Optimise & Integrate - WCM & SCM Managing Assets & Liquidity in Supply Chain Anand Subramaniam

“ We are all manufacturers. Making good, making trouble, or making excuses .” - H. V. Adolt

“ We are all manufacturers. Making good, making trouble, or making excuses .”

- H. V. Adolt

Highlights SCM - Overview SCM Metrics – Impact on P&L and B/s WCM – Overview Cash Conversion Cycle WCM – Review Policies, Procedures, Process WCM – Forecast & Optimisation SCM & WCM – Integrated Framework SCM & WCM – Metrics & Measures Further Information

SCM - Overview

SCM Metrics – Impact on P&L and B/s

WCM – Overview

Cash Conversion Cycle

WCM – Review Policies, Procedures, Process

WCM – Forecast & Optimisation

SCM & WCM – Integrated Framework

SCM & WCM – Metrics & Measures

Further Information

SCM - Overview

Your Supply Chain

SCM - Drivers Improve customer service Improve order management Corporate growth Improve asset use Improve demand planning Improve warehouse/distribution activities Accelerate “cash to cash” cycle Supplier/supply base management Strengthen partnerships Regulatory compliance

SCM - Material & Financial Flow Receive Goods and Invoice Send Payment Reconcile and Account Send Purchase Order Credit Application Negotiate Sales Terms Select Supplier and Goods Source Suppliers Supply Chain of the Buyer Receive Order Produce Goods Manage Inventory Distribute Goods Material Supply Chain Supply Chain of the Seller Material Supply Chain Evaluate Credit Reconcile Settle & Pay Issue Invoice Forecast Cash Finance Working Capital Resolve Disputes Financial Supply Chain

SCM Metrics - Impact on P&L and B/s

SCM Metrics – Impact on P&L Revenue Cost of Goods Sold Gross Profit / Loss Operating Expenses Interest Taxes Net Profit / Loss SC Response Time Perfect Order Fulfillment Order Fulfillment Lead time Delivery Performance Fill Rates Cost of Goods Sold SC Response Time Total Supply Chain Cost Warranty / Returns Costs

Revenue

Cost of Goods Sold

Gross Profit / Loss

Operating Expenses

Interest

Taxes

Net Profit / Loss

SC Response Time

Perfect Order Fulfillment

Order Fulfillment Lead time

Delivery Performance

Fill Rates

Cost of Goods Sold

SC Response Time

Total Supply Chain Cost

Warranty / Returns

Costs

SCM Metrics – Impact on B/s Cash Receivables Inventory Fixed Assets Total Assets Payables Short Term Liability Long Term Liability Equity Total Equity & Liability Assets Turns Inventory Days SC Response Time Cash to Cash Cycle Time Order Fulfillment Lead time Perfect Order Fulfillment Delivery Performance Warranty / Returns Fill Rates Assets Turns Cash to Cash Cycle Time

Cash

Receivables

Inventory

Fixed Assets

Total Assets

Payables

Short Term Liability

Long Term Liability

Equity

Total Equity & Liability

Assets Turns

Inventory Days

SC Response Time

Cash to Cash Cycle Time

Order Fulfillment Lead time

Perfect Order Fulfillment

Delivery Performance

Warranty / Returns

Fill Rates

Assets Turns

Cash to Cash Cycle Time

WCM - Overview

WCM - Objectives To maximise profitability without jeopardising liquidity. To strike a balance between FINANCIAL STABILITY and PROFITABILITY

To maximise profitability without jeopardising liquidity.

To strike a balance between FINANCIAL STABILITY and PROFITABILITY

Working Capital Management (WCM) WCM can deliver significant business benefits in a relatively short period of time, where idle capital can be effectively & efficiently utilised Inventory Management Debtors Management Creditors Management Working Capital Management Consolidate supplier base to maximise purchasing and payment efficiency Unlock cash tied in stocks, reduce SKU’s, review product profitability, demand forecasting Improve Debtors & Credit Control

WC - Current Challenges Current Challenges Customers taking longer to pay Inability to balance working capital and to convert stock or debtors into cash Costs rising Profit margins under pressure Doubts about ability to make serious capital repayments on loans within the next six or seven months Turnover falling

Cash Conversion Cycle

Working Capital Strategies Financial Performance Profitability Growth Capital Utlisation Cost of Goods Sold Selling Price Fixed Capital Utilisation Working Capital Utilisation Days Inventory Days Sales Outstanding Days Purchase Outstanding

Cash Conversion Cycle

WCM – Review existing policies, procedures, processes etc

Departmental Conflicts.. Long production runs Lesser number of products High raw material inventory High inventory Flexible production Extensive distribution system Reduce inventory Large production runs Continuous production runs Make to order Value Marketing Finance Production

