Weitere ähnliche Inhalte Ähnlich wie Supply chain management and working capital (20) Supply chain management and working capital1. 2010-11-20
Supply Chain and
Working Capital Management
KTH November 19th 2010
WCM – Working Capital Management
WCM
– Definition
– Methods and practise
– Case
WCM and SCM
– Focus on how to handle business cycle
variations
– Capacity issues
© UnitedLog 2009
1
2. 2010-11-20
www.unitedlog.com
Hans von Euler
Consultant and Trainer in Supply Chain Management
Manufacturing
Retail and distribution
Services
Healthcare
© UnitedLog 2009
www.unitedlog.com
Founded in 2005
9 offices on 3 continents
Owned by 6th AP Fund and AB Arvid Svensson
150 employees
© UnitedLog 2009
2
3. 2010-11-20
UnitedLog
Supply Chain Management
& Finance
Consulting
Customer
Supply Chain Supply Chain
Services Software
© UnitedLog 2009
UnitedLog – How we improve your supply chain and profitability
Reduce your working
capital
• Working Capital Management
• Financial Solutions
FLOW OF CAPITAL
FLOW OF
SUPPLIER END CUSTOMER
GOODS
SOURCING PRODUCTION DISTRIBUTION
FLOW OF INFORMATION
Visibility and cost
Reduce your costs and
control
increase your service Flexibility
in your inbound and
levels
outbound flow of goods
•SCM Strategy • Control Tower Software • Outsourcing Services
• Change Management • Performance Management
© UnitedLog 2009
3
4. 2010-11-20
Supply Chain Consulting
Corporate strategies
Organization
Development
Product and Business
Strategy area development
Supply/Demand
Chain Strategy Working capital management
Sourcing Supply/Demand Finance
Chain Management Financial management
Production Transaction Services
Distribution
We enable increased revenues and unique competiveness through more efficient flow of
goods, services, information and financial means.
Senior consultants with great experience.
Strong in implementation and achieving lasting results.
Supply Chain Software
– Control Tower Software
Manages Inbound and Outbound Logistics
In-Sourced or Outsourced Does Not Matter
Goods Flow Control and Operation Tools
Information Flow Control and Operation
Financial Control and Operation Tools
Performance Management Tools
Advanced tendering
© UnitedLog 2009
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5. 2010-11-20
Supply Chain Outsourcing Services
Inbound and Outbound
Transport Management
3PL Contracting
Supply Chain Invoice Control
CUSTOMER Outsourcing
Services
Customs Brokerage
Logistics Trading
© UnitedLog 2009
WCM - Working Capital Management
KTH November 19 2010
5
6. 2010-11-20
WCM – Working Capital Management
WCM
– Definition
– Methods and practise
– Case
WCM and SCM
– Focus on how to handle business cycle
variations
– Capacity issues
© UnitedLog 2009
WCM – Working Capital Management
Working Capital is the capital needed in order to
finance the ongoing business
Working capital is mainly tied up in
Cash
Inventory
Accounts receivable
© UnitedLog 2009
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7. 2010-11-20
The Aim of improving WCM is always to increased Profitability
Reducing working capital improves
cash flow...
...giving direct results on the profit
A successful WCM project is not
only a “financial” project but as
much a matter of improving
operational conditions in the
supply chain.
© UnitedLog 2009
All activities in a WCM and SCM project must be balanced in
order to achieve increased profitability.
The Cornerstones of Logistics
SERVICE
Profit
Profitability =
Captal
COSTS CAPITAL
© UnitedLog 2009
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8. 2010-11-20
THE IMPORTANCE OF CASH FLOW
© UnitedLog 2009
Income vs Cash Flow
Income
Supplier Customer
Purchase Sales
Cost Income
Production
Cash Flow
Supplier Customer
Outgoing Incoming
payment payment
© UnitedLog 2009
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9. 2010-11-20
Capital tied up - from Order to Cash
Suppliers Customers
FINISHED PRODUCT
Purchasing Production Sales
Capital tied up
Material from Machine delivered and Payment from
supplier delivered customer invoiced customer
Customer’s credit time
Cash payment Operating margin
to supplier
Machine placed in finished stock
Machine produced
Working Capital tied up
Time
Credit time from supplier
© UnitedLog 2009
Exercise: Calculation of released capital
A company has a total sales of
180 millions.
