Optimize Working Capital

Cash flow optimization: a critical issue for businesses

The last financial crisis has underlined the importance of improving the management of cash requirements and has compelled companies to mobilize their resources for cash-flow optimization projects.

The optimization of accounts payable/receivable is the most obvious financial lever. However, there are other equally powerful operational levers that can have greater impact on cash liberation.

They require two essential, yet complex initiatives to be undertaken:

  1. Inventory optimization
  2. Capital investment management (CAPEX)

Inventory optimization is one of the key levers for creating cash. This analytical and cross-functional collaborative initiative identifies and reduces total inventory investment.  Furthermore, well implemented inventory optimization can increase revenue (cash) by improving product availability and reducing shortages. 

There are many targets in the Supply Chain for inventory reduction. Depending on the business sector, they may be located upstream (suppliers, production sites), downstream (central stock and distribution centers) or across the whole value chain.

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Our experience has enabled us to identify 5 types of levers that can be implemented:

  1. Supplier performance and agility
  2. Manufacturing performance and flexibility
  3. Logistics performance and responsiveness
  4. Supply Chain management process integrity
  5. Cross-functional key performance indicators (KPI’s) focused on inventory management process effectiveness and results

Cash optimization can also be attained through effective capital investment management. This is a highly sensitive matter, as companies are often faced with a dilemma: reducing or delaying investments in order to save cash in the short term, but at the risk of jeopardizing cash in the medium term (associated revenues underpinned by these investments).

Nevertheless, capital investment management is not merely a question of financial trade-offs. It involves reviewing the entire process, from the establishment of the investment business case to the operational implementation. Cash can be liberated by reviewing all the strategic, organizational, and operational stages.

Our experience in CAPEX optimization has enabled us to identify 5 best practices that need to be implemented:

  1. Rigorously assessing the real investment profitability
  2. Ensuring coherence between investments and the company’s strategic objectives
  3. Making decisions based on investment portfolios rather than on single projects
  4. Ensuring that current assets are productive, preventing additional investments
  5. Constantly challenging investment costs, even after their validation
  6. Institutionalizing an end to end capital investment management process and providing tools to support it

 

Investment optimization initiatives must be managed at the highest level of the company and mobilized by all the functions: Technical, Industrial, Financial, Procurement, and Marketing.

The combination of two key approaches result in short-term gains without jeopardizing the company’s potential for future development:

  • Medium-term approach: assessment of processes and tools. How can the right decisions be made, and how can everyone collaborate to optimize costs?
  • Short-term approach: high impact initiatives to reduce CAPEX expenditures while maximizing productivity of existing assets.

A cash flow optimisation plan requires an understanding of the entire value chain, from suppliers to the end-customer. Thanks to our positioning and expertise, Argon Consulting guides its clients with their cash flow optimisation transformation programs.

We can provide support in the following ways:

In the diagnostic phase:

  • Provide expertise and tools to rapidly identify the levers that need to be activated
  • Facilitate the alignment of key players with the ideal processes, roles, and responsibilities
  • Set ambitious objectives and targets while ensuring they are accepted
  • Develop an action plan and the related management buy-in that ensure success

In the implementation phase:

  • Assist in creating a sense of organizational urgency
  • Lead the transformation program and benefits tracking in order to sustain results
  • Use our expertise of the entire value chain to support these company-wide initiatives
  • Assist management and operations to execute the operational actions required to achieve the target results
  • Support the human dimension of the transformation process in terms of behaviors and skills

Case Studies

Development of a program to reduce stocks and cut logistics costs
Development of a stock reduction program
Drivers for reducing inventory and increasing flexibility in the pharmaceutical industry