Covid-19 has forced businesses to reconsider their supply chains. The team at Benteler Trading International outline how companies can increase supply chain robustness in a post-Covid-19 world in a balance sheet efficient way through inventory optimisation and improved logistics.


Covid-19 has had tragic repercussions in communities throughout the world. Naturally, the human loss overshadows the associated economic shock. But as the world gets used to a new way of life in terms of self-isolation, social distancing and new, previously unthought of, regulations and social norms for everyday activities, so too will the corporate world have to adapt to new paradigms.

There is a high degree of fallibility in just-in-time supply chains, as was demonstrated in 2020 as swathes of manufacturers around the globe were almost simultaneously forced to close down. With borders shutting down and draconian restrictions introduced in the movement of goods and people, a huge output gap developed. But there are ways for proactive treasurers to respond and take the lead in implementing measures that counter some of the failings that the pandemic has ruthlessly laid bare.

Supply chains eat up scarce and valuable capital, the cost of which can be defined for simplicity as the corporate’s weighted average cost of capital (WACC). This is why corporates have traditionally looked to minimise both the magnitude of their inventories and associated performance indicators of working capital efficiency such as days inventory held (DIH), days sales outstanding (DSO) and days payable outstanding (DPO) – while ensuring that both production and sales are maximised. Covid-19 has laid bare the shortcomings of this approach.

But what if there was a way to increase stocks of raw materials and finished goods to better prepare corporate supply chains for future black swan events in whatever form they might take, without losing any of the financial flexibility?

One such way is to implement an inventory trading solution.


Inventory trading

Inventory trading leverages a lower carrying cost to defer asset recognition. The flexibility of the solution offers opportunities for savings across the supply chain.

Benteler Trading International’s solution originated from the demands of the Benteler automotive module business. The goal, similar to the one we are facing today, was to reduce the capital cost in the high net working capital but low margin business from WACC to debt cost. Having successfully implemented the solution internally, the product was offered to other customers of the Benteler Group. After rapid growth, BTI was deconsolidated from the rest of the group in 2016 to serve customers globally across all industries.

In short, BTI’s solution is to perform the role of an inventory trader, stepping seamlessly into an existing supply chain. BTI is onboarded as a supplier, requiring only existing standard processes in IT and procurement. Inventory of any kind can be purchased at any stage of the supply chain, from raw materials to finished goods. Since BTI is buying and owning the goods, inventory recognition is deferred from a customer’s perspective, meaning this is an off-balance sheet solution. The carrying cost, which is close to a corporate’s cost of debt, is usually reflected in the price of the goods.

More importantly in the new Covid-19 world, the flexibility the solution provides in terms of cost savings across the supply chain can materially reduce the cost of the financing. We therefore look at not only how inventory trading can help treasurers to improve essential finance KPIs, but also at how they can build a company-wide consensus for implementation across areas such as logistics, procurement and supply chain by identifying tangible benefits to each of these separate stakeholders.


Key benefits

Improvements in essential finance KPIs

When BTI steps into an existing supply chain as a supplier, a number of things happen on the financial metrics side. There is a one-off boost to free cash flow (FCF) and an ongoing improvement in the DIH metric, working capital, and net debt.

All things being equal, there is a small hit to EBITDA margin, but in the majority of cases this is partially or fully offset by cost savings across the supply chain. These can be identified in areas such as logistics, through the lens of not being handicapped by working capital constraints.

Volume consolidation

Corporates face increased pressure to derive efficiencies and value from their supply chain. An additional factor within the BTI solution is that it allows companies to buy time in the supply chain, enabling more meaningful and diverse consolidation possibilities. Loading and unloading of new and/or better combinations of goods as well as fully utilising truck and container capacities helps optimise logistics. Additionally, a positive impact on the environment is generated by utilising fewer trucks. Having the ability to wait and purchase monthly instead of single or weekly purchase volumes causes material costs to be reduced.

Rationalisation of suppliers

Supply is typically achieved through a partially enlarged supplier base which inherently increases working capital. BTI can function as a global purchasing platform, lowering inventory as well as the number of suppliers.

Increased material availability

Offering consignment stock solutions as well as on-demand last mile delivery to the clients’ premises keeps the inventory off the clients’ balance sheet, while still remaining in reach constantly. Further improvements achieved through trailer yard in/outbound concepts entail the decoupling of peak loading periods (between 6am and 4pm) as well as providing flexibility to load desired materials at any point. Consequently, a working capital benefit as well as overhead cost reduction is secured.

Optimal utilisation of modes of transport

As the prices for charter routes are both volatile and speculative, forecasting and optimal freights are often impossible to achieve. As inventory is now off-balance sheet, it becomes viable to choose to ship the goods when cheapest, rather than when scheduled in a just-in-time/just-in-sequence rhythm. By consolidation and bundling, larger ships may additionally be hired in order to gain further cost benefits. Subsequently overall logistics costs are diminished.


About BTI

Benteler Trading International leverages 140 years of industry experience to help the world’s leading organisations optimise their balance sheet by re-engineering supply chains. We buy, hold and sell goods within the supply chain to release capital that is otherwise locked in inventory – deferring ownership or alternatively accelerating sales. The potential for efficiencies in logistics and production combined with the capital released can be used to drive value through returns to shareholders, investments in growth, debt management or other discretionary measures.

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About the authors

Tobias Liebelt | Head of Supply Chain | | +49 172 2397 126

Tobias has worked for the Benteler Group for more than 20 years in various functions, ranging from head of operations planning to global supply chain director, taking on additional responsibilities for quality ahead planning. In his position as vice-president of global operations he built up his expertise in intralogistics and logistical applications. In May 2020 he became the new head of global supply chain.

Dr Sven Herzig | Head of Sales | | +49 172 8611 590

Working for Salzgitter AG for 11 years in the precision tube division, taking on diverse responsibilities in application engineering, as head of R&D and as a key account manager for global large corps in the industry division, helped Sven to become an industry expert. Thereafter he transferred to Benteler Distribution as global sales director for mechanical engineering, and since 2015 has worked at Benteler Trading as head of sales.

David Rudd, CFA | Origination | | +44 7502 666 487

Prior to joining Benteler Trading to help originate product in the UK, Nordics and North America, David had a 20-plus year career in investment banking at Mizuho. Most recently he headed the UK and Nordic corporate investment-grade DCM team underwriting USD, EUR, GBP, JPY and CNH deals for Mizuho’s tier-1 relationships, including names such as Anglo American, BP, BT, Experian, Equinor, Glencore, GSK, National Grid, Unilever, Volvo and Western Power.