Your SlideShare is downloading. ×
Unlock your supply chain
Unlock your supply chain
Unlock your supply chain
Unlock your supply chain
Unlock your supply chain
Unlock your supply chain
Unlock your supply chain
Unlock your supply chain
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Unlock your supply chain

195

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
195
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. JANUARY 2013 In Distress? Unlock Your Supply Chain A Practitioner’s Viewpoint inside: Where’s the Cash? What’s the Risk? What to Do? The Bottom Line© 2012 AlixPartners, LLP
  • 2. 2 In Distress? Unlock Your Supply Chain T he number of companies in Suppliers and supply chain costs typically distress is growing. In Europe represent 60-80% of manufacturing last year almost 180,000 companies’ revenues and are one of the corporations entered into 1 major areas for self-generation of cash. insolvency, with the number of privately-held Logistics and warehousing costs alone can enterprises likely to be much higher. amount to 3-5% of revenues (depending on outsourcing) and can also have significant For stakeholders of distressed organisations, asset value. Even in a well run organisation, maintaining liquidity is critical to allow the cash that sits in inventories can represent them to continue to trade. P&L measures 10-15% of revenues. In short, the supply take a backseat as the generation of cash chain offers significant opportunities, but it becomes the primary focus. This cash can also has risks. Only the best leaders seem to either come from new capital injections or really understand both. (as preferred by most financial stakeholders) self-generated cash from the distressed organisation itself. Where’s the Cash? An organisation in distress must rapidly gain With large amounts of cost sitting within the an overall picture of where the cash is in the supply chain, specific focus on identifying business. This is typically done at a high level where and how much cash could be extracted as an immediate priority and then in greater will enable quick prioritisation of actions by a detail (such as rolling 13-week cash flow mobilised and fully empowered team. forecasts) as the turnaround work progresses. What’s the Risk? A supply chain in distress is very different to yet thorough risk assessment of all existing and one trading normally. Securing supply during potential suppliers and their possible actions this time can make the difference between life as a result of your distress is critical. and death. Once supply is disrupted, costs spike, volumes (and typically revenues) decline There are some key questions to answer: How and corporate collapse inches nearer. A fast financially stable are your suppliers? Who 1 Creditreform 2011/12 report www.creditreform.de© 2012 AlixPartners LLP
  • 3. 3 In Distress? Unlock Your Supply Chain holds the balance of power? Could their A simple assessment is all that is required to exposure to you cause their own distress? properly segment the supplier base and tailor Could their credit insurance be pulled leaving the approach for concessions or support. them no choice but to curtail or even cease Working out where your power is and how supply (as in the case of Comet, a large UK exposed you are is a key part of any supply retailer, which cited losing credit insurance as chain cash-generation programme. the key catalyst to appointing liquidators )? 2 What to Do? Key supply chain cash release tactics Monetise Inventory • Ignore book value, sell off inventory quickly even if it causes an impairment • Change delivery frequency Sweat fixed assets • Sell off logistics asset such as warehouses, ships and trucks trailers either through divestment and third party contract or sale leaseback Cost down suppliers • Be specific about what you want from each supplier. Do not go for “broad brush” cost down • Realise that one-time cash payment from suppliers are alternatives to unit cost reduction Extend accounts payable • Do not over-stretch payments terms. They will spring back causing a higher cash requirement • Permanently extend payment terms even if unit costs slightly increase Successful supply chain cash-generation the inherent desire to sell inventory at its programmes are built around four key tactics. “correct value”. These rules do not apply when cash is tight—impairment is of little Inventory monetisation consequence when in distress—and leaders In normal trading, organisations simply should encourage their staff to sell for the scale back operations to generate a staged best price quickly, regardless of what the reduction in finished goods inventory. In book value is. Looking at metrics, such as distress, monetising finished goods in how many weeks worth of stock per stock addition to sustaining (or even increasing) keeping unit (SKU) you have, will highlight operations can add significant value. opportunities to dispose of some inventory. It will also highlight slow moving and obsolete An often-encountered stumbling block is stock which can be quickly monetised as it Thompson, Christopher. “Comet set to shut all stores by Christmas.” FT.com, November 28, 2012. Accessed December 07, 2012. 2 http://www.ft.com/intl/cms/s/0/97087d90-397b-11e2-85d3-00144feabdc0.html#axzz2ENmlcXQH© 2012 AlixPartners LLP
  • 4. 4 In Distress? Unlock Your Supply Chain has little effect on day-to-day operations. month. The key factor to consider for this One way to dispose of this aged stock is to option is truck/container utilisation—lower run a competition within the sales team—an utilisation quickly adds cost. industrial goods company recently did this and managed to clear 90% of all stock over Raw material stocks also present a large six months old. opportunity to release cash. Selling unneeded materials (back to suppliers or Increasing frequency of supply is another on the open market), even at a discount; method of monetising inventory; the average reducing order / lot sizes; and increasing finished-goods stock quickly reduces when frequency of supply can quickly free up that moving, say, from one to four shipments per cash. Fixed Assets Disposal Disposing of fixed logistics assets may seem can simply divest and then outsource the counterintuitive; however warehouses, activity to a third party or go through a sale ships and trucks and trailers are assets that and leaseback of the original asset; however, are typically simple to divest as they are this typically takes longer to execute. If the easy to value and sell. Multiple commercial supply chain was efficient previously, this will agents and brokers specialise in these types probably add cost, but the amount of cash of logistics assets and can facilitate a quick released from these assets can be essential to sale. To continue operations, an organisation an organisation fighting for survival. Supplier Cost Reduction Without a complete assessment of the risks, risk their supply, or too weak to protect organisations typically aggressively seek existing relationships at the expense of cost untargeted cost reductions from all the top reduction. The best approach, which may suppliers when in distress. As part of their not be unit cost reduction, can be found cash identification activity they see third-party by conducting a thorough supplier-by- goods and services as a large proportion supplier analysis. Other alternatives, such as of the costs and make commitments on a single one-time cash payment, moving to cost reductions to their lenders, which consignment stock, or changing ownership of they typically fail to deliver. They are either any shared assets, can be possible. too aggressive with their suppliers and© 2012 AlixPartners LLP
