Page 106 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Unit 6: Managing Collection and Disbursement of Working Capital

“We knew that we were on the right track,” says Hain, “but the analysis provided the Notes
evidence and specificity that enabled us to refocus priorities across functions and gain
support for moving forward.” Together, REL and Cytec used the findings to create a
comprehensive business case for process changes that helped obtain buy-in from senior
leaders as well as operational teams.

Building a Cash Culture
Just a few months into the implementation process, Cytec executives observed their own
people “talking” the new concepts and applying them with discipline in their day-to-day
activities. “We were able to generate some quick wins, particularly in the payables and
receivables area,” says Hain. “Once people saw the successes, everyone wanted to be
involved.” Taylor credits the project with helping the company’s culture evolve. “This
project, for example, brought new exposure to the credit group and emphasized the
importance of its role in facilitating collections rather than just managing credit risk. In
the process, the group became,” he comments.
Guided by REL’s project management approach, which included frequent status reviews
and strong coordination between multinational teams, Cytec initiated a five-month effort
to implement the recommended process changes in its Specialty Chemicals business unit.
Implementation in its Engineered Materials unit began several months later. Cytec teams
participated actively in the process and in REL-led workshops, in effect becoming subject
matter experts who now apply the tools and best practices to accelerate and sustain the
benefits. “We were impressed with how REL explained the various concepts involved,
with its emphasis on knowledge transfer, and with its collaborative, team-oriented
approach,” says Taylor. “REL involved Cytec in every aspect of the effort, rather than
doing everything with Cytec personnel watching.”
REL also helped Cytec define the operational metrics and key performance indicators that
it is using to measure these processes going forward, using Cytec’s data warehouse to
produce reports that provide greater performance insight for the three key process areas
addressed. “If you change the way you look at things, then those things will change,”
Drillock notes. “We had all of this information before, but we weren’t able to get to it
efficiently and present it in the right way.”
Strong sponsorship and visible leadership support were instrumental in helping Cytec move
quickly to address its goal. Leaders communicated its progress and successes widely and
reorganized regular departmental and management meetings to focus on the metrics that
drive working capital. In addition, the company adapted its incentive compensation structure
at all levels to reward individuals for achieving company-wide working capital goals.
Surpassed Expectations, Sustainable Processes
Less than a year after it began incorporating REL’s recommendations, Cytec surpassed its
own working capital reduction goals through a combination of changes to its receivables,
inventory management and payables processes. This has occurred even as the company
continues to roll out the changes to other regions of the world. Within each process area,
Cytec made significant progress against its key metrics. For example, it realized reductions
in days inventory on hand, day’s sales outstanding, and days to pay. Most importantly, by
turning working capital into cash, Cytec remained focused on its future vision for growth
and was able to continue investing in the businesses that are critical to that vision, even
through a challenging economic environment. Simply put, the new management processes
give the company a competitive edge.
Question

Write down the short note on the above case.
Source: http://www.thehackettgroup.com

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