Working Capital Management

Issue

This industrial minerals giant began to focus on working capital management in order to release cash, lower interest costs and improve earnings. Their method of gaging working capital efficiency was to measure the cash conversion cycle—or CCC days—and seek to influence this metric by establishing targets. By year end, the measure deteriorated from a target of 134 days to 172 days due to a combination of excess stock, delayed shipments and late collections. This prompted the acceleration of a formal project to improve efficiency and focus on the underlying drivers behind the measure. The Highland Group was engaged to conduct an analysis of the working capital position for this $950 million revenue mining company with $360 million in net working capital with mine and smelter operations in Canada.

Highland Approach

The Highland Group conducted a four-week desktop analysis and identified a working capital reduction opportunity of $45 million with additional cost reductions for a total P&L impact of $3 million from Accounts Payable, Accounts Receivable, Finished Goods Inventory and M&S.

Actions Taken

The Highland Group partnered with client teams to realign business processes, including:

• Streamlined AP invoicing and payables processes.
• Realized $24 million in one time AP benefit on $700 million of total annual spend.
• Reduced DSO by 12 days and attained a $34 million reduction in Accounts Receivable.
• Reduced DIO by 20 days and Total Inventory (Raw, WIP, F/G & MRO) by $38 million.
• Identified a $10.5 million working capital benefit in M&S including $4.4 million agreed reductions across sites.
• Realized a $6 million cost reduction from Procurement within 26 weeks from the end of the engagement.
• Developed clear indicators and targets to monitor the health of each process.