0. FEI - Fort Worth Chapter
Working capital optimization:
Leading practices to better manage and simplify the cash cycle
June 13, 2017

1. Agenda Working Capital Perspective Case Study and Lesson Learned
Key Takeaways
Q&A

2. WELCOME…

3. Working Capital Leading Practices: Back to the Basics…
Our discussion today is focused on working capital improvement opportunities and how to implement improvements that free up cash and generate significant annual savings and impact to the bottom line.
Decrease DSO (Days Sales Outstanding)
Reduce Invoice Error Rate
Reduce Unauthorized Deductions
Reduce Uncollectible A/R
Working Capital Value Drivers
Procure-to-Pay
Order-to-Cash
Inventory
Increase DPO (Days Payable Outstanding)
Payment Structure - Terms/Discounts/Rebates
Maximize Discounts
Reduce Financial Leakage
Decrease DIO/Optimize Inventory
Reduce Carrying Costs
Reduce Excess and Obsolete
Reduce Inventory Write-Offs
Leading Practices

4. Tackling Accounts Receivable Cycle Management…
When it comes to Accounts Receivable, how you set up and maintain customer contracts impacts the entire value cycle and how cash will ultimately be collected.
Sales has no incentive to improve AR performance
Salespeople use innovative and generous terms to win business, resulting in different sales terms across customer segmentation
Some salespeople block collections contact with their customers
In some cases, salespeople are involved in collections
Sales / Terms
Formal documented credit policy is not enforced
Credit limits are set in the field then reviewed by corporate, sometimes after the order has been completed
Instances of branches “working around” corporate credit
Field AR has the authority to block shipments for overdue accounts.
Credit
Clear order entry policies, with backup and double checking at point of entry; order entry owns quality
Majority of orders received via antiquated technology, very little by phone, no web enablement
Salespeople can modify prices; market pricing control functionality is not widely used;
Order Entry
Billing delayed by sales and branch management reviewing pricing prior to bills being sent out; Field Ops claim no billing delays, although analysis revealed many instances
Receipt of supplier invoice for direct shipments can delay billing of customer
Invoicing is mostly paper-based, decentralized
Billing

5. Indicators You Have a Working Capital Problem
60% of new customers are not set up timely, causing them to be delinquent on first bill
100+ clerical specialists split into siloed processing duties (e.g., Visa processor, AMEX processor, ACH payment specialist)
Annual budget requests included headcount growth linear with revenue growth
Limited productivity measures on customer setup, invoicing, collections, processing accuracy, etc
High ancillary costs surrounding accounts receivable functions like shipping costs (overnight mailing from branches for new customer paperwork), customer set- up latency requiring inflated support on customer service, etc.)

6. The Customer Initiation Paperwork Journey
Error-prone activities in capturing accurate customer information in the field result in significant downstream back-office processing…
Delayed customer information and applied cash
Support costs associated with manual efforts of paperwork
Fluctuations in labor and workload activities
Multiple manual hand-offs
Excess shipping, preparation, and storage costs
Functional silos within Accounts Receivable
Delayed customer information for analysis
Inefficient data for customer transactions
Customer
Field Technician
Branch / Office Coordinator
Shipping
Audit
Manual Paperwork / Payment
ACH / EasyPay™
Bar Coding
Preparation
Imaging
Storage
Headquarters
The Customer Initiation Paperwork Journey
Customer initiation paperwork available for analysis, processing, and correction
Sales Consultant
2-10 Days
1-3 Days
1 Day
2 Days
2-4 Days

7. …and these activities have created an order of magnitude disparity in payroll costs associated with Accounts Receivable and Collections
A benchmark comparison cost analysis was performed to gauge the company against other business to consumer organizations and provide an indication of the median target levels.
Accounts Receivable and Collections Payroll Cost
Cost Driver Root Causes
Inefficient process organization of AR team activities (i.e., functional silos)
Continued to “throw” resources at the process back end to correct/ reconcile information from the front end
“Peak and valley” workloads within AR are driven from branches sending paperwork once (1) a week to NSC on an inconsistent basis
Inaccurate customer information captured at the time of service call/install, and then submission to NSC
Lack of “Non-Conformance” management in place for the field to “Get it right the first time”
Issues related to customer queries result in significant workload for research and reconciliation
~ $3.9M Budgeted Cost
BENCHMARK2
Avg. Payroll Cost for companies under 1 billion in Revenue is 0.2% of total revenue or ~ $680 (000’s) AR
Collections
0.2%1
Revenue
Requisitioning
>$3M Potential Cost Gap
1.4%1
Revenue
Receiving
Accounts
Payable
1Assumes annual revenue of $340 million
2Based on 2016 APQC benchmark data

8. What we did…
Built new end-to-end business process for receivables management and collections cross training staff to do all processing functions
Centralized exceptions research into one discipline and team structure
Implemented imaging and scanning into the “front end” of the process and sequenced how work would be distributed
Non-conformance management for paperwork exceptions; added productivity measures
Implemented core monitoring metrics for performance management around AR and Collections
Developed comprehensive change management plan for training of new processes and communications to those impacted across the functions and overall organization
Results….
Reduced FTE count by over 60%, resulting in $2M recurring savings
Increased customer satisfaction and interaction given significant decrease in new account set-up and billing
Scalable business processes around order to cash that are managed through performance metrics with activity targets
Increased interaction between customer service, field operation and back-office finance to better manage dependencies
Reduced exceptions on billing decreasing DSO and increasing cash position

9. Final Thoughts and Key Takeaways
Make working capital an executive suite obsession.
Segment your customers and vendors, and take the best care of the customers and vendors that you need the most.
Incent teams for reducing corporate working capital.
Automate cash processes in a manner that establishes and enforces good working capital management practices, especially for lower value transactions.
Leverage next-generation technologies to improve visibility and collaboration with vendors and customers.

10. Questions?