Effective Working Capital management is all about juggling inventory, debtors and creditors. This is, of course, driven by demand, supply, and operations. Maintaining a healthy level of capital tied to the business is a real challenge. Yet, many organisations overlook the substantial impact a sustained reduction in working capital has on top-line performance indicators such as profit margin (in addition to that on the balance sheet).
In a market environment where short-term borrowing rates are rising and uncertainty is prevalent, leadership should seize the opportunity by focusing on working capital through optimising their S&OP. By engaging in an interactive sales and operations planning process, organisations release working capital, improve fill-rate performance, enhance forecast accuracy and improve OTIF. Where do you start?
Here are some actionable insights we implemented with our clients that help you swiftly guide your strategy:
- Dynamic S&OP procedure Foster an interactive Sales and Operations Planning (S&OP) mechanism, where the supply chain entity acts as in tandem with the sales team, ensuring a smooth and seamless flow of information and decisive actions.
- Inventory-performance evaluation Conduct meticulous scrutiny at the SKU level to formulate actionable plans, encompassing the establishment of reference points, ordering thresholds, target days-on-hand, and stocking framework.
- Sales-propelled inventory management Empower the sales team to ascertain the optimal inventory strategy, making informed choices between stock items and made-to-order products based on their perceptive assessment of demand predictability and lead-time allowances.
- Effective handling of underperforming inventory Devise focused action plans tailored to each SKU for inventory items exhibiting sluggish movement, obsolescence, or overstocking, with a keen emphasis on maximising their utilisation and unlocking working capital.
- Optimising Working Capital when it comes to inventory write-downs, it is crucial to explore various avenues beforehand. Consider the following options: returning inventory to suppliers, reconnecting with previous customers, re-engineering products, bundling SKU offerings, exploring untapped markets, upselling, modifying existing SKUs, incentivising the sales team, or offering discounts.