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Introduction and challenges

Historically low interest rates can give the impression that money has a very low cost, but shareholders have a higher expectation of profitability from capital employed (WACC: weighted average cost of capital) than market rates. In other words, there are two main ways to create shareholder value: increase operating income or decrease capital employed. 

Whether it is a question of increasing leeway or financing growth, sustainable optimisation of the working capital requirement relies on a combination of quick-wins to accelerate savings and longer-term actions to ratchet benefits.

A selection of pragmatic actions can generate benefits as early as a few weeks into the project and build momentum. For example, setting up a collections unit can drive down payment delays by 30 – 50% in a few weeks.

Reducing inventory by around 10 – 30% or receivables by 5 – 10% demands a profound change in processes and behaviours within the enterprise, which cannot be done without working on all transformation aspects (leadership, know-how, membership and culture). 

To achieve sustainable results, it is also necessary to clarify responsibilities and deploy a structure dedicated to managing working capital with quantified objectives (collective and individual), governance and visibility (through dashboards).

How we can help

Argon & Co differs from generalist firms in its ability to mobilise teams specialised in supply chain and finance optimisation to address cash flow optimisation in an integrated manner.

We favour a pragmatic approach, aimed at fast-tracking benefits and embedding new behaviours to sustain results.

Assessment of the optimisation potential and building the trajectory

  • Map and benchmark working capital 
  • Identify working capital optimisation levers with guidance from the Argon & Co database 
  • Prioritise transformation topics
  • Define and phase pilots

Transformation launch and activation of the first benefits

  • Trigger quick-wins (collections unit, review of slow moving inventory, and to a lesser extent re-implementation of S&OP)
  • Mobilise operational teams to define action plans with their support
  • Review roles and responsibilities around cash (in pilot mode)
  • Implement operational committees to ensure action plans are carried out according to the roadmap

Earnings industrialisation and sustainability

  • Build and maintain a database of working capital good practices 
  • Review operational and administrative processes
  • Implement cash governance (objectives, performance incentives, steering bodies)
  • Design and develop the cash dashboard
  • Analyse and support change