elevating the cash constraint
DESCRIPTION
Elevating the cash constraintTRANSCRIPT
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15th International Conference of the TOC Practitioners Alliance - TOCPA
15TOCPA - 2014 TOCNovember 14-15, 2014, China
20141114-15
Elevating the cash constraint
Nerius Jasinavicius TOC Sprendimai, Lithuania14-15 Nov. 2014
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15th International Conference of the TOC Practitioners Alliance - TOCPA
TOCPATOCPA
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15th International Conference of the TOC Practitioners Alliance - TOCPA
Nerius Jasinavicius
Founder of TOC sprendimai
Founding Member of TOCPA
Consultant for unique clients
TOCICO certified SC, TP
Certified Management
Consultant
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15th International Conference of the TOC Practitioners Alliance - TOCPA
Producer of wooden pallets looses IKEA as a client. Few months later due to economic slow down of 2008 company sees bankruptcy of few big clients and is hit by substantial loss from unpaid invoices. Company becomes really constrained by cash and they have to changes fully the way decisions on pricing, orders, purchasing are made in order to subordinate to cash contstraint
Abstract
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15th International Conference of the TOC Practitioners Alliance - TOCPA
The company The problem why did it happen How to deal with cash constraint What did company do
Solution Some obstacles Results
Conclusion
Agenda
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Company established in 1993 Became wooden pallets producer in 1997 Started to supply IKEA in 2000 Became the main supplier of wooden pallets to IKEA in
2005, selling more than 1 mln. pallets per year End of contract with IKEA in 2007 Financial crisis in 2008-2009
The company
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Loosing IKEA you have to pay attention to what your biggest customer tells you
Loosing on accounts receivables different clients, different risks
Reduced credit line what happens when you tell the bank your problems
Loosing trust of the suppliers Result:
We have capacity We have orders We have no cash to buy RM
The problem why did it
happen
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There is Cash Constraint only and only if there are sufficient orders i.e. OTIF < 95% manufacturing capacity i.e. OEE
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You have to change your FOCUS and subordinate to
the current constraint
Throughput rate T = ((S/TVC)^(1/n) -1), S= Sales, TVC = Totally Variable Cost, n = cash to cash cycle time
From Ravi Gilani
How to deal with cash
constraint
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15th International Conference of the TOC Practitioners Alliance - TOCPA
Sell everything we dont need in nearest future Stop buying RM in big quantities just because it
is cheaper S-DBR to shorten production lead time Evaluate all clients and orders through new
constraint just T is not the criteria Focus on shortening cash-to-cash cycle
Aggressive discounts on prepayment Higher prices for suppliers with postponed
payment
What did company do:
Solution
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Finance Director: We are selling at a loss Those orders do not cover our costs
Some obstacles
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It took company 16 weeks to get cash-flow on track
Bank increased credit line (because company survived)
Time for VMI offer
Results
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Cash constraint is (probably) the worst constraint
Exploiting and subordinating cash constraint also elevates cash constraint
When constraint changes you have to change your rules and policies (Cash Constraint is the fastest constraint to shift!)
It takes not too long to break cash constraint
Conclusion
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Thank you and good luck !Dont get cash constrained !
Conclusion