How much operating capital
can be released by having the
customer’s payment 3 days
earlier?
180 millions
= 0,50 x 3 days = 1,5 millions
360 days
© UnitedLog 2009
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10. 2010-11-20
What we want to achieve
Goods received Invoiced sales
Average inventory Average customer
lead time payment time
Days
Average time to Cash Conversion
payment of supplier Cycle (CCC)
Cash disbursement Cash collection
to supplier from customer
We want to decrease the lead time in inventory…
© UnitedLog 2009
What we want to achieve
Goods received Invoiced sales
Average inventory Average customer
lead time payment time
Days
Average time to Cash Conversion
payment of supplier Cycle (CCC)
Cash disbursement Cash collection
to supplier from customer
We want to decrease the lead time in inventory…
…and decrease the payment time from customers…
© UnitedLog 2009
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11. 2010-11-20
What we want to achieve
Goods received Invoiced sales
Average inventory Average customer
lead time payment time
Days
Average time to Cash Conversion
payment of supplier Cycle (CCC)
Cash disbursement Cash collection
to supplier from customer
We want to decrease the lead time in inventory…
…and decrease the payment time from customers…
…and increase the payment time to suppliers…
...and thus reduce working capital and the cash conversion cycle !
© UnitedLog 2009
The main drivers of Cash Flow
Income statement Balance sheet Balance sheet
Operating
Changes in Changes in
income
Working capital Fixed assets
(operational)
(operational) (strategic)
Cash flow
© UnitedLog 2009
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12. 2010-11-20
Working Capital Management
Balance Sheet
Liabilities &
Assets Equity
Equity “Management of
Fixed Assets a company’s
Untaxed Operating
Reserves Capital, e.g. the
short-term
Inventories Long-term assets &
Liabilities liabilities.”
Accounts Short-term
Receivable Liabilities
Accounts
Cash
Payable
© UnitedLog 2009
Working Capital Management
Focus on non interest bearing items in the Balance sheet
© UnitedLog 2009
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13. 2010-11-20
Operating income vs. Cash Flow
MSEK
60000
Note that good profit
40000
does not necessarily
mean a positive
20000 Cash Flow
0
-20000
-40000
-60000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Operating income Cash Flow
A high operating income doesn't mean a company has cash on hand;
the company can go bankrupt, due to lack of cash, even if the operating income is high.
© UnitedLog 2009
Working Capital Management
Value added Product
Sales
Credit-
Development Marketing Order Production time
Purchase
Accounts
WIP, Receivable
Work In
Value added in the Progress
Balance sheet
Raw material
20
Cash Flow
0
-20
-40
-60
-80
-100
© UnitedLog 2009
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14. 2010-11-20
Every day is important!
With a 10% margin on
sold products you need
to sell 100 products to
finance 10 unsold
products in inventory.
© UnitedLog 2009
Experience of Working Capital Management
Based on previous conducted WCM projects; 5 -10% of sales are
identified as a potential reduction of working capital
Activities amounting to 50 % of the identified potential is normally
released within 6 -12 month after the workshop.
The same methodology can be applied in all business sectors
Where the “Cash” improvements normally occur:
Accounts Delivery Accounts
Purchase Order Production Distribution Invoicing
payable precision receivables
Procurement Production and Distribution Sales Process
(Suppliers) (Stock) (Accounts
20-30 % 40-60 % Receivables)
20-30 %
© UnitedLog 2009
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15. 2010-11-20
Use for released working capital
Increase the cash buffer Investments in marketing
Repayment of loans Investments in competence
development
Investments in property and
machines Investments in research and
development, incl. new
Acquisitions products and services
Dividends to shareholders To keep our shareholders
pleased and willing to invest in
To be able to seize business our business by giving
opportunities dividends
”Cash is King”
© UnitedLog 2009
Working Capital Management
Sales process Production process
• Credit Management • Product development
• Offer & Contracts • Delivery precision
• Order • Inventory
• Invoicing • Planning
• Accounts Receivable • Production
• Incoming payments • Finished goods & distribution
Working
Capital
Management
Liquidity Management
• Bank accounts Purchase process
• Financing • Evaluation of suppliers
• Borrowing • Purchase agreements
• Currency management • Distribution
• Liquidity planning • Approval of supplier
• Salaries invoices
• VAT and other taxes • Outgoing payments
© UnitedLog 2009
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16. 2010-11-20
All activities are important!
