2 page essay on Supply Chain Management

Page 655 of textbook is below

Supply Chains and Working Capital Management What do Southwest Airlines, Apple, Qualcomm, and Family Dollar Stores have in common? Each led its industry in the CFO Magazine annual survey of working capital management, which covered the 1,000 largest U.S. publicly traded firms. Each company is rated on its “days of working capital,” which is the amount of net operating working capital required per dollar of daily sales: Days of working Receivables Inventory Payables capital DWC Average daily sales The median industry ratio varies significantly.

For example, the median in the computer and peripherals industry is 43, but the median in machinery is 82. The median airline holds zero days of working capital—its payables are as large as its combined receivables and inventory. But even within an industry, there is consider- able variation.

For example, Family Dollar has 16 days, but Nordstrom has 79. After being burned in the recent recession, many companies are holding record amounts of cash and have been accused by analysts of losing their focus on working capital. Not so with Thomson Reuters, a world leader in the news and data busi- nesses, however.

Thomson Reuters doesn’t have much inventory and is hampered in reducing its receivables because it operates in so many different countries, so instead it focused on standardizing its global accounts payable policies and improved its DSO (days sales outstanding) by 3 days. When asked about the cash that other companies could possibly wring out of their working capital, Thomson Reuters’s CFO Bob Daleo said, “Instead of giving it to their vendors and customers, why don’t they give it back to their shareholders?” Keep this in mind as you read this chapter.

Sources: See David Katz, “Easing the Squeeze: The 2011 Working Capital Scorecard,” CFO, July/August 2011, at the Web site www.cfo.com/article.cfm/14586631/c_2984340/?f=archives; for the rankings, see www.cfo.com/media/pdf/1107WCcharts.pdf