Supply Chain Visibility’s Role in Working Capital Reduction

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Published March 10, 2014

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Supply chains are becoming increasingly complex as they transform into large, multi-tiered global networks that affect lead-time variability. At the same time, the expansion of the number of channels, trading partners, and countries involved in managing goods across the enterprise affects organizations’ ability to hold down costs and reduce working capital tied up in the pipeline. Leading companies are turning to supply chain visibility applications to improve working capital performance. This is done by reducing inventory in the pipeline, improving logistics performance, and synchronizing physical and financial supply chains to control upstream and downstream logistics costs.

Visibility implies that a company is both aware and in control of specific information related to physical shipments and activities within the supply chain. A number of surveys show many companies track inbound and outbound transit statues, but top performers are more likely to track items such as supplier production status, advanced shipment notices (ASN), customs clearance events, as well as in-transit status events at the order line level for inbound shipments. They also track trucking events the same way but for outbound shipments.

Tracking supplier and logistics events at the line level during the physical movement of goods allows organizations to know the amount of inventory and where it is at all times, leading to better decisions and visibility into critical potentially disruptive delays.

Visibility tools can also help synchronize the physical and financial supply chain, which yields additional ways to reduce working capital. The physical and financial supply chain share a need for common information captured by supply chain visibility applications. Financial supply chain benefits can include:

  • Understanding total landed costs-not just product costs.
  • Opportunities to improve working capital position by optimizing inventory financing.
  • Optimizing payment options with suppliers, which improves supplier access to capital at lower rates and removes risk from the supply chain.

Global supply chains are very challenging to manage. Information is consumed by multiple departments, such as purchasing, inventory control, logistics, and finance, among others. This can be captured in a silo by offline processes and disparate applications, causing inefficiency and missed savings opportunities.   Visibility applications can be a key part of your strategy to reduce working capital in the supply chain, as well as improve logistics performance.

 

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