I can enforce I can push for
freeze time reduction in
finished stock
I can charge
penalty interest I will never pay
before due date
I can I can invoice on
introduce Friday instead of
direct debit Monday
© UnitedLog 2009
WCM and SCM
- controlling in business cycle changes
16
17. 2010-11-20
Challenging times
The finance crisis and the recession
that followed left many companies to
face quite new challenges that had to
be dealt with rapidly.
Focusing on efficiency in every aspect
of manufacturing, distribution and
supply have a potential in reducing the
imposition of company profit.
Working capital does often hide
substantially potentials.
Focusing on capacity- and utilization
issues will be of highest strategic
importance to very many companies.
© UnitedLog 2009
CAPACITY – HOW MUCH WILL BE NEEDED AND WHEN?
© UnitedLog 2009
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18. 2010-11-20
CAPACITY PLANNING
© UnitedLog 2009
Capacity planning
Planning vs Control Perspective:
Planning - making up the route Longer
Controlling - adjust to reality Shorter
© UnitedLog 2009
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19. 2010-11-20
CAPACITY– DEFINITION
© UnitedLog 2009
Capacity
Controlling Planning
Short perspective Long perspective
Daily, weekly Monthly, quarterly
People
Fine tuning Changes in takt,
Machines investments
Materials
© UnitedLog 2009
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20. 2010-11-20
”Fine tuning” – daily control
Make the best of things
Within the rules..
© UnitedLog 2009
Capacity Planning – long term
Create new conditions
Secure the new levels – higher or lower.
Reducing
Increasing
Continuing in unchanged takt
Investments
It is in the Capacity Plan the decisions are taken
on investments in the flow
© UnitedLog 2009
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21. 2010-11-20
Capacity Planning
Planning is made on different levels
– Overall, budget
– Overall continuously
– Capacity, utilization rate
– Operational level
© UnitedLog 2009
”THEORY”
© UnitedLog 2009
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22. 2010-11-20
The Bucket theorem
© UnitedLog 2009
Capacity plan
Capacity section:..................
Opening
values
Jan Feb Mar Apr May June Target
Sales budget 50 70 85 65 70 80 420
actual 40 60 60 70 65 65 360
Inventory budget 270 260 250 240 230 220 220
actual 280 300 300 300 290 285 280 280
budget 40 60 75 55 60 70 360
Production (forecast adjusted)
”actual" 60 60 60 60 60 60 360
(production friendly)
© UnitedLog 2009
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23. 2010-11-20
Capacity Planning
The closer to market, the quicker
reaction to changes.
The closer to market, the later you can
take decisions - and the better you
know what has to be done.
© UnitedLog 2009
Capacity Planning
The quicker you react to changes less
adjustments are needed
The more often you react and act the smaller
adjustments each time.
Making change work and
Making work change
© UnitedLog 2009
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24. 2010-11-20
Planning processes
There are several planning levels but the two most
important once are:
Capacity planning
(the whole factory or a segment)
Order planning
(Which items, products components or materials shall be
ordered internally or externally? When and How Much?
Two completely different levels of planning
© UnitedLog 2009 Projektnamn etc
Planning and Control
Pull-principal
BUDGET
Market
Capacity forecasts
Capacity decision planning Monthly/Quarterly
Frames
ORDER
planning Weekly
Order decision Purchasing
Materials
clearance Weekly
Materials
call-off Manufacturing Customer
order Weekly order
Daily el
Shop floor
planning
Daily
Supplier Customer
© UnitedLog 2009 48 © Establish/ 20/11/2010
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25. 2010-11-20
Planning processes – Capacity planning
Capacity planning is made on a high level:
The decisions include accumulated flows and groups of items and
products rather than individual items.
The decisions gives a frame for the detailed decisions on order- and
shop floor planning levels.
