More companies are focused on working capital and overall liquidity in 2020 as they strive to position themselves in a post-COVID 19 economy, according to a survey from The Hackett Group, released Tuesday.
The researchers polled 1,000 large, nonfinancial companies across the United States for its annual "Working Capital Survey" and found that most firms slowed payments to suppliers in 2019 as they collected cash from customers more slowly and held slightly more inventory. The situation caused overall working capital performance to decline after several years of improvement, the researchers said. Cash on hand and debt grew dramatically, they added, reaching record levels.
The pandemic has forced companies to rethink strategies and sparked a dramatic focus on improving the situation, with many companies launching “comprehensive transformation efforts for the first time as they try to determine what their business will look like as the world economy emerges from the crisis,” according to the research.
Key findings include:
There is a potential for nearly $1.3 trillion of working capital improvement opportunities among the companies surveyed. Upper quartile companies converted cash three times faster than median performers. They collected from customers 19 days faster, paid suppliers 20 days slower, and held less than half the inventory.
Both debt and cash on hand increased by 12% in 2019, with cash on hand reaching the highest point in the last 10 years. Companies continued to take advantage of low interest rates, borrowing to improve their cash position.
Based on the results, researchers offer seven steps companies can take to improve working capital:
Use disruption to drive change. Take advantage of the opportunity presented by the current liquidity challenges to assess, reprioritize, and make changes. Examine legacy processes to identify where improvements can generate quick wins.
Improve visibility. Ensure that the right key performance indicators are available for various business leaders, so that they can be used to drive action plans. Provide leaders with real-time, intelligent dashboards that equip them with the insight they need.
Look in-house first. Before making changes to terms with suppliers and customers, look for quick-win opportunities within the company, areas where process improvements can improve cash position. Promote a cash culture across the organization, and provide incentives for sales, procurement, commercial teams, and others to optimize for cash. On receivables, make sure staff are not trading terms for revenue, remove obstacles to payment such as mis-billing, and put clear escalation processes in place, up to and including having senior finance leaders call on overdue bills. Companies can also monitor customer payment performance, assess credit risk, and reprioritize activities by value. On payables, ensure that controls are in place to avoid early payments. Prepare for further disruptions, including an anticipated second wave of Covid-19. On inventory, encourage staff to consider cash impact when making decisions, collaborate cross-functionally to determine the organization’s appetite for risk and potential disruption, and develop effective contingency plans.
Focus on modeling and forecasting. Build the ability to do scenario modeling, integrated business planning, cash flow forecasting, risk assessments, and more to improve decision-making ability. Identify potential disruptors and refresh contingency plans as necessary.
Consider customers and suppliers. Monitor the financial health of customers and suppliers, and make accommodations where necessary, particularly in cases where losing a supplier might disrupt the company’s supply chain. Work with customers to provide incentives for payment. And optimize payment terms for suppliers, ensuring the right terms are being offered for each category of suppliers. Consider segmenting suppliers by risk and criticality to determine what approach to take, where to apply leverage, and where temporary support may be required.
Accelerate technology adoption and digital transformation. Digital transformation, including smart automation, robotic process automation, analytics, and more can significantly improve efficiency and effectiveness, significantly reducing transactional work, standardizing and streamlining processes, and providing more insight.
Revisit service delivery models. Organizations need to increase flexibility, resilience, and agility to understand and manage risks across the supply chain and their impact on cash flow. Diversification, where possible, will help mitigate the risk of further shocks to the end-to-end supply chain. Companies need to look at corporate and functional strategies, internal processes, and organizational design to protect cash and build for the “next normal."
We may be living in a world full of technology, but strategy and focus remain the top priorities when it comes to managing a business and its supply chains. So says Roberto Isaias, executive vice president and chief supply chain officer for toy manufacturing and entertainment company Mattel.
Isaias emphasized the point during his keynote presentation on day two of EDGE 2024, a supply chain conference sponsored by the Council of Supply Chain Management Professionals (CSCMP), being held in Nashville this week. He described Mattel’s journey to transform its business and its supply chain amid surging demand for Barbie-branded items following the success of the Barbie movie last year.
Isaias discussed the transformation on two fronts: Commercially, through the revitalization of its brands that began years ago, and logistically, through a supply chain strategy focused on effectiveness and cost leadership.
Today, Mattel makes millions of toys and is steadily moving beyond the toy aisle with its franchise mindset, becoming a major entertainment company as well. Isaias told the audience Mattel currently has two films in production and 14 others in development, and its television studios business has 13 series’ in production with more than 35 in development.
And as for those supply chain gains? The company has saved millions, increased productivity, and improved profit margins—even amid cost increases and inflation. For the full story on Mattel’s transformation, see our feature story from this past summer.
And Isaias left the EDGE audience with five lessons he learned from his experience in leading change:
The business is our boss;
Don’t delegate complexity;
Take bad news well;
Be fair and take care of people;
Lead the execution.
CSCMP’s EDGE 2024 conference runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Convention Center.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.