Financial Management: Virtual Consortium Study. Improving Working Capital Management and Cash Flow Intelligence

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Financial Management: Virtual

Consortium Study

Improving Working Capital Management and

Cash Flow Intelligence

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Recovery: Macro Matters

h _{Double‐dip recession unlikely} h _{But U.S. GDP growth stays weak} h _{Unemployment rate stays high} h _{CFOs cannot predict demand} h _{CFOs remain risk‐averse} h _{Cash cushions offer agility and advantage}

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Will work for cash…

h _{Game over: no more “easy” money} h _{Impact of bank reform on borrowing} h _{Rates now tied tightly to default risk} h _{CFOs want to reduce need for external} funding h _{To instill confidence, CFOs must improve} ability to predict and model cash flows

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Working Capital Management Defined—

The Treasury Dimension

h _{What bills to pay when?} h _{When will deposits hit the bank?} h _{How to cover your checks until deposits hit} the bank? h _{Pull cash out of investments? Borrow?} h _{Is there too much idle cash in the bank} checking account?

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Working Capital Management Defined—

The A/P and A/R Dimensions

h _{Optimizing discounts} h _{Managing trade credit risk} h _{Processing invoices and receivables} h _{Making or collecting payments} h _{Accounting for payments or receivables} h _{Ensuring strong controls} h _{Improving workflow} h _{Analyzing cash flow patterns for gain} tactical and strategic advantage

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The ROI of Improving the Management

of Working Capital

h _{Do more with less} h _{Speed cash conversion} h _{Liberate cash trapped in operations} _{Decrease that DSO!} _{Decrease invoice errors/disputes} _{Seize pre‐set discounts} _{Boost intelligence about cash flow impacts}

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Good vs. Bad Working Capital

Management

Wide disparity within industries exists.

Example: Household products, nondurable

2007 Days of Working Capital & Annual Change

Days Change Clorox 33 6% P&G 37 ‐3% Colgate 47 6% Median 59 3% Worst 121 1% CFO Magazine, October 2008

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Challenges to Sound Working Capital

Management

h _{Working capital management straddles} Treasurer’s and Controller’s shops h _{Lack of systems integration} h _{Lack of common goals/accountability} h _{Priorities are not aligned with strategy} h _{Cross‐functional collaboration needed} h _{Operating managers don’t see the ROI}

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Working Capital Management:

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Our Goals

h _{To help organizations optimize working} capital in their operations h _{To enable organizations to improve their} Cash Flow Intelligence h _{To show companies that investments in} working capital management have a direct impact on the bottom line

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Study Methodology

h _All virtual h _{3 virtual site visits} h _{1 virtual knowledge transfer session} h _{Detailed questionnaire driven by our Open} Standards Research Database h _{3 case studies} h _{1 final report}

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Process Classification Framework (PCF)

h _{Where does WCM fall in terms of the PCF?} h _{8.0 Manage Financial Resources} ¾ 8.2 Perform Revenue Accounting 8.2.1‐ 8.2.5 ¾ _{8.6 Process Accounts Payable & Expense} Reimbursements 8.6.1‐ 8.6.2 ¾ _{8.7 Manage Treasury Operations}

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Study Scope

h _{Vision and Strategy for Improving Working} Capital Management h _{Analytics and Measures to Enable Better} Working Capital Management h _{Performance Management Principles and} Measuring Process Improvement h _{Information Technology Strategy and} Application

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Vision and Strategy for Improving

Working Capital Management

h _{What does the C‐suite hope to achieve by} committing resources to the improvement of working capital management? h _{What does the path to progress look like?} h _{What’s in it for key constituencies} (example: capital providers)?

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Analytics and Measures to Enable Better

Working Capital Management

h _{How do leading organization measure their} processes? h _{How are key measures used to guide} decision‐making by operating managers? h _{What do leading firms analyze in this} space? What do they gain from this?

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Performance Management Principles

and Measuring Process Improvement

h _{How can senior management enforce cross‐} functional collaboration? h _{How to make sure that what goes on at the} process‐level (example: billing) supports key strategic goals (example: improving the customer experience)? h _{How do leaders monitor process}

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Information Technology Strategy and

Application

h _{How do leaders craft an effective IT strategy} for improving working capital management? h _{How can information technology solutions} boost process performance? h _{How do leaders apply IT solutions} effectively?

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Project Team

h _{Alex Hawkins, Project Manager, APQC} h _{Mary Driscoll, Internal SME, APQC} h _{Ken Parkinson, External SME} _{Former Treasurer, NYU Professor, Author} h _{Protiviti, Research Champion} _{Protiviti is a global business consulting and} internal audit firm composed of experts specializing in risk, advisory and transaction services. The firm helps solve problems in finance and transactions, operations, technology, litigation, governance, risk, and compliance.

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Best Practice Partners

h _{General Mills} h _{Owens‐Illinois} h _Zappos.com

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Sample Our Research!

h _{Working Capital Management Survival Kit}

_{Bundle of APQC’s current research in WCM}

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Questions?

h _{Contact: Alex Hawkins, Project Manager} _{[email protected]} _{+1‐713‐685‐7205—Direct} h _{Or visit the study’s webpage:} _{www.apqc.org/WCM2010}