The Cash Conversion Cycle – Did You Know CCC=DIO+DSO-DPO?

We are pleased to bring you another insightful article from Michael Lamoureux,who writes for Spend Matters US（我们离开了美国拼写真实性）和他自己的网站。

At the recent SAP Ariba Live Europe event, there was a session on how to align procurement, finance, and treasury to strengthen your supply chain. The core of the presentation revolved aroundthe cash conversion cycle（CCC）等于DIO + DSO - DPO。

那是days inventory outstanding, days sales outstandinganddays payables outstanding。这可能不是许多采购专业人士的思想，但优化对任何企业都很重要 - 这都是关于有效的现金和营运资本管理，应该是采购和金融的合并目标。

The CCC combines ratios that tie together accounts receivable, accounts payable, and inventory turnover. The first two, accounts receivable and inventory, are short-term assets but the third, accounts payable, is a liability. The activity ratios, found on the balance sheet, are used to determine how efficiently management is using short-term assets and liabilities to generate cash, the lifeblood of a company.

现在，优化CCC的声音，就像一个相对简单的事情。但是吗？在方程的三个部件中，采购无控制DSO（天销售优秀），因为最终由销售和AR控制。采购可以影响DIO和DPO。并且，更确切地说，采购只能控制DIO，因为AP最终控制DPO。

However, Procurement can give AP the tools it needs to pay the invoices at the optimal time by insuring that the terms and conditions in the contract or purchase order are in line with organizational goals and objectives. Furthermore, it can help with the identification of the right suppliers to consider for early payment discount programs.

This is often a case of “easier said than done”. Let's start with DIO. To optimize DIO, Procurement needs accurate insights into demand trends and early insight into trend changes. If Procurement gets inflated demand from Sales and Marketing, DIO will be (too) slow, cash will be tied up, and the risk of inventory obsolescence will increase over time. If the projection is too conservative, there is a risk of stock-out, and if the product is critical to a production line, or is a high sales product, the risk of loss, potentially huge, will increase.

和DPO的情况并不好得多。为了优化DPO，采购需要了解组织的最佳付款时间框架，以及如何因分类或供应商而异 - 并非所有供应商都是等于早期付款/动态折扣的等等。采购还需要尝试并使折扣计划不仅融资目标，而且还要对准组织目标。

Here's where things get not only difficult, but of paramount importance. Because when you pay your supplier early, you help your competition. Since you paid early, your competition can pay late and apply their cash to something else. Your organization can't. So every early payment needs to align to a Finance goal or enable a Finance goal, otherwise, you're not just helping your supplier, you're helping your competition -- which is not something you want to do unless you're getting a greater benefit.

So how can Treasury and Finance help Procurement help Treasury & Finance?

1. Help Procurement Understand the Cost of Carrying Inventory

库存不仅仅是锁定货物的资本成本。它也是存储它的开销。除非采购了解真正的成本，否则它将无法建立准确的总体所有权模型，优化携带成本与运输成本之间的平衡以及抵御中断风险的资本成本。

现实是，虽然库存成本可能很高，但额外的货物成本可能更高。此外，虽然没有资金可用于投资或创新机会的成本，但也有与储蓄相关的成本，保持额外库存的成本通常低于储蓄导致的损失即使是一天。

If Procurement has an accurate understanding of all the costs, it can build accurate cost models that optimize the inventory replenishment cycle to balance inventory and logistics costs and ensure capital is not locked up any longer than it needs to be. That can be helped by using the decision optimization capabilities built into a number of modern Source-to-Pay platforms.

2. Help Procurement Understand the Cost of Paying Suppliers Early

All Procurement sees is the savings that can come from early payment discounts and dynamic discounting, and if they can save an extra 2% on £1M worth of invoices, that's £20K on the savings sheet, and a great return on the 15 minutes of effort required to set up the "opt-in to early payment discounting campaign".

然而，这也是一百万的现金流量出门30天早期出门，而是可以使用（例如）作为帮助战略供应商投资的新生产技术的贷款，也许允许供应商减少其单位成本为15％。这可能会对买方产生更多的利益，享受早期付款折扣的福利。

This is just one example where Procurement might not understand the opportunity cost of early payment. If Finance (with input from other functions including procurement) maintains a matrix of opportunities (ranging from investments and currency hedges to supplier and new product development opportunities) with expected realization on each, it can calculate the opportunity available on each dollar, pound or euro of capital.

Procurement can then accurately calculate not only the value associated with different payment terms but also the相对的早期付款折扣的价值以及组织需要提前付款/动态折扣的价值。

总之,如果Procureme财政部和金融帮助nt understand the true cost of having capital tied up or go out the door early, Procurement can build better models and make better decisions during contracting and buying that help out the entire organization in terms of that cash conversion cycle.