Australia, Companies, Features

Working capital optimisation levers

Lever capital optimisation

Extolla’s CCO, David Harrison, and SIOP Senior Consultant, Luke Bruinenberg, speak to MHD about the need for a multi-lever approach to optimisation of your working capital, why it’s necessary for businesses to factor in customer expectations, why there’s a need for continuous review of your supplier base and commercial terms – and more.

During the COVID-19 pandemic, businesses were either understocked or overstocked. Now, in the post-COVID environment, they must adapt to ensure they maintain the correct supply levels that fit their warehouses without the need to modify or expand their facilities, or invest in additional sites – all while still meeting customer demand.

David Harrison, Chief Commercial Officer at Extolla, specialises in procurement, strategic sourcing, and business optimisation. He focuses on how enterprises can adapt, sequence, and pivot their supply chain and operating model to optimise their working capital and cash position. Luke Bruinenberg, Senior Consultant for Sales, Inventory & Operations Planning at Extolla, is an expert in demand planning, SIOP, and inventory planning – key levers in working capital optimisation. Together, they offer practical and executional models, processes, and plans for enterprises to take on-board, as they optimise their working capital requirements. 

PLANNING, COLLABORATING, AND DE-RISKING

Promoting customer-centricity is vital for companies aiming to not only sell their products but also ensure repeat purchases. Businesses must monitor competitor actions, forecast, and decide when to stock up. From a sourcing viewpoint, they need to strike the right balance between inventory levels and fulfilment lead times, through monitoring of market data.“Many companies we consult aren’t adjusting in these post-COVID times,” David observes. “They aren’t setting the right metrics, which often leads to over-purchasing or imbalanced investment decisions.”

David Harrison, Chief Commercial Officer at Extolla.
David Harrison, Chief Commercial Officer at Extolla.

Company departments tend to operate in silos, but they should be cross-collaborating. “Departments like marketing, sales, and IT must collaborate. Otherwise, it negatively affects the customer experience,” says Luke. “Without proper communication, a company might end up selling an extra 1000 units at, say, 30 per cent below the regular retail price. Such actions can diminish full-price sales later on, reducing profit margins. These discussions are vital because a lack of them harms the customer experience and affects the company’s profitability. This isolated mindset can breed distrust and result in a loss of economies of scale.”

Commercial deals are typically set at the start of an engagement and aren’t reviewed regularly – a “set and forget” approach. “When a company’s marketing team is brainstorming, they must ensure alignment, especially when discussing rebates, promotional terms, and how these strategies affect pricing,” David advises. “Cash is paramount. Companies must know what they’re conceding, who’s accountable, how to monitor everything, and the implications if plans fall through since significant money is at stake.”

As businesses grapple with adjusting their planning cycles post-COVID, David suggests diversifying their supplier base. Otherwise, they might face challenges like inadequate warehousing space, the need to automate, or having to pull other “de-risking” mechanisms. He believes this isn’t necessary if businesses reconsider their product approach. “Companies should evaluate different sourcing strategies. For instance, by storing stock nearshore, it might be pricier, but overflow issues can be avoided,” David says, noting that in an Australian context, “nearshore” now includes locations like Indonesia, Malaysia, New Zealand, and even interstate regions.

Adjusting outsourcing strategies and de-risking the supply chain can help prevent overflow issues. A sound alert-based planning system influences rebate structures, rate structures, and terms. In rapid sourcing, cash considerations dominate, negating the need for strategic sourcing.

UNDERSTANDING THE MARKET AND NEGOTIATING

Often, companies issue requests for proposals (RFPs) or information (RFIs). “70 per cent of RFPs I’ve handled globally were awarded to the vendor who also provided a ‘non-compliance’ response,” David recalls. This happens because direct discussions with the vendor will highlight new and improved services and products not envisioned in the RFP or RFI process. He believes companies can sometimes benefit more from direct observations at their warehouses and interactions with customers and vendors than what’s on an RFP response.

Luke Bruinenberg, Senior Consultant for Sales, Inventory & Operations Planning at Extolla.
Luke Bruinenberg, Senior Consultant for Sales, Inventory & Operations Planning at Extolla.

The RFI process involves understanding the market players, product analysis, discerning customer desires, determining commercial structure, warranties, terms, employee locations, KPIs, and contractual needs surrounding milestone payments. “Initiating the review process is a continuous negotiation,” David states. Planning ahead is crucial, as Luke points out, especially as businesses expand and evolve.

ADAPTING, BALANCING, AND RESOURCING

Flexibility and a deep understanding of cultural and regulatory differences are essential for global success. Given the numerous variables, like sourcing strategy and product dimensions, a one-size-fits-all approach is ineffective. 

“With total inventory strategies, adaptation is crucial,” says Luke. 

“When was the last time you assessed vendor and customer contracts, terms, rebates and inventory holding data for supply chain financial gain?” David asks. With practical, real-world experience, Extolla is here to help.

For more information on Extolla, click here

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