- Effectively optimizing your working capital is paramount and requires a holistic, always-on approach
- Appointing a head of global working capital management can drive enterprise-wide transformation
- Quality data and predictive analysis are fundamental to better informed decisions
Have you considered reviewing your working capital approach? Squeezing cash out of your end-to-end processes is paramount, especially when economic growth is sluggish and operations strain to generate funds. The good news is that the latest thinking about working capital optimization can help you hit the back of the net.
WORKING CAPITAL IMPEDIMENTS
Before taking on improvements, it’s important to identify what impedes working capital.
- Corporates often take on new initiatives after a negative financial event, but on-and-off interventions, such as altering payment terms or moving from on-balance sheet to off-balance sheet, don’t produce enduring benefits.
- A heavily siloed corporate structure encourages individual areas to make end balances look positive, rather than looking at the enterprise picture.
- Many companies rely on high-level benchmarking instead of targeted, operational metrics. Successful benchmarking includes "how," not just "what," and that means grasping the real variances across peers and how they are approaching the issues.
AN ALWAYS-ON APPROACH
Successful companies pursue an enterprise-wide, always-on working capital approach that includes customers, vendors and suppliers. This approach clarifies cause and effect, trade-offs and the value/risk balance across extended operating and financial cycles.
GLOBAL PROCESS OWNERSHIP
A new development, the designation of a global working capital head to lead across enterprise financial and physical supply chains, helps to drive company-wide process ownership. Successful working capital programs may go a step further by deploying dedicated teams that support subject matter experts.
These teams are tasked with pursuing strategic partnerships with stakeholders and process owners across the business.
BIG DATA DRIVES NEW OPPORTUNITY
Now, more than ever, digitization holds the key to working capital oversight. Since the availability of accurate on-demand data has been (and still is) a major constraint in managing working capital, investing in your company’s technology infrastructure can have a profound effect. This includes ERP systems, business process management systems and other business intelligence tools.
"Big data" in the context of working capital - for example - applied to financial and physical supply chains offers the ability to track the flow of working capital value at the transactional level. This lays the foundation for using predictive analytics to manage value, and cause and effect, and to supercharge your efforts.
With an always-on approach and by appointing a working capital management head, treasurers can work across the organization as well as with customers and suppliers to generate cash, and make lasting, measurable enterprise-wide changes. We can take this a step further by collaborating with you to better understand your enterprise data and execute a strategy for new working capital efficiency.
What should you do with the additional cash you’ve freed from your supply chains? Find out more in Part 2: The Art and Science of Redeploying Working Capital