Cash Flow Improvement: 41 days improvement in Days Sales Outstanding over seven months, part time Written by Kaizen Enterprises Pty Ltd
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Case Studies

 

Client: Hardware and fittings supplier (Privately owned)

Project: To reduce Days Sales Outstanding (DSO) from around 85-90 days to 42 days

Service: Cash Flow Improvement

Key achievements:

  • Reduced DSO to 43.71 days, despite management restrictions on available actions
  • Successful identification and resolution of issues causing payment delays
  • No loss of customers

Synopsis:

Kaizen Enterprises was engaged by a national hardware and fittings supplier. The client’s DSO was around 85-90 days, and management believed that this figure was reasonable considering that most of the end customers were in the building industry.

We undertook a part-time seven-month project with the aim of reducing the DSO from a norm of 85 to 90 days to 42 days. This encompassed a further twenty sub-projects which targeted problems that had been identified as impacting on the productivity of the organisation overall.

The constraint on our client’s cash flow was so serious that the client was sometimes close to trading while insolvent. We also identified additional complicating factors arising from the constant lack of cash. This included an inability to import whole containers under Letters of Credit, which was forcing the client to source products from within Australia at much higher prices.

Using Kaizen philosophy, we successfully addressed a number of complicating factors that we had identified as the project proceeded. Importantly, this was done in a manner that allowed the problems to be permanently resolved, rather than just papered over.

Fearful of losing market share, senior management imposed significant limitations on the actions we could take to improve the company’s cash flow. Even with these restrictions we achieved a final audited DSO of 43.71 days, within the agreed budget. In addition, despite management’s initial fears of a customer exodus, no customers were lost during the project.