Intel for the ‘Win-Win’

Intel thrives in an intricate supply chain of tech companies that span the globe. “Over half of our suppliers are small and midsize businesses,” says Jackie Sturm, corporate vice president of global supply chain operations. “Supply-chain health and continuity are at the forefront of our business practice as we work to support the businesses that power Intel.” To that end, the chipmaker responded to the 2020 pandemic economy by bolstering its supply-chain finance options for smaller suppliers.

Even before Covid-19 hit, Intel offered suppliers a variety of options to support their working capital needs. “The genesis of this was that we were approached by multiple external banks offering to help us with supplier financing,” explains Antoine Hamelin, director of treasury in Intel’s capital markets group. “We have a very strong balance sheet and realized that it made more sense to finance our suppliers ourselves.”

Intel began writing discounting options into its supplier agreements, offering to pay faster in exchange for reductions to the invoice amount. “If they are meant to be paid in 90 days, they can get paid in 10 days for a fixed discount,” Hamelin says. However, the agreements typically let Intel choose how quickly to pay. “So, this doesn’t work for suppliers that don’t want to give Intel the predetermined discount. As we explored other options, we liked the C2FO approach, which provides more flexibility for suppliers.”

In 2016, Intel set up a program within the online platform of supply-chain finance vendor C2FO, then invited suppliers around the world to sign up. Intel built connectivity between the C2FO platform and its internal SAP enterprise resource planning (ERP) system.

Now, whenever Intel approves an invoice from a supplier that is part of Intel’s C2FO network, the SAP system automatically sends the invoice to the supply-chain finance platform. The next time the supplier logs in, it will see that invoice along with a list of others that have been approved for payment. The supplier can select individual Intel invoices or all that are listed, then offer a bid for the size of discount it deems appropriate for early payment on that, or those, invoices. The supplier’s offer will run through Intel’s preset—but hidden—rules within the C2FO solution, which specify the level of payment discounting the chipmaker will accept. The supplier will receive notification of the offer’s success or failure within 24 hours. If it is approved, the discounted payment will be included in Intel’s next payment run.

This program accelerated about $1.2 billion in Intel payments to around 1,400 suppliers last year. And it has always been open to vendors of all shapes and sizes. “For our small to midsize suppliers, this program is very easy to use, offers attractive pricing compared with their other funding alternatives, and provides great flexibility,” says Gero Zimmermann, treasury manager on the capital markets team. “Unlike other options such as contractual discounts, this program doesn’t lock the suppliers into anything. They can manage their working capital on their own, as they need to.”

Still, when Covid began threatening the cash flows—and, in some cases, even the survival—of many small to midsize businesses, Intel decided to do more. “Covid presented an interesting challenge,” Zimmermann says. “Demand for Intel’s products was actually increasing, as remote work, study-from-home, and cloud computing were all growing dramatically. At the same time, our complex international supply chain was challenged with travel restrictions, work-from-home mandates, and other obstacles to business as usual. A lot of our small to medium-size suppliers are more vulnerable to business slowdowns than Intel is, and they were seeing cash flow challenges even as we were seeing demand grow.”

Entering the second quarter of 2020, the Intel procurement team was having daily meetings to discuss the possibility of supply-chain disruptions, Hamelin reports: “They were really wanting to help small suppliers, but they didn’t have a lot of levers available to them.” The capital markets team suggested an innovative option: increasing support for the small to midsize businesses Intel relies on by changing the rules of the company’s supply-chain finance program.

“We had been meeting with the procurement team on a regular basis for years to develop the supply-chain finance program,” Hamelin says. “Financing wasn’t always a top priority in the past, but we maintained that relationship and never got discouraged. Then, when we came to them with a solid proposal to help our smaller suppliers in their time of need, the procurement team jumped on it.”

The program altered a few key aspects of Intel’s C2FO system, making discounts easier and more appealing for small and midsize businesses (SMBs). “We removed the price discovery mechanism that is fundamental to the marketplace-driven structure of our standard program,” Zimmermann says. “Instead of a bid-offer scenario, we come straight out and tell participants in this new SMB program what discount we would expect on an invoice in order to include it in our next payment run—and that discount is going to be very low. The timing of the payment will vary by country, but we make our working capital offer as predictable as possible so that they have as few hurdles as possible to get their payment right away.”

See also:

• Walmart Builds a Working Capital Option to Support Small Suppliers
• On-demand webcast with a panel discussion of our winning projects: Partner Impact: How Large Companies Build Resiliency in Their Supply Chains

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Suppliers with less than $50 million in revenue are the prime group targeted by the program, but larger companies can be included under certain circumstances. “We opened the program globally to small companies, then we worked with our supply-chain function to compile a list of additional partners that we thought might be vulnerable in the pandemic economy,” Zimmermann says. More than 800 of the suppliers invited to the SMB program ended up participating in 2020.

Feedback has been mostly anecdotal. “We’ve heard about some participants calling it a ‘lifeline,’” Hamelin says. “Ultimately, though, I would say the proof is in the pudding. The fact that so many companies are using it demonstrates that they find it beneficial.”

Hamelin attributes the success of the program, in part, to the energy that the capital markets team has expended over the years building relationships with other groups throughout Intel. And Zimmermann appreciates the ways in which the initiative has helped his team collaborate with others outside of their niche. “Those of us in the capital markets group think about Intel’s cash flows and how to best manage its assets and other finance-nerdy types of things,” he says. “This was an opportunity for us to step out of that box and think about what’s right for the company and our supply-chain partners.”

It was also an opportunity to demonstrate the value the capital markets team could offer. “The words ‘win-win’ tend to be overutilized, but in this case, they’re appropriate,” Hamelin concludes. “From a financial perspective, Intel is not losing money on this program. We’re not making a huge profit on it, but from a financial perspective, it’s a reasonable use of our cash, independent of the goal of helping our suppliers. But then, it also provides a great benefit to our suppliers who need working capital support. So I think we both win, which is a fairly rare scenario.”