I keep hearing that our working capital is not good (Aero). Inventory and receivables are struggling.
Hasnt inventory been struggling for years? Does anyone actually do anything to fix it?
Heard a few people mention something called PPO as a fix, what is PPO?
Who owns receivables? And is this something that can actually be improved, seeing as we treat our customers like crap?
Thanks
Payables can go up if you hold your cash longer by waiting to pay suppliers later. It doesn't have to be "higher inventory."
Your first mistake was believing what someone told you without doing the research yourself. WC has gone from $6983M in 2014 to $6727M in 2017. A little drop, but payable is up $500M, which means inventories are up. Could be because not enough people to build customer orders, maybe not the correct inventories coming in.
Buy parts with net 120 terms and sell the parts as soon as possible with net 60 or less.
Payment Prior to (purchase) order. Can do it for smaller operators not under contract but the larger customers (majority of business) are under contract and have payment terms specified in their contract so there is limited opportunity.
Working capital and inventory will never be low enough to keep leadership happy since as soon as we meet the metrics, they get lowered as they have for most of the last 15 years. Problem is that working capital and inventory are tools to be used to improve Sales and profits. The metrics measure how effective you might be using the tools, but considering WC and I metrics in isolation misses the point entirely.
Receivables are probably "owned" now by folks new in their positions that haven't been trained and probably don't know what should be happening by contract terms, let alone how to make it happen.
Working capital is nothing more than assets minus liabilities. We don't get paid until something is delivered correctly. To improve working capital move in work product to delivery faster.