Cash tied up, suppliers squeezed: report

McGrathNicol Advisory has launched its 2018 Working Capital Report, revealing working capital metrics worsened, on average, across a sample of 146 ASX-listed businesses, in nine sectors.
The report shows working capital cycles increased by an average of 0.5 days to 48.7 days in 2018, tying up an additional $691 million in working capital within the sampled companies. The net result of 0.5 days was driven by companies holding higher average inventory balances but attempting to offset that cash impact by taking slightly more time to pay suppliers where possible.
The report revealed transport & distribution companies experienced the greatest deterioration in working capital performance, with all but one of the sampled companies having lengthened working capital cycles.
While 75% of the sample reported EBITDA growth, increased levels of activity and improved trading performance didn’t translate to better working capital outcomes.
Longer customer collection cycles and shorter supplier payment cycles drove the increase in working capital cycles. 88% of the sample reported a structural ‘funding gap’ in 2018 (meaning companies typically paid their suppliers on shorter terms than they collected from their customers). The structural funding gap widened for 75% of the sample in 2018.
While there was an overall increase in cash tied up in working capital, four of the nine sectors achieved an improvement in average metrics. The Construction & Engineering and Telecommunications sectors performed the best, each achieving more than a four day reduction in working capital cycles, on average.
For Construction & Engineering a shortening of debtor and inventory cycles drove a stronger working capital performance. The sector generally operates in an environment where suppliers are paid much faster than payments are received from customers under what are sometimes complex contracts. Closing this structural funding gap is going to become more challenging under proposed changes to the Security of Payments Act, meaning businesses in the sector need to focus on improving their contracting billing and collections processes. The results show that on average the gap closed by 0.4 days. Downer EDI was one of the biggest improvers managing to materially reduce the average time to collect cash, closing the funding gap by 15 days.
The improvement in the telecommunications sector was driven by a mix of faster customer collections, lower inventory and longer supplier payment cycles. Telstra and Amaysim were the best performers in telecommunications, with their working capital improvements representing a net cash benefit of $919.6 million and $14.6 million respectively.
McGrathNicol Advisory Partner Jason Ireland said, “The Construction & Engineering sector benefited from stronger market conditions with 81% of companies in the sample growing both revenue and EBITDA. The majority of companies in the sample were also able to improve their working capital management unlocking more than $670 million dollars in cash.”
“However, the solid performance in Construction & Engineering went against the grain with the majority of other sectors seeing an increase in cash tied up in working capital. That’s cash Australian businesses could be using to fund their growth and deliver more value to shareholders. The figures show that even a relatively small deterioration in metrics can represent a significant lost opportunity.”
The Food and Beverage sector had the longest working capital cycle of any of the industries covered, mainly due to its large inventory holdings. Two thirds of companies in the Food and Beverage sector sample held onto inventory longer driving a 2.6 day increase in Days Working Capital across the sector
“Some companies are performing exceptionally well in determining their optimal working capital holdings then setting a course to achieve them. The findings confirm that management teams need to keep a balanced and concerted focus on all three working capital levers, inventory, debtors and creditors, in order to maximise their cash flow. The competitive advantage to be gained is clear when you consider the length of working capital cycles can vary by more than 100 days between best and worst performers within a sector,” Mr Ireland added.
To read the full report visit www.mcgrathnicol.com.
 

NTP Forklifts unveils 15,000sqm NSW facility

NTP Forklifts Australia has officially launched its new facility in Huntingwood, New South Wales.
Customers, suppliers and equipment manufacturers attended the opening of the 14,590sqm site, which is almost double the size of NTP’s previous facility in Granville.
The site features a 7,900sqm under-cover warehouse, a 1,000m parts warehouse, eight-metre high racking and an indoor wash bay.
“A lot of hard work by our staff was required to ensure our new facility would cater to all out customers,” said Greg Sharp, General Manager – Sydney Branch, NTP Forklifts Australia. “The Open Day was a great opportunity for customers, suppliers and our equipment manufacturers to tour our new facility, view our extensive range of equipment and engage in product demonstrations.”
Damien Garvey, Managing Director, NTP Forklifts Australia, added: “We are very proud to officially open our new Sydney premise and to present our extensive range of world-leading material handling equipment to a larger audience.
“This investment demonstrates our company’s future commitment to our staff, the New South Wales market and more importantly to our growing customer base.”

