Increase Cash Flow by Optimizing Working Capital

June 18, 2010
Top companies are able to blend both supply chain management and financial management strategies in order to optimize their working capital. These enterprises are shortening cash conversion cycles, improving order fulfillment and increasing return on working capital by taking a complete view of their supply chain

Top companies are able to blend both supply chain management and financial management strategies in order to optimize their working capital, according to a new study from analyst firm Aberdeen Group. The report examines how enterprises can shorten cash conversion cycles, improve order fulfillment and increase return on working capital by taking a complete view of their supply chain.

"As companies focus more on internal strategies for driving working capital improvement, they should remember that working capital should be managed with a view of end-to-end supply chain process optimization," says Nari Viswanathan, vice president / principal analyst with Aberdeen Group.

"On the supply chain management side, top companies are more likely to be trying to improve forecast accuracy and pursuing just-in-time capabilities. Also, top companies are more likely to be trying to optimize inventory routes, making better decisions on where and how much inventory to store," Viswanathan observes. "On the finance side, top companies are more likely than all others to pursue a series of strategies: improve accuracy of operational budgets like transportation spend, raw materials spend, and improve overall cash management through better use of cash on hand and increase the return on short-term investment."

Aberdeen's research found that 46% of top companies have cross-functional teams to lead working capital improvements. "Companies need to establish an complete view of working capital management by taking into account inter-relationships between operational processes impacting working capital throughout the entire supply chain, including sales, operations, and manufacturing planning, demand and supply synchronization, inventory management, customer and supplier relationships, and financial management," says Viswanathan.

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