Logistics may not be the first business activity that comes to mind when calculating a company’s working capital position, but it should be near the top of the list. As the online financial definition site investinganswers.com explains it, “One of the most significant uses of working capital is inventory. The longer inventory sits on the shelf or in the warehouse, the longer the company's working capital is tied up.”
That sounds like a logistics issue to me.
Basically, working capital is the money available to fund the company’s day-to-day operations. Because it is used as an indicator of the company’s liquidity and operational efficiency, managing the working capital cycle is key to gaining and maintaining competitive advantage.
Among the interrelated supply chain activities reflected in a company’s working capital position are its inventory management, purchase terms to suppliers along with inbound cycle times, and sales terms to customers along with delivery cycle times. A key measurement that should be part of every organization’s financial health is its “cash-to-cash” cycle.
So how do you identify where your logistics operation is affecting your working capital?
The key is to continually monitor and analyze your supply chain’s performance using targeted technology solutions that provide clear insight into specific supply chain cost and performance levels. For instance:
- What are your suppliers’ SIFOT (supply in-full, on-time) compliance rates?
- How do your collection and payment transaction cycles compare?
- What is your inventory velocity? How consistent is it?
- How often do you rationalize stagnant inventory? Can stagnant inventory be targeted for sales markdown, so it can be converted to cash?
- Do you regularly incur late-delivery fees or other penalties?
- Are your warehouses appropriately sized and located?
No, logistics professionals do not bear the full weight of the company’s working capital position, but we are certainly in a position to influence it, for better or worse. How does your operation measure up?
Transportation Insight’s knowledgeable professionals work side-by-side with clients to establish strategic goals for improving working capital. Our Enterprise Logistics solutions and industry-wide experience can help your business increase efficiency, lower cost and improve productivity – all of which leads to working capital improvements.