Long production runs

Lesser number of products

High raw material inventory

High inventory

Flexible production

Extensive distribution system

Reduce inventory

Large production runs

Continuous production runs

Make to order

Revisit Working Capital Determinants Nature of the Industry Nature of the Business Business Cycle Cash Requirements Volume of Sales Inventory Turnover Business Turnover Current Assets Requirements Production Cycle Manufacturing Time Terms of Purchase & Sales Operating Efficiency Attitude towards Risk Cash Reserves Finance Policy Dividend Policy Manufacturing Policy Credit control Policy Operation Efficiency Change in Technology Inflation / Price level Changes Profit Planning and Control Repayment Ability Price Level Changes

Nature of the Industry

Nature of the Business

Business Cycle

Cash Requirements

Volume of Sales

Inventory Turnover

Business Turnover

Current Assets Requirements

Production Cycle

Manufacturing Time

Terms of Purchase & Sales

Operating Efficiency

Attitude towards Risk

Cash Reserves

Finance Policy

Dividend Policy

Manufacturing Policy

Credit control Policy

Operation Efficiency

Change in Technology

Inflation / Price level Changes

Profit Planning and Control

Repayment Ability

Price Level Changes

Revisit WC- Policies Higher Profits / Higher Risk Lower Profits / Lower Risk Trade-off Between Profitability and Risk Shorter than Industry Average Longer than Industry Average Operating and Cash Cycles With Short-term Debt With Long-term Debt and Equity How Current Assets are Financed Lower than Industry Average Higher than Industry Average Current Ratio Low High Levels of Current Assets Aggressive Conservative Working Capital Policy

Formulae

WCM – Forecast & Optimisation

Forecast WCM Requirements Total costs incurred on materials, wages and overheads Length of time RM remain in stores before they are issued to production Length of the production cycle or WIP - time taken to convert RM to FG. Length of the Sales Cycle where FG are to be kept waiting for sales. Average period of credit allowed / obtained (to customers / from suppliers) The amount of cash required to pay day-to-day expenses of the business The amount of cash required for advance payments, if any Time lag in the payment of wages and other overheads

Total costs incurred on materials, wages and overheads

Length of time RM remain in stores before they are issued to production

Length of the production cycle or WIP - time taken to convert RM to FG.

Length of the Sales Cycle where FG are to be kept waiting for sales.

Average period of credit allowed / obtained (to customers / from suppliers)

The amount of cash required to pay day-to-day expenses of the business

The amount of cash required for advance payments, if any

Time lag in the payment of wages and other overheads

Benefits from Optimised WCM Improved liquidity Enhanced business processes Permanent reduction in working capital Increase in profitability from efficient management of capital Additional growth opportunities through the release of capital for investment

Improved liquidity

Enhanced business processes

Permanent reduction in working capital

Increase in profitability from efficient management of capital

Additional growth opportunities through the release of capital for investment

Your Firm’s WC – Requirement Amount Current Assets (i) Stock of Raw Materials ( for ….month’s consumption) ----- (ii)Work-in-progress (for…months) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (iii) Stock of Finished Goods ( for …month’s sales) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (iv) Sundry Debtors ( for …month’s sales) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (v) Payments in Advance (if any) ----- (iv) Balance of Cash for daily expenses ----- (vii)Any other item ----- Less : Current Liabilities (i) Creditors (For….. Month’s Purchases) ----- (ii) Lag in payment of expenses ----- (iii) Any other ----- WORKING CAPITAL ( CA – CL ) Add : Provision / Margin for Contingencies ----- Net Working Capital Required XXX

Working Capital Review Review Plan Vs. Actual Input & Output Metrics Key Initiatives Progress Performance to-date Key Performance Indicators Highlights, Risks, Opportunities Policies, Systems, Resources Agreed Action Items Period 3 Monthly Review Output Review Action Items Monthly Review Output Agreed Action Items Review Action Items Monthly Review Output Agreed Action Items Period 2 Period 1

Review

Plan Vs. Actual

Input & Output Metrics

Key Initiatives Progress

Performance to-date

Key Performance Indicators

Highlights, Risks, Opportunities

Policies, Systems, Resources

SCM & WCM – Integrated Framework

SCM & WCM Framework Cash & Working Capital Mgmt. Supplier - Supply Chain Plan / Invest (Long-term Capital) Sell & Negotiate Supply Chain Risk Mgmt. Outbound Logistics Invoicing Collection Production (Production Financing) Buyer - Supply Chain Financing (e.g. lines of credit, term loans) Risk Management (e.g. insurance, bonding) Compliance Management (e.g. SOX, customs, security) Connectivity (e.g. technology platforms) Other Services (e.g. consulting, education, trade promotion) Plan / Invest (Long-term Capital) Source & Procure Supply Chain Risk Mgmt. Inbound Logistics Invoice Processing Payment Production (Production Financing)

