example of Impact - OPERATIONAL EFFICIENCY / EFFECTIVENESS
improving working capital productivitydetails
Client background and situation:
Private equity owned company
Private equity owned company
Urgent need to free up cash as it was sitting unproductively in working capital
Urgent need to free up cash as it was sitting unproductively in working capital
THe past
Prior approach & challenges:
Employees had little discipline or awareness on how their actions affected cash flow and why excess inventory could be problematic - would order whatever they wanted and needed, invoices to customers were issued late, payments would at times go out sooner than needed
Needed to be more strict on working capital policies but careful not to alienate customers who could go somewhere else
Diffused responsibility for working capital with no single owner
Employees had little discipline or awareness on how their actions affected cash flow and why excess inventory could be problematic - would order whatever they wanted and needed, invoices to customers were issued late, payments would at times go out sooner than needed
Needed to be more strict on working capital policies but careful not to alienate customers who could go somewhere else
Diffused responsibility for working capital with no single owner
solutions
Coppertree Partners approach:
Strengthened governance
Brought teams together to discuss how much inventory was truly needed and what supply/demand analysis revealed about the appropriate buffer levels
RATIONALIZED SKUS
Eliminated products that were slow moving
IMPROVED KEY PROCESSES
Fixed the accounts payable and accounts receivable process to ensure customers were receiving invoices right on time and for payables setting up contracting process that provided the most favorable terms
TRACKED PROGRESS
Designed performance management dashboards and revised internal KPIs – added “working capital days” (days needed to convert working capital into revenue) as a metric to track
ESTABLISHED CHANGE MANAGEMENT INITIATIVES
Ensured communication plan was in place to employees
Impact:
- 15% reduction in working capital
- Strengthened end-to-end process for working capital including inter-department communication and collaboration
- Increased awareness and buy-in from employees
Additional insights and takeaways
Change management is critical to improve capital productivity as your employees are on the front lines and you want them to understand how their actions affect this critical metric. You also need to bring people together so decisions are not made in a silo. This will help the overall cash conversion cycle which is the total time from your payment to suppliers to receiving money from your customer base. Machine learning can forecast demand and provide “just in time” reordering of inventory which reduces safety stock. Algorithms can also help on the collections side and provide guidance on a individual customer or customer type basis for the optimal way to communicate – this helps lower costs to collect and increases receivables.
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