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3 Key Obstacles to Working Capital Optimization

  • By Amber Christian
  • Published: 8/18/2016

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Analytics and big data provide many new opportunities for working capital optimization. Working capital is a broad and complex topic. One article cannot explore all of the facets of it, so we will focus on building working capital optimization for days sales outstanding (DSO) processes.

First, three key obstacles must be addressed to get your working capital analytics efforts on track:

  • The cross-functional nature of working capital processes
  • The skills gap in analytics and data science
  • Technology as process enablement.

Addressing these challenges in this order will produce the greatest likelihood of success and return on investment.

The cross-functional nature of working capital processes

Working capital optimization affects many business processes; it cannot thrive in a silo.  Cross-functional teams provide a governance structure for your optimization efforts. These help prevent decisions made in isolated parts of the organization from undermining the overall working capital optimization initiatives. Additionally, this team will also be needed as appropriate analytics and technology decisions are required to optimize processes.

The skills gap in analytics and data science

Finding experienced staff with a background in financial analytics and data science is extremely difficult. Analytics and data science has become mainstream only in the last few years. But this isn’t the greatest challenge. Hiring a person with a pure data science or analytics background will miss the critical subject matter expertise necessary for the language of finance. Establishing credibility within the organization will be extremely difficult under these circumstances.

The pragmatic approach is identifying internal talent—creating new career paths within finance for staff to learn analytics and big data from a business perspective. Most finance organizations already have staff performing analytical activities at some level. These staff members are well positioned as subject matter experts in finance. Analytics skills can be built upon existing skills. This makes finance a strong business partner in the development of analytics programs. 

Technology as process enablement

Working capital analysis requires extremely large datasets. Consider the DSO process. Technically DSO is built from accounts receivable (AR) data. In order to understand all components that affect DSO, the data from all steps in the sales process are required. This is a tremendous volume of data and cannot be modeled or analyzed using an Excel spreadsheet. Analyzing large volumes of data requires in-memory databases. These are not the traditional business warehouse systems of the past. In-memory has been a buzzword in IT circles for several years. Many communicate that in-memory is about faster transactional processing. While this is correct, the true promise is in business enablement and analytics. The processing power within in-memory databases allows for correlation of process steps with outcomes. For example, what is the correlation between receiving a payment on time within AR and perfect order fulfillment? Using sales orders, deliveries and accounts receivable data, a clearer picture of DSO process challenges can be formed. New plans can optimize working capital across the process, instead of within a single area.

In-memory delivers the processing power and visualization technologies provide the presentation power. Complex data sets can now be represented in simpler terms. A picture is worth a thousand words with visualization technology bringing the data to life. Outliers and areas of focus become significantly faster and easier to identify when data is summarized visually through charts and graphs. They represent the story for your organization. The new decisions you make with that information is your unique plot twist.

Establishing an analytics program for working capital optimization is a journey of many steps. Creating the appropriate governance structure for your initiatives, addressing internal skill set gaps, and leveraging technology will set your optimization efforts on the right track. The technologies already exist today. Will you be ready to move early and take advantage of them before the competition?

Amber Christian is the founder of Ace LLC, a treasury and cash management consulting firm. She is speaking about opportunities in working capital management at the 2016 AFP Annual Conference.

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