SCM & WCM – Metrics & Measures

SC Performance – Return on Assets

SCM Goals Unit Cost Reduction Time Reduction Waste Reduction Flexible Response SCM Goals

Financial Benefits Improved Working Capital & Margins Improved Cash Flows Revenue Profit Growth Higher Return on Assets Financial Benefits

Customer Benefits Improved Value Improved or New Product / Service Quality Improved Flexibility Improved Timelines Customer Benefits

SCM Improvements Integrate People, Process & Systems Improved Decision Making Strategic Partner Relations Product / Service Innovation SCM Improve-ments

Performance Measures Internal Waste reduction Time compression Flexible response Unit cost reduced Financial Improved WC Improved margin Improved cash flow Revenue growth Higher ROA Innovation Product / Service innovation Strategic Partnership Information flows Integration Performance Measures Customers Improved quality Improved timeline Better flexibility Improved value

Internal

Waste reduction

Time compression

Flexible response

Unit cost reduced

Financial

Improved WC

Improved margin

Improved cash flow

Revenue growth

Higher ROA

Innovation

Product / Service innovation

Strategic Partnership

Information flows

Integration

Customers

Improved quality

Improved timeline

Better flexibility

Improved value

Further Information

Please Review Slides On LinkedIn Benchmarking http://tinyurl.com/ohbny4 Bottom Line Improvement http://tinyurl.com/olfauc Business Process Improvement http://tinyurl.com/mrg584 Competitive Intelligence http://tinyurl.com/p2t9tz Implementing Balance Scorecard http://tinyurl.com/ofez9w Inventory Management http://tinyurl.com/owmxcu Innovation Global Supply Chain http://tinyurl.com/l6w4u5 Logistics Management http://tinyurl.com/l4um8d MRP / MRP II / ERP http://tinyurl.com/qdo9r9 Operations Strategy http://tinyurl.com/m9aryt Reverse Logistics http://tinyurl.com/nfxl3k Sourcing & Optimising Strategies http://tinyurl.com/l9omlj Supply Chain Performance http://tinyurl.com/mfsucn Spend & Contract Management http://tinyurl.com/nadfhc Supply Chain Risk Management http://tinyurl.com/n3stpm Spend & Contract Management http://tinyurl.com/nadfhc Supply Chain Management http://tinyurl.com/nwv4eq 5S – Manufacturing Audit http://tinyurl.com/mkj6on Turnaround strategies http://tinyurl.com/pww8tz Vendor Audits http://tinyurl.com/kodk8t Vendor Management http://tinyurl.com/l7z3r6 Working Capital Management http://tinyurl.com/o6ad69

Benchmarking

http://tinyurl.com/ohbny4

Bottom Line Improvement

http://tinyurl.com/olfauc

Business Process Improvement

http://tinyurl.com/mrg584

Competitive Intelligence

http://tinyurl.com/p2t9tz

Implementing Balance Scorecard

http://tinyurl.com/ofez9w

Inventory Management

http://tinyurl.com/owmxcu

Innovation Global Supply Chain

http://tinyurl.com/l6w4u5

Logistics Management

http://tinyurl.com/l4um8d

MRP / MRP II / ERP

http://tinyurl.com/qdo9r9

Operations Strategy

http://tinyurl.com/m9aryt

Reverse Logistics

http://tinyurl.com/nfxl3k

Sourcing & Optimising Strategies

http://tinyurl.com/l9omlj

Supply Chain Performance

http://tinyurl.com/mfsucn

Spend & Contract Management

http://tinyurl.com/nadfhc

Supply Chain Risk Management

http://tinyurl.com/n3stpm

Spend & Contract Management

http://tinyurl.com/nadfhc

Supply Chain Management

http://tinyurl.com/nwv4eq

5S – Manufacturing Audit

http://tinyurl.com/mkj6on

Turnaround strategies

http://tinyurl.com/pww8tz

Vendor Audits

http://tinyurl.com/kodk8t

Vendor Management

http://tinyurl.com/l7z3r6

Working Capital Management

http://tinyurl.com/o6ad69

“You don't hear things that are bad about your company unless you ask. It is easy to hear good tidings, but you have to scratch to get the bad news.” - Thomas J. Watson

“You don't hear things that are bad about your company unless you ask. It is easy to hear good tidings, but you have to scratch to get the bad news.”

- Thomas J. Watson

Good Luck http://www.linkedin.com/in/anandsubramaniam

Good Luck

http://www.linkedin.com/in/anandsubramaniam