Chapter three

Leveraging digital tools for smarter cash-flow management

The need for greater collaboration, a more holistic view, and a clear line of sight right across supply chain activities and associated financials adds up to a strong case for joined-up digital capability. Ideally, this would allow stakeholders to track and tally what’s been ordered/delivered/approved/paid for, via timely insights – but also leverage working capital tools in a targeted and low-risk way to maintain healthy cash flow and shield the business and its suppliers from a volatile economy.

On the one hand, this is about transitioning away from paper-based transactions so that more order, payment and fulfillment data can be captured straight into systems and settled more swiftly. This incurs less manual effort and provides more timely business insights, paving the way for smarter account management, accelerated payments for suppliers, and smaller gaps between Accounts Payable and Accounts Receivable departments, so as  to optimize working capital.

It is also about harnessing this new transparency to pinpoint opportunities for targeting working capital solutions, at relatively low risk. The greater the visibility, the larger the scope to predict a supplier or customer’s behavior. For instance, the better the chance will be to apply for temporary financing, or to discount pricing, based on historical performance information.

This kind of leverage is likely to prove invaluable as external conditions become more challenging. As Johanna puts it, “Inflation is spiking in so many areas, something we haven’t seen for years – to the extent that the business situation has changed entirely, from a buyer’s market to a seller’s market within a year.

“Ultimately it means we must pay market prices. Where previously our sourcing teams looked to fix prices for a longer period, that no longer works. Now, suddenly, we’re having to renegotiate quarterly. It’s not only inflation itself that’s the challenge then, but also the difficulty in predicting what’s ahead. Currently we’re seeing a huge fluctuation in price, which makes planning very hard. At the same time, we must maintain supply security – without this, everything else is immaterial.”

For Newmont, of the three key levers of working capital management - inventory, receivables and payables – inventory poses the greatest challenge for the year ahead. Andy explains: “If you have a lot of items tied in inventory that are not moving, you’re holding capital that could be used to do other things. But do you want the plant to shut down? Inventory management is definitely the biggest challenge we are working to solve.”

Inflation is spiking in so many areas, something we haven’t seen for years – to the extent that the business situation has changed entirely, from a buyer’s market to a seller’s market within a year.

Johanna Bröll

Head of Procurement Financial Contribution | Multinational science and technology company

Implementing the right digital tools to support this is a priority, and Newmont has already made a lot of progress in moving away from paper-based invoice management towards more streamlined electronic capture and processing. The next step is to make everything smarter and more data driven. “To achieve an efficient supply chain, with 100 percent visibility into your processes, a good system is not enough,” Andy notes. “You need to have the tools to do analytics: to determine which are my top vendors; how do I improve payment processing and ensure this happens promptly; that the goods arrive on time, and so on.”

At Gates Corporation, protracted lead times and time lags are currently the key issue, and one that will become more costly and risk-laden as the impact of inflation deepens. Zijian points to the bicycle market, noting that some large companies have now extended their lead time to almost two years. Multiple issues are at play: raw material shortages, labor gaps, COVID-related illness, long lockdowns and closures in China, and more.

“We keep our lead time much shorter than the industry average,” he says. “Generally it’s under a year. This relies on our ability to reassure our suppliers that we have a strong and bright future.”

Partly this is done through relationship building, by encouraging suppliers to grow with the company. “We also appreciate their needs around raw material price increases,” Zijian explains. “By giving them a reasonable price, we’re able to maintain a good relationship with them which in turn means they’ll make our orders a priority.”

Gates Corporation’s ability to maintain these strong relationships along the rocky road ahead, and safeguard its own profitability, will depend on the business’s ability to manage its working capital more smartly.

“The faster we can gather information from the warehouse or supplier, and from customer tenders, the faster everyone can react,” Zijian notes. “This reduces the bullwhip effect. It reduces the waste, the raw material, and the transmission time, and in many cases it will improve efficiency. That has to be a goal for all companies.”

At a multinational science and technology company, the current focus is on performing advanced analytics using AI, to make more strategic use of the magnitude of data the organization has available to it. Says Johanna, “Currently we have all of this spending information – all the invoices and supplier material data - but this is not yet connected to other data sources. Our aim now is to see how we can harness digitalization to connect those data sources and gain new insights. That could be via links to the P&L, or to the finished product; or it could be insights about sustainability factors.”

According to global market commentators, having greater insights into and control over supply chains will be essential as companies look to navigate emerging challenges, maintain supply security, and be more responsive to customers – while maximizing their own scope for profitable growth. KPMG emphasizes the importance of data-driven decision-making, for instance, while Gartner highlights the need to boost resilience and agility.

By giving them a reasonable price, we’re able to maintain a good relationship with them which in turn means they’ll make our orders a priority.

Zijian Zheng

Global Planning Manager | Gates Corporation

Next: Chapter 4

Additional considerations

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