We help companies implement working capital and cash flow improvements and realize the resulting benefits.
For years, the automotive supply industry has been in a challenging position resulting from pricing pressures, intense competition, evolving products and industry globalization. Analysis reveals a contrasting picture of the industry's working capital performance, with varying results among regions and over time. The opportunities are there. It is up to leaders to make the most of them.
The automotive industry worldwide is in a period of profound change across:
- Fast-evolving technologies
- A shift toward greater energy efficiency
- The globalization of supply chains
- The promise of emerging markets
Automotive suppliers can make significant working capital improvements: evolving performance metrics to include a greater focus on working capital and paying closer attention to fundamentals such as adherence to commercial terms and accurate invoicing.
Findings from the 2011 survey
- The automotive supply industry cut cash-to-cash (C2C) by 13% in 2010 compared with 2009
- The global downturn of 2008 had a considerable impact on working capital performance
- Organizations need to build responsiveness in systems and processes along the implementation of lean solutions
- Changing payment terms with original equipment manufacturers (OEMs), globalization of sales and supply chains, volatility of prices and currency fluctuations contributed to working capital variations
- There is opportunity for improvement across the entire working capital value chain for the industry
- There exists a lack of agreed objectives between OEMs and their suppliers
- Complicated supply chains are vulnerable to disruptions
Since the middle of 2008, the economic downturn profoundly changed the industry landscape. Many of the traditional forces that defined the industry remain, but new trends emerged:
- OEMs' shifting market shares
- Industry consolidation
- Reduction in production capacity
- Restructuring of operations
- Accelerated expansion in developing countries
Upheaval drives industry to focus on working capital
The crisis also highlighted the vulnerability of those in the automotive value chain. For many, a focus on cash and working capital was essential for survival.
- Each region reported lower C2C in 2010 compared with 2009
- 2C has been falling since 2002, but with large variations through the different periods
- Working capital performance between companies headquartered in different regions has been converging since 2002
- North American suppliers still carry the lowest C2C thanks to a superior performance in both inventory and payables
- European suppliers exhibit the highest C2C due to a poor performance in inventory
- Japanese supplier performance sits in between North America and Europe
Improvements that automotive suppliers can make
Automotive companies can expand their focus on lean manufacturing, collaborate more closely with suppliers and adopt common technologies to share real-time information about supply and demand.
This also means taking an approach across all these areas that balances cash, cost and service levels, while achieving greater agility amid high volatility in demand and persistent uncertainty.
The biggest impediments to achieving truly effective working capital management strategies remain:
- The lack of mutually agreed objectives between OEMs and their suppliers
- The absence of common processes and systems
- Historic behaviors within the organization and across the various supply chain partners
With focus and commitment, incremental progress can begin that can ultimately lead to breakthrough performance.
How we can help
We help identify, evaluate and prioritize realizable improvements in working capital derived from process improvements, elevated compliance levels or changes to commercial terms. We also help companies implement these working capital and cash flow improvements and realize the resulting benefits. We also help organizations implement the relevant metrics and identify areas for improvement in cash flow forecasting practices. We can then assist in implementing processes to improve forecasting and frameworks to sustain improvements.
Further detailed findings
In this report, we explore this subject further across the following topics: