ATLANTA, May 31, 2006 - The 2,000 largest companies in the US and Europe have more than $1 trillion in cash unnecessarily tied up in working capital, in the form of invoices paid late by customers, suppliers paid too early, and inventory moving too slowly through the supply chain, according to Book of NumbersTM research findings from The Hackett Group, a strategic advisory firm and an Answerthink company (NASDAQ: ANSR)
By implementing best practices and achieving working capital levels seen by leaders in this study, companies would also reduce annual operating costs by up to $42 billion, Hackett found. Taken together, these working capital improvements could enable companies to boost net profits by up to 11%. Hackett´s research also shows a strong correlation between companies that consistently grow shareholder value and those that excel at working capital management.
Hackett-REL´s "Book of Numbers Research Series: 2005 Performance Metrics and Best Practices in Total Working Capital" reveals a large distribution of performance across regions, countries, and industry sectors. The research shows that European companies are now catching up to the US in terms of overall total working capital performance, with significantly higher levels of improvement over the past few years.
Working capital is the capital invested in operating processes to buy, make, and sell in order to generate profit. The operating working capital comprises trade receivables and inventories less payables. Typically, a reduction in operating capital can be achieved through improved collection, dispute and credit management, inventory and supply chain optimization, supplier consolidation, and more efficient buying.
The research highlights a range of best practices that leading companies use to enhance their working capital performance. Companies generate significant working capital improvements by better understanding their customers and focusing proactive efforts on those that have the greatest material impact on working capital performance. Customer, supplier and inventory segmentation analysis is a key strategy identified by the Hackett research. Hackett also sees next-generation opportunities for companies willing to take an extended view of supply chain operations, collaborating with customers, channel partners and vendors to enable better demand visibility, inventory optimization, and other operational improvements.
"Working capital optimization is inherently complex, as it touches many business processes and people within an organization. It´s a balancing act, and companies must manage it carefully to ensure that they keep working capital low and also have the critical resources they need to do things like fund product development, produce and deliver their products, and provide high levels of customer service. But the ability to impact the bottom line through working capital optimization is tremendous," said Hackett-REL President Stephen Payne.
According to Total Working Capital Executive Advisory Program Leader Katie Downs, "In today´s highly competitive business environment, it´s hard to imagine a company that wouldn´t be happy to improve earnings significantly without driving an increase in revenue or cutting operating costs to the bone. Poor working capital performance is often a symptom of breakdowns in broader business processes that can impact the ability to generate sales and profits. Most believe this is a finance issue. Yet the root causes of tied up capital tend to be buried within operational processes outside the view of finance."
To see the full version of this research, please click on the following link for the Hackett Research Insight Center: www.thehackettgroup.com/insights/twc0506
More information on The Hackett Group is available: by phone at (770) 225-7300; by e-mail at info[at]thehackettgroup.com; or on the Web at www.thehackettgroup.com.
About The Hackett Group
The Hackett Group (www.TheHackettGroup.com), a strategic advisory firm and an Answerthink company, is a world leader in best practice research, benchmarking and business transformation services that empirically define and enable world-class enterprise performance.
Through the acquisition of REL Consultancy Group, a global leader in generating cash improvement from working capital, we offer Hackett-REL Total Working Capital services to liberate cash flow from operations through improved working capital, reduced costs and increased service quality. Hackett-REL has helped clients in more than 60 countries free up over $25 billion through working capital improvements in the last 10 years alone.
Only The Hackett Group empirically defines world-class performance in sales, general and administrative (SG&A) and supply chain activities with analysis gained through 3,500 benchmark studies over 14 years at 2,000 of the world´s leading companies. Our clients comprise 97 percent of the Dow Jones Industrials, 77 percent of the Fortune 100 and 90 percent of the Dow Jones Global Titans Index.
Media Contact: Gary Baker, Communications Director, The Hackett Group
(610) 917-796-2391 or gbaker[at]thehackettgroup.com