On Demand News: 08/01/18

Cash From Turnips

01 August, 2018 // American business recently set a record for squeezing cash out of the proverbial turnip: According to a July report by Hackett Group (free with registration), the 1,000 largest US public companies increased the time they take to pay suppliers to 56.7 days in 2017. That’s up 3.4 days from the previous year and more than 2 weeks longer than a decade ago, in 2008.

Hackett reports the improved focus on working capital stems at least in part from rising interest rates and increased mergers and acquisitions activity. You gotta find your cash somewhere. Apparently, that place often is on the balance sheet of your suppliers and partners.

We’re full-throated advocates for the free market. And we understand that the hand holding the lever gets to use it. “For the first time in years, we’re finally seeing rising interest rates, and that is driving ore companies to look at improvements to working capital,” Hackett Associate Principal Craig Bailey said in a press release.

Still, pumping payables with financial Restalyn is far from a cure all. “Payables are often the easiest starting point for working capital improvement, as the processes are largely in finance’s area of control,” Bailey explains. “Unfortunately, when companies extend payment terms it has significant impact on the [Days of Sales Outstanding, or DSO] performance of their suppliers. This year it is driving DSO to a 10-year high. It can even destabilize a supply base if companies are not careful.”

Worse, Hackett believes the easy fixes mask poor performance for overall cash cycle conversion (CCC), a metric that captures a company’s overall ability to convert invested resources into cash. CCC encompasses payables, receivables and inventory.

In addition to stretching payables, companies need to focus on optimizing inventory, improving operations and managing procurement processes.

The study estimates that the best performers turn capital into cash about three times faster than their peers, 16.7 days CCC versus 47.5 days for an average company.

When all the math is done, Hackett figures that more that $1.1 trillion has been left on the table by underperforming companies. Of that figure, Hackett says $443 billion could be unlocked through better inventory management, greater even than the total estimated payables opportunity of $358 million. “It appears clear that most companies are still looking for quick fixes and avoiding doing the process improvement and other hard work required to truly improve working capital,” Bailey said.

All of which is why, at Morgan, we’re laser focused on improving supply chains through in-transit process transformations and Inventory On Demand, a first-of-its-kind service in which we own our clients’ goods as we manage them for best efficiency and availability.

We can’t promise to save you a trillion bucks, but if you’re looking to turbocharge your global supply chain, Morgan can help you find some real value. As Hackett notes, every seven day reduction in the overall cash conversion cycle yields a 1% margin improvement. That’s a significant opportunity. And, hey, it beats squeezing your suppliers’ turnips.

That Hidden Supply Chain is worth examining because it’s like an iceberg, with most of its costs hidden under the surface. Delayed and damaged shipments are easy to spot, but how about the lost productivity and expense of re-routing, managing customers and problem solving? 

Still more hidden, what about all the seemingly “normal” processes that just aren’t as efficient as they could be? Air shipments that could be shifted to ground or ocean. Less-than-truckload movements that could have been full trucks. Fulfillments that didn’t happen because of missed coordination with inbound truckers or the receiving dock.

Once you start sleuthing out the Hidden Supply Chain, you find pieces of it strewn throughout your organization and your extended partner base. That search changes your analytical mindset, too. Suddenly, ERP-level visibility isn’t good enough; you need real-time information from more partners. Just sending out RFQs and squeezing suppliers doesn’t work either. Your whole, cross-partner data set has to be integrated and evaluated. And, you need partners who can execute operations both flawlessly and collaboratively.

So, work on your Hidden Factory for sure. But when you’re ready to take on the big transformation opportunities of the Hidden Supply Chain, give us a call. Years ago, the efficiency guru Michael Hammer wrote in The Harvard Business Review that, “streamlining cross-company processes is the next great frontier for reducing costs, enhancing quality and speeding operations. It’s where this decade’s productivity wars will be fought.” 

That’s been our focus at Morgan ever since, and it’s enabled us to help some of the world’s top manufacturers rethink and redefine their supply chains—including multiple clients in Gartner’s Supply Chain Top 25 rankings.

While You Were Shipping…

More Recent Stories You May Have Missed That Caught Our Eye

Fast fashion retailer Zara removes the warehouses from its fulfillment (WSJ, free with subscription)

Here’s a case in point of simplifying and speeding distribution by leveraging existing resources. Clothing retailer Zara has turned to its retail stores for fast shipping to online customers. Most supply chain experts think of a central warehouse as being the most efficient solution for meeting e-commerce demand. But, Zara realized that they could get goods to customers faster from nearby stores that already had most of of the needed inventory on hand.

Money quote: “There has been a trend lately to think of a store as a liability,” Forrester Research Inc. principal analyst Brendan Witcher said. “It’s an asset—but you need to learn to use it correctly.”

We love the out of the box and into-the-mall inventory thinking!

US trucking sees mode shifting as the Amazon economy turns LTL carriers into middle-mile movers. (Journal of Commerce, free with registration)

Volume is up, but weight is down according to Old Dominion. What does this mean for overall LTL and truckload rates and availability?

Blockchain hits the trough of disillusionment (Bloomberg)

Jacques Mallet du Pan was right: Revolution devours its children. In this case, the revolution is blockchain, and Bloomberg reports this week that the technology has hit the bottom of its hype cycle with adoption and enthusiasm waning. We knew blockchain probably wasn’t immediately going to bear all the fruit its promoters promised. Yet, we continue to believe in its long-term value and look forward to marching up Gartner’s Slope of Enlightenment to the Plateau of Productivity.