Published in “Reuters” website, February, 2011
Click here for original article.
Business managers and entrepreneurs can increase cash flow with already-existing assets through the implementation of innovative supply chain strategies, according to Lisa Anderson, founder and President of LMA Consulting Group, Inc.
“In today’s new normal business environment, cash is king, yet traditional methods to increase cash flow are not working,” said Anderson, who works with executive leaders and management teams to transform people and process into profit. “When weak sales growth is considered stellar performance and customers are demanding increased service and value for their money, innovative strategies are required to succeed. These supply chain strategies provide readers with a practical approach for increasing cash flow through supply chain improvements.”
Strategies to Accelerate Cash Flow
The good news and the bad news is that there are countless ways to accelerate cash flow through supply chain improvements. There is opportunity, yet it’s important to prioritize in a way that will drive results. “Resources are lean, and so it is vital to focus efforts on what will provide the best return on investment,” said Anderson. There are a few strategies which drive the bulk of the results:
1. Inventory management
“In 80% of client situations, inventory management can have the quickest and most significant effect on freeing up cash,” said Anderson. The key to success is not just to reduce inventory but to reduce inventory while maintaining/improving service levels and lead times. Otherwise, it will have the opposite effect on your cash flow — there isn’t much worse than a lost, valued customer.
The secret to success in achieving this goal is to not consider each company to be a cookie cutter example to another company. “After reducing inventory levels 40%+ in multiple companies in various industries, I’ve found that each situation required a different approach; however, the big picture focus areas were identical — people, processes and systems,” said Anderson.
2. Supply chain collaboration
According to Anderson, “Although the specific strategy can vary greatly depending on the type of business, whether it’s a manufacturer, distributor or service organization, and several other variables, I’ve not yet run into an example without an opportunity in supply chain collaboration.
“For example, in one company, we implemented vendor managed inventory with a key customer, which improved not only our cash flow but also the customer’s cash flow. In another example, we partnered with suppliers and customers to develop innovative product and packaging design solutions to reduce cost (and increase cash flow) and improve performance. Lastly, in another example, we partnered with key customers and carriers to develop a transportation model which reduced freight costs (and increased cash flow) while improving service levels.”
3. Take a fresh look at your business
Amazingly, not all customers are good customers. “Low and negative profitability customers should be reviewed in detail. Is there a compelling strategy to keep them? Or are you throwing good money after bad? Instead, focus efforts on growing profitable business,” said Anderson.
Similarly, are a few of your customers tying up significant amounts of cash? Is there a way to change that and evolve the relationship successfully? “Another radical suggestion — instead of immediately jumping to the conclusion that costs must be reduced as your sole focus, what if you spend the same amount of time and energy on strategizing how to increase revenues?” said Anderson.
Anderson summarizes, “Cash is king in today’s business environment. Supply chain offers vast opportunity in accelerating cash flow. Put the two together, and you can be one of the few companies to leapfrog the competition in the new normal.”
About Lisa Anderson
Lisa Anderson is founder and President of LMA Consulting Group, Inc. She partners with her clients to rapidly identify, prioritize and execute plans to increase profitability. She has been a VP of Operations of a leading absorbent products manufacturer.
She has been quoted in Industry Week, ABC News, and the Los Angeles Times, and has published articles for the American Management Association’s MWorld, Industry Week and Corp! Magazine. She has also been a guest lecturer at the University of Southern California’s Entrepreneurial Studies Program and has been a featured speaker at The Association of Operations Management (APICS) International Conference, the Global Supply Chain & Logistics Summit Conference and U Connect Conference.