Credit Crisis

Get the money right out of your Supply Chain!

How?

Do the right Math! A simple method and versatile tool enables a sustainable approach to free-up cash from your supply chain, and ensures that cash is not tied up again as before, ever. Like all good ideas the approach is simple and can readily be applied in your business today.

The Dutch Central Planning Agency (CPB) came out with a severe warning: 2009 will be a tough year. In 2010 economy will slowly grow. They made a note that the scenarios are drawn up with large uncertainties. These uncertainties will cater for a lot of work, not in numbers of people but in Supply Chain Management.

Credit is hard to get and results of companies are under a lot of pressure; that is why the safe guarding of working capital is highest on the list of every CFO.  

With a little creativity, there is a lot we can learn by extrapolating from the crisis into multi-tier global supply chains.  After all, what we are really facing is the money "supply chain" freezing up. Accounts payable and accounts receivable are off course very important but they are more difficult to control than other business components. Optimizing Supply Levels and Customer Service Levels are  totally under our own control. Taking short-term steps and a balanced view of operations can keep cash flows healthy.

Cash is king!

Over the next few months, and possibly even longer, cash is king.  Squeezing every euro or dollar out of the supply chain ought to be high on the agenda.  The ability of a company to convert purchases into cash is best measured by their Cash-to-Cash (C2C) cycle.  The Cash-to-Cash cycle is defined as ["Days of Sales Outstanding" + "Days of Inventory" - "Days of Purchases Outstanding"].  While the contractual terms agreed with customers and suppliers are strong drivers for the C2C, the primary driver is speed with which a company converts purchased materials into products that have been sold to their customers, in other words the supply chain. In many cases the majority of DSO is accounted for by channel inventory, not only the true Accounts Receivables.  As a consequence there are a great deal those companies can do to run their supply chains more efficiently in order to reduce their C2C.

Stock control and parameter settings.

Stock reduction and optimization starts with actions that should have been taken in times of high conjuncture. This is the analysis of the currency of the stock assortment. In times when sales are stagnating, the currency of stock will play a vital role. An incourant/obsolete article has a relative high change to be sold less. A cleansing of the assortment will take care of the fact that these articles will not have an effect on the stock levels. But do not forget to change the parameters in your ERP system. We do not want to have an automatic purchase order when the next MRP run is executed.

Sales & Operations Planning (S&OP).

First of all it is important to see what the future hold for you. Make a proper forecast and here we are faced with uncertainty and history that will not seem to be completely relevant. It is better to have a forecast rather that to not having a view on the future. It is always important to inolve Sales and Finance. Sales is important because they should be able to deliver accurate market information. Finance is important because they should be able to inform in what way the most favorable financial results are achieved. Furthermore they are able to adjust the budgets.

Conclusion : 

Companies that will be successful in the long run are those that realize the answer lies in maximizing supply chain efficiency. This means exploiting integrated applications that increase automation and collaboration throughout their businesses, allowing them to meet customer demands faster and more accurately, generating greater competitiveness and profitability even in these tough times of the credit crises.