner: PrimeRevenue

Summing up:  A supply chain finance platform that has high levels of supplier engagement without pushing DPO rates to extremes.

What the judges said: “Reaching and keeping the DPO rate to 74 days demonstrated the aim of providing access for Volvo’s suppliers to liquidity without maximising its working capital and profit. Ethics-driven!”

Key Facts:

  • Suppliers consistently accelerate 92 per cent or more of invoices for early payment
  • Buyer managed to increase and maintain a DPO rate of 74 days – a rate sitting in the middle of the market range when compared to competitors
  • Volvo saw sales in July up by 14.2 per cent compared to 2019.

Volvo Car Corporation has long been aware that supporting supplier health is just as important as improving their own working capital metrics. Disruption to one supplier could cause havoc throughout the rest of the ecosystem. This has never been more apparent than this year, amid the Covid-19 crisis, with the global automotive industry hit hard by factory shutdowns and a slump in customer demand.

Volvo originally set up its supply chain finance (SCF) programme in 2015 with the dual aims of improving working capital so it could invest in strategic initiatives such as hybrid, fully electric and self-driving technology as well as strengthening its supply chain – but the programme really came into its own this year supporting a network of struggling suppliers.

While improving cash flow was a clear strategic goal, Volvo was also determined to construct an SCF platform with an ethical mindset in which suppliers would not be disadvantaged by aggressive payment terms.

Before the SCF programme was established, Volvo’s global days payable outstanding (DPO) stood at 50 days. Its global DPO has now reached 74 days. The company has purposely avoided pushing payment terms to the lengths secured by its competitors – some of which are nearly double Volvo’s.

The programme has grown to be highly valued by suppliers in need of early payment during this tumultuous year as the pandemic hit supply chains and the global economy. Suppliers have consistently accelerated 92 per cent or more of invoices for early payment – demonstrating an unusual amount of supplier engagement and enthusiasm for the programme, especially given the regular payment terms are not aggressive by industry standards.

Out of the 86 per cent of suppliers that actively accelerated payment on invoices in the last 12 months, more than half chose to enrol in AutoTrade, a feature that automatically trades invoices for early payment.

Supplier feedback said that support from Volvo and PrimeRevenue via the SCF programme was a lifeline for the survival of their businesses during the first months of this year when production ceased, and order pipelines collapsed.

One supplier said: “Without timely support from both Volvo Cars and PrimeRevenue, I’m not sure we would have been able to survive those first few months.”

The process of setting up the platform relied on cross-department cooperation with treasury and procurement as well as technology partner PrimeRevenue working together to establish a set of goals that benefited both Volvo and its suppliers.

The programme consists of suppliers representing 12 countries, with funding provided in seven currencies.

The SCF platform has supported the wider business, with the car producer maintaining a strong performance this year despite the challenges of the Covid-19 pandemic. Sales in July were up 14.2 per cent compared to 2019.

Rebecca Spong

Rebecca Spong is an experienced freelance journalist with a demonstrated history of working in the writing and editing industry. Skilled in journalism for online and print publications. Rebecca is interested in finance, business and Middle East-focused stories. She has a Post-Graduate Diploma in Broadcast Journalism from City University.