Working Capital Management: Cross-Functional Best Practices. Renita Wolf Arizona Desert Summit Financial Conference September 14, PDF Free Download

Working Capital Management: Cross-Functional Best Practices Renita Wolf Arizona Desert Summit Financial Conference September 14, 2017

Agenda The Challenges Cross-functional Approach Essential Components of Working Capital Key Performance Indicators Best Practices Case Study Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 2

The Challenges Limited access to needed information Lack of formal structure Too many stakeholders and perspectives Time constraints Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 3

Cross-functional Approach 4

Key Performance Indicators ($ in million) 2016 2015 Revenue $12,000 $10,000 Cost of goods sold $4,000 $3,200 Inventory $1,600 $2,500 Accounts receivable $680 $640 Accounts payable $1,100 $1,300 Average inventory Average accounts receivable Average accounts payable Days inventory outstanding Days sales outstanding Days payables outstanding Cash conversion cycle ( $1,600 + $2,500) /2 = $2,050 ($680 + $640) / 2 = $660 ($1,100 + $1,300) /2 = $1,200 $2,050 / ($4,000/ 365 days) = 187.1 days $660 / ($12,000 / 365 days) = 20.1 days $1,200 / ($4,000 / 365 days) = 109.5 days 187.1 + 20.1 109.5 = 97.7 days Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 6

2017 CFO/Hackett Group Working Capital Scorecard 7

Best Practices Align operational processes Engage executive-level support Centralize and standardize Cross-functional approach ERP data Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 11

Best Practices Cash flow drivers Analyze and measure Customer to business model Quality and productivity tools Change-management Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 12

Agilent Technologies, Inc. Business Groups Life Sciences and Applied Markets Diagnostics and Genomics Agilent CrossLab Support Groups Research Laboratories Global Infrastructure Organization Order Fulfillment Organization Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 15

Revenue USD Mil $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 16

Business Group Revenue $662M, 16% Life Sciences & Applied Markets Group $2,046M, 51% CrossLab Group $1,330M, 33% Diagnostics & Genomics Group Operating Income, % margin: Life Sciences $380M, 19%, CrossLab Group $299M, 23%, Diagnostics $88M, 13%, Other Expenses ($245M) Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 17

Operating Income USD Mil $1,200 Operating Income $1,000 $800 $600 $400 $200 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 18

Operating Margins % of Revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 COGS SG&A R&D Other Operating Margin Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 19

Operating Margins % of Revenue 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% COGS 46.6% 45.2% 44.7% 48.9% 46.2% 46.7% 47.5% 51.0% 51.2% 49.5% Gross Margin 53.5% 54.8% 55.4% 51.2% 53.8% 53.4% 52.6% 49.0% 48.8% 50.5% SG&A 33.4% 31.4% 29.4% 35.8% 32.2% 27.3% 26.5% 30.4% 29.6% 29.4% R&D 13.2% 12.6% 12.2% 14.3% 11.2% 9.8% 9.7% 8.7% 8.8% 8.2% Other 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Operating Margin 6.9% 10.8% 13.8% 1.0% 10.4% 16.2% 16.3% 9.9% 10.4% 12.9% Net Int Inc & Other 5.7% 1.6% 0.3% -0.9% 2.3% -0.6% -1.1% -2.4% -4.7% -1.0% EBT Margin 12.6% 12.4% 14.1% 0.2% 12.7% 15.6% 15.2% 7.5% 5.7% 11.9% Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 20

Operating Margins USD Mil 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Revenue 4,973 5,420 5,774 4,481 5,444 6,615 6,858 3,894 4,048 4,038 COGS 2,315 2,451 2,578 2,189 2,514 3,086 3,254 1,987 2,072 1,997 Gross Margin 2,658 2,969 3,196 2,292 2,930 3,529 3,604 1,907 1,976 2,041 SG&A 1660 1700 1697 1603 1,752 1,809 1,817 1,184 1,199 1,189 R&D 655 685 704 642 612 649 668 337 358 330 Other - - - - - - - - - - Operating Margin 343 584 795 47 566 1071 1119 386 419 522 Net Int Inc & Other 284 86 20 (40) 126 (39) (76) (93) (190) (42) EBT Margin 627 670 815 7 692 1,032 1,043 293 229 480 Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 21

Accounts Receivable USD Mil $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 22

Cash Conversion Cycle Days 300 250 200 150 100 50 48 90 48 94 56 104 49 83 48 86 47 95 91 100 92 95 107 103 85 191 195 69 144 149 56 102 104 - (50) (52) (45) (51) (59) (57) (52) (81) (65) (53) (100) 2007 2008 2009 2010 2011 2012 2013 2014 2015 Days Inventory Outstanding Days Sales Outstanding Days Payables Outstanding Cash Conversion Cycle Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 25

Contact Information Renita Wolf Poe Wolf Partners Web: www.poewolfpartners.com Phone: (719) 367-4136 Email: Renita.Wolf@PoeWolfPartners.com Twitter: @RenitaWolf LinkedIn: linkedin.com/in/renitawolf Copyright @ 2017 Poe Wolf Partners. All rights reserved. Twitter @RenitaWolf 27

Working Capital Management: Cross-Functional Best Practices. Renita Wolf Arizona Desert Summit Financial Conference September 14, 2017