It sounds like a nice little Christmas gift – £110 billion. Consultants Booz and Company calculate that this is how much excess working capital is sloshing around in British companies.
And the key to making use of it is more efficient supply chain management.
Booz looked at 202 publicly traded companies with combined annual sales of more than £1.2 trillion, and analysed three components of working capital: receivables, payables, and inventory across 31 industry sectors.
It reckons that there are four levers that companies can use to improve their working capital performance:
* Rebalance supply and demand requirements through sales and operating planning, supply policies and commercial levers. This will enable companies to move excess inventories and avoid over-building.
* Optimise end-to-end supply-chain structure. This involves looking again traditional supply chain trade-offs, especially for extended global supply chains. In some cases, the cash tied up in inventory could more than fund the development of local production facilities. Additionally, shifting trade-credit to where the cost-of-capital is cheapest, or gets the best return, can have a significant impact.
* Align incentive structures to reward cash management.
* Think radically about architecture or operating philosophy – for example pull versus push, or agreements on financing with third parties.
These changes are hardly trivial – but then the potential prize is hardly trivial. It will be instructive to see how far companies can go in liberating the cash tied up in the supply chain.
But that is a problem for 2010. For now, let me wish you a Merry Christmas and a Happy New Year.
