Reference:

BENJAMIN C. ESTY E. SCOTT MAYFIELD DAVID LANE

Supply Chain Finance at Procter & Gamble

9-216-039 REV: MAY 3, 2017

Question 1:

Fibria is a leading Brazilian producer of bleached pulp with P&G as one of its major global customers. In 2014, P&Gs spend on Fibria's product was $300 Million, representing 10% of Fibria's total annual sales.

Fibria's processing time (from harvest) for P&G was 80 days and the original payment term from P&G was 60 days while its payment term to its suppliers is 40 days. What was Fibria's cash conversion cycle (for P&Gs purchase)?

Question 2:

Prior to the SCF program, Fibria could have originally secured a corporate line of credit to fund P&G receivables at the US Dollar rate of 3% per annum. Note that 3% annual (360 day) borrowing rate implies that the daily interest of borrowing $1 can be calculated as 1$ * 3%/360.

What was the cost to finance all P&G receivables (300Mn$) at the rate of 3% for the full day 60-day payment term (i.e., Fibria received the payment from its own financing source on day 0)? Please round the result to a whole number.

Question 3:

P&G decided to extend its payment term to 105 days (from 60 days) while launching it Supply Chain Finance (SCF) program. City group offered Fibria receivable financing at US Dollar rate of 1.27% per annum for P&Gs invoices paid after 5 days through the SCF program. That is, the SCF program offered Fibria an option of 100 days of financing. How much could Fibria save through the P&G SCF program in comparison with its original financing cost prior to the SCF program? Please round the result to a whole number.