• Posted on: March 10, 2014 by: mardle0312

    Releasing trapped working capital is simply reviewing inefficient processes, whereas Working Capital Strategy is more about delivering an effective financial supply chain.  This means being proactive in areas from strategic alliances to delivering efficiencies in the cash conversion cycle.

    Working Capital Strategy checklist

    Ten tips when reviewing a strategy to achieve working capital optimisation:

    1.   Working Capital Optimisation programmes must extend beyond the finance function and engage the company’s entire managerial team.  Do not think that all working capital management problems can be addressed by treasury alone. Appoint local working capital strategy leaders/champions across the organisation.


    2.   Do not artificially adjust working capital levels through delaying payments to suppliers or indiscriminately stepping up collection activities in order to boost quarter- or year-end performance metrics.  In business, as in physics, every action is met with an opposite reaction.  Delaying payments to vendors may reduce working capital over the short term, but that improvement is likely to disappear over time as vendors adjust their pricing accordingly. Dynamic Discounting is now prevalent.


    3.   Incentivise people to achieve their WCO targets by compensating staff accordingly, particularly at managerial level. User driven key performance and risk indicators should be measure the underlying causes of DSO, DPO and DIO and steps take to monitor and manage findings.


    4.   Make a consistent effort to optimise working capital.  It may be tempting to take the focus away from working capital when the company is growing as there may be less immediate need for it.  Equally, in times of crisis, attention can be diverted elsewhere.  Ignoring working capital could significantly inhibit a company’s ability to grow and meet demand once business rebounds.


    5.   Ensure all hopes are not pinned on ERP implementation.  Although ERP systems can provide significant benefits in the working capital arena, in the near-term they can cause deterioration in working capital performance as key managers and employees are distracted from their daily routines and forced to fine-tune the new ERP system. Mobile applications are proving robust and agile.


    6.   Ensuring suppliers and customers are collaborating effectively is now very much to the fore in demand chain management.  Connect suppliers and customers across the enterprise to achieve maximum benefits.


    7.                  Provide added value for your suppliers.  Major organisations are now using web portals and the like to   deliver seamless accounting transparency for all their suppliers and their financial transactions too, wherever they might be in the world. Supply Chain Finance is now a major part of suppliers funding arrangements.


    8.   Do not allow debt to become overdue before identifying and resolving disputes.  Contact customers before payments are due to resolve any potential disputes and for delinquent payments, assign collection responsibilities to individuals and escalate the responsibility to more senior employees as invoices become further overdue. Have credit management as part of your strategy at Board Level.


    9.   Develop forecasting techniques that incorporate intelligence from all relevant business segments, including not just sales but manufacturing, distribution and marketing.  Evidence from these forecasts will assist in the production of company financial statements to investors re Companies Act 2006 as amended October 2013 re Strategy and Directors Report


    10. Look holistically at the whole financial supply chain.  For example, is there a direct correlation between inventory management methods and the level of customer service that a company can provide?  Do not allow one area to suffer as a result of focusing attention on another.

    Posted on: October 30, 2013 by: mardle0312

    Three Core areas:

    1)      Improving the Client Experience(s)

    Step change via understanding and appreciating the businesses cash conversion cycle past, present and future.

    2)      Cultural Change

    Establish a risk and opportunities envisaged cash profile with the customer via published, management and future state (Strategy/Forecast) cash streams via receivables (demand chain), payables (supply chain), inventory (stock, work in progress, reverse supply chains), CAPEX and investment chains.

    This will identify customer’s cash culture so the profile regarding ‘return OF your money rather than the ‘return ON your money’ is understood.

    3)      Technical Skill / Product Knowledge Development

    Review process via the cash profile to identify short term liquidity gaps and any potential long term funding chasms.

    Measure, Monitor, Manage, Mentor the business cash profile via the 18 month forecast and the strategy being deployed in the business to sustain, grow or otherwise to become cash centric. This will identify capacity, capability and maturity (of mind-set)


    Posted on: by: mardle0312

    The Strategy required in the Financial Supply Chain

    Areas of Learning and Development associated with cash will include:

    1)      Alignment of demand and supply chains

    Demand Chain – all aspects from determining the market to penetrate, and why, including:

    Project, product, service cash profile(s)

    Sector cash trends (Boston Consulting Group Matrix  analysed)

    Competitor and future trends

    Through types of contract re milestone payments, monthly payments to one off charges

    And then appreciating how this Demand profile aligns with the Supply Chain via:

    Suppliers: current, new entrants, funding support needed, merger/acquisition.

