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Cash on the table: working capital in consumer products - EY - Global

Cash on the table

Working capital in consumer products

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Most consumer product companies recognize that there is still significant opportunity for improvement within many areas of working capital.

The consumer products industry is caught in a time of significant change, prompted by shifting demand to private labels and to emerging countries, consolidation in the retail industry, increased competition and more volatile commodity prices.

Against this backdrop, consumer products companies have intensified their focus on cash and cost efficiency and on working capital in particular. While significant progress has been achieved in reducing levels of working capital, consumer products companies still have substantial opportunity for improvement.

Cash on the table, our latest in a series of working capital management studies, explores:

Overall consumer products findings

  • In 2010 compared with 2009, consumer products companies reported further progress in reducing levels of working capital, with each segment showing better results.
  • Yet we believe that there is still room for improvement. A high-level benchmarking analysis suggests that up to US$33 billion is still unnecessarily tied up in the working capital of the largest 20 consumer products companies (by sales), equating to 5.3% of sales.
  • Leading companies will be those that take a structured "root and branch" approach to improving working capital by targeting all the key operational levers and having a robust supporting infrastructure, including:
    • Focused metrics
    • Aligned incentives
    • Strong risk management policies
  • This also requires taking an approach that balances cash, cost and service levels, and therefore a culture that engages all functions (sales, procurement and not just finance) in ensuring the cash lever is included in business decisions.

Brewing findings

  • Further improvement in C2C (cash-to-cash) performance in 2010 compared with 2009, with a drop of seven days to reach just five days.
  • Of the three consumer products sub-segments analyzed, brewing has reported the biggest improvement in working capital levels since 2002 (C2C down 88%, or 35 days), driven by progress in both receivables and payables.

Food and beverage findings

  • Cut working capital levels (C2C) by 8% in 2010 compared with 2009, with each working capital component contributing to this improvement.
  • Part of 2010's improvement, however, reflects a rebound from the deterioration seen in 2009, which was adversely affected by the global downturn of 2008.

Household and personal care findings

  • Reported a strong working capital showing in 2010 compared with 2009 (C2C down 12%) entirely due to an increase in payables — and bringing the total reduction in C2C achieved since 2002 to 30%, with the entire gain achieved in the last three years.
  • These results bring the total reduction in C2C achieved since 2002 to 30%, with the entire gain achieved in the last three years.

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