Cash conversion cycle slipped during 2016Despite persistent global economic uncertainty, companies in these sectors are generally doing well. However, findings in the recently published 2017 Europe Working Capital Survey, commissioned by the global working capital management consultancy REL, show the cash conversion cycle (CCC) of Europe’s top 1,000 non-financial companies slipped 3.6 percent in 2016 (click to tweet) as net working capital expanded. The authors of the report point out that, collectively, Europe’s 1,000 largest public companies face another year where they will lose the use of over 1 trillion euros that is locked up in net working capital. So how and why has this happened? Inventories build up when sales fall below what planners originally anticipated or when planners expect a sales uplift that has yet to materialize. Either way, it’s due to sales forecasts, demand planning, and supply chain planning being temporarily out of step. But no matter how or where the problem started, all the chickens come home to roost in finance, resulting in higher costs and working capital requirements, lower operating margins—and perhaps even the company’s stock price taking a hit.
Cross-functional processes between supply chain and finance are keyReducing working capital requirements and creating a leaner and more cost-effective supply chain require the creation of agile planning processes that connect financial forecasts with sales and operations planning (S&OP) and supply chain planning. Anyone in a planning role in the retail, consumer packaged goods, or manufacturing sectors will tell you that this is complex and involves lots of trade-offs between conflicting factors such as stocking levels vs. customer service targets and the cost of goods vs. replenishment times. They are right—but it can be done. Using the Anaplan platform, the food producer Del Monte aligned its supply chain planning and FP&A processes, reducing cycle times from two weeks to two days. Having everyone sharing information on the same real-time platform has also improved data accuracy, enabling Del Monte to run on-the-fly analyses. This is critical to assessing how best to respond to inevitable disruptions and sudden opportunities in a way that makes both operational and financial sense. At a time of constantly fluctuating consumer demand and increasingly volatile raw material prices, connected planning is rapidly becoming a must-have capability. Read more about how Del Monte and other companies that have benefited from connecting planning processes across their organizations.
Connecting supply chain planning to profitability