Five ways data analytics helps cash flow management during a downturn

4 mins to read

With the global economy in trouble, many companies are unable to maintain desired profit margins and generate the cash flow required to fund normal operations. For distribution businesses, use your data to prioritize who's buying and who's selling, and then determine what specific products customers are buying and whether you can supply those products. Data analytics provides strong visibility into the sources and uses of your cash and will help determine how both ends of your supply chain are holding up.

Using a data analytics solution, you can go deep into transactions and get a clear understanding of your cash flow situation during this unpredictable time.

1: Lower variable expenses 

Rather than focusing on your fixed costs, one way to immediately reduce your cash outflow is to lower your variable costs. Your variable costs are those that fluctuate based on business activity. Some typical variable costs include wages, materials, travel, and utilities.

In many companies, cost reduction has already started. Delve into your data and work with your people to restructure the working week to conserve spending, stop business travel, determine what office provisions can be cancelled and put a freeze on new hires. Review annual leave entitlements and perhaps encourage employees with a backlog to take their vacations now.

2: Optimize inventory

One of the best ways to optimize cash flow during difficult times is to manage inventory effectively. With data analytics, you can review product categories, suppliers, and SKUs and from a place of understanding and full visibility, you can act.

The companies selling products that are in high demand, such as disinfectants and paper products will need to find ways to secure additional stock if your regular suppliers are running at capacity. If you are unable to source stock for orders as suppliers are closed, be proactive with customers by offering substitutes or perhaps work with them to delay the order.

In contrast, other companies who are experiencing little or no demand for products should consider ways to lower their inventory expenses to decrease cash outflow and only stock products that are selling.

3: Take control of receivables   

Many companies are lax with receivables, especially if interest rates are low and business is good. But, as managing cash flow is now essential, it’s crucial to re-examine how you manage receivables. You may already have customers asking if they can delay their payments, so now is the time to improve your collection process.

First, ensure you are issuing accurate invoices promptly. Inaccuracies can lead to costly delays in receiving payment. Then run a report and check who typically pays after the 90 day term and contact them. Next, identify any customers who might be changing their payment practices. Consider offering dynamic discounting solutions to customers who can pay quickly. With this method, you are essentially paying customers to provide you with short-term financing. But weigh the benefit against the cost as it might be substantial.

4: Manage backorders: match open sales orders with open purchase orders

A cash flow management plan should also re-examine what backorders you have. A review of backorders will tell you who is buying and what they are buying so you can manage cashflow from an operational standpoint. To look at both ends of your supply chain you can look at the backorders you have, the open orders you have and then determine whether they match up.

An issue to look out for is where you have an open sales order but no accompanying open purchase order. The reason they don't match might be because the product hasn't be ordered yet, or in the current environment, it might be because there is no product as the supplier hasn't shipped or is shut down. You can quickly identify this in your data and find the vendors who are supplying and those who are not. The review of open sales orders to open purchase orders will allow your team to prioritize available shipping product, or find substitutes to fill backorders.

5.  Look after customers who need your product

The long-term success of a company largely depends on how well you know existing customers, and how well you can react to fluctuating customer needs. The big value add of data analytics is being able to identify the sectors and specific customers who are buying from you at the moment. It's likely to be healthcare, government, mining and construction clients. You need to be able to communicate with your active customers and advise whether you can get stock and service their needs. Your data will also show the customers who are unlikely to buy from you at the moment, and so you can prioritize your day on who needs your products at this time.

Phocas customer case study

Since the coronavirus outbreak in January, Bunzl Safety has experienced unprecedented demand for its personal protective equipment (PPE) products. Sales into the mining sector make up 40% of Bunzl Safety’s Australian revenue. It also has customers across the construction, manufacturing and government sectors.

“Phocas has become super critical for our business and right now given the challenges to both supply from China, and demand for protective wear in the local market, it is invaluable,” said Fadia Chidiac, Finance Director at Bunzl Safety.

“Our business is heavily reliant on imports from China and it is crucial that we are ordering the right stock. At the moment the right stock is the PPE products that are in such high demand. We are lucky we were on the front foot when dramatic changes to the supply and demand for these products hit. We prepared a ‘Stock Availability Report’ in a Phocas dashboard that gives us visibility by stock keeping unit (SKU) showing us what we need, when we’ll need it and when it will be delivered,” said Fadia.

Customer fulfilment and satisfaction is its upmost concern and Bunzl doesn’t want to run out of stock.

"We want to be able to deliver on the contractual commitments we have to our loyal customers. To do that we need to manage stock very carefully. We need to order the right quantities, reserve stock for some, not take on new customers and in all cases and communicate factually. All of this depends on the availability, accuracy and usefulness of our data."

To learn more about how data analytics can help uncover who is buying and selling your products to manage your cash flow, download the ebook: Harness your business data: A step by step guide to data analytics.Access your copy

 

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