The AMR Research 2008 Supply Chain Top 25 highlights those companies that demonstrate the most visible leadership in applying demand-driven principles to their supply chain operations. Along with the Top 25 report, we’ve published The Next 25, which looks at companies 26-50. Our plan is to continue to publish different cuts of the full list, offering various lenses by which to examine companies and best practices. Here we examine the cash-to-cash performance among the Top 25 companies. Cash-to-cash: It’s all about tradeoffs Cash-to-cash was one of the metrics recommended for use in the rankings, possibly replacing the inventory turns we currently use. Cash-to-cash provides a good view into supply chain throughput, or how quickly raw materials can get through supply chain operations and be converted into cash. We investigated the possibility of using it and found a few issues, the primary one being that the retailers have a huge advantage on this metric because they have almost no receivables, which is one of the components of cash-to-cash. While we can’t use cash-to-cash for the overall ranking, it’s still a useful lens with which to examine performance, keeping in mind that supply chain performance is multi-faceted. Table 1 provides a look at the cash-to-cash performance of the Top 25 companies. It’s tempting to think of cash-to-cash as binary in its meaning, with high being bad and low being good. The reality is more nuanced. The bottom line: it’s all about tradeoffs and balance. 
Finding the right balance Cash-to-cash is made up of the component metrics of accounts receivable (how long it takes customers to pay) plus inventory minus accounts payable (how long it takes to pay suppliers). A low overall number can be achieved in various ways, some desirable and others not so desirable. It’s a little like good and bad cholesterol, lower is not always better. For example, inventory that’s too low may hurt a company’s perfect order to its customers. Or a company may be paying a hidden price for long supplier payment terms by receiving less-than-stellar supplier on-time and quality performance. And customer payment terms that are too short might harm sales. What’s most important is balance: too low or too high on any one metric and you’re drifting into potential problem territory. Contrasting case studies Take the case of Apple, No. 1 on the Top 25. At minus 45 days, Apple’s cash-to-cash cycle time is the envy of many CFOs. Its low inventory is one contributor to the low overall number and as long as it’s not leaving revenue on the table, that’s a good thing. But another contributor is its 114-day accounts payable time, almost double its accounts receivable and close to double the median of the group. Is that desirable, or is it a case of “too much of a good thing” that is being paid for elsewhere? Contrast that with IBM (No. 5): very low inventories compared to others in the group, but its accounts receivable is double its accounts payable: it’s paying its suppliers much faster than its customers are paying it. Finding the right size Many considerations and tradeoffs, of course, go into the decisions made behind these numbers; for example, what constitutes an optimal level of inventory is dependent on each company’s specific business strategy and the industry(ies) it operates in. But overall, the healthiest cash-to-cash performance is the one that’s as balanced as possible: right-sized inventories (not bloated but also not so lean that customers suffer), and a reasonable level of accounts payable that is well balanced with accounts receivable. 
Figure 1 uses the data from Table 1 and plots the Top 25 companies based on these dimensions: inventory levels relative to the median for this group on the y axis, and relative balance between AP and AR on the x axis. In the middle of the graph we see four companies: HP, JohnsonControls, Nokia, and Samsung. They all have inventory levels that are close to median, and they have relative balance between accounts payable and accounts receivable, resulting in total cash-to-cash cycle times that are close to the median of the group. SonyEricsson and WaltDisney are in even more enviable positions: each has low inventories and strong balance between AP and AR, resulting in great overall cash-to-cash cycles, as low as 4.7 days in Disney’s case. It’s all about balance. What do you think? We welcome your feedback—dhofman@amrresearch.com.
| 
;)
;)