Never enough working capital

Saw this good article on McKinsey & Co. website Uncovering Cash. Today’s AP automation and eProcurement tools can provide the process speed that creates more working capital.   I have seen companies reduce the time to approve an invoice by as much as 18 days; most companies average 10 days.  With the leading eProcurement technology, the average time to approve an invoice is measured in hours not days.  This means that early payment discounting for vendors that have discount opportunities at 10 days can consistently count on earlier payments.  However, early payment discount savings are just the tip of the iceberg.

With faster invoice approval times, a smart Controller will also look at their supply chain payment term landscape.  There will likely be a large amount of vendors that are candidates for longer payment terms, i.e., moving from 30 day terms to 45 days or 60 day terms to 90 days.  Yes, I know that old school thinking was that extending payment terms would not work with suppliers as it would hurt vendor relations to get paid so late.  But I have found that most suppliers will readily accept a early payment discount if they could get paid early in a consistent and predictable manner.  This is the key.  The Controllers and Treasurers at your key suppliers know better than you do when they need cash.  If they no longer have to guess when you are going to pay them and accept a discount on each invoice to get paid on a predicted date, you now have freed up a  load of working capital.

With the right AP automation and/or eProcurement tools, you unlock the potential for predictable earnings.

Measuring Joint Venture Success – A Different Perspective

A recent article published by the McKinsey & Company reminded me of a lesson learned from an Asian business friend.  Here is the link to the McKinsey & Company article:  Avoiding blind spots in your next joint venture provides a number of very practical thoughts on how to measure success. I have always been intrigued by how companies measure success in joint ventures.  From my experiences, there always seems to be a winner and a loser or the JV just didn’t work out well for either party.
A few years ago, I was enjoying a round of golf with my usual foursome of CEO friends at a golf course in Brazil.  We played every week and frequently shared stories regarding the challenges of managing a multinational company.  One of the fun parts of the business was getting the opportunity to test out joint ventures in a country like Brazil.  Companies can try to make a joint venture work without a serious financial risk to the bottom line if the same joint venture experiment was attempted in the United States or Europe.  If the joint venture succeeded, then the joint venture could be expanded regionally or globally.
As occurred many times, my CEO friends would at times invite other executives to join us.  One weekend, an executive with a major Asian corporation joined us for our day at the golf course.  He was the executive responsible for joint venture with one of the major US corporations to which one of my CEO friend managed.  87650603-1
As the day moved along, there was a greater openness to talk and share things about business.  I asked our Asian executive guest about how Asian companies measure the success of a joint venture.  He originally provided a rather simple reply that it is no different from any other business.  however, after a day of golf and then dinner that night, the two of us talked more over coffee about the differences between managing business in a U.S company versus an Asian company.   He then apologized for earlier not being completely honest with me earlier in the day.  He explained that in reality, Asian companies do measure a joint venture very differently than US companies.
The measuring stick for Asian companies takes a longer term view of success, whereas in US companies, the measure is always on short-term financial benefit.  As he elaborated, he smiled and said:

 ” the real JV success is measured by who sucks the brain of the other company faster.”

He explained that Asian companies are always focused more on process improvement and learning how to constantly improve things.  If an Asian company forms a joint venture, their primary goal is to learn as quickly as possible how to produce a product better or how to create a new product better…learn from the company that has already has the intellectual capital.  Then take that knowledge and dominate the market through better execution of processes with a longer term view of profitability.
Truly insightful and something that we should all adapt to in measuring Joint Venture success.Source document:  http://www.mckinsey.com/insights/corporate_finance/avoiding_blind_spots_in_your_next_joint_venture

Five Ways CFOs Can Improve Agility and Responsiveness

Most CFOs are focused this year on growth.  That is one of the primary findings from yesterday’s 2014 CFO Sentiment Survey conducted by the CFO Alliance.

It is an old adage that growth in sales covers a lot of problems in business.  Growing is great, but growing with an efficient organization is a primary concern of all CFOs.

One of the more difficult things to do is to improve operational agility or responsiveness. Many times when growth occurs, a company needs to staff up, train and assimilate those new employees into the team.  That takes time.  So companies are left with trying to operate faster with their existing processes and tools.

The 2014 CFO Sentiment Survey reports that:

76% rate improving responsiveness/meeting
customer expectations of importance when
asked to characterize their top operational
challenges for 2014″

How can CFOs impact responsiveness?

Embrace some of the best of breed, SaaS technologies that can supplement your existing ERP Systems.  These best of breed systems can drive phenomenal efficiencies in your organization.

