Optimising working capital
The external environment is causing disruption in the automotive sector but there are still areas that we believe can be influenced by managing working capital and cash.
The value chain in the automotive industry, from component suppliers, OEMs and NSCs to dealers -- and ultimately the consumer -- is a high intensity working capital industry, so optimal working capital is critical for survival.
- Dealers are unable to influence volumes set by OEMs but they have the potential to drive down costs in stock management across new and used cars and parts. Stock management is difficult to manage well, and optimising working capital could present operators with cost saving opportunities to achieve better optimisation.
- There is high staff turnover across the sector which has a major impact when individuals with detailed knowledge of the stock ordering leave as processes are not always written down. This is an area which can be easily addressed with formal processes.
- Generally dealer principals have a rudimentary understanding of finance but there is a requirement for them to have detailed knowledge of balance sheets and cash flow in order to optimise the dealers working capital requirements .
- Typically there is less than efficient communication between the OEMs and the supply chain, so volumes that have been ordered do not always factor in changes made to production.
- Meanwhile, Tier 1 suppliers are heavily dependent on one or two large customers so their commercial terms are largely dictated. Tier 2 and Tier 3 suppliers often have limited access to finance due to their positioning in the supply chain and may have poor management of payment terms.
We can facilitate better management of working capital across the automotive supply chain. Our experience shows how improvements can be achieved downstream in stock management and receivables and upstream in inventory and payables.
Our underlying key to success is achieving sustainable optimal working capital.