The decisions have consequences for the future and are often
strategically based.
The decisions are therefore taken on highest management level.
What takt must we have for the coming period?
© UnitedLog 2009 Projektnamn etc
Planning processes – Order planning
A group of items compete of the available capacity. Order
planning answers the key issues:
Which of the items shall be released for production now?
How much shall be ordered?
The ordered item and quantity shall be delivered one lead time
later. When is that?
To what shall we use the Capacity ?
© UnitedLog 2009 Projektnamn etc
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26. 2010-11-20
THE SUPPLIER
© UnitedLog 2009
MRP planning example
Weeek 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48
2007
Demand we 43 57 92
week 108 Programme
29 38 59 93 106 112
30 41 58 94 108 114 111
31 23 56 90 100 109 118 122
32 -15 36 96 105 109 118 122 121
33 -35 -22 74 105 113 118 111 121 114 119
34 -57 -16 107 108 119 112 123 112 119 115
35 -73 2 96 113 112 112 112 118 114 116
36 -71 -17 100 106 110 113 119 116 116 117
37 -88 -19 98 103 94 116 111 103 114 111
38 -107 -14 103 100 118 109 105 116 111 115
39 -121 -7 107 110 103 106 116 111 115 115
40 -128 13 107 105 88 118 112 115 115 112
41 -115 -11 95 85 90 113 113 112 112 114
42 -126 -8 101 86 73
43 -134 13 78 67
44 -121 -12
45 -133
46
47
48
Decided 38 58 90 105 113 119 112 110 94 118 103 88 90 1238 100%
Actual 23 36 74 107 96 100 98 103 107 107 95 101 78 1125 91%
Ordered omponents 43 57 92 108 112 111 122 121 114 119 114 116 114 1343 119%
© UnitedLog 2009
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27. 2010-11-20
Include all strategic actors in the Total flow
Variations increase and get worse up streams
Secure key suppliers capacity by including the in your own capacity
planning process.
Develop new coordinative routines
Big variations upstream means late reaction to changed demands
down streams
All actors shall react to the same signal!
© UnitedLog 2009
SCANIA
© UnitedLog 2009
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28. 2010-11-20
5
Scania Capacity Planning Process 5
The process of the ”Planning Tour. It´s made monthly and with a 12 month window
Week1 Week 2 Wednesday
Friday Friday at 14.00
after the turn of at 13.00
the month
Data from the Distributors
Statistics of vehicles
registered Takt decision
Analyses – financial, Meeting
marketing, etc.
Forecasts, ratings and Cross
evaluations Levelling the Capacity functional
Production &
Marketing Dept. meeting
Sourcing Dept
chaired by
Volume plan, Edition MD
Production
Demand no. # Capacity-
/Takt Plan
Consequences on Deliveries
Capacity levelling and component
Market dept. Production capacity Plan/
restrictions can influence delivery
decision on Volume Takt Plan
dates. The suggested plan is mutually
plan Suggestion on how volume
developed until agreement . Several
editions can occurs during the Plan can be realized
process.
© UnitedLog 2009 20/11/2010 © 2008 Establish
Scania
Frequent planning
Standardised and clear process!
Secured and simple routines to prepare for the
takt decision.
Capacity planning meeting, Takt meeting, is a
decision meeting – all discussions on forecasts,
productions conditions etc. Must be closed in the
preparatory process.
The only one that can take the final takt decision
is the MD.
© UnitedLog 2009
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29. 2010-11-20
Capacity planning - summary
The same issues in recession and boom.
The better you function in boom periods the better prepared with
working routines when business turns down.
The closer to market, the quicker reaction to changes.
The closer to market, the later you can take decisions - and the
better you know what has to be done.
The quicker you react to changes less adjustments are needed.
© UnitedLog 2009
Capacity planning - summary
Make it often!
React and act rapidly!
Simple routines and rules
Clear decisions every time
Simple and obvious connections to
every day operations
Make it often and simple !
© UnitedLog 2009
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30. 2010-11-20
WCM and SCM
Different basic focus
The same actions and tools
Same demands on the process of change
The same goals
Increased Profitability !
© UnitedLog 2009
Thank You for
listening !
© UnitedLog 2009
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