During the best of times, managing cash flow can be challenging. But during long-term disruptions such as COVID-19, cash flow management can become an existential exercise. As companies look to assess the damage from the pandemic, in order to define the “new normal” and chart a course for the future, cash flow will remain an imperative.
At the heart of every company’s cash flow is their supply chain. Effectively managed, a tight and well orchestrated supply chain can help mitigate disruptions and allow operations to continue with optimal capital. But the strain to supply chains brought on by COVID-19 has introduced factors that are beyond normal patterns of disruption. As a result, the path to recovery has highlighted several critical issues to consider.
A report by Deloitte looks at factors that may impede recovery:
· Some sectors have shown little or no forecasting reliability for certain types of goods
· Continuing disruption regionally and by industry are likely to create shortages
· Rebounding will be geography-based, impacting supply chain segments differently
· Structural vulnerabilities will be exposed, as analysis of the crisis leads to the search for solutions.
Supply Chain Planning is Cash Flow Planning
One indicator of the focus of companies moving forward can be found in a report from the National Center for the Middle Market. Focusing on small- and medium- sized companies, this report found that 32% of companies plan to hold cash rather than investing it during the recovery—a cautionary approach that is not, in itself, a negative. What is surprising is that for those looking for a solution, IT technology and new software investment are only being considered by 14% of all companies.
These statistics show that while many companies are serious about holding onto cash and increasing their cash flow, they may be missing an opportunity to do so. The cause and effect of this is through leveraging technology to optimize their supply chain in order to free up the very cash they seek.
Dynamic, easily implemented and cost-effective solutions are available for companies seeking to use their supply chain as their path to cash flow management. By deploying robust and agile planning software, companies can succeed in mitigating the impact of many of the variables above to manage their supply chain in real-time.
By investing in this software and harnessing its analytical capabilities, businesses can improve the following and improve cash flow management significantly:
1. Reduce Inventory – Most companies understand inventory as a cash flow problem in most situations. But care must be taken to understand the scope of inventory’s drag on cash flow end-to-end. This means not only raw material inventory but finished goods as well. If demand planning is manual or is done through a combination of spreadsheets and disparate siloed software systems, simply loaning out finished goods may not address the issue.
Supply chains for raw material often rely on bulk shipments, contracted supplies at specific volumes and raw materials that require long lead times due to logistics and transportation. Having a single source of truth with demand and supply planning software will help determine optimum levels of stock and can recognize demand signals and trends faster than human management. By automating orders and tracking usage through analytics, inventory can be reduced to account for only materials that are needed for actual orders and for safety stock that reflects the real-time situation on the ground during crisis. With a higher degree of accuracy and automation, supply chain planning software can reduce inventory while maintaining or even improving service levels.
2. Improve Supply Chain Collaboration– One issue that plagues many planning systems is a lack of communication or a communication chain that is slow and unreliable. This may result in costly decisions involving different stakeholders within the supply chain and can lead to unnecessary or untimely cash flow drains.
By deploying supply chain planning software, a company can adjust their strategy from one of inadequate communication to one of transparent and end-to-end collaboration. This software can automate ordering and make adjustments that are visible to all stakeholders along the supply chain. It makes planning, monitoring and managing cash flow collaborative because everyone has access to the information when needed. Therefore, actions can be taken on real-time, data driven insights rather than reacted to after the fact. As a result, companies can develop strategies such as vendor managed inventory systems and transportation, plus logistics models which leverage data to reduce freight costs.
3. Conduct a Comprehensive Evaluation of Your Business – The customer base for most companies ranges from highly profitable products to those that are somewhat less lucrative. By evaluating customer and product base, a company can uncover product lines that are less profitable or customer agreements that require large inventory positions on loss-making finished goods. Using planning software, tools such as ABC analysis and “what-if” scenario planning can be leveraged to develop strategies. This will free up cash flow by reducing or eliminating lower margin finished goods.
The urgency in shoring up profitability due to the impact of COVID-19 is intense. And companies are reacting by analyzing supply chain management to improve cash flow. DemandCaster’s supply chain planning software is an intuitive, cloud-based software for supply chain planning. It will allow advanced forecasting, inventory optimization, demand and supply planning and can be integrated with existing ERP systems. It enables any company seeking to improve cash flow to develop strategies based on robust analytics and real-time data-driven insights to better weather the storm and improve both their cash flow and their competitiveness in tough times.
Find out more about DemandCaster’s suite of contingency solutions and planning tools at https://www.demandcaster.com/