Swire Cold Storage awarded for supply-chain excellence

7-Eleven has recognised Swire Cold Storage is in its 2016 Supply Chain Excellence Awards, held in Melbourne in May 2017.
Each year, 7-Eleven recognises its key supply chain and merchandise partners and other suppliers and recognises outstanding partners with Supplier Awards.
At this year’s event, Swire Cold Storage received the honour based on performance criteria for supplier support and collaboration in achieving logistics efficiencies to support key initiatives and/or marketing strategies, service levels and safety performance.
Stephanie Cutinelli, General Manager – Transport and Convenience, Swire Cold Storage, said the award was recognition for Swire Cold Storage’s achievements in availability, simplicity and collaboration, and an efficient and effective supply chain.
“Specifically, we were commended for our service levels during the sandwich promotion last year during which there were significant peaks in volumes to stores.”
 

Found in translation – Exporting the Australian logistics mindset

This article first appeared in the February/March 2017 issue of Logistics & Materials Handling.
Three Australian logistics veterans have been tasked with rethinking Japan’s supply chain strategy, mixing the traditional and the modern to achieve unprecedented growth.
Even when you’re the biggest name in your market, that’s no reason to rest on your laurels. While Coca-Cola is the market leader for beverages in Japan, there are five other major players vying for a share of the action. Market pricing has been declining steadily over the past 16 years, putting a squeeze on margins and forcing beverage suppliers to stay vigilant to remain relevant. According to Bruce Herbert, Chief Supply Chain Officer at Coca-Cola East Japan (CCEJ), consolidation and diversification have been key strategies for many in the industry. “Coke in Japan is not just carbonated drinks, over half our volume is sugar-free teas, coffee and water,” he says. “A very strong innovation and new product pipeline has to be filled every year from our own plants and a network of contract packers.”
Covering over half of Japan and serving a population of 60 million, Coca-Cola distributor CCEJ is in a constant state of metamorphosis, always looking for ways to increase efficiency and cut costs. The US$6 billion ($8.2 billion) bottler was originally formed in 2013 through the merging of four smaller bottlers and has since absorbed a fifth one. It will soon merge with Japan’s next biggest beverage distributor – Coca-Cola West – and cover some 90 per cent of the market. Set to take place in 2017, the merger will increase the company’s value to US$10 billion ($13.7 billion) and increase its assets from eight factories to 17, 250 sales warehouses from 150, and 800,000 vending machines from 400,000 and 3,500 daily semi-trailer loads shifted per day from 2,000.
CCEJ recruited supply chain experts from around the world, including Bruce, to come to Japan and lend their expertise and, as a result, has been hugely successful in cutting costs and increasing profit. Bruce is joined by two other Australian supply chain experts, cherry-picked for their knowledge of the beverage and retail industries with decades of experience working with supply chains in Australia, Asia and Africa – Edward Walters, now Senior Executive Officer, Planning, Logistics & Distribution at CCEJ; and Distribution Transformation Manager, David Sim.
The Japanese market has presented a challenge, thanks to the country’s complex traditional business etiquette, though Bruce found its workforce’s strong work ethic and customer service to be worthy of admiration. “In Australia we take for granted that change and improvement are part of working life,” he says. “Especially at [Coca-Cola’s Australian-based bottler, ed.] Amatil, where supply chain transformation has been progressing since the mid-90s and many world-leading initiatives were started. Coming to a business which was effectively five small Japanese businesses just three years ago, I have realised just how far ahead some of those things we were doing in Australia were.
“In one way we have a big advantage of having lived in what will be ‘the future state’ for the supply chain here. Of course, there are many things to be learnt from the Japan model as well, but knowing that changes needed here have worked elsewhere gives us a big head start.
“I respect the Japanese working style. My Japanese colleagues are extremely hardworking and focused on detail, in a way that most Australians would find very challenging. Workers regularly work very late in the office, never hesitate to stay back or work over weekends and don’t give up on a problem. So much so that Government and companies are focused on encouraging people to relax more and take more time off, take more holidays etc. – this is definitely not a problem in Australia.”
The Japanese approach to life in general, including even how seemingly ‘logical’ issues are approached is quite different to the West, according to Bruce. “Not better or worse, but different,” he adds. “Whilst basic human reactions and motivations are the same, the way they express themselves is different. Relationships are much more important and sensitive here, as is loyalty to the business or community. All of these things translate into business culture and relationships.”
