It is often said, you can lose money for some time, but you can only run out of cash once. The impact of ineffective working capital management can be complex and just as debilitating for a business. Companies with effective cash flow management practices not only generate more cash from their businesses, they have more flexibility to take advantage of opportunities as they arise and are less dependent on external financing.
The performance gap between the top 25% and the bottom 75% is significant: under performing companies could free $776 billion – or an average of $0.78 billion per company – by matching the top performers in their respective industries. While it is relatively easy to obtain short-term reductions in working capital by slowing down payments, speeding up collections, or starving inventory, long-term results require a sustained effort and continuous process improvement approach. REL's annual Working Capital Survey demonstrates that, all too often, companies ignore working capital management or create short-term and artificial fixes.
To be successful with a working capital management program, you need cross-functional alignment of many managers, who will often see the cash flow management objective as secondary or in conflict with other measures or targets they must achieve. It cannot be implemented as a separate exercise from top line and bottom line performance optimization.
In the real world, there are substantial tradeoffs between cash flow management, customer service, cost and risk. In order to optimize the overall working capital management performance of the organization, we need to recognize and understand these tradeoffs and implement continuous process improvement strategies that take them into account. This requires a holistic approach across the functional boundaries of the organization, and ideally takes into account both supplier and customer value drivers.
Through effective working capital management, top performing organizations are able to free up $2.9 billion more in working capital than the typical Global 1000 organization.
REL, a division of The Hackett Group, has helped many of the world's leading businesses release billions in cash flow through sustainable working capital improvements across a company's operations. Through our proven, hands-on approach, analytical rigor and collaborative client relationships, we have applied business best practices and delivered the liquidity required to fund operations and enable growth.
We focus on three critical end-to-end processes: inventory management , accounts receivable and accounts payable to improve working capital management and service levels while also reducing business risks and attain structural cost reduction. All of our projects have a quantifiable payback, typically at least a 3:1 return on your investment, and are self funding within the first year.