Supply Chain Spend: Largest U.S. Companies Take on More Debt, Says Recent Survey
At the same time, they Ignore opportunities to improve working capital performance
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Supply chain managers seeking to control their spend may find this news distressing.
The largest public companies in the U.S. chose to go even further into debt in 2015 instead of driving cash out of their businesses by improving how they collect from customers, pay suppliers, and manage inventory, according to the new annual working capital survey from REL, a division of The Hackett Group, Inc.
Overall working capital performance continued to degrade, reaching poorest performance levels since the 2008 financial crisis.
A significant factor in this year’s overall results was low oil prices, which caused oil and gas companies to increase reserves, dramatically worsening both their inventory and overall working capital performance, and dragging down the performance of the entire survey group.
The survey looks at the performance of 1,000 of the largest public companies in the U.S. during 2015. It saw corporate debt rising significantly for the seventh consecutive year, as a result of low interest rates. Debt was up 9.3 percent this year, or $413 billion. Since 2009 the total debt position of the companies in the survey has increased by over 58 percent.
Working capital performance – which includes collections, payables, and inventory—worsened somewhat, with a deterioration of 2.4 days or 7 percent in Cash Conversion Cycle (CCC), or the ability of companies to turn spending on overhead, raw materials, and labor into cash. It is now at 35.6 days, the worst since before the 2008 financial crisis. CCC is a key measure of working capital performance which factors in how efficient companies are at inventory, receivables, and payables.
“Once again, low interest rates gave companies a perfect excuse to ignore the hard work of optimizing receivables, payables, and inventory, leaving over a trillion dollars unnecessarily tied up in operations. Instead of doing the hard work of transformation most simply leveraged their future with more loans.” said The Hackett Group Senior Director Craig Bailey.
Few companies have been able to sustain working capital improvements, the survey found. Only 2 percent of the companies in the study improved CCC for five years running. Only four improved CCC every year during the past seven years (Goodyear, Priceline, Kimberly-Clark, and AmerisourceBergen).
About the AuthorPatrick Burnson, Executive Editor Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]
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