RR BB CFO Tradefinance Capital
RR BB CFO Tradefinance Capital
RR BB CFO Tradefinance Capital
Report Highlights
p2 p4 p7 p9
2
All companies strive to increase their working capital, either by
Most companies do reducing the need for it or by increasing its flow from existing
operations. Best-in-Class companies excel in this regard as
not even consider the shown in Figure 1, which compares the Cash-to-Cash cycle for
untapped the Best-in-Class to that of their competition (see sidebar for the
performance metrics that define “Best-in-Class”).
opportunity in
leveraging their Figure 1: Best-in-Class Working Capital Advantage vs. All
Others
freight spend to
70
increase the flow of 59
Cash‐to‐Cash Cycle in Days
60 Best‐in‐Class
working capital. All Others
50
40
30
30
20
10
0
Average Cash Conversion Cycle (Days)
Source: Aberdeen Group, January 2016
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The Importance of Working Capital in the Supply Chain
3
Leveraging Your Supply Chain to Increase Working Capital
The key here is that some banks who offer Freight Audit and Pay
(FAP) services may also provide trade financing in addition to
their audit and payment services, which can increase working
capital for both the shipper and the carrier, while also improving
the shipper/carrier relationship. Freight spend itself commonly
ranges from 3%–12% of revenue, making it a large untapped
resource for working capital improvement.
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The Importance of Working Capital in the Supply Chain
4
As Table 1 shows, the Best-in-Class outsource 2.7 times the
percentage of invoices for their non-parcel shipments compared
to All Others and 1.6 times the percentage of invoices for their
Many shippers saw their costs
parcel shipments vs. All Others. As a result, their average cost to
increase over the last year
process a freight invoice is 31% less than All Others ($9.81 for
and some obvious causal
Best-in-Class vs. $14.15 for All Others).
effects such as port costs and
resulting premiums can be The real surprise is the high percentage of All Others (80% of the
readily identified, but what is companies — see sidebar on Best-in-Class definition) who
not so obvious are the choose not to outsource their freight audit. Of that percentage,
structural changes that are even fewer use a third party for the settlement process, which is
occurring as a result of B2B where the trade finance solution option can solve so many
and B2C Convergence. problems for the shipper and the carrier.
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The Importance of Working Capital in the Supply Chain
5
carriers over payment issues and allows them to focus on
the business.
Automation streamlines the processing and eliminates
the costs associated with billing errors, late payments,
collections, and reconciliation.
Impact on Working Capital
Many shippers saw their costs increase over the last year. Some
of this increase can be readily identified as stemming from
event-driven incidents such as port slowdowns and resulting
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The Importance of Working Capital in the Supply Chain
6
premiums. What are more difficult to pin down are costs
stemming from the structural changes associated with B2B and
B2C Convergence, a trend we have documented in our research
report, B2B and B2C Convergence: A Call to Action (July 2014).
The shifts in logistics flows this convergence has brought about
(detailed in Table 2) can be summarized as follows:
Shipping through a Free Port, Freeport Zone, or FTZ for customs 43%
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The Importance of Working Capital in the Supply Chain
7
The net effect of these changes is an increase in the percentage
of parcel shipments for all shippers at the manufacturer,
wholesaler, and even retail level, since the latter must provide
“pick up in store service.” The issue here is that parcel shipping is
3–5 times greater than the cost of shipping in some form of bulk
freight (carton, box, pallet, etc.). In other words, to support omni-
channel workflows, freight costs are increasing for nearly all
shippers. In most cases, the shippers (manufacturers, wholesale
distributors and “brick and mortar” retailers) have to absorb the
freight cost to compete with online retailers, or they risk losing
the order.
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The Importance of Working Capital in the Supply Chain
8
Figure 2: Cost-to-Serve Modeling Capabilities
Across the board, the picture here is not great. In fact, fewer than
50% of Best-in-Class companies have adopted any of the
necessary capabilities to truly capture cost-to-serve, and the
competition (80% of companies surveyed) is in the twenties and
teens in terms of adoption rates. If you consider the most critical
capability, capturing the true cost-to-serve in order to determine
profitability, only 22% of the Best-in-Class possess it, and only
15% of All Others do. The bottom line is that all companies are
struggling to get their hands around the new consumer
workflows.
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The Importance of Working Capital in the Supply Chain
9
have already taken over control of their freight spend because
they have the advantage of scale and are able to dictate policy to
their suppliers. The majority of companies cannot take that
approach, and, as Figure 2 shows, are consequently struggling to
understand and allocate costs in order to make profitable
decisions.
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The Importance of Working Capital in the Supply Chain
10
freight spend, most companies are only thinking of the auditing
as a means to control costs.
90% 85%
Best‐in‐Class
Percentage ofPercentage of Respondents n=167
80%
71%
70% All Others
59%
60% 55%
Respondents n=167
opportunity exists to 0%
Need better visibility Seek easier accruals and
Doing it internally takes Need better visibility and Seek easier accruals
significantly increase up too much staff time control of freight audit
and control of freight spend analysis
and spend analysis
and resources and payment activities
working capital. audit and payment
activities
Source: Aberdeen Group, January 2016
There is some desire for better visibility into audit and payment
activities, and some emphasis on creating an easier accrual
process, but companies are simply not yet looking to leverage
trade financing with an eye to improving working capital.
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The Importance of Working Capital in the Supply Chain
11
Key Takeaways
A trade finance solution can also tie events and costs together,
offering near real time visibility into those costs. This, too, is a
huge issue for those facing the impact of increased B2C
activities.
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The Importance of Working Capital in the Supply Chain
12
Companies should act now to increase their company’s working
capital by leveraging freight spend and partnering with a freight
audit and payment provider with trade finance capability.
For more information on this or other research topics, please visit www.aberdeen.com.
Related Research
Supply Chain Cost-to-serve Readiness for Operational Readiness for B2B and B2C
Convergence; February 2015 Convergence: Are You Prepared?; December 2014
Best-in-Class Practices: Maximizing Your Inventory B2B and B2C Convergence: A Call to Action; July
Performance; January 2015 2014
Author: Bryan Ball, Vice President and Group Director, Supply Chain and Global Supply Management
Practices (bryan.ball@aberdeen.com)
This document is the result of primary research performed by Aberdeen Group and represents the best analysis
available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted
by Aberdeen Group and may not be reproduced, distributed, archived, or transmitted in any form or by any means
without prior written consent by Aberdeen Group.
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