Where can we find the cash in supply chain?

Filed in archive Point of view on December 7, 2008

This year I see more than ever that the companies are putting a lot of pressure on people from supply chain, IT and Infrastructure support to cut costs. That's a strategy to reduce the negative effect of the downturn on the company's performance but I think this strategy do more harm than good to the destiny of the company: The reason is clear; because when all the operational improvement project are put on hold and no new investment on supply chain is approved, then there won't be any radical cost structure improvement either.

I think instead of putting the projects on hold, we should adopt a more balanced point of view toward cost reduction: There are many opportunities for liberization of cash within operations which can be utilized instead.

One simple example is sending the bills to the customers early, this simple tactics may reduce cash to cash cycle dramatically. Another one is to focus on reducing the low performing SKUs at the product portfolio. Improving forecasting methods also help to reduce WIP through the supply chain or the finished product stocks in the warehouses.

Even though might seem simple, such tactics are very powerful and can create liquid cash rapidly without harming the long-term improvement projects in the company. But of course this needs a mind shift in senior management thinking.

What do you think?