And more importantly, besides the fact that quarterly reporting pretty much became mandatory in North America with the Securities Exchange Act of 1934, why did we ever?

For those of you that are lost, I’m referring to the fact that when you focus on a quarterly number, you often screw up the year, or, as demonstrated in some recent research by the REL Consultancy, a Hackett Group Company, the next year. As summarized in this recent Industry Week article on how It’s All in the Game When It Comes to Year-End Cash Management (among others), attempts to game the system and post good fourth quarter results by delaying payment, manipulating receivables, or offering deep customer discounts just to book last-minute sales always lead to first quarter losses in the subsequent year that exceed the gains in the fourth quarter.

Specifically, the research indicated that while working-capital performance improved by 10% in 2011 Q4, it dropped by 11% in 2012 Q1. In other words, the loss exceeded the gain by 1%!

We’ve become way too focussed on the short term and the year end. What’s important is the long term. Given the choice between a 5% gain today and a 15% gain in a year and a 10% gain today with a guaranteed loss of 5% in a year, a company should always choose the first option as it gives the greatest combined gain over two years. But today, most public companies will choose the 10% gain today, turn a blind eye to the impending loss, and, if pressured, mumble that “we’ll figure it out later”. The problem is, if the gain comes at the expense of a deep discount on maintenance and labour rates are skyrocketing, at the expense of putting off needed upgrades to energy hogging equipment when energy costs are skyrocketing or delaying payables when interest costs are mounting, there’s no way to figure it out later. Cost are going to go up and losses are going to mount.

Not only do companies have to start managing working capital on a year-round basis, as the article notes, but they have to start managing growth on a long-term basis and re-instate the five and ten year plans as one to two year plans just aren’t enough. If this means they have to f*ck Wall Street and go private, so be it. Until we abandon this success today at all costs mindset, we’re never going to take supply chains to the next level.