A medium-sized wholesale company in the construction supply industry with more than 150 locations had a very high level of capital tied up in working capital (WC). With insufficient earnings, this had led to a tense financing situation. Investments therefore had to be postponed. The current interim manager - who was still in a permanent position at the time - was tasked with reducing the capital commitment and thus creating scope for earnings and investments.
The business administration graduate was quickly able to derive specific tasks from the root cause analysis. The aim was to reduce inventories and shorten collection periods. In addition, internal processes for receivables management and inventory management had to be redesigned.
Designed and managed a fundamental overhaul of receivables management
In the restructuring of receivables management, the interim manager first introduced a reporting system that made the age structure and payment behavior of customers and the development of credit limits visible. A portfolio of overaged receivables and credit management proved to be "construction sites".
The interim manager therefore expanded receivables management to include new rules and authorizations for the allocation of credit limits and payment terms as well as credit checks. He also introduced escalation routines for problem cases and contentious issues, such as customer complaints. At the same time, he enforced non-compliance with these rules with sanctions such as delivery blocks for limit overruns. Thanks to the consistent implementation of the new receivables management system, the collection periods were reduced by more than ten percent.
Old receivables reduced by half over the course of the mandate
At the same time, the interim manager completely overhauled the debt collection process for the debtors. After just a few weeks, he significantly reduced outstanding receivables in the single-digit million euro range - with the associated positive impact on cash flow. Ultimately, the old receivables were permanently reduced by 50 percent.
Reorganization of inventory management delivers better data and more transparency
The interim manager identified immature controlling tools, poor data quality (e.g. no differentiation between ABC/XYZ articles) and missing parameters for delivery availability as starting points for the reorganization of inventory management. The high levels of old and excess stock were evidence of this. The interim manager therefore set up an inventory controlling system that provided the necessary key figures such as inventory turnover rates or ABC/XYZ classification and more. This was used to define old stocks, which could then be reduced.
Inventories reduced by more than 15 percent
A newly introduced material classification, current replenishment times and a better definition of the required delivery availability made a significant contribution to optimizing ordering behaviour. This resulted in a reduction in inventories and an increase in material turnover. One particular challenge in implementing the new inventory management was the replenishment times for some items. A number of suppliers found it very difficult to keep up with the new frequency. Ultimately, however, this project was also successful and inventories were permanently reduced by more than 15 percent.
Working capital reduced by an amount in the mid double-digit million euro range
As a result, the interim manager was able to reduce working capital by an amount in the mid double-digit million euro range and thus make a significant contribution to easing the financial situation. The interim manager overcame initial resistance in this mandate through consistent involvement and transparent project work conducted on an equal footing as well as a positive team atmosphere. A key success factor for this project was also the fact that the interim manager was able to motivate everyone involved to work together across accounting, sales, purchasing, logistics and controlling.