In some aspects, Australia’s logistics sector could benefit from observing the Japanese workplace, says Bruce. In particular, he believes that the value placed on quality and customer service in Japan would do wonders for Australian business. “Japan is surely the most quality-focused country on earth, and customer service is seen as an extension of quality,” he says. “Near enough is not good enough, perfection is sought after and worked towards at every level. It is deeply ingrained into everyday life – I don’t think we would ever have to ‘train’ for customer service as it is intrinsically understood. This often leads to failures by multi-national companies who don’t understand what Japanese consumers and customers expect. Likewise: quality. Australian businesses may be more ‘lean’ but often do so at the cost of customer service and quality.”
CCEJ looked at successful logistics strategies in use around the developed world when searching for ideas to rejuvenate their own approach and, according to Bruce, flexibility and a laid-back Australian style have been instrumental in ‘cracking the code’ for the company’s logistics strategy. “I think openness to different ideas has been key,” he shares.
“I experienced some changes put in place here earlier by some of our colleagues from the US, but many of them did not work as they were simply ‘cut and pasted’ ideas from the US. Aussies may be proud of their country, but they usually don’t expect that they have all the answers.”
Edward likens the challenge of solving CCEJ’s issues to the task of unravelling a badly tangled set of Christmas lights – difficult to unravel without breaking a light and stopping the business. “We discovered that, over many years on the quest to providing high service and quality, network efficiency at CCEJ had been eroded severely,” Bruce adds. “This had happened steadily and high transport, warehouse and other costs had been accepted as ‘normal’. As there was little benchmarking of supply chain costs outside Japan, and since the costs were not easily ‘visible’, they had not been tackled by investment or progressive change either and a gap grew between global practice and Japan Coca-Cola practice.”
In order to ‘crack the code’, Bruce shares that two major changes needed to be introduced. “First was a painful implementation of a new SAP ERP system which replaced multiple legacy systems and gave central visibility to live data,” he says. “Second was more instinctive – we cut inventory by about 20 per cent – a very brave move in Japan – and thereby decongested the network, eliminating double handling, waiting times, extra transport and product write-off.”
A third big change, which is currently in progress, involves moving inventory upstream, closing small sales centres and cross-docking others, together with possible investment in new warehouses at plants and picking automation. CCEJ is already seeing positive results from the change, with over 25 billion JPY ($290 million) supply chain savings both from manufacturing and logistics/distribution improvement since its inception in 2013.“This year, heavy transport cost is down 20 per cent and write-offs are down 50 per cent,” Bruce shares. “So we are already almost halfway to the long-term cost reduction goal after just one year.” The 2017 merger of Coca-Cola East Japan and Coca-Cola West is expected to create opportunities for further savings.
Bruce attributes his team’s success to a combination of factors, from slow and cautious implementation of changes to constant re-evaluation of direction. “We didn’t approach this as a ‘project’,” he says. “We tackled this as a management challenge – to implement changes, monitor them closely and adjust as we went along. In that way the original ‘plans’ were gradually changed – with successes amplified and failures dropped quickly. Good real-time data access and manipulation was crucial here.
“Thanks to methodical and detailed execution of strategies by our team here, the changes we made to inventory levels, planning processes, truck routing, pallet configurations etc. were executed without impacting customers or quality. This meant that the costs we saved were not lost in upset customers or lost sales, but could flow directly to the bottom line.
“We discovered a clear and costly link between inventory levels and transport costs, which had never been uncovered before. I’d like to say we found this by a big analytical study, but actually it only became clear by trial and error – which is why an army of experts and analysts had failed to find it before.”
CCEJ now encourages its employees to make suggestions for improvement of processes, and implements over 100,000 small innovation ideas per year on ways to improve quality, safety, service and cost.
The notoriously rigid traditional Japanese business culture presented a particular challenge for the CCEJ supply chain team, Bruce explains, though they were still able to achieve “massive change and results” thanks to their measured approach. “Resistance to change remains a constant both within the business and with customers and some suppliers,” he says.
“This is largely due to the extremely high standards set by customers and consumers and fear of making big mistakes. We were able to overcome this by making many small progressive changes, and avoiding – for the most part – big bang or sudden, unplanned change.”
Bruce believes that if applied in Australia, his team’s strategy could result in similarly positive outcomes. “The approach we have taken here has been based on numerics and data combined with good management routines, not just ‘hardware’,” he shares. “It can therefore be applied anywhere, to any problems.”
The CCEJ supply chain team have developed their own version of the revered – though oft-misunderstood – ‘Kaizen’ (kai: change, zen: good) business philosophy whereby big changes can be achieved through small, continuous improvements in all aspects of business. They are confident this method could be applied with success in any business environment. Bruce adds, “All I know is that after 35 years in this game there has never been a change as big and fast as what this team has achieved here in Japan this year.”

