Cash Flow Is Up, Inventories Are Down

Supply chain cash flow is breaking with historic holiday norms, according the November 2009 Supply Chain Index (SCI) compiled by Cortera. The SCI is a monthly index of accounts receivable (A/R) activities covering manufacturers, distributors and wholesalers, retailers, services, and transportation companies.

Measuring payment activities of approximately 350,000 businesses, the November SCI indicated the speeding of payments and related cash flow throughout the overall supply chain, a condition that typically occurs in the months following a holiday shopping season. The unusual occurrence likely supports reports of retailers and suppliers reducing inventories this holiday season with little expectation of replenishing goods once those inventories are exhausted.

Data from the prior month had revealed a slowing of payments consistent with a seasonal pattern seen over the past couple of years (2007 and 2008), as manufacturers, suppliers and retailers take on additional trade credit related debt in advance of the holiday shopping season. However, in the past, such seasonal delinquencies often continued over several consecutive months, continuing throughout the holiday season and typically returning to normal levels in January, as the cash received from sales flowed back through the supply chain. The latest data represents the fifth time in the last six months that the Cortera SCI has revealed improving cash flow conditions throughout the supply chain, though the SCI remains 20% higher than pre-recession levels of two years ago.

“The speeding of payments is a positive although highly unusual development for this time of year. The latest data suggests a unique balance between the fresh lessons from the past holiday season and cautious optimism to meet conservative sales expectations,” says Jim Swift, president and CEO of Cortera. “This would seemingly support widespread reports of tighter, controlled seasonal inventories this year. The big question now is whether we see an uptick in December caused by optimistic replenishment and higher confidence in additional holiday sales.”

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