Executive Briefings

Unlocking Cash Flow in the Supply Chain

The efficiencies and cost-containment initiatives that the physical supply chain has seen have not been brought to the financial supply chain by most companies, says Robert Kramer, vice president for working capital solutions at PrimeRevenue. That's unfortunate because there are literally trillions of dollars in accounts receivable in corporate supply chins that can be freed up, he says.

PrimeRevenue is a technology and services company providing supply chain finance solutions, which means it attempts to reduce costs, capital and risk in the supply chains of its customers. In other words, says Kramer, the company "unlocks cash flow that's trapped in the supply chain."

Kramer points to the difference in the progress made in physical supply chains versus what he sees in the financial area. "We used to hedge uncertain demand with excess capacity, and now we have lean manufacturing. We hedged uncertain supply with excess inventory, but now we have just in time. There's been a lot of technology to create those efficiencies in the physical supply chain. But we haven't done that in the financial supply chain."

There, he says, we still hedge uncertain cash flow with excess cash. The "big problem" is that there are several trillion dollars in accounts receivable in corporate supply chains, and that's growing as companies extend payment terms. Financing those excess receivables is a big cost in the supply chain. It makes up about 4 percent of finished goods cost. "So, the opportunity to take that cash out of the supply chain, to reduce those costs is tremendous."

The problem hasn't been addressed for the most part because it's largely invisible to most observers, says Kramer. When physical flows experience a problem, it's evident on the financial statements of a company. If there is too much inventory or excess capacity, it's obvious. "But with inefficient financial flows, the head of the buying organization doesn't see it because it's buried in the supplier's financial statement. You don't see the extra costs embedded in their cost of goods sold."

Kramer refers to working capital as a zero-sum game. Buyers want to pay later, suppliers want their money earlier - the party with the most leverage wins. Costs are simply shifted from those that can most afford it - usually the buying organization - to those who can least afford it. "This hurts supply chain cash flow, raises costs, and creates problems in the supply chain."

The goal is to achieve a win-win, says Kramer, and a supply chain finance technology platform can provide that because it gives complete visibility. Payables are uploaded; due dates, offsets, credit memos, etc., are fully viewable, making it easier to decide on discounting for next-day payment, for example.

"The goal is to take the uncertainty out of the system."

To view video in its entirety, click here


Keywords: SC Finance & Revenue Mgmt., Technology, Business Strategy & Alignment, Legal, Govt. & Regulatory Issues, Environmental, Supply Chain Analysis & Consulting, Global Supply Chain Management, Payables, Financial Statements, Uncertain Demand, Excess Capacity, Excess Inventory

PrimeRevenue is a technology and services company providing supply chain finance solutions, which means it attempts to reduce costs, capital and risk in the supply chains of its customers. In other words, says Kramer, the company "unlocks cash flow that's trapped in the supply chain."

Kramer points to the difference in the progress made in physical supply chains versus what he sees in the financial area. "We used to hedge uncertain demand with excess capacity, and now we have lean manufacturing. We hedged uncertain supply with excess inventory, but now we have just in time. There's been a lot of technology to create those efficiencies in the physical supply chain. But we haven't done that in the financial supply chain."

There, he says, we still hedge uncertain cash flow with excess cash. The "big problem" is that there are several trillion dollars in accounts receivable in corporate supply chains, and that's growing as companies extend payment terms. Financing those excess receivables is a big cost in the supply chain. It makes up about 4 percent of finished goods cost. "So, the opportunity to take that cash out of the supply chain, to reduce those costs is tremendous."

The problem hasn't been addressed for the most part because it's largely invisible to most observers, says Kramer. When physical flows experience a problem, it's evident on the financial statements of a company. If there is too much inventory or excess capacity, it's obvious. "But with inefficient financial flows, the head of the buying organization doesn't see it because it's buried in the supplier's financial statement. You don't see the extra costs embedded in their cost of goods sold."

Kramer refers to working capital as a zero-sum game. Buyers want to pay later, suppliers want their money earlier - the party with the most leverage wins. Costs are simply shifted from those that can most afford it - usually the buying organization - to those who can least afford it. "This hurts supply chain cash flow, raises costs, and creates problems in the supply chain."

The goal is to achieve a win-win, says Kramer, and a supply chain finance technology platform can provide that because it gives complete visibility. Payables are uploaded; due dates, offsets, credit memos, etc., are fully viewable, making it easier to decide on discounting for next-day payment, for example.

"The goal is to take the uncertainty out of the system."

To view video in its entirety, click here


Keywords: SC Finance & Revenue Mgmt., Technology, Business Strategy & Alignment, Legal, Govt. & Regulatory Issues, Environmental, Supply Chain Analysis & Consulting, Global Supply Chain Management, Payables, Financial Statements, Uncertain Demand, Excess Capacity, Excess Inventory