6. SCM - Drivers Improve customer service Improve order management Corporate growth Improve asset use Improve demand planning Improve warehouse/distribution activities Accelerate “cash to cash” cycle Supplier/supply base management Strengthen partnerships Regulatory compliance
7. SCM - Material & Financial Flow Receive Goods and Invoice Send Payment Reconcile and Account Send Purchase Order Credit Application Negotiate Sales Terms Select Supplier and Goods Source Suppliers Supply Chain of the Buyer Receive Order Produce Goods Manage Inventory Distribute Goods Material Supply Chain Supply Chain of the Seller Material Supply Chain Evaluate Credit Reconcile Settle & Pay Issue Invoice Forecast Cash Finance Working Capital Resolve Disputes Financial Supply Chain
13. Working Capital Management (WCM) WCM can deliver significant business benefits in a relatively short period of time, where idle capital can be effectively & efficiently utilised Inventory Management Debtors Management Creditors Management Working Capital Management Consolidate supplier base to maximise purchasing and payment efficiency Unlock cash tied in stocks, reduce SKU’s, review product profitability, demand forecasting Improve Debtors & Credit Control
14. WC - Current Challenges Current Challenges Customers taking longer to pay Inability to balance working capital and to convert stock or debtors into cash Costs rising Profit margins under pressure Doubts about ability to make serious capital repayments on loans within the next six or seven months Turnover falling
16. Working Capital Strategies Financial Performance Profitability Growth Capital Utlisation Cost of Goods Sold Selling Price Fixed Capital Utilisation Working Capital Utilisation Days Inventory Days Sales Outstanding Days Purchase Outstanding
21. Revisit WC- Policies Higher Profits / Higher Risk Lower Profits / Lower Risk Trade-off Between Profitability and Risk Shorter than Industry Average Longer than Industry Average Operating and Cash Cycles With Short-term Debt With Long-term Debt and Equity How Current Assets are Financed Lower than Industry Average Higher than Industry Average Current Ratio Low High Levels of Current Assets Aggressive Conservative Working Capital Policy
26. Your Firm’s WC – Requirement Amount Current Assets (i) Stock of Raw Materials ( for ….month’s consumption) ----- (ii)Work-in-progress (for…months) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (iii) Stock of Finished Goods ( for …month’s sales) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (iv) Sundry Debtors ( for …month’s sales) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (v) Payments in Advance (if any) ----- (iv) Balance of Cash for daily expenses ----- (vii)Any other item ----- Less : Current Liabilities (i) Creditors (For….. Month’s Purchases) ----- (ii) Lag in payment of expenses ----- (iii) Any other ----- WORKING CAPITAL ( CA – CL ) Add : Provision / Margin for Contingencies ----- Net Working Capital Required XXX
32. SCM Goals Unit Cost Reduction Time Reduction Waste Reduction Flexible Response SCM Goals
33. Financial Benefits Improved Working Capital & Margins Improved Cash Flows Revenue Profit Growth Higher Return on Assets Financial Benefits
34. Customer Benefits Improved Value Improved or New Product / Service Quality Improved Flexibility Improved Timelines Customer Benefits
35. SCM Improvements Integrate People, Process & Systems Improved Decision Making Strategic Partner Relations Product / Service Innovation SCM Improve-ments