Page 21 - MetalForming September 2011

respect to the inventory-conversion period, automotive beat nonautomotive by nine days.
Smaller Companies vs. Larger
Smaller companies—those with less than $20 million in sales—collected their accounts receivables seven days faster than do companies with more than $20 million in sales. In
president of FirstMerit Bank: “Companies should look into a lock box and remote data capture as ways to help with col- lections. Also, taking credit cards as payment is an effective tool for slow-paying customers who always say ‘the check is in the mail.’ ”
Ideas for Reducing Conversion Times
Reducing the inventory-conversion period proves a bit more challenging, since this now involves the metalformer’s supplier. The concepts of lean manufacturing and the prin- ciples of supply-chain management are essential. Reviewing forecasts, staying current on trends with customer orders, and having access to real-time data also are important. Accord- ing to Bennett, “You need to have a strong ERP system along with disciplined systems and processes, all of which are completely within our control...We brought certain opera- tions inhouse, ones that previously were sent out to third par- ties, which helped reduce our conversion time and gave us more control over the process.”
Companies also can reduce conversion times by analyz- ing inventory by product type to systematically reduce slow- moving items, and by working with suppliers to improve their on-time deliveries in order to carry less inventory.
Lastly, challenge volume-discount purchases—higher carrying costs often can outweigh the savings resulting from
Average Collection Period
Smaller vs. Larger Companies
Inventory Conversion Period
Smaller vs. Larger Companies
Collection Period in Days
>$20M in Sales <$20M in Sales
53 days 46 days
Conversion Period in Days
>$20M in Sales <$20M in Sales
37 days
contrast, larger companies proved more efficient with respect to inventory—inventory-conversion period for larger com- panies totaled 37 days, while smaller companies took 49 days to convert their inventory into a sale. This information is based on the data from 45 companies with less than $20 million in sales and 29 companies that reported sales exceed- ing $20 million.
Stampers Compared to Other Manufacturers
The first two sets of comparisons showed a significant amount of variation in performance between the different categories. Based on sample sizes of 54 metalformers and 20 other manufacturers, the last set of comparisons—stamping
a lower purchase price.
MF
Average Collection Period
Stampers vs. Other Manufacturers
Inventory Conversion Period
Stampers vs. Other Manufacturers
Conversion Period in Days
Other Manufacturers 44 days
Stampers 44 days
Collection Period in Days
Other Manufacturers Stampers
46 days 50 days
against other manufacturing—showed very little variation in performance. Stampers had an average collection period of 50 days, four days longer than nonstampers. Both groups had an inventory-conversion period of 44 days.
How to Improve Your Collections
According to Randy Bennett, co-owner of Automation Tool & Die, Brunswick, OH, it all starts by carefully selecting your customers. “You have to align yourself with the right cus- tomers, ones that share the same values as you,” says Bennett. “Additionally, there has to be trust. We are very selective from the standpoint of payment risk.”
Other items to consider when seeking to improve col- lections:
• Assign responsibility for timely and consistent follow up when payment is not received within agreed-upon terms;
• Ensure clear communications within the organization so that key people in operations—not just accounting—recog- nize the slow payers; and
• Use payment terms as leverage when negotiating pric- ing, especially when asked for concessions.
Companies also should look into various cash-manage- ment services available. Says Greg Ferrence, senior vice
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49 days
Best Practices