LG Electronics, 'Benefits for Sub-Tier Suppliers' Win-Win Payment Increases 10-Fold in 5 Years

LG Electronics employees are conducting productivity improvement activities at home appliance parts suppliers in Changwon, Gyeongnam, to enhance the competitiveness of partner companies.

[Asia Economy Reporter Ki-min Lee] LG Electronics is accelerating the expansion of its win-win payment system to ensure that second-tier and lower-tier suppliers also benefit from win-win cooperation.

LG Electronics announced on the 9th that the amount paid by first-tier suppliers to second-tier suppliers through the win-win payment system increased more than tenfold, from 35.2 billion KRW in 2015 to 367.3 billion KRW last year. In the first half of this year, the amount reached 207.5 billion KRW, the largest scale among domestic companies.

Previously, LG Electronics introduced the win-win payment system in 2015 to ensure that payments made to first-tier suppliers are safely passed on to second-tier and lower-tier suppliers.

The win-win payment system guarantees cash payment to first-tier and lower-tier suppliers on the payment date and allows early cash conversion based on the credit of large corporations. For example, when LG Electronics pays first-tier suppliers, and the first-tier suppliers pay second-tier suppliers through the win-win payment system, the second-tier suppliers can convert their payment early by applying LG Electronics' credit rating.

LG Electronics explained that the proportion of payments made by first-tier suppliers to second-tier suppliers compared to the amount paid by LG Electronics to first-tier suppliers increased from 1.6% in 2015 to 7.4% in 2019. As of the first half of this year, it is approaching 10%.

According to the Payment Processing Center, as of last year, the win-win payment amount between first-tier suppliers and second-tier or lower-tier suppliers was 1.7 trillion KRW, which is only 1.5% of the 114 trillion KRW win-win payment amount between purchasing companies and first-tier suppliers.

LG Electronics is actively encouraging first-tier suppliers to adopt the win-win payment system through official letters and guidance on the registration process. Additionally, suppliers who have adopted the win-win payment system receive extra points during evaluations to ensure that more second-tier suppliers benefit.

Furthermore, LG Electronics has been implementing various support policies to strengthen win-win cooperation with suppliers, including ▲consulting support for productivity improvement ▲interest-free fund support ▲support for parts development applying new technologies and new methods ▲free education support.

In particular, the interest-free funds, which were 40 billion KRW last year, have been expanded to 55 billion KRW this year, and the schedule for providing funds was advanced by four months compared to last year.

Lee Si-yong, Executive Vice President and Head of LG Electronics' Purchasing Management Center, said, “We will ensure that the effects of win-win cooperation spread not only to first-tier suppliers but also to second-tier and lower-tier suppliers.”