There’s nothing like a recession to consolidate people’s minds. Economic think tanks (including the Ernst & Young ITEM Club) were among the first to put their stake in the ground in recent weeks and admit Britain is headed for recession, followed by the Monetary Policy Committee and the Prime Minister.
Consequently the boards of food and drink companies are turning their attentions to how they can extract more cash from their businesses as bank finance dries up. Haemorrhaging of cash from the business during a bust period is one of the more immediate things that fmcg companies can address.
It has become increasingly popular and often necessary for manufacturers to invest in the latest systems for tracking orders and deliveries. But that doesn’t mean they are saving money and adding value throughout the supply chain.
Standing in an overseas shipyard recently, I watched paid for consumer goods arrive much earlier than required, get filed on to a computerised system and unpacked into a container, where they sat for six months before hitting shop shelves. Early receipt of paid-for goods is a consistent problem for many companies operating in the food and drinks industry. Besides causing excess inventory and utilising expensive storage space, these goods are like speed bumps in the way of smooth-flowing traffic, creating a jam and clogging up cash.
Some businesses have a slightly different cash leakage problem. Their suppliers may be small businesses depending on quick payments – with a tendency to invoice early – to survive. Or their customers could be big-box retailers who negotiate longer payment terms and push out deliveries to their own advantage.
To mitigate this scenario, companies will have to revisit external factors such as their suppliers’ performance, or conformance relating to delivery and invoicing dates, as well as contractual terms with their customers. They will also need to review internal factors ranging from procurement, demand management, accounts receivables and payables practices.
Dan O'Regan is supply chain partner at Ernst & Young.
Consequently the boards of food and drink companies are turning their attentions to how they can extract more cash from their businesses as bank finance dries up. Haemorrhaging of cash from the business during a bust period is one of the more immediate things that fmcg companies can address.
It has become increasingly popular and often necessary for manufacturers to invest in the latest systems for tracking orders and deliveries. But that doesn’t mean they are saving money and adding value throughout the supply chain.
Standing in an overseas shipyard recently, I watched paid for consumer goods arrive much earlier than required, get filed on to a computerised system and unpacked into a container, where they sat for six months before hitting shop shelves. Early receipt of paid-for goods is a consistent problem for many companies operating in the food and drinks industry. Besides causing excess inventory and utilising expensive storage space, these goods are like speed bumps in the way of smooth-flowing traffic, creating a jam and clogging up cash.
Some businesses have a slightly different cash leakage problem. Their suppliers may be small businesses depending on quick payments – with a tendency to invoice early – to survive. Or their customers could be big-box retailers who negotiate longer payment terms and push out deliveries to their own advantage.
To mitigate this scenario, companies will have to revisit external factors such as their suppliers’ performance, or conformance relating to delivery and invoicing dates, as well as contractual terms with their customers. They will also need to review internal factors ranging from procurement, demand management, accounts receivables and payables practices.
Dan O'Regan is supply chain partner at Ernst & Young.
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