April 26, 2012

Most Companies Fail to Accurately Forecast Working Capital Needs And the Cash to Support Them, Says New Study by REL Consulting

  • Despite Harsh Punishment from Wall Street, Companies Cannot Accurately Forecast Inventory, Receivables, and Payables; Many Miss Quarterly Working Capital Forecasts by Up to $600 Million

MIAMI & LONDON, April 26, 2012 - Despite a global business environment where companies can be harshly punished by Wall Street for even small missteps in predicting revenue or earnings, most large companies say they cannot correctly forecast operational basics like inventory, receivables, payables, and the underlying cash requirements to support them, according to the results of a new study from REL Consulting, a division of The Hackett Group, Inc. (NASDAQ: HCKT).

According to the REL study, typical companies potentially miss quarterly working capital forecasts (including inventory, receivables, and payables) by up to 23 percent, which amounts to up to $600 million for a typical Global 1000 company (with $29 billion annual revenue).

The new REL performance study, "Working Capital: Successes, Challenges, and 2012 Objectives," found that most companies have been unable to improve the long-term efficiency or effectiveness of their working capital performance over the past decade. Typical large companies in the annual REL 1000 analysis could generate nearly $2 billion in additional cash annually by optimizing working capital management to match the performance of top companies in their industry. This included an opportunity to net over $680 million from optimizing receivables, over $620 million from payables, and over $680 billion from inventory.

"It's disappointing that even after the economic turmoil of the last few years, companies are still struggling to get this key area under control, and failing to drive sustainable improvements in working capital," said Veronica Heald, Director, REL Consulting. "In some ways, forecasting cash is even more critical than forecasting earnings or revenue. You can take a hit quarter after quarter for missing earnings. But you can only run out of cash once. Failures in this area easily lead to everything from the need to turn to emergency credit lines to lost sales and missed opportunities.

"At the same time, it's not surprising to see companies continuing to miss the mark on working capital optimization," said Ms. Heald. "At most companies, finance takes full responsibility for working capital. But truly, optimizing receivables, payables, and inventory requires a cross-functional effort. And often different parts of the organization may have very conflicting interests, and different priorities and goals that prevent them from achieving their working capital goals."

The research offers some recommendations for companies seeking to improve performance in this area: working capital improvement should be a strategic objective led by C-suite executives and involve all related functions; ensure an accurate forecasting process is in place to monitor improvements; streamline the cross functional elements of the operational processes that impact working capital; reconcile conflicting functional objectives to the overall strategic objectives of the organization; measure and hold people accountable for the root causes vs. the symptoms; incorporate working capital performance as a permanent component of the reward structure; and train all staff to understand why working capital management is important to the business and what they can do to help.


About REL

REL, a division of The Hackett Group, Inc. (NASDAQ: HCKT), is a world-leading consulting firm dedicated to delivering sustainable cash flow improvement from working capital and across business operations. REL's tailored solutions balance client trade-offs between working capital, operating costs, service performance and risk. REL's expertise has helped clients free up billions in cash, creating the financial freedom to fund acquisitions, product development, debt reduction and share buy-back programs. In-depth process expertise, analytical rigour and collaborative client relationships enable REL to deliver an exceptional return on investment in a short timeframe. REL has delivered work in over 60 countries for Global 1000 companies.

More information on REL is available: by phone at (770) 225-7300; by e-mail at info@relconsultancy.com; or on the Web at www.relconsultancy.com.


About The Hackett Group, Inc.

The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy recognized as the leading enterprise benchmarking and best practices implementation firm to Global 2000 companies. Services include business transformation, enterprise performance management, working capital management, and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its award-winning Oracle and SAP practices.

The Hackett Group has completed more than 11,000 benchmarking studies with major corporations and government agencies, including 93% of the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 51% of the FTSE 100. These studies drive its Best Practice Intelligence Center™ which includes the firm's benchmarking metrics, best practices repository, and best practice configuration guides and process flows, which enable The Hackett Group's clients and partners to achieve world-class performance.