Adam Smith Awards Asia 2018

Overall Winner Best Trade Solution Hankook Tire Singapore Pte Ltd Singapore Kim Kwang Hyun, Managing Director Hankook Tire Singapore is a subsidiary of Hankook Tire Co Ltd, one of the world’s largest tyre companies. Headquartered in South Korea, the group boasts a number of production facilities, R&D centres, subsidiaries and distributors globally. Hankook Tire Singapore was founded in 2012 to streamline the company’s supply chain and tap into Singapore’s lower nance costs. The power of centralisation discovered The challenge Prior to Hankook Tire Singapore’s establishment, China and Indonesia factories procured raw materials directly from third-party suppliers in US dollars with a usance period of 180 days. Using usance as a payment method was costly due to the high interest rate in China and Indonesia compared to Singapore. Sales were made in currencies other than USD. This execution led to the mismatch between factories’ purchase and sales currency, creating risk. incurred high expenses for the companies. Working capital and cash ow was far from optimal. The solution Hankook Tire Singapore is now positioned as a regional procurement hub for factories in China and Indonesia, replacing the former practice of contacting over 80 suppliers. It also acts as an intermediary for the sales of tyres, controlling payment terms to improve cash ow and working capital, procuring from Indonesian factories and selling to Malaysia, Thailand and India sales entities. Singapore took over FX management, tackling currency issues between the China factories and the regional sales entities, reducing the short FX position of China factories while transacting forward contracts. The payment method was changed from LC to open account to curb high costs. Negotiations with entities also extended days payable outstanding (DPO). Hankook Tire Singapore deployed a supply chain nance programme to enhance working capital management and standardise payment methods. Other measures include Singapore becoming a centralised payment factory for other entities globally, speci cally as a centralised FX control centre. Best practice and innovation To reduce the high cost arising from LC opening, Hankook Tire encouraged suppliers to adopt the OA payments. Cooperation enabled clear improvement results. Where factories and sales entities faced a mismatch in their purchase and sales currency, it created FX exposures in each of the entities. With Singapore as the reinvoicing party to purchases, invoicing in functional currency, FX exposures were more easily and effectively hedged, using forward hedging. As reinvoicing agent, Singapore also took control of payment terms to sister entities by analysing each of their cash positions and determining optimal payment terms. Through the supply chain nance programme, working capital and cash ow was improved by enabling the extension in payment terms from suppliers. Also, widespread standardisation has improved ef ciency in several work processes. Initiatives include creating a processing centre for inter-company balance settlements; setting up an APAC host-to-host banking platform to improve visibility on cash position;, and introducing supply chain nancing that allows payments application form, generated from the ERP, is now reducing human error and improving ef ciency. Key bene ts • Work ow improvements. • Improved bargaining power and economies of scale. • Enhanced standardisation and automation of nance/ procurement nance. • Reduced human error, increased ef ciency and lowered business risks. • Good partnership maintained with bankers, suppliers and government. • Procuring through Singapore gives cumulative savings of US$8.3m from 2012 to 2018. • Working capital improved by US$99m (at December 2017). • Average payment terms reduced by 29 days. • Managed FX exposure in various local currencies (RMB, THB, MYR and INR) equivalent to US$80.7m through billing in local currency. Kim Kwang Hyun and Soo See Tan, Hankook Tire Singapore Pte Ltd, Ivone Hodiny, DBS and Thomas Aubry, Citi treasurytodayasia Adam Smith Awards Asia © February 2019 | 13