Cash Conversion Cycle - Ideas

[Starbucks Junkie]

The post Prabhu is refering to with the ZIP attachment can be accessed at the following link;

Cycle Counting - PI Training Documents


SJ

[srinivas.d]

I was thinking that there should be a set of metrics that we should measure continuosly to monitor the cash to cash cycle time...

Can you help in listing some "metrics" that I can use in the below areas:

i Sales
ii Planning
iii Procurement
iv Inbound logistics
v Manufacturing
vi Warehousing
vii Outbound logistics
viii Account Payables
ix Account Receivables


Srini

[srinivas.d]

Thanks SJ. I got them!

Srini

[Prabhu]

I would like to add only two,
1. Manageable accuracy in forecasting
2. More accuracy in stock records. (Cycle counting is the advanced way to bring it)

Every factual error and inventory lost may result in to huge adverse outcomes.

Consider this example,
Loss due to missing in inventory per month = 50$

In all the companies, it is a claim that “losses are replaced only by profits”.

Profit margin of business = 5%

Therefore, 50$ / 5% = 1000$ additional trade is required to replace the 50$ lost inventory.

Moreover, we need to face inventory carrying cost, worthless production loss, fail to meet customer order etc.

-Prabhu

[ratesunionkiko]

Yes, I am planning to do VSM but as of now just doing a data collection part. Will take another week or two to come out with some analysis.

[srinivas.d]

Prabhu,

Back from Hibernation!

Finished zeroing on and defining 18 metrics, essentially durations between every two stages in the supply chain. Need to do a benchmarking of these values and also design a report in SAP so that these values can be monitored regularly. Also, the metric values will be used to identify the pain area and a detailed analysis done on that area for improvement.

Srini

[billramsay]

Hi, sorry to come to this conversation so late but here's a few thoughts based on my experience, particularly in Big Pharma.

The first question that needs to be answered is what aspects of the C2C cycle can you reasonable expect to impact?

If we take the Payables side first; the ability to change the days payable is generally constrained by the realities of Procurement. Most suppliers are pretty switched on and understand their total cost of doing business, so getting a supplier to give you an additional 30 days of credit can be kind of self defeating. From a whole-of-business perspective there are generally better value adds that a supplier can do for you; QA pre-inspection reports, production-ready batch sizes, and working proactively on finding lower cost alternative materials are examples.

The second aspect of C2C is the Inventory piece. By working with your suppliers and your own Supply Chain people you should seek to speed inventory through your system. If you are a manufacturer this can be tricky as raw materials required for final goods often have long leadtimes. Even if you are reselling finished goods managing inventory to the optimal level can be problematical. Much of the equation depends on the margin of your final product, the variability of your sales quantities, the number of stocking points, etc. The main thing is to start managing inventory by categories so that you can segment it by leadtime, value, shelf life, etc - whatever works for you.

On the Receivables side you can offer settlement discounts; in my experience the effectiveness diminishes as the size of your customers increases. You may want to investigate cyclical billing as a way to get customers to pay on the due date rather than at month end. This should also help your first day of month pressures in the warehouse. Cleaning up potential "in dispute" sales before they occur will pay big dividends - make sure you and the client are expecting the same thing and the scope for dispute will decrease!

With C2C the main things is to understand the strategy of the business - in Pharma profit margins tend to be high in comparison with working capital, so threatening sales by running inventory down and annoying customers isn't a great strategy. In other industries where margins are low in comparison to working capital the answer may be completely different.

The main thing is to determine what your company's objectives are and work on your C2C cycle in an appropriate way. Good luck.

[srinivas.d]

Hi Bill,

Glad to have a found a person with SC and Pharma combination!

I've analyzed a few products along their entire supply chain and found that the issue is with the inventory part and mostly because of planning (demand as well as capacity planning).

My next step is, as you rightly mentioned, categorize inventory based on demand variability, volume etc and design some improvements to reduce the inventory outstanding days.

Thanks for you inputs!

Srini

[Prabhu]

Srini, It shall be a good learning for us, if you give some critique regarding your earlier attempt and the outcomes.

-Prabhu

[srinivas.d]

Hi Prabhu,

I defined and measured the following metrics and found that the inventory holding days was high when compared to the industry avg levels... so now working on reducing that... and we will be using these metrics to monitor the performance...

S.No Measure
1 Delay in order entry
2 Inv Holding days (without WIP inv)
3 Time to start Prodn after SO receipt
4 Delay in Raising PR
5 Delay in Raising PO
6 PO receipt duration
7 SFG(Semi Finished goods) prodn time
8 Delay in FG prodn
9 FG Prodn time
10 Total Prodn time
11 Delay in WH entry
12 QC Release Time
13 QA Release Time
14 Delay in Pickup
15 Time to deliver to customer
16 Late delivery
17 Act time taken to pay vendor
18 Exp time to rcv pmt
19 Act time to rcv pmt
20 Delayed cust pmt
21 Cash Cycle time

-Srini