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Managing Assets & Liquidity in Supply Chain including Cash Conversion Cycle

Managing Assets & Liquidity in Supply Chain including Cash Conversion Cycle

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Optimise & Integrate WCM & SCM Presentation Transcript

  • 1. Optimise & Integrate - WCM & SCM Managing Assets & Liquidity in Supply Chain Anand Subramaniam
  • 2.
    • “ We are all manufacturers. Making good, making trouble, or making excuses .”
        • - H. V. Adolt
  • 3. 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
  • 4. SCM - Overview
  • 5. Your Supply Chain
  • 6. 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
  • 7. 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
  • 8. SCM Metrics - Impact on P&L and B/s
  • 9. 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
  • 10. 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
  • 11. WCM - Overview
  • 12. WCM - Objectives
    • To maximise profitability without jeopardising liquidity.
    • To strike a balance between FINANCIAL STABILITY and PROFITABILITY
  • 13. 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
  • 14. 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
  • 15. Cash Conversion Cycle
  • 16. 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
  • 17. Cash Conversion Cycle
  • 18. WCM – Review existing policies, procedures, processes etc
  • 19. 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
  • 20. 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
  • 21. 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
  • 22. Formulae
  • 23. WCM – Forecast & Optimisation
  • 24. 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
  • 25. 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
  • 26. 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
  • 27. 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
  • 28. SCM & WCM – Integrated Framework
  • 29. 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)
  • 30. SCM & WCM – Metrics & Measures
  • 31. SC Performance – Return on Assets
  • 32. SCM Goals Unit Cost Reduction Time Reduction Waste Reduction Flexible Response SCM Goals
  • 33. Financial Benefits Improved Working Capital & Margins Improved Cash Flows Revenue Profit Growth Higher Return on Assets Financial Benefits
  • 34. Customer Benefits Improved Value Improved or New Product / Service Quality Improved Flexibility Improved Timelines Customer Benefits
  • 35. SCM Improvements Integrate People, Process & Systems Improved Decision Making Strategic Partner Relations Product / Service Innovation SCM Improve-ments
  • 36. 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
  • 37. Further Information
  • 38. 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
  • 39.
    • “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
  • 40.
    • Good Luck
    • http://www.linkedin.com/in/anandsubramaniam