Here are Five Ways SaaS technology adoption can speed organizational responsiveness:

1.  Reduces IT Complexity – a major issue for many organizations is that their IT staff has limited resources that slow down technology adoption and deployments IT  does not mean to slow things down, but they are limited in what they can do and must prioritize.  SaaS tools can be deployed with many times 80-90% fewer IT hours, placing the demands of implementation on your SaaS provider and your department subject matter experts.  Most SaaS tools can be fully implemented in 3-5 months.

2.  Broaden access to SaaS tools to a larger User base – SaaS tools are typically built on modern web-development tools that make them as easy to use as navigating Google or Amazon.  Why email requisitions to purchasing, just to have them re-key the requisition?  If purchasing has already negotiated deals with preferred vendors, push those choices out to the users and let them buy from your preferred vendor contracts.

3.  Choose SaaS tools with track records of integration – the days of highly complex integrations with your ERP systems is about over.  Many of the latest SaaS tools can easily interface with your ERP without a large team of consultants working for months.  You can eliminate time-consuming re-keying of sales orders from Salesforce.com to Intacct Accounting & Finance software..creating tremendous agility and cost benefits.

4.  Ensure Saas tools are Mobile Device friendly – many executives do not visit their office except at the beginning and ending hours of the day.  There are meetings, both internal and external that chew up the day.  With a mobile friendly SaaS tool, approvals can be managed wherever you are.  This will speed the agility of an organization to act on orders to hours and not days.

5.  Implementations are faster than the Decision Process – most SaaS tools can be implemented in days, not months.  In my experience, it takes organizations longer to go through a software purchase decision process than it takes to implement the technology.  If you have prepared a well thought out ROI achievement model, you are likely to achieve project payback in less than six months.  How many of those type of projects do you have on your desk today?

As the CFO, you can dramatically impact the pace of SaaS adoption by driving the decision-making process.  Organization agility can be a huge financial gain for a company.  You will need to get multiple departments to embrace the change…for financial gain benefits…not just departmental benefits.

Source data:  CFO Alliance: 2014 CFO Sentiment Survey, 1/9/2014

When CFOs Invest in the Cloud, the ROI may be bigger than expected

The 2014 CFO Sentiment Survey was published today by the CFO Alliance. It is always interesting to read these surveys and find out what is on the mind of executives. There were a couple of bullet points that caught my attention.

The 2014 CFO Sentiment Survey reports that “82% of CFOs list implementation of new technology and Data Security as high importance when characterizing their top operational challenges in 2014.”

In almost every discussion with the CFOs that I work with, CFOs are highly cautious about the risks of adopting new technology. Their cautious approach can heavily influences their peers in reluctantly adopting innovative technologies that can dramatically improve their business.   Several transformational technologies have emerged in the past few years via cloud technology that need to be looked at.

Why?  Very few CFOs are evaluating these perceived risks through the lenses of the more modern cloud technologies.  The paradigm has dramatically shifted when a company adopts a true cloud technology.  Implementations are much faster than typical in-house application projects.  Integration between the cloud technology and their current ERP technology can be significantly less complicated.  The dependence on internal IT to drive the implementation and integration can be dramatically lessened because the IT complexity of many cloud technologies is much smaller.

When implementation are measured in days, not months…a paradigm shift has occurred!

This takes me to the second interesting observation.  The survey found that:

A total of “65% of the respondents identified finding and retaining the right talent as an area where they would spend more and realize a high ROI…impacting 2014 results.”

One of the big frustrations for employees is that their technology at the office is not as easy to work with as the technology that they use at home.  Employees are very tech savvy with anything that is web-based.  Shopping and buying things on Amazon.com or other online retail sites has become the primary means of shopping at Christmas!  So if CFOs can adopt cloud technologies that place “easy to use” software at the fingertips of their employees, they will dramatically increase employee satisfaction.  High user adoption should be a critical measure for all CFOs when they evaluate a software selection.  SaaS technologies like “Intacct” and “Coupa” have been consistently rated as leaders in their space primarily because they are so easy to use.

So when you consider investing this year in your operation, rethink your strategy.  By adopting cloud technology for your business, you will obtain outstanding ROI and paybacks through their business efficiency, but you will also de-risk your investment by providing your employees a technology that will achieve very high user adoption.

Source:  2014 CFO Sentiment Survey, January 9, 2014 – CFO Alliance 

Why consultants can be a CFO’s best friend?

