Power generation equipment manufacturer

Client profile

Power generation equipment manufacturer headquartered in Western Europe with manufacturing sites in the USA , Europe and Asia .  Urgent need to improve cash generation from procurement. Margins coming under increasing pressure as previously strong markets contracted.  Customers were taking longer to pay and, in some cases, becoming insolvent.

Process

Procurement Director, employed cash generation techniques, leading standardisation of key cost components to greatly speed up pricing and more accurate cash out curves. These used actual not forecast data.  Targets were stretched internally to drive better production performance.

The liability curve is equally important. This captures obligations entered into ahead of cash inwards from the customer.  This is acute in poor economic conditions.  Customer may itself experience cash difficulties leading to deliberate slowing down of the contract to suit cash flow.

Additional cash generation wins:

• paying suppliers on contract terms, not faster than contract terms. 
• stop paying even strategic suppliers simply on receipt of invoice – check quality and quantity before authorising payment. 
• amount of cash generation from this source alone was in excess of € 1 million.

Company also faced standard terms for payment in its industry in each country of supply.  Despite cash generation team encouraging them to extend payment terms to suppliers they claimed that this would be difficult, if not impossible.  Determined efforts and careful negotiation made sure the payments terms were not agreed before price and risk allocation were negotiated.  This ensured payment terms did indeed move out to close the gap with customer payment terms.  Suppliers previously insisting on 30 days being moved out to 60 days payment terms or in some cases even longer.  Other improvements were won by more efficient batch sizes and just in time delivery.  This allowed cash release in excess of € 2.5 million.  The cash generation exercise was run alongside a quality improvement programme designed to improve procurement methodology.