Who in the organization drives the cash-to-cash cycle? Most company managers assume the CFO is managing cash, so they don’t think much about it. But in realty, how sales does their deals, how purchasing buys, how supply chain designs the distribution/warehouse network, how engineering designs products and how marketing and product management bring new products to market and retire old ones all play major roles in the cash-to-cash cycle.
For example, if purchasing makes large volume buys in an effort to get deeper discounts, or if they buy truck-load quantities in an effort to reduce freight, that can have a negative impact on inventory turns, which increases cash consumption. If product management focuses on new products and not on old or obsolete products, the warehouses can accumulate obsolete inventory, which also consumes cash.
To manage cash flow effectively, companies must do more than just improve efficiency and save a few days of cash flow; they need disruptive thinking and innovation to really move the needle. Techniques such as supplier partnerships, auto-replenishment systems, effective terms with suppliers and customers, product design for supply chain management (DFSCM), and just in time inventory and production can greatly reduce the need for cash and can be woven into the operations strategy.
© 2017 Rick Pay, All rights reserved.
This is an excerpt from Rick’s upcoming book, Moving Into the Express Lanes, being published in 2018 by Business Expert Press.