Professional Supply Management
              Volume              12011
Ways Out of the Working Capital TrapEmpowering Self-Financing Growth Through Modern Supply ManagementAuthors:

• Erik Hofmann,
• Daniel Maucher,
• Sabrina Piesker,
• Philipp Richter
• …show all 4hide
  

ISBN: 978-3-642-17270-0 (Print) 978-3-642-17271-7  (Online)



Ways Out of the Working Capital TrapEmpowering Self-Financing Growth Through Modern Supply Management

Series: Professional Supply Management

Hofmann, E., Maucher, D., Piesker, S., Richter, P.

2011, X, 94p. 70 illus..

ISBN 978-3-642-17271-7

  Immediately available per PDF-download (no DRM, watermarked)

About this book

• Defines and examines the "working capital trap"
•                                         Shows ways of identifying and strengthening in-house financing potential
•                                         Approaches the topic from both company and supply chain perspectives
•                                         Introduces the concept of "Procurement Value Added"
  

Especially in times of an economic boom following a crisis, companies have to deal with the phenomenon of the "working capital trap," which signifies a company's increasing need for financial liquidity in times of hindered access to debt capital, caused by the increasingly restrictive credit approval processes of financial institutions. As a consequence of cost savings, this situation is often reinforced by a low level of inventory.
This book takes up the problem and shows ways of escaping the "trap" by identifying and strengthening in-house financing potential. First, different operating ratios will be introduced. These refer to the amount of capital committed to the flow of goods and to the amount of in-house financing possible. Subsequently, methods for consolidating in-house financing that are affected by procurement processes will be presented from the company's and the supply chain's perspective.
From a company's perspective, the methods for consolidating the amount of in-house financing over the following topics:
•             The Management of Payment Terms
•             Inventory Management
•             Product Group and Supplier Management
From the supply chain's perspective, the following methods for extending the possible amount of in-house financing will be discussed:
•             Finance-Oriented Supply Chain Sourcing
•             Supply Chain-Oriented Supplier Financing
•             Collaborative Cash-to-Cash Management
•             Collaborative Cash Pooling and Netting
•             Supply Chain Financing Platforms
The conceptual models will be clarified using a practical example from the automobile industry. Finally, the "Procurement Value Added" (PVA©) approach will be presented, a concept that measures the contribution of procurement to the company's success.

• Authors & Editors
  

The authors of this series are researchers of the University of St.Gallen, scientists of other leading international research centers with the focus on procurement and supply chain management, consultants of Kerkhoff Consulting and practitioners. As a result of the frequent formation of mixed teams, consisting of authors with theoretical and practical background, a close link between these disciplines occurs.

Contents
1 Call for Action: From Financial and Economic Crisis
toWorking Capital Trap . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Effects of the Financial Crisis on the Real Economy . . . . . . . . 1
1.2 Looming Credit Squeeze as an Obstacle to Growth . . . . . . . . 3
1.3 The Working Capital Trap as a Challenge . . . . . . . . . . . . . 4
2 Determination of the Internal Financing Power of Corporate
Growth via the Self-Financeable Growth Rate . . . . . . . . . . . . 7
2.1 Limits of Growth and Growth Financing of Companies . . . . . . 7
2.2 Financial Growth Potential According to the
Self-Financeable Growth Rate Approach . . . . . . . . . . . . . . 8
2.3 Possibilities for the Optimization of the Self-Financeable
GrowthRate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3 Strengthening Internal Financing Power Using Cash-to-Cash
Cycle Optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 Presentation of theCash-to-CashCycle . . . . . . . . . . . . . . 13
3.2 Influence of the Cash-to-Cash Cycle on Corporate Value . . . . . 16
3.3 Possibilities for the Optimization of the Cash-to-Cash
Cycle fromtheCorporateViewpoint . . . . . . . . . . . . . . . . 17
3.4 Interdependencies of the Cash-to-Cash Cycle
from a Supply Chain Viewpoint . . . . . . . . . . . . . . . . . . . 20
4 Measures for Strengthening Internal Financing Power
from a Corporate Viewpoint . . . . . . . . . . . . . . . . . . . . . . 21
4.1 Management of Payment Terms . . . . . . . . . . . . . . . . . . 21
4.2 Inventory Management . . . . . . . . . . . . . . . . . . . . . . . 31
4.3 Product Group Management and Supplier Management . . . . . . 41
5 Measures for Strengthening Internal Financing Power
from a Supply Chain Viewpoint . . . . . . . . . . . . . . . . . . . . 55
5.1 Finance-Oriented Supply Chain Sourcing . . . . . . . . . . . . . 56
5.2 Supply Chain-Oriented Supplier Financing . . . . . . . . . . . . . 59
5.2.1 ReverseFactoring . . . . . . . . . . . . . . . . . . . . . . 59
5.2.2 Cross-Company Financing of Capital Goods . . . . . . . . 61
ix
x Contents
5.3 Collaborative Cash-to-Cash Management . . . . . . . . . . . . . 62
5.3.1 Collaborative Cash-to-Cash Management
withVarying InventoryCarryingRates . . . . . . . . . . . 63
5.3.2 Collaborative Cash-to-Cash Management
withVaryingCapitalCostRates . . . . . . . . . . . . . . 64
5.4 Collaborative Cash Pooling and Netting . . . . . . . . . . . . . . 64
5.4.1 Cash Pooling and Netting in the Corporate Group
as aStartingPoint . . . . . . . . . . . . . . . . . . . . . . 65
5.4.2 Cash Pooling and Netting in the Supply Chain . . . . . . . 68
5.5 Supply Chain Financing Platforms . . . . . . . . . . . . . . . . . 70
6 Case Study: Increasing Internal Financing Power
of a Supplier in the Automotive Industry . . . . . . . . . . . . . . . 75
6.1 Company’sStartingSituation . . . . . . . . . . . . . . . . . . . . 75
6.2 Presentation ofMeasures . . . . . . . . . . . . . . . . . . . . . . 76
6.3 Performance Measurement Using a Working Capital
Management Analysis Tool . . . . . . . . . . . . . . . . . . . . . 77
7 Measuring Procurement Contribution to Corporate
Performance using the “Procurement Value Added” . . . . . . . . . 81
7.1 Measuring Procurement Contribution to Corporate Performance . 81
7.2 Presentation of the Procurement Value Added . . . . . . . . . . . 81
7.3 Exemplary Calculation of the Procurement Value Added . . . . . 84
8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.1 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.2 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91