How The Top Consumer Products Companies Could Save $35B

How The Top Consumer Products Companies Could Save $35B

According to research done by EY, the 20 leading consumer products companies still have up to $35 billion tied up unnecessarily in working capital, translating into 5% of their combined sales.

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By reviewing the working capital performance of the 4,000 largest companies by sales, including 1,000 companies each in the U.S. and Europe, EY has recently published a research report titled: “Taking stock of working capital” and highlighted the substantial potential offered for those that adopt proper working capital strategy.

Enhanced WC performance by consumer products companies

The EY report demonstrates that 2013 was a year of sharp improvements in WC performance for the consumer products industry. As captured in the chart below, all of the three selected segments within the consumer products industry–food and beverage (FB), household and personal care (HPC) and brewing–showed reductions in their C2C:

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However, despite the consumer products industry managing a substantial and continuing reduction in its level of C2C since 2007, a closer look reveals major differences in the degree and spread with which different companies in each segment have been able to deliver these increased efficiencies:

Divergent performance within Consumer Products

The EY report shows that WC performance has improved thanks to the development of sales in fast-growing countries, which now account for half of the total.

$35 billion savings opportunity

The EY report notes that the 20 leading consumer products companies have between $19 billion and $35 billion of cash unnecessarily tied up in working capital processes, which is equivalent to between 3% and 5% of their aggregate sales. The following table captures this vast cash opportunity:

$35b opportunity Consumer Products

U.S. technology companies deteriorate

The EY report also sheds light on the potential benefit to technology companies through adoption of a suitable working capital strategy. In a report titled: “Cash in the cloud,” EY points out that an analysis of the 70 largest U.S. technology companies by sales in 2013 reveal deterioration in working capital performance as compared to the previous year. For instance, their cash-to-cash increased by 2% during the period, as depicted in the table below:

Change in WC metrics - Tech companies Consumer Products

By analyzing the 70 leading U.S. technology companies, the EY report points out that these companies have between $31 billion and $58 billion in cash unnecessarily tied up in working capital processes, translating to 2.9% and 5.4% of sales:

Tech companies' WC opportunity Consumer Products

Striking a pessimistic note, the EY report concludes that the working capital performance for the technology industry as a whole will continue to show little improvement, though the results are likely to display wider divergence among individual companies.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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