You wouldn’t think so from the way companies are hoarding cash; however, in general, they have a stockpile of cash and remain leery to spend it. Last year, there was a 2% decrease in days working capital (DWC), according to CFO Magazine. Not significant by any means. Interestingly, all three components (days sales outstanding, days inventory outstanding and days payables outstanding) reported weak improvement.
One of my core areas is to help companies accelerate cash flow through inventory reduction programs, profitability and productivity improvement programs, collaborate customer and supplier programs etc. Every dollar freed up = a dollar which can be invested to grow the business and/or earn a significant return. For example, by reducing unnecessary inventory levels while maintaining customer service levels, one company was able to invest in new equipment to upgrade the core product line in order to rapidly grow sales. On the other hand, I’m sometimes called in to help resolve inventory reduction programs which have gone awry – it is easy to reduce the wrong inventory in the wrong place at the wrong time and extend customer lead times, damage service levels, etc. A fine balance!
A few benchmarks for your reading pleasure:
Aerospace & defense Median DIO – 53 (days inventory outstanding)
Building products Median DIO – 42
Computers & peripherals Median DIO – 32
Food products Median DIO – 39
Paper & forest products Median DIO – 51