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2 November 2012 | Adam Leach
Network Rail has spent the past two years trialing a supply chain finance scheme, which it is now making available to all its vendors.
Following the pilot in which it offered a supply chain finance solution to 36 suppliers, the rail infrastructure organisation has now opted to scale it up. While the trial was managed in-house through its own ERP system, it has now contracted Citibank to act as its technology provider.
Speaking to SM, Network Rail’s head of contracts and procurement operations, Jim Carter, said it initially acted following prompts from its supply base. “We were being asked on a more frequent basis to advance payments,” he said.
Wanting to support its supply chain and identify the best way to proceed, it ran the pilot. That traded a total of £618 million and suppliers got paid an average of 20 days earlier than they would have otherwise done. Following it success, Network Rail went out to tender for a provider to run a much larger scheme and Citibank won the bid.
Network Rail processes around 370,000 invoices a year. To offer the benefit to its full supply base, it knew it couldn’t continue to manage it in-house. “If we’d started introducing approvals or the things we’d have needed to do in that process, the benefits would just go out the window.”
By bringing in a third party, it was able to get the required scale to expand it to all vendors, which it plans to do in a phased approach. Citibank’s expertise will also give Network Rail better access to and understanding of the credit ratings of its suppliers. Carter said the technology will also help: “The technology the Citibank guys, or any of the other providers, have means that a supplier can go in and select invoices to trade or automatically trade and that is all seamlessly achieved, which isn’t something that we could do.”
He added that one of the benefits to suppliers was that once Citibank pays them, there is no recall option, so any issues that arise have to be resolved between Citibank and Network Rail.