Cases

Financial Review of Working Capital of a Dubai Based Company

Challenge

The client was facing major working capital problems due to large numbers of complex projects being executed. The clients Inventory levels were high and the number of turns, approximately 5.57. There was a lack of forecasting, planning and inadequate information systems. There were significant components of non-performing inventory (obsolete, dead etc.). The client had an average collection period of 7.5 months (debtors turnover ratio of 1.6). 18 percent of the total outstanding amount was for over 365 days. There was no process ownership of accounts receivable due to fragmented responsibilities. The existing information technology did not meet the information requirements of users and customers. The client was looking for a combination of quick wins in inventory reduction and accounts receivable and a long-term solution to maintain efficient levels.

Our Approach

UC initially set out to generate quick wins in inventory management and accounts receivables. The second phase of the project was designing a robust project management system. UC took the following steps in the below areas:

  • Inventory Management
    • Analysed Inventory – ABC, XYZ and HML
    • Studied inventory related processes
    • Defined stocking norms
    • Initiated an inventory reduction program
    • Redesigned the procurement and materials issue processes
    • Defined management information systems reports for inventory management to facilitate better inventory control
    • Recommended steps to increase inventory turns from 5.7 to 8 thus reducing average inventory by 32 percent
    • Identified non-performing inventory of approximately 523,000 AED and indicated the steps that need to be taken to reduce them
    • Identified an opportunity to reduce panel related inventories, resulting in a reduction of inventory by approximately 450,000 AED (QUICK WIN) that translates into a recurring annual savings of 40,500 AED
  • Accounts Receivable
    • Redesigned the accounts receivable process
    • Reallocated responsibilities
    • Designed accounts receivable reports in Orion systems
    • Initiated a debtors collection program
    • Setup weekly cash flow meetings
    • Defined credit policy
  • Project Management Systems
    • Defined a project management methodology in MS project
    • Prepared templates for different types of projects in MS project
    • Trained project managers and project engineers on the MS project system
    • Designed standard operating procedures along with formats and MIS reports

Impact

UC delivered the financial review of the working capital and gave suggestions on how to obtainquick wins in inventory reduction andaccounts receivable. UC also recommended ways to maintain efficient levels in the long-term.