  • 5. 5 In Distress? Unlock Your Supply Chain Extracting cash from suppliers can have a large, dedicated team on this if you want to very large benefits, but it is frequently more maximise the cash quickly. opaque than it appears. Be prepared to put Accounts payable improvements Most distressed organisations simply delay short, the technique can backfire, requiring paying suppliers, stretching payment a significant cash injection some weeks into terms well beyond their maximum. These any turnaround programme. A much better techniques work well in the short term and approach involves clear and structured can release a significant amount of cash. negotiation that permanently extends those But suppliers generally figure this out fairly terms—even with a price increase on the quickly and begin to demand ever shorter unit cost. As a case in point, a large food payment terms, until they ultimately get manufacturer recently stretched over 3,000 to cash-on-delivery. The working capital supplier payment terms from 30 days to an released from the delay is then required to be average of 45 days, with no additional cost of reinstated, however this time they also seek goods, releasing over €20 million in cash. to eliminate the original payment terms. In The Bottom Line Restructuring a distressed company presents Once it becomes clear to the market that management with a set of demands very you are in distress, suppliers (and all other different from those that arise in the course of stakeholders) will begin to severely question normal business. Managing and leveraging your longer term viability. A very clear the supply chain in a distress situation communication plan is critical to ensuring is critical as a source of controlling and that miscommunication is kept to a minimum. maximising available cash. If it isn’t addressed Worried suppliers are not keen to offer any quickly the company may no longer be able concessions and, on the contrary, may add to trade. cost and complexity. A best practice is to communicate with them frequently.© 2012 AlixPartners LLP
  • 6. 6 In Distress? Unlock Your Supply Chain Organisations must conduct a rigorous survival, but leaders must be prepared to put supply chain assessment with prioritised aside PL performance and concerns about actions, create a focussed and frequent impairment of assets to focus on extracting communication plan and put in place a well cash for the sole benefit of maintaining staffed, suitably empowered team. liquidity. Only then will they stand a chance of prolonging the life of the business. The supply chain offers a rich source of funds from which to prolong an organisation’s© 2012 AlixPartners LLP
  • 7. 7 In Distress? Unlock Your Supply Chain For more information, please contact: Sanjay Bailur Managing Director sbailur@alixpartners.com +44 20 7098 7451 Andrew Bergbaum Director abergbaum@alixpartners.com +44 20 7098 7454 Adam Sebba Associate asebba@alixpartners.com +44 20 7098 7494 AlixPartners conducts a broad range of surveys and research in industries around the globe. To learn more about our publications, or to contact the AlixPartners professional nearest you, please visit www.alixpartners.com/en/WhatWeThink.aspx. AlixPartners LLP is a global business-advisory firm offering comprehensive services in four major areas: enterprise improvement, turnaround and restructuring, financial advisory services, and information management services. The firm was founded in 1981 and can be found on the Web at www.alixpartners.com.© 2012 AlixPartners LLP
  • 8. 8 In Distress? Unlock Your Supply Chain DISCLAIMER – IMPORTANT INFORMATION REGARDING THIS WHITE PAPER This white paper (“White Paper”) was prepared by AlixPartners, LLP (“AlixPartners”) for general informa- tion and distribution on a strictly confidential and non-reliance basis. The White Paper does not constitute legal or professional advice, nor does it prescribe any strategy that should be tested without the advice of a professional. This White Paper is for information purposes only. The recipients of the White Paper ac- cept that they will make their own investigation, analysis and decision relating to any possible transactions and/or matter related to such and will not use or rely upon this White Paper to form the basis of any such decisions or actions. Accordingly, no liability or responsibility whatsoever is accepted by AlixPartners and its employees, partners or affiliates for any loss whatsoever arising from or in connection with any use of the White Paper. Statements and opinions expressed in this White Paper reflect conditions and our views as of this date, all of which are subject to change. We undertake no obligation to update or provide any revisions to the White Paper to reflect events, circumstances or changes that occur after the date the White Paper was pre- pared. Whilst every care has been taken in the compilation of this White Paper and every attempt made to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur. In preparing this White Paper, AlixPartners has relied upon and assumed, without independent verifica- tion, the accuracy and completeness of all information available from public sources or which was oth- erwise provided to us. AlixPartners has not audited or verified the data reviewed in connection with the preparation of this White Paper. This White Paper may be based, in whole or in part, on projections or forecasts of future events. A fore- cast, by its nature, is speculative and includes estimates and assumptions which may prove to be wrong. Actual results may, and frequently do, differ from those projected or forecast. Those differences may be material. Items which could impact actual results include, but are not limited to, unforeseen micro or macro economic developments and/or business or industry events.© 2012 AlixPartners LLP

×