• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • Login
  • Subscribe
  • Logout
  • My Profile

  • CORONAVIRUS
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • REGIONS
    • Asia Pacific
    • Canada
    • China
    • Europe
    • Latin America
    • Middle East/Africa
    • North America
  • THINK TANK
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » CEAG Hunts Down Working Capital In Its Global Supply Chain

CEAG Hunts Down Working Capital In Its Global Supply Chain

December 1, 2006
Global Logistics & Supply Chain Strategies

Reduce working capital. Lower the cost of production. Both are admirable goals, but what happens when they conflict with one another? That was the challenge faced by CEAG AG, the German maker of power supplies and charging units for cell phones and other high-tech products.

Based in Ostbevern, Germany, CEAG has three manufacturing plants in China-two in Shenzhen and one in Beijing. The setup helps keep production costs low. But it also generates a host of complications, resulting in higher levels of working capital all along the supply chain.

Longer supply lines mean extended order-to-payment cycles, tying up crucial resources. They also raise the financial risk of doing business in multiple countries, while boosting market volatility. Many companies respond by building up safety stocks, causing a serious drag on balance sheets.

CEAG wanted to reap the benefits of overseas production while dramatically cutting working capital. It turned for help to Fraunhofer ATL, a large research institute in Nuremberg with a focus on logistics. Together the parties devised a way to identify just how much capital was deployed at every major step of the company's supply chain.

CEAG, which sells product under the brand name FRIWO, is a mid-sized manufacturer with a commanding lead in the worldwide market for mobile phone chargers. It operates as two distinct business units: FRIWO Mobile Power (FMP), which sells price-sensitive equipment to the mass market, and FRIWO Power Solutions (FMP), a maker of customized power-supply products in lesser quantities. They account for 80 percent and 20 percent, respectively, of the company's annual turnover of around $263m. In all, CEAG sells some 150 million units each year.

The supply chain is complex. Finished goods move out of China through Hong Kong, either as consignment stock bound for Europe, or as direct shipments to markets in Europe, the U.S., Latin America and Asia. There can be lengthy delays, as well as caches of safety stock, throughout the process.

Receivables tend to get stretched out as well. Peter Klaus, a research associate at Fraunhofer ATL, estimates that $35.2m was tied up in the CEAG supply chain in the form of inventory, consisting of finished goods, raw material and work in progress. That number represented more than 35 percent of total assets, with accounts receivable absorbing another 28 percent.

Step one was to map the flow of working capital. CEAG and Fraunhofer created a graphic visualization of the supply chain, divided into six major stages: raw materials and supplies (including accounts payable), production, ocean transport, land transport, consignment stocks and accounts receivable. In addition, each segment was displayed in two "dimensions": the amount of capital tied up, and the period during which it was committed. The layout of the numbers made it easy to spot where the most money was deployed; amounts were in proportion to the size of colored arrows in each of the six columns.

A series of formulas applied to the data gave CEAG new insight into its supply chain. In the category for accounts receivable, for example, it was able to calculate the theoretical amount per day over a year's time. Multiplying that number by customers' actual payment targets yielded the amount of capital employed.

The mapping was applied to various levels of the supply chain, beginning with the entire company, then broken down into FMP, FPS and their major customers. In the last category, the process highlighted FPS's top five customers in terms of sales, and FMP's five most important accounts. (Because FMP's market is highly fragmented, sales volume is not considered a useful metric.)

Armed with this wealth of new information, CEAG could start whittling down working capital in each key area of operations. In all, it identified nearly $12m in possible reductions, out of $38m in deployed capital. Optimization efforts at each stage of the chain yielded reductions in accounts receivable from 45 to 35 days, in consignment stocks from 18 to 13 days, in European land transport from six to 3.3 days, in ocean transport from 27 to 22.5 days, and in production from seven to 6.5 days.

Each change has had an impact on the bottom line. For example, CEAG saved more than four days of ocean transport by shifting to faster vessels. For a single product, that meant six fewer containers needed, for a savings of $439,000 in working capital. The 10-day reduction in accounts receivable would free up another $8.8m.

Cutting down on accounts receivable or consignment stocks isn't always easy, especially when the customer is a large and powerful account with the freedom to choose its suppliers. But there are ways to get around that barrier, said Klaus. For CEAG, the level of consignment inventories turned out to be higher than what the customer wanted, driven instead by an "overly eager" sales force. Moreover, through an "open-book exercise," customers can be shown the ultimate cost of excessive receivables and onerous payment terms.

In the long term, CEAG plans to rearrange some safety stocks for additional savings, possibly centralizing its inventories, while doing a better job of sharing forecasts with key customers and suppliers.

It all began with a simple colored chart. As CEAG and Fraunhofer said in their description of the project, "The visualization is easy to communicate, and therefore a powerful tool to support executives in facing these challenges."

 Fraunhofer ATL Congratulates CEAG AG

We would like to give special thanks to the CEAG AG, our partner in the project case presented. All the support and the information provided by Rolf Endreß (CEO of CEAG AG) and Dr. Stefan Sack (vice president of operations for CEAG AG) were fundamental for the case study.

RELATED CONTENT

RELATED VIDEOS

  • Related Articles

    CEAG Hunts Down Working Capital In Its Global Supply Chain

    Key Tool for CFOs to Manage Working Capital

    West Marine Leaves Inefficient Supply Chain In Its Wake

Global Logistics & Supply Chain Strategies

TNT Logistics Sports New Name: CEVA Logistics

More from this author

Wake up to Coronavirus Updates and the latest Supply Chain News!

Subscribe to our Daily Newsletter

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • Coronavirus-watch-Armada

    Virus Update: Biden Seeks $1.9 Trillion for Relief Bill; India to Supply Millions of Vaccine Doses to Neighbors

    Coronavirus
  • U.S. and China Trade

    How China Won Trump’s Trade War and Got Americans to Foot the Bill

    Global Supply Chain Management
  • Obtaining Adequate Supplies of PPE in the Pandemic

    Watch: Obtaining Adequate Supplies of PPE in the Pandemic

    Coronavirus
  • AT&T

    How the Pandemic Has Altered AT&T’s Global Sourcing Strategy

    Coronavirus
  • Transforming Your Supply Chain Into an Opportunity Center

    How the Internet of Things Boosts Supply-Chain Visibility

    Technology

Digital Edition

Scb home issue 27

2020 Supply Chain Innovator of the Year

VIEW THE LATEST ISSUE

Case Studies

  • LSP Saves Customer $1.5 Million a Year With MPO Global Inbound Management

  • Auto Supplier Wows Key Client Using riskmethods Supply Chain Savvy

  • Integrating Shipping and Compliance Saves Conglomerate Millions

  • How a Consumer Goods Giant Upped Its On-Time Delivery Performance

  • LSP Wows Global Client, Quickly Advances to Become End-to-End Provider

Visit Our Sponsors

6 River Systems ArcBest Armada
aThingz BluJay Burris Logistics
DSC Logistics DCSA (Digital Container Shipping Association) DHL Resilience360
Genpact GEP Honeywell Intelligrated
Infor Logility Magnitude Software
MPO Old Dominion Oliver Wight
OpenSky Ports America Purolator
QAD Precision Red Classic Riskmethods
TGW Systems Transportation Insights Watson Land Company
Westfalia Technologies Workjam Yang Ming
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright © 2016 - 2018 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing