Today's uncertain market conditions and the threat of a slower economy are driving CEOs and CFOs to focus on working capital management as never before, while shareholders and analysts are keenly scrutinizing cash flow levels for indications that companies will be able to weather the storm. Not surprisingly, most CFOs are emerging from the recent crisis with a renewed respect for the importance of good cash flow management.

Analysis by our working capital management division, REL, has revealed that over the past few years companies have enjoyed double-digit sales growth, but their Cash Conversion Efficiency (CCE), which is the ratio of operating cash flow as a percentage of sales, has been decreasing year-on-year. This means that organizations are converting sales to cash at a lower rate and not taking advantage of the scale in good times. Pressure to improve CCE will mount as sales slow; this means companies will need to address both their cost optimization processes and working capital management processes.

REL (www.relconsultancy.com), has dedicated itself since its inception in 1975 to helping the world's leading companies deliver significant and sustainable improvements in their cash flow ratios. Through indepth cash flow analysis, REL has helped clients release billions of dollars of cash that was locked up in working capital, making this the cheapest and most effective source of increased cash flow. With strong implementation capability, REL is able to bridge the gap between strategy and execution. Our consultants focus on the three core components of working capital management: inventory, accounts payable and receivable and it helps companies address opportunities across all three areas, referred to as Total Working Capital (TWC), or specific challenges in one or more of the components. REL delivers significant results by applying solutions across the overall processes:

  • Strategic Sourcing and accounts payable is addressed via the Source-to-Settle (S2S) process
  • Inventory and supply chain processis addressed via the Forecast-to-Fulfill (F2F) process
  • Accounts receivable is addressed via the Customer-to-Cash (C2C) process

Supplementing our deep knowledge of working capital management best practices, The Hackett Group offers expertise in business process engineering and other process improvement, business cost management methodologies, as well as in IT strategy as it bears on working capital objectives.

A new challenge for organizations is the impact that low-cost sourcing is having on the business world. It impacts working capital management in several ways. First, as companies either outsource or offshore, business processes, the activities associated with credit and collections and disbursements are moved to different continents from customers and suppliers. While the choice should not be visible to customers, many of the processes are not implemented correctly between the core business location and the service center, which results in process breakdowns, errors and late payments, increased rework and poor service quality.

The Hackett Group, a leading global strategy and operations consulting firm, offers advanced outsourcing consulting services that set us apart from conventional sourcing advisors. Unlike traditional sourcing advisors that focus on optimizing the best price for the "deal", Hackett's outsourcing consulting team focuses on optimizing process performance for the client and achieving the optimum solution that balances ROI, speed to benefits and risk mitigation. Our outsourcing consulting approach is predicated around the development of long term BPO service provider relationships to assist the client in their journey to world-class performance.