While at church this morning, I heard the story of Charles Steinmetz, a prolific inventor and electrical engineer for General Electric back at the turn of the century. The story that caught my attention describes the occasion when Ford Motor Company hired Steinmetz to come to the Ford Rouge River plant and solve a difficult problem with a large generator outage.charles-steinmetz-full

Jack B. Scott wrote in a letter to LIFE magazine in 1965 about his father’s encounter with Steinmetz that is captioned below:

“Ford, whose electrical engineers couldn’t solve some problems they were having with a gigantic generator, called Steinmetz in to the plant. Upon arriving, Steinmetz rejected all assistance and asked only for a notebook, pencil and cot. According to Scott, Steinmetz listened to the generator and scribbled computations on the notepad for two straight days and nights. On the second night, he asked for a ladder, climbed up the generator and made a chalk mark on its side. Then he told Ford’s skeptical engineers to remove a plate at the mark and replace sixteen windings from the field coil. They did, and the generator performed to perfection.

Henry Ford was thrilled until he got an invoice from General Electric in the amount of $10,000. Ford acknowledged Steinmetz’s success but balked at the figure. He asked for an itemized bill.

Steinmetz, Scott wrote, responded personally to Ford’s request with the following:

Making chalk mark on generator    $1.00

Knowing where to make mark         $9,999.00

Ford paid the bill.” [1]

How many times have you questioned the value of a consultant’s bill?  Unfortunately too many times consultants are brought in to perform work such as planning or strategy that does not solve a problem.  The real value of consultants come from their unique expertise that a company may not have internally that they need to solve problems from a new perspective.

Think about how you have approached your key issues for 2013.  Have you turned over every rock in search of cost savings?  What new perspectives can you bring to bear on improving working capital or capturing previously undiscovered profits from your operations?

This is how every CFO should utilize a consultant.  Don’t focus your consultant on creating your cost savings plan.  Have them review and critique your plans.  It is very likely that they can mark the spot that solves a problem with which your team hasn’t discovered.

Source:

[1] http://blogs.smithsonianmag.com/history/2011/08/charles-proteus-steinmetz-the-wizard-of-schenectady/#ixzz2FtmclWoO

CFO Survey shows growing pessimism on Fiscal Cliff resolution

DUKE University and CFO magazine survey forewarns dramatic business slowdown.

CFOs typically set the tone financially in meetings within a company.  Sales executives talk about the customers, Purchasing talks about the suppliers, but the CFO usually sets the tone for what the economy and the financial numbers are going to do.  It looks pretty gloomy based on the recently released DUKE University and CFO Magazine survey.

Given the possibility that the U.S. will go over the fiscal cliff, CFOs in the U.S. were less optimistic about the economy than in previous quarters.  The survey also showed that weak consumer demand, the cost of health care and retaining skilled workers were all of top concern.

Chief Financial Officers of U.S. businesses say going over the “fiscal cliff” will lead to dramatic slowdowns in hiring and business spending in 2013 and will continue to hurt firms for years to come, according to a new survey by Duke University and CFO magazine.

“These concerns have led to a continued erosion of optimism about the U.S. economy,” said Kate O’Sullivan, editorial director at CFO Magazine. ”Optimism has fallen to 51 out of 100, down from 60 last spring, and even slightly below Europe. This is worrisome because historically reduced optimism foretells slower economic activity over the next year.”

We all know that economy is in trouble due to the huge fiscal debts that our government is racking up and the slow pace to resolve the issue politically.  No matter what happens, we can be assured that our growth prospects for the next several quarters is going to take a hit.

Looks like it is time to dust of your “Cost Cutting Playbook”.

Source:  http://www.cfosurvey.org/

Why the CFO and the CPO Need to be Best Friends

Once again, we find that the #1 priority placed on CPOs is cost savings capture.  In the recent release of Aberdeen’s CPO AGENDA FOR 2012, 75% of all survey respondents said that top-down pressure to cut costs was the top priority.

With this continual pressure to cut costs as the perennial top priority, CFOs and CPOs need to become best friends.

images

Cutting cost is the top CPO priority?  This is not surprising.  With competitive pressures and economic issues continually pounding on companies, it is no wonder that this would be the priority for every CFO.  However, the surprising statistic is that despite all the hard work and good things that the purchasing staffs accomplish, the average company only recognizes 25% of the negotiated potential savings with preferred vendors!

In our work with customers at CCP Global, we typically see 5-10% savings that result from the sourcing processes conducted by Purchasing.  If only 25% of negotiated contracts are used by a company’s employees, your organization is leaving a lot of “hard savings” left untouched.  Thats right!  YOUR organization.  We see this all the time when investigating savings capture opportunities with clients.

CFOs should take more accountability for this opportunity savings. It is not just a CPO issue.   “Maverick spending” can occur anywhere in the company.  Many times, the employees that are requesting items to be purchased do not have easy access to the right data to know who the preferred vendors are.  Despite the sophistication of the traditional ERP systems, many of the systems are just not user friendly.

