Managing Assets & Liquidity in Supply Chain including Cash Conversion Cycle

1. Optimise & Integrate - WCM & SCM Managing Assets & Liquidity in Supply Chain Anand Subramaniam

4. SCM - Overview

5. Your Supply Chain

6. SCM - Drivers Improve customer service Improve order management Corporate growth Improve asset use Improve demand planning Improve warehouse/distribution activities Accelerate “cash to cash” cycle Supplier/supply base management Strengthen partnerships Regulatory compliance

7. SCM - Material & Financial Flow Receive Goods and Invoice Send Payment Reconcile and Account Send Purchase Order Credit Application Negotiate Sales Terms Select Supplier and Goods Source Suppliers Supply Chain of the Buyer Receive Order Produce Goods Manage Inventory Distribute Goods Material Supply Chain Supply Chain of the Seller Material Supply Chain Evaluate Credit Reconcile Settle & Pay Issue Invoice Forecast Cash Finance Working Capital Resolve Disputes Financial Supply Chain

8. SCM Metrics - Impact on P&L and B/s

11. WCM - Overview

13. Working Capital Management (WCM) WCM can deliver significant business benefits in a relatively short period of time, where idle capital can be effectively & efficiently utilised Inventory Management Debtors Management Creditors Management Working Capital Management Consolidate supplier base to maximise purchasing and payment efficiency Unlock cash tied in stocks, reduce SKU’s, review product profitability, demand forecasting Improve Debtors & Credit Control

14. WC - Current Challenges Current Challenges Customers taking longer to pay Inability to balance working capital and to convert stock or debtors into cash Costs rising Profit margins under pressure Doubts about ability to make serious capital repayments on loans within the next six or seven months Turnover falling

15. Cash Conversion Cycle

16. Working Capital Strategies Financial Performance Profitability Growth Capital Utlisation Cost of Goods Sold Selling Price Fixed Capital Utilisation Working Capital Utilisation Days Inventory Days Sales Outstanding Days Purchase Outstanding

17. Cash Conversion Cycle

18. WCM – Review existing policies, procedures, processes etc

21. Revisit WC- Policies Higher Profits / Higher Risk Lower Profits / Lower Risk Trade-off Between Profitability and Risk Shorter than Industry Average Longer than Industry Average Operating and Cash Cycles With Short-term Debt With Long-term Debt and Equity How Current Assets are Financed Lower than Industry Average Higher than Industry Average Current Ratio Low High Levels of Current Assets Aggressive Conservative Working Capital Policy

22. Formulae

23. WCM – Forecast & Optimisation

26. Your Firm’s WC – Requirement Amount Current Assets (i) Stock of Raw Materials ( for ….month’s consumption) ----- (ii)Work-in-progress (for…months) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (iii) Stock of Finished Goods ( for …month’s sales) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (iv) Sundry Debtors ( for …month’s sales) (a) Raw Materials ----- (b) Direct Labour ----- (c) Overheads ----- (v) Payments in Advance (if any) ----- (iv) Balance of Cash for daily expenses ----- (vii)Any other item ----- Less : Current Liabilities (i) Creditors (For….. Month’s Purchases) ----- (ii) Lag in payment of expenses ----- (iii) Any other ----- WORKING CAPITAL ( CA – CL ) Add : Provision / Margin for Contingencies ----- Net Working Capital Required XXX

28. SCM & WCM – Integrated Framework

29. SCM & WCM Framework Cash & Working Capital Mgmt. Supplier - Supply Chain Plan / Invest (Long-term Capital) Sell & Negotiate Supply Chain Risk Mgmt. Outbound Logistics Invoicing Collection Production (Production Financing) Buyer - Supply Chain Financing (e.g. lines of credit, term loans) Risk Management (e.g. insurance, bonding) Compliance Management (e.g. SOX, customs, security) Connectivity (e.g. technology platforms) Other Services (e.g. consulting, education, trade promotion) Plan / Invest (Long-term Capital) Source & Procure Supply Chain Risk Mgmt. Inbound Logistics Invoice Processing Payment Production (Production Financing)

30. SCM & WCM – Metrics & Measures

31. SC Performance – Return on Assets

32. SCM Goals Unit Cost Reduction Time Reduction Waste Reduction Flexible Response SCM Goals

33. Financial Benefits Improved Working Capital & Margins Improved Cash Flows Revenue Profit Growth Higher Return on Assets Financial Benefits

34. Customer Benefits Improved Value Improved or New Product / Service Quality Improved Flexibility Improved Timelines Customer Benefits

35. SCM Improvements Integrate People, Process & Systems Improved Decision Making Strategic Partner Relations Product / Service Innovation SCM Improve-ments

37. Further Information