Companies have long struggled with the challenge of unlocking cash from working capital. Historically, cash flow has improved by shortening collections and extending payments, but this is not done without risk. Namely, the relationships with key customers and strategic vendors may be strained in the process. On top of this potential pressure, these two levers have only so much impact. As economic factors change over time, so does a company’s ability to manage receivables and payables.
As CFO of Savi Technology, I am particularly focused on global intermodal supply chains for high-value and/or high-volume customers. Savi uses sensors, TMS, carrier feeds and IoT big data to provide global end-to-end shipment visibility and predictive and prescriptive analytics.
I’ve discovered there are other impactful ways to gain more sustainable management of working capital. Introducing technology in mission-critical segments of a company’s supply chain provides both insight and the ability to make real-time decisions that can reduce the amount of cash tied up in working capital.
Overstocking and Understocking Supply Chain Costs
According to the research firm IHL Group, in 2016, the cost to companies was $470 billion for overstocking and $630 billion for understocking. These numbers reflect significant room for improvement. The value of knowing the in-transit geographic location of products as they move through the supply chain is that it gives customers the abilities to right-size inventory management and achieve more efficient lead time ordering. To one of Savi’s largest CPG customers, saving one day of global inventory for all its SKUs is worth $50 million. In this particular case, the value of knowing is worth quite a bit.
Location data and the visibility it provides are part of the solution. Savi provides predictive ETAs to its customers. Machine learning perpetually improves the efficacy of predictive ETAs. In a business environment where shippers are fined for missing 15-minute delivery windows, accurate ETAs not only enable cost savings but also allow for far more efficient fleet management. Propagated through the supply chain, this technology has a direct impact on inventory levels, safety stock and cash flow.
In addition, employing proven supply chain technologies can improve collaboration and working relationships between a company, its suppliers and its customers.
Cargo Theft and Tampering
Theft and tampering are other major problems for supply chain management. According to the FBI, cargo theft is estimated to cost shippers and trucking companies at least $30 billion per year in the U.S. Since a significant portion of theft is not reported, the real cost remains unknown.
Companies can apply technology in two specific ways to reduce the risk of theft. First, anti-tampering sensors that have the capability to recognize and report tampering provide supply chain managers with real-time alerts. Second, in-transit visibility and analytics solutions that harness machine learning and proprietary algorithms provide insight into high-risk geographic areas for global intermodal shipments. Together, these solutions identify the risk of theft and mitigate tampering, theft and disruption.
As KPIs improve after implementation, increased cash flow allows companies to support R&D investments and other growth initiatives needed to outshine competitors. That’s putting your working capital to work where you most need it.