About
Headquartered in North Carolina in the United States (U.S.), Honeywell is a global diversified conglomerate specializing in four areas of business including aerospace, building technologies, performance materials & technologies, and safety products & solutions. It operates 970 sites across 70 countries and has 110,000 employees.
The challenge
Honeywell has been looking to globalize a supply chain finance program it rolled out in the U.S. in 2019; this is part of its strategy to stabilize its supplier base as well as free up internal sources of working capital, in response to the widespread dislocations in supply chains worldwide as a result of the rising geopolitical challenges in recent years.
The need became urgent at the start of 2020, especially for its Asia Pacific business, when the COVID-19 crisis further rattled supply chains amid country lockdowns and movement restrictions in the region, prompting Honeywell’s customers hurt by a slump in business to ask the firm for better payment terms. With Honeywell’s aerospace business taking a hit as a result of the travel downturn, freeing up internal working capital also became even more pressing for the firm to meet its operational costs.
At the same time, the leading producer of personal protective equipment (PPE) like N95 masks faced the challenge of having to rapidly manufacture PPE to meet the demands of the healthcare industry at the forefront of the fight against the pandemic. Accordingly, ensuring a stable and efficient supply chain to ensure timely procurement of materials became even more critical.
The solution
Honeywell knew it had to act quickly, and in collaboration with J.P. Morgan, launched a large-scale supply chain finance (SCF) program across Asia Pacific, with total eligible procurement spend of $900 million across more than 260 suppliers. The first phase of the rollout that took place across four countries – China, India, Singapore and Malaysia – was completed in record time of six weeks per market. The launch of the second phase including other markets like Hong Kong and Thailand is currently under way.
Through the SCF program, Honeywell suppliers can opt to be paid earlier, as J.P. Morgan can convert outstanding invoices into cash, at a discount. They can also leverage Honeywell’s outstanding credit quality to access cheap and sustainable funding from J.P. Morgan.
As a result of the program, Honeywell suppliers who opt for the program are now able to receive payment as early as seven days from the invoice date, without having to wait until the payment maturity date. They are also able to discount invoices across an array of currencies including but not limited to CNY, USD, EUR, MYR, INR, SGD, and soon HKD and THB.
Supply chain finance solution flow:
- Commercial contracts between supplier and buyer
- Supplier ships goods and sends invoice
- Honeywell approves invoices and transmits to J.P. Morgan
- J.P. Morgan automatically accepts discount proposal1
- Supplier receives payment net of discount amount in specified amount
- Honeywell remits funds to J.P. Morgan on maturity date
1 Suppliers have the option to select automatic, scheduled or manual discounting. The flow above demonstrates an automatic flow.
“The SCF programme proved to be a win-win solution for both ourselves and our suppliers during the unprecedented COVID-19 crisis.”
Freya Yao
Senior Treasury Analyst, Honeywell
The results
- Free up a projected $35 million in working capital a year to support operational expenses.
- Stabilize its supply chains to facilitate timely procurement of materials across its various divisions.
- Strengthened relationships with suppliers by providing them with the option to be paid much earlier, as well as convenient access to an alternate source of funding.
- Allow suppliers to discount invoices across an array of currencies including but not limited to CNY, USD, EUR, MYR, INR, SGD, and soon HKD and THB.
- Reduce administrative costs thanks to standardized payment terms and processes, as suppliers switched from manual invoicing to electronic payments.
- Improve transparency through J.P. Morgan’s global electronic platform which provided Honeywell with full visibility of approved invoices. Suppliers also have complete control their payment / discount dates and access to electronic reporting.
“With in-person interactions not possible, J.P. Morgan worked closely with Honeywell to manage the entire implementation process virtually – including deploying e-signatures to execute digital contracts to reduce supplier and buyer onboarding time, and bringing the program up to speed – something that was particularly helpful at the height of the pandemic."
Erica Gong
Regional Relationship Banker, Asia Pacific, J.P. Morgan
Honeywell was recognized as the overall winner in the Best Supply Chain Finance category at the Treasury Today 2020 Adam Smith Awards Asia – widely known as the industry benchmark for treasury excellence. Listen to episode 5 of the Adam Smith Awards Asia podcast series to learn more.
To learn more about how we can support your business, please contact yourJ.P. Morgan representative.
This material was prepared exclusively for the benefit and internal use of the JPMorgan client to whom it is directly addressed (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating a possible transaction(s) and does not carry any right of disclosure to any other party. In preparing this material, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. This material is for discussion purposes only and is incomplete without reference to the other briefings provided by JPMorgan. Neither this material nor any of its contents may be disclosed or used for any other purpose without the prior written consent of JPMorgan.
J.P. Morgan, JPMorgan, JPMorgan Chase and Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). Products or services may be marketed and/or provided by commercial banks such as JPMorgan Chase Bank, N.A., securities or other non-banking affiliates or other JPMC entities. JPMC contact persons may be employees or officers of any of the foregoing entities and the terms “J.P. Morgan”, “JPMorgan”, “JPMorgan Chase” and “Chase” if and as used herein include as applicable all such employees or officers and/or entities irrespective of marketing name(s) used. Nothing in this material is a solicitation by JPMC of any product or service which would be unlawful under applicable laws or regulations.
Investments or strategies discussed herein may not be suitable for all investors. Neither JPMorgan nor any of its directors, officers, employees or agents shall incur in any responsibility or liability whatsoever to the Company or any other party with respect to the contents of any matters referred herein, or discussed as a result of, this material. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice or investment recommendations. Please consult your own tax, legal, accounting or investment advisor concerning such matters.
Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by JPMC and or its affiliates/subsidiaries. This material does not constitute a commitment by any JPMC entity to extend or arrange credit or to provide any other products or services and JPMorgan reserves the right to withdraw at any time. All services are subject to applicable laws, regulations, and applicable approvals and notifications. The Company should examine the specific restrictions and limitations under the laws of its own jurisdiction that may be applicable to the Company due to its nature or to the products and services referred herein.
Notwithstanding anything to the contrary, the statements in this material are not intended to be legally binding. Any products, services, terms or other matters described herein (other than in respect of confidentiality) are subject to the terms of separate legally binding documentation and/or are subject to change without notice.
Changes to Interbank Offered Rates (IBORs) and other benchmark rates: Certain interest rate benchmarks are, or may in the future become, subject to ongoing international, national and other regulatory guidance, reform and proposals for reform. For more information, please consult: https://www.jpmorgan.com/global/disclosures/interbank_offered_rates.
JPMorgan Chase Bank, N.A. Member FDIC.
JPMorgan Chase Bank, N.A., organized under the laws of U.S.A. with limited liability.
