The world is going through an unprecedented time. While on one hand there is very perceptible fear of pandemic and its implications on health, there is a serious threat for getting the economy running unabated.
Many of the service industries (especially in IT and ITES) have been able to successfully navigate through this crisis by opting for remote working, work from home and so on. But this is just not feasible for high labour-intensive manufacturing industry. By very nature of the industry, the critical links for factory operations must be physically available in factory. Repeated lockdowns, high level of absenteeism has led to serious stress in the supply chain. Nervousness in demand side of the supply chain has made the matter worse.
To manage this Black Swan event, every manufacturing company would be inevitably forced to improve Cash flow management. It is only better cash flow management which will help business to come out of this crisis successfully. Cash is Oxygen for business.
Operations improvement has always been a key focus area for all the manufacturing organisations. Many of the operations improvement methodologies (likes of Lean, 6-Sigma…) focus on long term improvement and systems improvement. While they are important for continuity of the business in a long run, there is specific focus required at this moment to manage the cash.
Efficient processes and techniques that can extract extra cash, stop wasteful blockage of cash, and improve overall free cash flow of the enterprise is need of the hour.
This note tries to identify opportunities for releasing cash from the operations. While the note below would capture based on major cost drivers and operation levers applicable to manufacturing industry in general, there can be several opportunities for generating cash which would be specific to the company in focus.
The approach can be used both in Discrete and continuous manufacturing set up. However, due to less captive investment (there by less sunk cost), it would be relatively easy in discrete manufacturing set up.
Based on company specific strategies like extent of contract manufacturing, proximity of vendor base (which has an impact on the vendor base) and other factors, the priorities and approach may change.
Opportunities to generate would be as per the framework below:
Based on the process adopted, we can also arrive at few tactical actions which can be used for immediate cash generation, but can be reviewed for suitability in the long run (for ex- to have higher level of inventory to buffer against supplier inconsistency. This would help in sweating the asset continuously).
6 Step approach for generating cash from Supply chain
Conclusion:
Author of this article is a firm believer in Lean philosophy (and consequential minimal inventory). So, all recommendations mentioned in this article is only for Pandemic situation (when there is widespread supply chain disruption). It must be reviewed again and reversed for Lean Supply Chain.
Article by Adarsh Ramaswamy- Director, Sambuddha Management Consulting Pvt Ltd
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