Finance issues within the supply chain are becoming increasingly important to senior supply chain managers. Global sourcing, the development of new markets and corporate growth pressures are all contributing to a need for a greater understanding of the way working capital can be deployed to best effect within the supply chain.
According to a report on Working Capital Optimisation published last year by Aberdeen Group, two thirds of those surveyed placed a high priority on working capital optimisation, with top performers already using working capital optimisation to fuel growth for their organisations. Results from the survey suggested that ‘the cash conversion cycle of the Best in Class companies is 5-6 times shorter than that of average and lagging companies’.
So what are leading companies doing to achieve these results? It appears they are focusing on the use of inventory optimisation tools, inventory collaboration technology, supply chain visibility technology, working capital/cash management tools and have access to receivables/payables/inventory financing across their supply chains. In addition to these tools many leaders are using third-party inventory financing to move inventory off balance sheet.
But to ensure that supply chain strategy is aligned to financial performance it is imperative that cash conversion is embedded in the set of supply chain and procurement metrics and that a cross-functional team responsible for working capital improvements is in place.
As credit becomes tighter this year, finance within the supply chain is set to be a key issue in 2008. And Supply Chain Standard will be taking a great interest in this area, starting with a key report on the subject in the February issue.