“Digital Transformation” Can Enhance Working Capital Performance, New Hackett Group Survey Reveals

The largest companies in the U.S. collected cash from customers faster in 2018 and held less inventory, resulting in the best overall working capital performance since 2012, according to the annual Hackett 1000 cost and cash optimization survey from The Hackett Group, Inc.

Improvements in receivables and inventory were slightly offset by a deterioration in payables performance, as companies have started relieving the pressure on suppliers that we have seen in recent years, a reversal of a long-term trend towards extending payment terms.

At the same time, debt levels continued to rise, but at a slower rate than last year, the survey found, with interest rates uncertainty increasing the risk.

The survey, which looks at the 1000 largest non-financial companies in the U.S., found that $1.3 trillion remains tied up in excess working capital, with top performers paying suppliers nearly three weeks slower, holding less than half the inventory, and collecting from customers nearly three weeks faster.

Digital transformation is increasingly becoming a core part of working capital improvement efforts, the survey found, with smart automation, analytics, and other tools being used to drive increased efficiency and effectiveness in payables, receivables, and inventory.

For the first time, The Hackett Group's annual survey also examined the potential benefits of reducing costs in general & administrative (G&A) operating areas such as finance, procurement, HR, and IT. The research found significant variance in sales, general & administrative (SG&A) costs by industry. But the research also found that companies can reduce G&A costs by up to 44% by achieving world-class performance levels in these areas while simultaneously implementing digital transformation with robotic process automation, cognitive computing, and other technology optimizations. For a typical company, this cost reduction translates into a 2% improvement in profit margin or an increased market capitalization of $300 million per billion of revenue.

The Hackett Group's annual Hackett 1000 cost and cash optimization survey is available on a complimentary basis, with registration at, http://go.poweredbyhackett.com/cc1909sm.

“This year's working capital performance is one of the best we've seen in some time,” said Craig Bailey, Associate Principal, Strategy & Business Transformation. “Interest rate uncertainty is starting to drive a greater focus on working capital improvements. But debt continues to grow, creating significant risk for companies, if there's a downturn in the market.”

In an interview with SCMR, Bailey noted that the survey also contained a few surprises.

“For the first time since 2011 we have seen an improvement in DIO as CFOs start to direct organizations to tackle inventories, traditionally perceived as one of the more difficult areas of working capital optimization due to the competing functional priorities and objectives of service, cost, and cash,” he said.

He added that DPO had been on a steady improving trend since 2014 however this year DPO leveled out as top performers began to reach the limits of what was possible.

Bailey observed finally, that the study is a “data driven exercise” rather than a stakeholder survey.

“Next year researchers expect to see continued performance improvement in inventory levels due to the heightened focus across supply chains, ongoing DSO improvement as CFOs go after quick wins, and sustained DPO performance,” he concluded.

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