8 ways to improve working capital performance

Cash on the table 2013

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The consumer products (CP) industry has made significant strides in improving its working capital (WC) performance in the last decade. But as the pace and scale of industry change continue to escalate, companies will need to adapt their WC strategies to a broad range of new operational and market issues.

These will involve:

1. Working more collaboratively with key retailers: Achieving true collaboration would represent a major step forward in streamlining supply chains. Collaboration also creates an environment for meeting customer demands, growing markets and increasing market share.

Companies must adapt their own operations and then decide on the specific type of collaboration they want to pursue. 

2. Building greater responsiveness into systems and processes: CP companies need to respond quickly and effectively to changes in demand. Most supply chains have become leaner and more agile, but their complexity has also made them harder to manage.

To become more responsive, organizations need to:

  • Combine lean and agile manufacturing and supply chains solutions
  • Utilize postponement wherever possible
  • Implement better integration and coordination between sales, manufacturing, procurement and supply chain processes

3. Achieving higher resilience in supply chains: Supply chains have become more vulnerable to business disruptions as a result of lean practices and reduced supply base. To mitigate these risks, CP companies must embed higher resilience into their supply chains while considering the potential efficiency cost associated with it.

4. Striking a careful balance between global and local sourcing: Combining global and local sourcing has become more important, as CP companies increase their geographical footprints and seek to optimize their purchasing costs.

Global and local sourcing requires dedicated structures with clearly defined roles and responsibilities, trusted providers with contracts carefully managed contracts, and adequate contingency plans.

5. Tailoring WC strategies to conditions in rapid-growth markets: Ensuring continuing and profitable growth in emerging markets is a pressing WC challenge for the CP industry. Each new market has its own characteristics and dynamics, and no single WC approach is likely to fit all of them.

Successful strategies will be those that are tailored to each market, with specific, measurable and balanced goals.

6. Making increasing use of financing solutions: CP companies have been making increasing use of financing solutions to provide attractive and flexible alternatives to their customers and suppliers.

These solutions need to be accompanied by enhanced information and collaborative processes. They also must be phased in gradually to mitigate risks and ensure full buy-in.

7. Driving WC synergies to deliver higher value from acquisitions: CP companies have continued to pursue acquisitions to strengthen their competitive positions, expand their customer base and leverage buying power.

A successful transaction partially depends on the ability of the acquiring company to realize the expected synergies, growth opportunities, cost savings and improved processes from integrating the two businesses.

8. Changing internal behaviors: To realize all these opportunities in WC, an organization must not only implement leading practices in this key area, but must also change its internal behaviors. This requires people, process and technology to work more closely together.