VTA releases full speaker list for 2017 conference

With just over a week until the Victorian Transport Association’s (VTA) annual State Conference in Lorne, the peak freight industry representative body has revealed the full list of speakers that will address delegates over the two-day event, June 4–6.
New keynote speakers include Simon Thomas, Director – Programme Delivery, Australian Rail Track Corporation (ARTC); Jonathan Dexter, Australia National Sales Manager, Viva Energy; Max Kruse, Chief Operating Officer, DP World Australia, Ian Matthews, Regional Operations Manager, WorkSafe Victoria; and CMV-Volvo Product Manager Thiago Leal.
These addresses will be supplemented by panel presentations and discussions from a mix of equipment manufacturers and suppliers, insurance and finance providers, human resources, and superannuation and legal experts.
“Productivity impediments remain the number-one barrier to transport operators being more successful, which is why we’ve built the program around a group of expert presenters and topics that can help delegates improve their operation’s KPIs across the board,” said Peter Anderson, CEO, VTA.
“The program reveals an interesting mix of keynote addresses and presentations from politicians, regulators and industry leaders, supported by several panellists that will share insights and learnings on key productivity drivers of technology, safety, people, customers and equipment during a number of interactive discussions.

Adelaide manufacturer wants Holden to stop importing and use its wheels

Adelaide wheel manufacturer ROH has called on Holden to stop importing some of its wheels from North America and to start using ROH’s locally made products.

As News.com.au reports, ROH says that it will soon install new technology to secure a contract with Toyota and will therefore be able meet Holden’s needs.

Holden imports wheels for its Commodore SSV Redline from North America. The decision to do so was made due to an increase in demand and, at the time of the decision Holden said ROH couldn’t supply the required wheel type.

ROH general manager Bill Davidson said that his company has changed since it last supplied to Holden in 2005 and he would like to have the opportunity to speak to Holden again.

Davidson said that the ROH will be installing new "flow forming" technology by next August and that the company has “had the wheel rims stress-tested by the CSIRO and they are a similar strength and weight as a forged wheel rim."

"Supply of Australian-made wheels to Holden would support a whole bunch of suppliers to the wheel industry in Australia,” he said.

"If car companies are getting taxpayer assistant it would be good to see more local content in cars."

 

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