The old model of initiating a requisition in purchasing doesn’t take advantage of the ease-of-use that the leading SaaS technologies now offer.  Older ERP technologies require weeks of training to use and are not intuitive for employees that have not gone through the training.  Employees want to use tools at the office that are as easy as shopping at home on Amazon.com or Google.com.

This is the key to reducing “maverick spending”!  CFOs need to empower the employees with tools that are as modern as what they use at home.  High user adoption will drive more spending through the SaaS tools and provide both the CFO and the CPO with significantly greater, “real-time” visibility to spending.

We are now back to “you can’t control what you can’t see”.   CFOs have the power to influence the IT and Purchasing organizations to adopt these SaaS tools.  The choice delivers a high ROI, fast payback technology and will bring cost savings to a reality very quickly.

Fiscal Cliff Action Plan

What plans have you put in to place to prepare for a potential negative impact from the “fiscal cliff” volley ball game in Washington D.C.?  

ImageIn a recent 2012 survey by Financial Executives International, only 13 percent of CFOs believed that the U.S. economy would recover in 2013.  Additionally, 76% of CFOs expect that the U.S. economic growth will be impacted by tax increases and potential sequestration.

With the high likelihood of stormy weather ahead, most CFOs are holding on to cash and minimizing investments.  What investments can a CFO take that have almost immediate payback and can help them drive through a tough economic period?

  1. Increase Spend Visibility
  2. Capture greater early payment discounts
  3. Release cash trapped in Accounts Payable

All of these steps can quickly and easily be implemented within 10-12 weeks without a major issue with your IT staff and their workload demands.  How can this be done so quickly?  Embrace the adoption of Software-as-a-Service technology that typically has a lower total cost of ownership than traditional ERP technology solutions and can be implemented in weeks, not months.

Spend Visibility –  the old adage that “you can’t control what you can’t see” is very true here.  Surprisingly most Fortune 1000 companies still have “Maverick Spend” of 40-60% on total spending of a corporation.  “Maverick Spending” refers to spending that does not go through a preferred vendor contract and misses on the pre-negotiated savings that purchasing works so hard to negotiate.  Why is this percentage so high?  Because most accounting/purchasing ERP technologies are still so user un-friendly, that most employees prefer to go around the system to make their purchase requests.  Other times, the preferred vendor commodities are just not readily known or visible to the employee when they need to place an order.  However, new advances in SaaS technologies can bring very user friendly tools to bear so that employees can easily shop and buy from their company’s e-Procurement technology, just like they shop at home on Amazon.com or Google.com.  If they like to use the system and it is easy to use, then more spending will be visible and thus, increase the influence that purchasing can make on cost savings.

Capture Greater Early Payment Discounts – surprisingly, most companies that I visit either don’t take advantage of early payment discounts or less than 20% of the suppliers utilize the opportunity.  Many companies fail to capture these profits because they want to hold on to their cash.  But at what cost?  What APR % rate are you getting on your cash investments today?  Almost nothing.  Yet, when companies utilize dynamic discounting, it is easy to capture early payment discount profits of 12% APR or more.  Don’t believe that this is only for companies that have a lot of troubled suppliers.  Think about it this way, if a company is factoring their invoices to manage working capital better or if their credit rating is below your own company’s credit rating, then your supplier can improve their financing costs by simply getting paid early via offering a 1-2% discount.  Almost every company has a list of suppliers that would qualify for these simple scenarios.

Release Cash Trapped in Accounts Payable – if a CFO takes advantage of SaaS based eProcurement technology and Dynamic Discounting technology to improve their internal operations, then there is one more step that can be taken that will pay for both initiatives.  The third step that can be quickly taken is to analyze your mix of supply chain payment terms.  By strategically evaluating the potential of extending payment terms to select supplier groups, it is possible to free-up significant amounts of cash trapped in Accounts Payable .  By moving payment terms out for a select group of suppliers from 30 to 60 days or 60 to 90 days…or more, a company   can increase your cash from operations to help manage through the difficult economic times.  Why have companies traditionally avoided this?  The primary reason is that the supply chain team was typically concerned about supplier push-back.  However, if your company provides a SaaS mechanism where suppliers can see when their approved invoices are scheduled to be paid, they can also easily accelerate their payment and get paid typically within 48 hours after the invoice is approved.  Suppliers can achieve this early payment by offering to discount their invoice via the dynamic discounting technology.

If a corporation is not already including these three safe tools in their financial toolbox, then they are missing significant savings opportunities that are readily available today.

Action Steps to Take:

  • Move your company’s Maverick Spending from 40-60% to +90% benchmark levels
  • Capture untapped profits by embracing early payment discounting via dynamic discounting
  • Free-up cash from Accounts Payable through extended payment terms linked with dynamic discounting

Do you have a better set of self-funding, fast financial payback options?