Page 105 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Working Capital Management

Notes to understand how their day-to-day activities affect working capital,” says Scott Hain, Vice
President, Global Supply Chain, Cytec Specialty Chemicals. “Anytime an individual makes
a decision, he or she should ask, ‘What impact will this have on working capital?’”

Charting the Course for Improvement
To help the company formulate a plan for accelerating working capital improvements
without negatively affecting customer service, Cytec sought assistance from REL. “Just
about anyone can take steps to address working capital, but we wanted to make sure our
results were sustainable,” notes Drillock. “We wanted a partner who understands this and
working capital is REL’s business.”
Partnering with the Cytec team, REL outlined a clear, detailed, practical path for analyzing
and addressing several key functional areas that affect working capital, with project teams
assigned to each area. Over a six-week period, team members examined a sample of
Cytec’s operating locations on two continents, conducted in-depth interviews with frontline
personnel and analyzed transaction-level activities to identify potential drivers of increased
working capital. A key component of REL’s analysis involved a nine-box segmentation
model, used to differentiate products, suppliers and customers according to key attributes.
“The nine-box segmentation model was crucial to the success of this project,” says Cytec
Specialty Chemicals Controller Duncan Taylor. “It’s a simple model, but it really changed
the focus for us by providing the quantitative basis for segmentation.”

Based on its analysis, REL estimated that Cytec could exceed its working capital
improvement goal by:
Standardizing collections processes across geographies and units, developing
differentiated credit and collection policies based on customer characteristics and
implementing an escalation process to avoid overdue receivables.
Updating inventory parameters and creating a tool for making intelligent trade-
offs between cost and service levels for different categories of products.
Negotiating improved payment terms with key suppliers and implementing a
payment clock to ensure bills were not paid before they were due.

Before the analysis, Cytec’s management expected that the main working capital benefits
would come from inventory reduction. In fact, the analysis showed that there were greater
near-term improvements available in payables and receivables. These quick wins improved
the overall cash flow of the project and help fund the longer-term inventory work stream.
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