working capital management

Today's uncertain market conditions and the threat of a slower economy are driving CEOs and CFOs to focus on maximizing cash flow as never before, while shareholders and analysts are keenly scrutinizing working capital levels for indications that companies will be able to weather the storm.

Analysis by our working capital 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 structure and working capital.

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 working capital ratios. 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: 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:

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

A new challenge for organizations is the impact that low-cost sourcing is having on the business world. It impacts working capital 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.