Supply chain strategy and logistics management are fundamentally linked to
the working capital requirement within the business. Long pipelines by definition
generate more inventory; order fill and invoice accuracy directly impact accounts
receivable and procurement policies also affect cash flow. Working capital requirements
can be dramatically reduced through time compression in the pipeline and
subsequently reduced order-to-cash cycle times.
Surprisingly few companies know the true length of the pipeline for the products
they sell. The ‘cash-to-cash’ cycle time (i.e. the elapsed time from procurement
of materials/components through to sale of the finished product) can be six
months or longer in many manufacturing industries. By focusing on eliminating
MEASURING LOGISTICS COSTS AND PERFORMANCE 65
non-value-adding time in the supply chain, dramatic reduction in working capital
can be achieved. So many companies have lived with low inventory turns for
so long that they assume that it is a feature of their industry and that nothing can
be done. They are also possibly not motivated to give working capital reduction