How to reduce cash flow inside the Supply Chain?
As the current crisis evolves supply chains with limited resources, slower sales, and reduced margins; we can exert higher pressure on companies' profits and liquidity.
During past years, industrial companies have taken the habit of projecting themselves with optimism in the future (for some, at least).
Now with the crisis and especially the prevailing uncertainty, we will need a hefty dose of realism to find out how to free up cash.
Businesses will need all of the forecasting capabilities available to test their capital requirements on a weekly, at best, monthly worst basis.
What should Supply Chain managers focus on?
In this kind of period, supply chain managers will have to focus on freeing up liquidity blocked in the value chain.
How to gain cash flow inside the Supply Chain?
Reducing stocks of finished products, with thoughtful and ambitious objectives supported by robust governance, can lead to substantial savings.
Similarly, improving logistics, such as smarter fleet management, can allow companies to defer significant investment costs without affecting customer service.
Pressurized verification of purchase orders from each supplier and minimizing or eliminating purchases of non-essential supplies can provide immediate cash flow. Supply Chain managers have to analyze the root causes of purchasing needs by adapting the models for inventory and production management.
Demand-based models give priorities. These models have the merit of promoting cash generation and accelerating the speed of circulation of it in the company.
Here we see the bridge between the supply chain functions and the financial functions if they are not existing. We can also imagine how a "financial" S&OP can help to balance decisions and make the right ones that manage cash flow.
We bet that our Supply Chain managers will be able to get closer to the finance teams and equip themselves with tools and processes adapted to the "new" decisions to take.
Philippe Bornert, AGILEA CEO
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