Working Capital Management: How can procurement help?
A recent article in McKinsey, ‘Five steps to a more effective global treasury’, talks about changing demands on corporate treasurer and the struggle faced by them to keep up with the new demands. I was wondering what the possible impacts of this global change are for procurement professionals around the globe.
Treasury within organizations are involved in managing cash effectively. Procurement until a decade ago was primarily considered as a cost center involved in purchase of raw materials. Over the years however, procurement has elevated itself from being perceived as a cost center to being considered as a partner in growth of the organization by contributing strategically towards the key areas of success.Considering contribution to the bottom line being one of the emerging key objectives of procurement, working capital management – which encompasses areas of accounts payable, accounts receivables & inventories is an area which requires close collaboration of procurement with finance & treasury within the organization.
Challenges in today’s business environment mandates procurement to closely monitor demand situations to prevent any sort of unwarranted inventory pile up. Falling demand & fluctuating global commodity indices further adds pressure to managing inventories. Idle inventory as we all know is idle cash. Situation today demands procurement professionals to remain abreast with market dynamics in their respective categories to effectively manage volatility and formulate strategies for inventory management.
Another key area which impact working capital management is to with accounts payable & accounts receivables. Treasury functions within organization would always want higher days payable outstanding (DPO) and lower days sales outstanding (DSO). This is where procurement, treasury & finance are often at cross roads, especially in the area of DPO, since procurement always wants to ensure timely/early payments to suppliers to improve relationship with them. Delay in payments beyond contracted terms could hamper relationship with suppliers which in turn can lead to costly supply disruptions. This requires procurement to play a key role during formulating contractual terms with suppliers spread across the globe and collaborating with key internal stakeholders like finance & treasury.
Learn more about the relationship between procurement, finance & treasury, by attending the complimentary webinar – “Making savings count: Driving collaboration with finance to influence the P & L” brought to you by Procurement Leaders, sponsored by Zycus Inc. on 13 December 2011, 14:00 GMT / 09:00 EST. To register for the webinar, click here.