08 Jun 2010 Supplier Savings is Dwarfed by Sound Working Capital Management
Consider these areas of potential saving. Which delivers the biggest savings in a recession?
- Reduced Supplier Costs
- Working Capital Management
- Reduced Inventory
All provide great opportunities for savings but, I have to say that if I had been asked this question, I’d have ranked the savings in that order – supplier savings first followed by working capital managemtn and intory reduction last. . And I’d have been wrong. In fact, according to the write up in CFO.com of Greenwich Associates 2010 survey of mid-sized companies in the USA, the correct ranking is the reverse of this.
Although only 17% of the midsize companies cut inventories last year, the ones that did so saved an average of almost $520,000. While only about 9% of all the companies represented in the survey cut costs through “aggressive working capital management,” midsize companies that did so saved more than $350,000 and small businesses saved more than $33,000. Those that focused on supplier saving achieved a paltry $75,000 cost reduction.
Of course, statistics require interpretation and it is likely that the SMBs surveyed would not have the leverage with suppliers that larger organizations would be able to use, but what stands out most dramatically is the relatively small number of organizations that chose to manage their working capital in order to reduce costs compared to the dramatic savings that they managed to achieve in doing so.
Is working capital management something that purchasing professionals need to have on their radar? Absolutely! Is procurement something that should be on a treasury managers’ agenda? For sure!
It’s tangible, measurable and sustainable results that seperates the men from the boys in purchasing. Procurement and P2P are as much about the management of working capital as core cash management. (See CFO 4G). And using Purchase to Pay tools and techniques like dynamic discounting delivers tangible and measurable results that have direct bottom line impact.
