Ceramic Industry

SPECIAL SECTION/BUSINESS GUIDE: Maneuverable Manufacturing

December 1, 2010
Companies can take advantage of the supply chain to increase working capital and visibility.



Cash is king, credit is scarce and stubborn clouds of uncertainty refuse to dissipate over the manufacturing industry. Maintaining a strong balance sheet and an eye on cash flow is a prerequisite for business leaders who seek to master the twin near-term imperatives of viability and maneuverability.

However, freeing up cash isn't just about cutting the fat and eliminating waste. Much has been written about ways in which manufacturers can act leaner and meaner in our current state of "new normalcy." Capital optimization is also about becoming more creative within the organization's existing resources and processes.

One area where value can be extracted is within the manufacturing supply chain, which has received increased scrutiny outside the four walls of a company. A new breed of solutions and processes involving working capital management-and new providers who deliver it-is seeing greater demand.

Manufacturers who are building the future of commercial payments are starting by getting the basics right. A strong foundation for payment optimization demands that paper-laden payment processes be upgraded with more agile, robust and scalable extensible markup language (XML)-based equivalents. Once equipped with a more streamlined corporate fuselage, electronically enabled companies and their supply chain partners can take advantage of far more dramatic working capital and cash flow efficiencies to their mutual benefit.

Implementing the Change

To drive these changes, companies are increasingly making investments in technology-based solutions across several areas. For example, technology can streamline and automate procure-to-pay and order-to-cash cycles in order to reduce legacy and burdensome paper-based systems, increase visibility, and improve efficiency. The net result is that buyers pay more wisely, suppliers see approved invoices faster, disputes are resolved better, and a greater certainty of payment exists.

Companies are also turning to business networks to fuel greater trading partner collaboration and more rapid valuation in their commerce initiatives that are focused on cash flow and payments. Such networks, which are no longer in their infancy, deliver better value and remove the burden of in-house "do-it-yourself" deployments. These networks also have the virtue of reducing multiple supplier efforts as well, since suppliers can go to one place to reach multiple customers.

Armed with a platform that turns invoices into payables/receivables more quickly than ever, trading partners are able to take advantage of new opportunities in working capital management to remove inefficiencies in payment flows. Payment discounting solutions, p-card solution integration, direct receivables financing, and third-party supply chain finance solutions all combine to provide a powerful toolset with which the modern corporation can optimize cash flow and operations. These options can also mitigate supply chain risk for suppliers who are facing the same economic challenges as their customers.

In today's economic climate, the appetite for major, multi-year, "behind the firewall" enterprise resource planning (ERP) software installs or upgrades has waned. Those seeking to increase technology investments are looking to alternative models such as software-as-a-service (SaaS) delivery for such solutions, as these solutions require no additional hardware, software or resources to manage.

SaaS solutions also fall into the greater category of cloud computing, an emerging IT delivery and consumption model. In addition, companies can pay for the technology they need as they need it, get started fast, and dial up or down the resources as required.

Beyond Technology

Building the future of commercial payment platforms involves more than just technology. Optimizing working capital within the supply chain involves a laser-guided focus on money flows and supplier relationships. The treasury function necessarily merges with the modern corporation's supply chain role to create new practices and approaches. Success in working capital management initiatives requires the recognition that values calculated on Excel worksheets can only be realized with the help of excellent supplier relationship practices. With the right solutions and processes in place, treasury and procurement can work together to get it right.

Consider manufacturers who are successfully using these tools today. One leading ceramic manufacturer is using a working capital management suite composed of e-invoicing and discount management software. The cloud-based delivery of these services allows the company to connect with a large web-based community of potential buyers and suppliers. This allows the company to discover new sources, connect in real time and collaborate with global trading partners.

In addition, the collaborative platform allows the ceramic manufacturer to reduce cycle times and visibility. The company saves money by optimizing its discounting possibilities and establishing preferred relationships with suppliers. This makes for an attractive short-term financing alternative to a bank or money market product.

Another example comes from a global gas and chemical manufacturer that was able to leverage a cloud-based platform to automate its procurement and invoicing processes. With a set of working capital management solutions, the company was able to increase payment discounts to 79% (up from less than 40%). It also partners with thousands of suppliers through a large-scale supplier network of 300,000 participants. Increased collaboration among its trading partners has allowed the manufacturer to run leaner and further leverage its working capital.

In an era where cash is king, dollars that are spent to protect and enhance the commercial payments "monarchy" are not only prudent-they are required. By investing now in technology-enabled solutions and processes that allow more effective management of working capital, manufacturers can overcome the challenges inherent in the "new normal" and position their organizations to compete strongly when economic conditions truly improve.

For additional information, contact Ariba, Inc. at 807 11th Ave., Sunnyvale, CA 94089; call (650) 390-1000; e-mail info@ariba.com; or visit www.ariba.com.

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