Cash on the table 2013
Consumer products working capital management
Cash on the table is the latest in a series of working capital (WC) management reports based on our research.
US$34 billion tied up unnecessarily in working capital from 21 leading consumer products companies
There has been significant improvement in the consumer products (CP) industry’s WC performance. These results were achieved in a highly challenging, uncertain and complex environment that we call the brand new order.
During the past decade, the CP industry has managed to achieve a substantial reduction in its level of C2C - and, according to our analysis, it has delivered this improvement without materially compromising on or trading off against costs.
However, overall our research suggests that the 21 leading CP companies are still leaving US$34 billion unnecessarily on the table – equivalent to 5% of these businesses’ combined sales.
To seek further WC gains, these companies will need to embrace substantial changes to address new operational and market issues.
Improvement in WC performance in 2012
A review of the consumer products (CP) industry’s working capital performance in 2012 reveals a significant improvement over 2011 in each segment selected for analysis.
Brewing and Household and Personal Care reported a further drop in C2C, while the Food & Beverage segment returned to a level of performance that beat its previous record of 2010.
However, a close review reveals major differences in the degree and speed with which different companies in each segment were able to deliver these increased efficiencies. Today, WC performance continues to vary widely between companies in the CP segments.
These variations in WC levels over the past decade have been influenced by a number of factors – some of them conflicting. These include:
- On-going pressure from retailers on discounts, terms and service levels
- Customer trade-downs to cheaper lines and private label products
- Rise of new distribution channels
- Accelerating shift of demand to rapid-growth markets
- Consolidation of suppliers, manufacturers and buyers
- Volatility in commodity prices and exchange rates
CP companies have made significant strides in increasing WC efficiency, albeit with large differences. The most significant initiatives include:
- Optimization of global manufacturing footprint and increased adoption of lean principles
- Reconfiguration of supply chains by deploying different strategies and solutions for different products or countries
- Consolidation of spend, intensification of global procurement and standardization of processes
- Improvements in billing and cash collections
- Better monitoring of the rebates, discounts and other sales incentives
- More effective management of payment terms for customers and suppliers, including renegotiation of terms
- Improved coordination between sales, manufacturing, procurement and supply chain processes
- Increased collaboration with retailers to increase demand visibility
- Monitoring of the financial viability of key suppliers
- Adoption of common technologies up and down the value chain to enable sharing of real-time and accurate supply and demand information
- Implementation of more robust risk management policies
- Tracking and monitoring of WC metrics and linking compensation to these metrics
While these performance gaps may be partly due to variations in business models, they also point to fundamental differences in the degree of management focus on cash and in the effectiveness of WC management processes.
WC cash opportunity per segment, 2012
|Value (US$b)||%WC scope*||%sales|
|Average|| Upper |
|Average|| Upper |
|Average|| Upper |
*WC scope = sum of trade receivables, inventories and accounts payable
Source:Ernst & Young analysis, based on publicly available annual financial statements
Opportunities going forward
The wide variations that our research reveals in WC performance between different companies in each CP segment point to significant potential for improvement — up to US$34 billion of cash for the top 21 US and European CP companies.