Daily Archives: May 4, 2011

Listen to Bob and Avoid the Pitfalls of DPO

In a recent post over on the Supply Chain Management Review on smart working capital management, Bob points out the pitfalls of being tempted to be preoccupied with DPO (days payable outstanding). While the objective to match DPO up with DSO (days dals outstanding) is an admirable one, as this would balance the cash cycle time tied up in accounts receivable (waiting for your customers to pay you) with the cash cycle time contributed by supplier payment terms, this can be counter-productive. Since this usually results in requests for DPO extensions, it leaves untested the willingness of suppliers to entertain aggressive discount payment terms in exchange for early payment by the customer. From a balance sheet perspective, cost savings are always better than favorable DPO terms. Plus, if the organization can negotiate aggressive discount terms from its supplier(s), it can then offer its customers discount terms which could speed up their payments to the organization.

If the organization speeds up its payments to its suppliers and its customers speed up their payments to the organization, the net result is not only a shorter cash cycle time, but, as a side effect, the payment cycles will start to line up — allowing Procurement to accomplish its original goal of balancing DSO and DPO while saving money. That’s a win-win that all parties at the table can win with. So listen to Bob and avoid the pitfalls of DPO preoccupation.

Benefits of Coopetition

As this recent HBR post on how to “make your competition work for you”, even if you are afraid that your allies will steal your business, in today’s economy, a creative collaboration with your biggest competitor may be the best opportunity for revenue and survival.

They key to survival is coopetition — finding a way to partner with your competitor in such a way that both parties can substantially benefit from their shared resources without stealing customers or damaging credibility. While easier said than done, there are advantages.

  • Best of Both Creates New Markets
    If your strengths differ from your competitor’s strengths in a complementary way, a strategic combination of your solutions can win in a new segment of the market which neither of you could enter.
  • Economies of Scale
    If companies work togehter on business segments where they can minimize costs but not jeopardize unique attributes, they can share costs and economies of scale.
  • Opportunities for Upsell
    If a customer would benefit by having another product that you sell, or that your competitor sells, there will be an opportunity to upsell the customer at a later time.
  • Integration for Critical Mass
    If your competitor has a product your customer base also wants, it can help you get critical mass a lot faster.
  • Cross-Endorsement
    If your competitor isn’t directly competing with your market, then you can refer business to each other without losing customers.
  • Potential Investor
    Once credibility and value has been established, a strategic partnership can extend to a financial relationship. They could have the finances you need to launch more NPD. Or a merger could allow for economies of scale that will free up even more money for NPD and marketing.

And once both companies are working in sync, there will be the following benefit:

  • Supply Chain Streamlining
    You can partner on procurement, logistics, and NPD. And, if you’re lucky, you can conquer your space like Apple conquered theirs through a best-in-class supply chain.