"One would have hoped that the recent recession taught companies a few lessons -- manage debt, watch cash flow, and tighten our belts," said REL Associate Principal Dan Ginsberg. "But this doesn't appear to be the case. The opportunity for companies to generate cash through working capital improvements is larger than ever before. Yet few if any companies are able to make sustainable improvements in receivables, payables, and inventory. Instead of doing the hard work of squeezing cash out of their companies, they are taking a short-sighted approach, turning to banks to bolster their coffers."Days Working Capital shrank by nearly 2 percent in 2011, dropping to 37 days. Companies made a small improvement in collections, with Days Sales Outstanding (DSO) shrinking to 36.6 days. This improvement was offset in part by a 2.5 percent deterioration in Days Payable Outstanding (DPO), which shrank to 31.7 days. Days Inventory On-hand (DIO) continued to improve slowly, decreasing by 2 percent to 32.1 days. The 1000 companies in the REL/CFO study now have $910 billion in excess working capital (compared to top performers by industry). Nearly half of this opportunity could be realized by dramatically reducing inventory levels. Note - DSO and DIO performance improve by getting lower, while DPO performance improves by rising. Few of the companies in the REL/CFO analysis showed any ability to generate sustainable working capital improvement. Less than 8 percent were able to improve working capital performance three years in a row, and not a single company was able to improve all three elements of working capital performance (DSO, DPO, and DIO) three years running. The REL/CFO research also included a comprehensive set of 13 recommendations for companies seeking to improve working capital performance, including: make working capital optimization and cash flow improvement a strategic priority, with visible senior executive backing; link cash flow performance and working capital management to the compensation structure, and make it a key metrics for performance management within operations as well as finance; invest in improving demand forecasting and deployment of effective sales and operations planning process; standardize customer and supplier payment terms and control exceptions through an escalation process; and segment customers and suppliers according to value and risk to support a differentiated approach that applies the company’s resources to those customers and suppliers where there is maximum leverage to improve cash flow.
The REL/CFO study is the only one of its type that publishes comprehensive performance information on working capital and a comprehensive array of underlying metrics for 1000 of the largest companies in the U.S. A similar annual study from REL looks at performance of 1000 of the largest European companies. More details on the research findings are available in the CFO Magazine story, available online at: http://www.cfo.com/article.cfm/14653790/c_14653828?f=magazine_featuredAbout REL REL, a division of The Hackett Group, Inc. (NASDAQ: HCKT), is a world-leading consulting firm dedicated to delivering sustainable cash flow improvement from working capital and across business operations. REL’s tailored working capital management solutions balance client trade-offs between working capital, operating costs, service performance and risk. REL’s expertise has helped clients free up billions of dollars in cash, creating the financial freedom to fund acquisitions, product development, debt reduction and share buy-back programs. In-depth process expertise, analytical rigor and collaborative client relationships enable REL to deliver an exceptional return on investment in a short timeframe. REL has delivered work in over 60 countries for Fortune 500 and global Fortune 500 companies. More information on REL is available: by phone at (770) 225-7300; by e-mail at email@example.com; or on the Web at www.relconsultancy.com.