For organizations, situations can change in an instant, requiring leaders to think quickly and allocate resources appropriately to make up for any shortcomings while reducing downtime. Manufacturers, in particular, are under significant pressure to ensure processes run smoothly across the supply chain to accurately set a budget, manage costs and ensure that workers get their pay. Running the expenses and revenue streams efficiently, irrespective of the nature of business, is known as managing working capital (WC) or managing the “Cash to Cash” (C2C) cycle. Let’s take a look at a few ways to help you optimize your WC and cash flow management capabilities:
1. Track your performance
Having visibility across the supply chain is an essential part of making decisions and ensuring that WC is being directed into areas that need it most. However, organizations can only achieve this type of overview with the right tools and strategies at their disposal. A report from JPMorgan Chase suggested developing management reports and dashboards to track and monitor compliance laterally and horizontally across the company. Comprehensive end-to-end reviews of operations from the raw data should be performed as cash-flow optimization plans evolve.
By tracking and analyzing performance indicators related to WC, your team can deliver real-time remedies as needed, thus reducing potential downtime and wasted resources. Assessment of the evaluated metrics will provide an understanding of challenges and opportunities that lie ahead, enabling organizations to proactively plan and make the best use of their WC.
2. Control expenses carefully
Managing your WC requires significant planning and collaboration from key stakeholders. All Business contributor Carl Faulds noted that WC is often seen within the realm of finance, but that everyone in the management team should have training to share the same outlook on financial management and understand how WC impacts operations. For example, leaders should understand that paying suppliers on time can actually improve the organization’s WC. Suppliers that are paid quickly are likely to be more flexible when it comes to negotiating prices and terms of business. Building a mutually respectful working relationship will significantly improve WC management and overall cost savings.
In addition, leaders must take note of all expenses going through, not just the big tag items. Small costs can mount up and affect your WC. Setting rules for expenses in travel and entertainment while monitoring employee spending behaviors will give back WC to important company initiatives. Even setting procedures for ordering department supplies and other resources can help get a better picture of business spending practices and regain control over WC flow.
3. Plan, assess, improve, repeat
In order to manage WC effectively, business leaders should create an action plan that focuses on WC as a strategic initiative. This plan might include streamlining manufacturing and supply chains, collaborating with customers and suppliers, and implementing more robust supply chain risk management policies. As the plan is rolled out, organizations must refer to and reset key performance indicators to measure ongoing results and ensure positive outcomes. From there, companies can use data to improve their operations and adjust their WC management plan. Leaders must make sure that their initiative is sustainable by keeping things simple, even when considering a holistic plan across numerous platforms. Continual analysis and collaboration will be essential to long-term management and optimization success.
Managing WC might not be the most exciting topic for business leaders, but it’s a necessary one to ensuring that resources are being directed to the right places. Organizations can improve their WC management capabilities by tracking performance, better controlling expenses and continually improving on gathered information. To learn more about how your organization can better manage WC, download our white paper below or contact Inspirage today.