Running the Numbers - October/November 2006

The latest facts, figures and benchmarking data for radio frequency identification, global trade management, sourcing/procurement and payment


  • Twenty-nine percent of small and midsize companies cite "financing constraints" as their greatest obstacle to setting up a fully automated supply chain.
  • Sourcing/Procurement

    e-Procurement Benefits Continue to Grow as Best-in-class Get Better

    e-Procurement continues to serve as the leading vehicle for a procurement organization to place more spend under management, reduce costs and improve the speed of transactions, and best-in-class enterprises are reaping the most enviable advantages, according to " The e-Procurement Benchmark Report," an Aberdeen Group study.

    On average, enterprises participating in the August study reported the following trends since adopting e-procurement:

    • An almost 40 percent increase in spend under management;
    • A 40 percent reduction in off-contract or maverick spending;
    • Practically 60 percent decrease in the overall requisition-to-order costs;
    • Requisition-to-order cycles shortened by almost 14 days.

    By comparison, best-in-class adopters of e-procurement — roughly 20 percent of the market — on average were able to achieve the following advantages versus the market at large:

    • 203 percent more spend under management;
    • 20 percent more savings in overall requisition-to-order costs;
    • 24 percent impact on requisition-to-order cycle time.

    Aberdeen found that best-in-class companies achieve these results by taking a more holistic view of their e-procurement program. For example, the businesses in this category were most likely to invest in complementary applications and services; address large change management issues at play in an e-procurement deployment and invest time and resources in management and training; have a 40 percent reduction in off-contract or maverick spending; and leverage a strong e-procurement champion and utilize a power-user structure to drive adoption.

    Payment

    Top U.S. Companies See $72 Billion in Improved Working Capital

    The top 1,000 U.S. companies liberated $72 billion of cash from working capital in 2005 by enhancing the way they collect bills from customers, pay suppliers and manage inventory, according to the 9th Annual Working Capital Survey by Hackett-REL, the Total Working Capital practice of The Hackett Group.

    However, U.S. companies still have $450 billion unnecessarily locked up in working capital, based on the gap between typical companies and top-quartile total working capital performers in the Hackett-REL analysis.

    Excluding the automotive sector, which can sometimes skew results because of the large financing arms of the major manufacturers, the top U.S. companies showed a 4.0 percent reduction in total working capital in 2005 (up from 2.5 percent in 2004).

    "Several trends played a role in helping U.S. companies generate the results they did in 2005," said Hackett-REL President Stephen Payne. "It appears that more companies are adding a cash flow performance element to their executive compensation plans, so there are now stronger incentives for business leaders to focus in this area. The greatest improvement this year was in Days Sales Outstanding, in part because accounts receivable is the area of working capital where chief financial officers have the most influence. Finally, many companies are increasing their use of offshore manufacturing, which extends the supply chain and can drive higher inventory levels."

    Hackett-REL found that the top 1,000 U.S. companies achieved Days Working Capital (a measure of total working capital) of 50.4 days. Improvements came in all three areas that make up total working capital, with the greatest progress seen in receivables, as expressed by Days Sales Outstanding, which dropped by 3.9 percent. Days Inventory Outstanding had a 2.9 percent reduction, and Days Payables Outstanding increased by 0.6 percent.

    Of the 82 industry groups examined by Hackett-REL, 12 managed to post a double-digit improvement in working capital. Most improved sectors included cable broadcasters (46 percent reduction), oil (45 percent reduction), marine transportation (30 percent reduction), coal (19 percent reduction), and toys (19 percent reduction).

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