    2) The Financial Supply Chain strategy regarding current state will be reviewed via:

    Availability of types of funding, liquidity challenges, funding chasms.

    3)      The above two objectives will then identify  a SWOT approach whereby:

    a) Strengths, Weaknesses identified on the internal operational efficiency of the Cash Conversion Cycle (CCC) will determine the capacity, capability, maturity (of mind-set) of the organisation to cope with future developments.

    b) Opportunities and Threats identified from the above analysis will determine external funding requirements.

    Greiner Growth Curve explored.

    Narrative, not numbers, counts:

    The final piece of the strategy is the communication and future reporting via measuring, monitoring and managing KPI/KRI associated with each aspect of the cash value chain within the financial supply chain.

    One should note the Learning and Development of the above Demand and Supply chains includes the stock, work in progress and CAPEX requirements  as part of the overall strategy.


    Course Content for  Financial and Non- Financial Managers where interface between functions is critical to explaining cash efficiency.

    Who would benefit:

    Operations, manufacturing, Q & A, Sales, Marketing, Purchasing Managers  to name but a few

    Cash Conversion Cycle- 2 Hours include 2No. 15 minute workshops or 1 Hour Lunch and Learn

    What is it?

    A) Customers and Terms and Conditions of Sale

    i)                    Payment Terms- What, When, Why

    ii)                   Conditions that impact cash including returns, credit notes- analysis

    iii)                 Invoice Raising –timeliness, accuracy, dating, format, layout

    B) Suppliers and Terms and conditions of Supply

    i) Invoices in prescribed format, legally compliant

    ii) Conditions of payment agreed with latest purchase orders/ contracts

    iii) Payment by certain methods

    iv) Reverse supply chain costs/revenue and cash streams

    c) Inventories

    i) Stock – valuations, reserves, disposal costs, legal ownership, risk profiling

    ii) JIT/Kanban  other methods to reduce inventory and improve cash

    iii) Work in Progress- valuation, systems billing- write off, accuracy of costs

    Overall Food for Thought:

    re debtors/creditors are we compliant with Single European Payments Area (SEPA) ?

    re inventory- why have any stock at all? Work in Progress how managed?

    Cash Conversion Cycle Graphic (Copyright CapCut™) will be used throughout the Course.

    Course Content for Financial Managers.

    Who would benefit:

    Business Controllers, Financial controllers, accountants, credit control, creditors payments section, internal auditors, business process owners- accounting/IT systems, systems accountants, bank commercial managers  to name but a few.

    Working Capital Optimisation- 4 Hours to include 3No. 20 minute workshops addressing:

    What is working capital and why is it important to control?

    Is Cash efficiency and effectiveness an issue and how can it be identified and reacted to in a positive and constructive manner?

    What are your peers doing and how can Nestlé make a step change?

    A) Debtors- DSO (Days Sales Outstanding) – are your KPI’s measuring the right metrics at the right time? Demand Chain visibility and transparency

    i)                    Debtor Differentiation- What is it,  Why apply it re granularity

    ii)                   Debtor Development –proactive credit control and credit note analysis

    iii)                 Debtor Default – strategies to identify and reduce, remove from portfolio

    B) Suppliers –DPO (Days Purchases Outstanding)- Alternative metrics including Key Risk Indicators (KRI) . Supply Chain governance and sustainability.

    i) Certification of suppliers through portal

    ii) Categorisation of creditors re sole, dual, multi sourcing and payment scenarios

    iii)Classification of creditors – criticality to the business

    iv)                  Creation of a Reverse supply chain to identify refurbishment, re-engineering opportunities

    c) Inventories

    i) Purpose of holding Stock –  customer and supplier risk profiling from A) and B) above.

    ii) Customer demand chain and linkages to JIT/Kanban  other methods to reduce inventory and improve cash

    iii) Work in Progress- audit and valuation, systems billing- write off, accuracy of costs

    Overall Food for Thought: Monthly Management Reporting of working capital with action plans and timescales, by whom and how?

    Quarterly strategy review with mapping of progress, future actions to meet cash objectives.

    Cash Flow graphic with introduction of full cost model and risk review report (Copyright CapCut™)