Daily Archives: September 18, 2009

They Killed Kenny … You B@st@rds!

Those of you familiar with South Park are aware that poor, cursed, Kenny McCormick died in nearly every episode during it’s first five seasons, before staying dead for a year, and then returning to die occasionally in seasons seven through thirteen. However, even though Kenny McCormick has died over 100 times, the number of deaths he has experienced is only a fraction of the number of companies killed last year because many companies wouldn’t pay on time!

A recent article over on SupplyManagement.com, which summarizes research from the Federation of Small Businesses ( FSB ), notes that approximately 4,000 small suppliers were forced out of business last year as a result of late payment. That’s just small suppliers tracked by the FSB! How many companies would still be in business if their customers simply maintained and adhered to fair payment schedules? How many? Think about it.

So, if you are extending your payment teems to sixty days, ninety days, and beyond … all I can say is … you killed Kenny … you b@st@rds!

Have No Fear … the CFO is Here!?

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Recently, no doubt due to the severe financial implications of a poorly performing supply chain or unexpected supply chain disruption in this economy, I’ve been noticing a lot more articles about supply chain finance. This is a good thing … and a bad thing. It’s a good thing in that it shines light upon the savings that are available as a result of good financial decisions and a bad thing in that some articles are still written by people who don’t have a clue and think that factoring, extending payment terms to suppliers, and / or shifting inventory to suppliers are good financial decisions. (They’re not … if you don’t put your supplier out of business, at the very least you will see higher prices. You’ll probably see a lot of animosity and an unwillingness to do anything beyond the contractual obligation and, when the next boom comes and the supplier can choose their customers again, you will ultimately get dumped for a better customer.)

However, one article in particular on supply chains and demand in CFO Magazine made a few points that should be highlighted.

While it might be convenient (and even more profitable from an optimization perspective) to model multiple supply chains around product groupings, geographies, or raw commodity requirements … you should only have one global supply chain from an administrative perspective.
   When Sara Lee integrated essentially two separate supply chains, administrative costs were reduced by 10%. Furthermore, one chain means one set of best-of-breed applications, which means one set of fees, and one (set of) centralized data store(s) … which saves you big come spend analysis time.

You need to be deliberate and rigorous when it comes to the financial security of your suppliers.
   You need to not only make sure that they have enough business to remain in the black, but that they are also getting paid on time. In this economy, working capital loans … assuming your supplier can get them, are very expensive and could tip them into the red and on the fast-track to bankruptcy. You also need to analyze key financial metrics like working capital, ROIC, and ROE to insure that they have stability.

If you’re not sensing demand, your forecast accuracy is likely to cost you significantly when the market picks up again.
  Even in stable markets, most traditional forecasting software is barely tolerable. In this market, its accuracy is likely unusable. But new demand sensing based forecasting software that updates daily can be quite reliable in the hands of a knowledgeable user with enough historical data at a granular level. Improvements of 20% to 40% are not unheard of, like the improvement of 25% at Unilever.

For more good advice, and a good introduction to supply chain finance, see the supply chain finance primer on the e-Sourcing Wiki.