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Posts under ‘Working Capital’

Tightening Credit Terms for Almost Free

14 May 2009
by Perry.
1 comment

Customer to Cash – Credit Term Analysis & Optimisation (Receivables)

How do we know if receivables are well managed to terms? Are we performing at our best? What if we are the best in industry according to external benchmarks? How may we then do better or is it possible at all? Credit managers often face these questions in the never-ending quest to collect to terms and to drive down terms where possible. An analysis of the customer master is requisite to answering these questions as well as to enable one aspect of credit term optimisation.
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Forecast to Fulfil – SKU (Product) Proliferation

23 Apr 2009
by Perry.
1 comment

Supply chain strategies often take second or third place to operations in the growth and development phase of an organisation. One of the unintended (though sometimes strategically intentional) operational consequences of aggressive growth, both organically as well as through M&As, is that of product or SKU proliferation.
SKU proliferation manifests itself as a hindrance to supply chain efficiencies in a variety of forms including:
- An ‘impressive’ range of product
- Dramatic levels of raw material or WIP, the latter held as a strategy of postponement
- Elaborate operational set ups that often challenges productivity and efficiency KPIs resulting in large production batches
- Loss of operational and commercial control as batched production produces a bull whip effect in finished goods inventory
- An inflated balance sheet where inventory is concerned and gradually thinner margins due to missed or short ships as a result of batch & efficiency metrics.
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Procure to Pay – Spend Policies

16 Apr 2009
by Perry.
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Spending, apart from capital investments, tends to grow a little faster then organisations in most cases. Left unchecked firms face a ‘mid-life’ crisis where working capital is stretched to levels requiring borrowings incurring heavier and heavier finance costs.
A lack of policies guarding the growth of spend is often an underlying cause. Naturally, many other factors come into play as well – an extreme focus on growth, inorganic growth (M&As), lack of standardization for spend reviews, infrequent and irregular supplier reviews, poor supplier maintenance, spend policy over-riding behaviour or a ‘just get it done now’ (covered as maverick spend in an earlier article) culture among others.
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Customer to Cash – Dispute Management (Receivables)

08 Apr 2009
by Perry.
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A portion of collection activities often relegated to ‘customer service’ is that of actual dispute management. Customers who need ‘correction’ on invoicing information, goods returned, quality claims, delivery issues among others get directed to a generic ‘customer service’ department that attempts to secure resolutions from throughout the organisation. As opposed to ‘customer service’ per se we see these activities specifically as ‘dispute management’ as it relates to receivables management.
Customers utilise a myriad of reasons for slow or delayed payment. Often these reasons are ‘valid’ to some extent. “Sorry, we are unable to process your invoice as the address is different or wrong.” Or “Your invoice information is incorrect …”.
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Forecast to Fulfil – Inventory Management (Work In Progress)

02 Apr 2009
by Perry.
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Deliveries to the customer are often delayed due to lack of appropriate product mix. Meanwhile the factory floor looks like it could serve the same number of customers or more for the next two years without replenishing any inventory. Raw material fed into the production unit seems to be never enough. WIP goods are stacked along walls and corridors or any available space – until a new warehouse is available. Work centres are filled beyond capacity and people and machines work around the clock to make the next customer order.
Sounds somewhat familiar?
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Working Capital Meets Lean Six Sigma

26 Mar 2009
by Uwe.
2 comments

The South-East Asian logistics centre of a German multi-national supplier of electrical products for industrial use had decided to reduce inventory for common items from over 82 days stock turnaround time to 55 days – the world-wide standard for their company. Savings would have been significant if they could keep on time delivery (OTD) stable above the standard of 96%. Inventory reduction was achieved due to policy changes and new target settings. At the beginning all seemed to go well.
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Customer to Cash – Customer Segmentation for AR

11 Mar 2009
by Perry.
2 comments

Collections represents the ‘end’ of a sales cycle. It also represents the firm’s ability to convert cash expended from when a customer order arrives through fulfilment and payment. For many firms the operating motto in this area of working capital management is to simply try to collect faster. Few go beyond to address this ‘end of sales cycle’ activity that is the key provider of cash for the firm.
Collections management represents an opportunity to fully utilize a firms systems and resources. Leveraging simple technology is possible and enhanced through customer segmentation.
An ability to segment one’s customers, for the larger firms particularly, allows for differing policies and treatments when it comes to receivables management. Intuition plays a large part in determining the amount of investment required in a given relationship in most cases but this should be applied only to one segment of customers. Policies dictating the handling of other relationships may be drafted according to the resourcing and strategic requirements of the firm. Resources, electronic and otherwise, can then be planned for accurately given business cycles.
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Cheap Cash – Working Capital Reduction

05 Mar 2009
by Perry.
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Credit lines drying up are common phenomena these days. Past credit performance, even with a great history, seems to have no impact on the decisions of banks to lubricate the wheels of commerce. There is, however, a relatively cheap and available source of cash many firms have that may be tapped into now: Working Capital. Working Capital – or the cash flow of a firm – can broadly be categorised into:

1. Customer to Cash (Receivables Management)
2. Forecast to Fulfil (Inventory and Supply Chain Management)
3. Procure to Pay (Payables Management)

Often simply referred to as ‘cash flow,’ working capital resides on the balance sheet of a firm. Improvements in this firm-spanning area yield many returns including the reduced need for cash to keep operations running, a reduced requirement for finance facilities that attract interest payments (Weighted Average Cost of Capital or WACC), well tuned and simplified processes which often mean a reduction in operating expense and P&L impacts. All these are some of the critical fundamentals that every analyst looks for in all economic climates. Even more so today.
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