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Cash on the table 2012 - Opportunities going forward - EY - Global

Cash on the table 2012

Opportunities going forward

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Leading 20 CP companies have between US$20b and US$40b cash unnecessarily tied up in WC.

The wide variations in WC performance that our research reveals between different companies in each CP segment point to significant potential for improvement — up to US$40b of cash for the leading 20 US and European CP companies.

The performance gap between companies in each CP segment partly results from differences in country and customer sales mix, manufacturing and supply chain infrastructure, the degree of vertical integration and the nature of supply contracts.

Yet these factors alone are not sufficient to explain the size of the gap, suggesting there are fundamental differences in management focus and process efficiency between companies within each segment.

Our high-level benchmarking analysis suggests that the leading 20 CP companies have between US$20b and US$40b cash unnecessarily tied up in WC processes, equivalent to between 3% and 6% of their aggregate sales.

This figure is calculated by comparing the performance of the WC components of each company with that of the average (low estimate) and the upper quartile (high estimate) of its peer group.

Even taking the top end of each range, our experience across many projects, industries and geographies shows that a dedicated focus on WC management can frequently release results at or above this level. Note that the range of cash opportunities identified in 2011 is higher than a year before, when it was between 3% and 5% of sales.

The opportunity is distributed across each WC component, with half coming from payables and one-quarter each from receivables and inventory.

WC cash opportunity per segment, 2011

  Cash opportunity
  Value (US$b) % WC scope* % Sales
  Average Upper
quartile
Average Upper
quartile
Average Upper
quartile
Brewing 2 5 8% 16% 3% 5%
FB 11 19 10% 22% 3% 7%
HPC 7 16 12% 20% 3% 5%
Total 20 40 10% 20% 3% 6%

* WC scope = sum of trade receivables, inventories and accounts payable

Source: EY analysis, based on 2011 publicly available annual financial statements

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