The technology industry has one of the most complex supply chain structures of any industry.
All industries evolve. However, few experience change at the scope, scale and pace of the US technology industry. The nearly incessant evolution of high-tech products and services, so essential to the industry, tends to be mirrored through continuous reconfigurations of associated financial, operating and geographic footprints.
Organizations are now more global, portfolios of offerings have been expanded, operating models are more efficient and financial positions remain strong. A critical element of this transformation has been a stronger focus on return on capital invested, as well as on cash and working capital management.
Progress has been achieved, for example, by driving greater cash and cost efficiencies out of manufacturing, supply chains and procurement operations.
Collaboration has been increased across the extended enterprise.
Terms have been renegotiated. Yet many issues remain. Supply chains are increasingly complex — balancing cash, cost and service levels is a constant challenge, and visibility of final demand remains poor.
In this context, we continue to see further opportunity for improvement in many areas of working capital.
- Technology companies have made significant progress in reducing working capital levels in recent years, with specific actions to transform and drive greater efficiencies out of manufacturing, supply chain and procurement operations. Changes in product mix have also contributed.
- Lessons appear to have been learned from the recession of 2001, as seen by the comparatively reduced impact of the global downturn of 2008 on the industry's working capital performance.
- 2010 compared with 2009 saw a limited improvement in working capital performance, which can be attributed to higher levels of working capital associated with increased sales growth.
- Further analysis, however, shows that working capital results over time have been varied among and within segments of the US technology industry.
- Evidence also suggests that many working capital issues persist. Supply chains have been growing complicated and vulnerable to business disruptions. It is also getting harder to balance operational excellence with agility.
There is a lack of trust between manufacturers and their suppliers. Visibility to the final demand remains poor. There is still some heavy resistance to change at many levels within organizations.
- For each company, we believe that significant opportunity for working capital improvement still exists. A high-level comparative exercise (EY analysis) indicates that up to US$50 billion is unnecessarily tied up in the working capital of the leading 70 US-based technology companies, an amount equivalent to close to 6% of their sales and 3% of their market capitalization.
In this report, we explore this subject further across the following topics: