cash for growth - pwc · coordination, and global sourcing optimisation. top non-oems are dpo...

Business Recovery Services

Cash for Growth

Working Capital Management in the Automotive Industry

April 2017

Strictly private and confidential

Executive summary

Ever since the sudden shock of the 2007 financial crisis, the global automotive industry has shown relentless growth and is set to pass the 100-million unit mark in 2017. With a mix of mature, extremely competitive, and developing yet highly volatile markets, running an automotive business requires strict risk management and cash awareness. Due to the impending automotive transformation towards connected, automated, shared and electrified vehicles - as well as towards digital business models - both operational spending and asset investments are increasing in volume and relevance.

In this survey, we will be highlighting and analysing the importance of efficient working capital management in comparison with other sectors. In total, automotive performance improved, with net working capital (NWC) days decreasing by 10% to 33 days over the last five years. While this shows increasing efficiency and professionalism on a greater scale, individual performance can vary by as much as 30 days between the best and worst performing segments.

PwC is working with global automotive companies on all supplier levels, OEMs, distributors and retailers to optimise working capital and achieve sustainable performance improvement.

We hope you find this report both interesting and enjoyable. We would be happy to provide you with any additional information and discuss the topic further with you.

Preface

Felix KuhnertPartner – Global Automotive Advisory Leader

PwC

April 2017Strictly private and confidential

9

25

25

28

33

33

34

34

45

45

45

53

69

69

70

75

78

90

2015 average NWC days per sector

88 88 88 88 87

31 31 3133 31

57 56 55 56 56

0

10

20

30

40

50

60

70

80

90

2011 2012 2013 2014 2015

Working capital performance in the last 5 years has improved by 10% in the automotive sector but still €200 billion in cash is still tied up

4Cash for Growth

There are big differences between OEM and Non-OEM and also within the two groups.

The discrepancy between OEM and non-OEM (automotive supplier) is a result of variation in business models and customers served as well as fundamental differences in the relative sharpness of management focusing on cash and the effectiveness of working capital processes.

We have identified an improvement for OEM of close to 15% over the last y ears, whereas the non-OEM group only improved by just over 6%.

Non-OEM

Medi anLow er quartile U pper quartile

Engineering and construction

Pharma and life sciences

Indu strial manufacturing

Chemicals

Forest, paper and packaging

A erospace, defense and security

Entertainment and media

Technology

Metals and mining

Government/public services

Consu m er

Healthcare

Transport and logistics

Automotive

Energy and utilities

Hospitality and leisure

Retail

Com m u nication

Source: CapitalIQ, annual reports

NW

C d

ay

s

30 3028 29 28

-1 0-3

0

-5

1922

1822 22

-10

0

10

20

30

40

50

2011 2012 2013 2014 2015

OEM

NW

C d

ay

s

No

n-O

EM

OEM

OE

M

PwC


62 62 60

63 63

52 50 54 52

46

-

10

20

30

40

50

60

70

2011 2012 2013 2014 2015

OEM’s DSO and DIO levels are improving but are partly offset by a decrease in DPO; more than €70 billion in cash is tied up

5Cash for Growth

OEM – DSO trend OEM – DPO trend

OEM – DIO trend

DSO improved 22% over the past five years which has been realised through better management of the receivables, eg, in the field of joint ventures and strategic alliances.

DPO has decreased by a little more than 10%. The upper quartile performance is fairly stable, whereas the lower quartile’s performance is deteriorating year after year.

We have seen more spend consolidation and the use of financial instruments like supply chain finance.

DIO levels show a slight improvement, and the spread between upper and lower quartiles narrowed significantly.

The closer collaboration and process alignment with the automotive suppliers is reflected in the improvement.

33

30 30 31

27

18

12 12 12 11

27 25 24 25

22

-

5

10

15

20

25

30

35

2011 2012 2013 2014 2015

54

48 44 46 46

35 36 34 33 33

40 41 39 41

38

-

10

20

30

40

50

60

2011 2012 2013 2014 2015

Da

ys

Da

ys

Medi anLow er quartile U pper quartile

OEM

Da

ys

OE

M

PwC


Company NWCToyota 25

Volkswagen 50

General Motors (5)

Daimler 58

PSA (22)

There are significant differences between – and even within –different automotive supplier segments resulting in more than €120 billion being tied up

6Cash for Growth

Source: CapitalIQ, annual reports

Co mpany NWCKor ea autoglass 42Xi nyi Glass 60Asahi India Glass 82Sai nt-Gobain (2)W ebasto 63

Co mpany NWCAutoliv 53Hy undai Sungwoo 32Tak ata 62Toy ota Gosei 45Kongsberg Autom. 44

Co mpany NWCAisin Seiki 35

F-tech Inc. 50

Magna 37

Plastic Omnion 3

Tower 4

Co mpany NWCFaurecia (13)

Johnson Controls 71

Lear 23

Magna 37Toyota Boshoku 14

Company NWC

Continental 44

Delphi 33

Denso 40

Robert Bosch 87

TI Automotive 33

Company NWC

Bridgestone 80

Continental 44

Goodyear 38

Michelin 83

Pirelli 25

Company NWC

Calsonic Kansei 24

Eberspacher 31

Faurecia (13)

Futaba 16

Tenneco 18

Company NWC

American Axle 33

Dana 35

GKN 52

Magna 37

ZF Friedrichshafen 33

Company NWC

Akebono Brake 34

Continental 44

Hyundai Mobis 44

Cie Automotive (13)

Cooper Standard 61

Company NWC

Benteler 25

Hyundai Mobis 42

KYB Corp 72

Tower 4

ZF Friedrichshafen 33

Company NWC

Aisin Seiki 35

American Axle 33

Magna 37

Schaeffler 67

Valeo (3)

Co mpany NWCSogefi 11

Calsonic Kansei 24

Denso 40

Valeo (3)

Dometic 67

Company NWC

BorgWarner 42

Continental 44

Delphi 33

Denso 40

Mahle 62

Co mpany NWCContinental 44

Delphi 33

VOXX 94

ASTI 86Visteon 23

Co mpany NWCContinental 44

Delphi 33

Denso 40

Sumitomo Elec. 86

Yazaki 51

Company NWC

SAIC (2)

Nexteer Autom. 29

NSK 102

Takata 62

R. Bosch Steering 41

Electrical components

Powertrain

Body and interior

Body glass Passenger restraints

InteriorA udio and telematics

Electronics and electrical

Climate control and

engine cooling

Engine T ransmission Braking SteeringA xles, driveshafts and components

Body and structural

Wheels and tires

Suspension

Exhaust

Fuel system

OEM

No

n-O

EM

PwC


Size generally affects suppliers’ average NWC days position but regional influence plays an important role

7Cash for Growth

Evolution of automotive suppliers’ NWC days

Americas

3736

3637

7880

2011 2015

4039

+1%

EMEA

4955

4046

4846

20152011

4853

-9%

Asia Pacific

5162

5458

7264

20152011

5761

-7%

Regional average

Large companies

> €5 billion 2015 revenues

Medium-sizedcompanies

€1-5 billion 2015 revenues

Small-sizedcompanies

< €1 billion 2015 revenues

No

n-O

EM

PwC


There is a significant gap in DSO between body and interior and other automotive suppliers and …

8Cash for Growth

Gap between Body and interior and other suppliers. There is a discrepancy between Body and interior and other suppliers for all working capital areas with the largest one on the receivables side, which has a delta of 8 days compared with all non-OEM companies.

The general DSO performance is fairly stable at around 61 days. Overall, slight DSO improvement is attributable to more efficient billing and collection systems, improved payment term management at supplier level, and supply chain risk policies at OEM level.

Takeaways

Inv entory

Automotive suppliers’ working capital performance depends on product footprint, regional set up and the level of collaboration with OEMs.

Inventory is the area with the largest spread between the supplier segments caused by the different set up of the supply chain and the dependency of the OEMs.

Many suppliers have reported actions in this area, especially in the field of billing and cash collection, supplier payment terms, and supply chain efficiency.

62

59 60

61 61

50

52

54

56

58

60

62

64

66

2011 2012 2013 2014 2015

Average non-OEM DSO performance 2011-2015

Powertrain Electrical components

Body & interior Total non-OEM

No

n-O

EM

Suppliers

PwC


… the DIO performances show more variation than DSO or DPO

9Cash for Growth

Converging performance

Lean practice implementations have improved inventory levels with 5 days for powertrain and electrical components but body and interior suppliers’ DIO increased 2 days.

The entire non-OEM group has improved DIO by 2 days (4%). Key drivers are more upstream and downstream collaboration in demand forecasting, better process coordination, and global sourcing optimisation.

Top non-OEMs are DPO leaders

Focus on procurement and sourcing benefitted most segments over the past four years but this positive trend is preceded by a 3-day decrease in 2011-2012 DPO positions.

As a result, 2015 levels are mostly in line with performance levels of 2011.

Key drivers for the recent improvements are spend consolidation, supply chain streamlining, and global sourcing programmes.

43 42 41

42 41

30

35

40

45

50

55

2011 2012 2013 2014 2015

Averagenon-OEM DIO performance 2011-2015



50

47

49

50 51

40

44

48

52

56

2011 2012 2013 2014 2015

Average non-OEM DPO performance 2011-2015



No

n-O

EM

No

n-O

EM

PwC


How can we support you?

10Cash for Growth

PwC can complete a working capital benchmarking exercise to compare your performance against your peers and identify potential improvement opportunities.

We can perform a diagnostic review to identify quick wins together with longer-term working capital improvement opportunities.

Develop detailed action plans for implementation to generate cash and make sustainable improvements.

Assist the realisation of sustainable working capital reduction by implementing robust, efficient and collaborative processes.

1.

2.

3.

4.

How to address the key levers:

• Identification, harmonisation and improvement of commercial terms.

• Process optimisation throughout the end-to-end working capital cycles.

• Process compliance and monitoring.

• Creating and embedding a “cash culture” within the organisation, optimising the trade-offs between cash, cost and service.

Inventory • SKU rationalisation • Consignment stock • Near sourcing • Safety stock and minimum order quantity optimisation • Lead time compression • Balanced cash, cost and services • Lean and agile supply chain strategies • Sales and operations planning (S&OP) • Demand management and forecasting techniques • Accurate tracking of inventory quantities • Differentiated inventory segmentation per product group • Collaborative replenishment strategies

• Aftersales management

Accounts receivable • Credit risk policies • Self-billing processes• Commercial revenue billing timeliness and quality • Billing for tooling

• Dispute resolution and root cause elimination • Good contract and customer terms management/usage

management• Timely order entry and order processing • Formalised collections strategy with a tailored and proactive

collections approach

Accounts payable • “Centre led” procurement • Consolidated spending • Purchasing channels • Payment method and frequency • Payment terms standardisation • Improved visibility of cash/cost trade-offs across the supplier base

to enable conscious optimal decision making • Establishment and optimisation of supply chain finance

programmes (through an association with an independent finance provider)

Cash culture and visibility ‒ The aim is to create a culture in which cash is important and performance is clearly visible

Key cash driver focus areas:• Cash-related management incentives • Top management sponsorship • Clear roles and accountabilities • Corporate working capital framework • Defined targets per division/country • Working capital reporting dashboards by division/country

Examples of areas where PwC could help you to release cash from optimised working capital management

PwC


Our approach to sustainable working capital

12Cash for Growth

Full-scope working capital project for a German automotive supplier.

T he key issue

For m ore than two years, the company had experienced h istorical stressed

liqu idity and an approx. €6m credit facility was due for repayment in the follow ing y ear. As a r esult, the ov erseas shareholder requested that inventory

lev els be r educed by approx. €6m in or der to meet the credit facility r epayment; however, this was deemed to be unfeasible by the company.

How we helped

Pw C kick-started with a workshop to raise working capital awareness among

th e company’s key stakeholders. Following this, we performed a complete w or king capital diagnostic r eview in a short t ime frame. This included a “deep

div e” into the procure-to-pay (creditors) and forecast-to-fulfil (inventories) cy cles for three different company sites, plus a g eneric or der-to-cash (debtors)

r ev iew.

Ou r efficient and quick approach (completed within three weeks) was essential for r aising organisational awareness of poor cash performance and for

iden tifying potential benefits.

T he result

We identified potential n et working capital cash benefits of more than €6m.

In con trast to the initial management opinion that the company had suspected poor inventory performance, 80% of the potential benefits were identified

w ithin the procure-to-pay process (with only limited potential identified w ithin the forecast-to-fulfil process). This was an area of focus that had n ot

or ig inally been considered by management or the ov erseas shareholder.

We th erefore used these r esults to mediate between management and the ov erseas shareholder at an operational level.

We supplement our working capital and cash management methodologies with core consulting approaches to make sure that improvements are tangible and sustainable.

Change management

Esta blish a more cash-focused

cu lture that is able to sustain th e higher levels of

per formance and drive con tinuous improv ement.

Working capital

optimisation

Cash management

En su re effective utilisation

a n d forecasting of cash.

Stakeholder management

En su re that key stakeholders

r emain engaged during the pr oject.

Benefits realisation

En su re that cash generation

objectives are achieved and m aintained.

Case study:

PwC


Working capital automotive experts and global network

13Cash for Growth

Malaysia

Ganesh GunaratnamTel: +603 2173 0888E-mail: [email protected]

Switzerland

Reto BrunnerTel: +41 58 792 1419E-mail: [email protected]

Austria

Manfred KvasnickaTel: +43 1 501 88 2937E-mail: [email protected]

Turkey

Kadir AyazTel: +90 212 355 2317E-mail: [email protected]

The Netherlands

Danny SiemesTel: +31 88 792 42 64E-mail: [email protected]

France

François GuilbaudTel: +33 156 578 537E-mail: [email protected]

Singapore

Caroline ClavelTel: +65 62363047E-mail: [email protected]

CEE

Petr SmutnyTel: +42 25 115 1215E-mail: [email protected]

Italy

Marco GhiringhelliTel: +39 02 66720345E-mail: [email protected]

Sweden

Jesper LindbomTel: +46 70 9291154E-mail: [email protected]

Australia

Jonas SchöferTel: +61 2 82664782E-mail: [email protected]

USA

Paul GaynorTel: +1 925 699 5698E-mail: [email protected]

Middle East

Mihir BhattTel: +971 4304 3641E-mail: [email protected]

Finland

Michael HardyTel: +358 50 346 8530E-mail: [email protected]

Denmark

Rene Brandt JensenTel: +45 3945 9160E-mail: [email protected]

Spain

Josu EcheverriaTel: +34 91 598 4866E-mail:

[email protected]

Hong Kong

Michael P GildeaTel: +852 2289 1816E-mail: [email protected]

Norway

Jørn JuliussenTel: +47 95 26 00 60E-mail: [email protected]

Belgium

Rudi BogaertTel: +32 9 268 80 13E-mail: [email protected]

United Kingdom

Daniel WindausTel: +44 20 780 45012 E-mail: [email protected]

Co-authors of the study

Sebastian LeidigSenior Consultant Germany

Nick De SmedtConsultant Germany

Stephan Dellermann

Partner – GermanyTel: +49 170 987 9253E-mail: [email protected]

Rob Kortman is a leading partner in PwC’s European

specialist Working Capital practice. He has ov er eighteen y ears of experience delivering working capital

management programmes to generate cash for corporate

and PE clients. He started his career as a strategic buyer at Ford Europe.

Rob Kortman

Senior Manager – Germany Tel: +49 151 26818204E-mail: [email protected]

Stephan Dellermann is a Senior Manager in PwC’s

specialist Working Capital practice. He adv ises clients globally on delivering finance performance

im provement, from process analysis and redesign, to

shared services and WCM.He started his career as controller at Daimler AG.

mailto:[email protected]

















PwC


Glossary

14Cash for Growth

Metric Definition Ba s is of ca lcula tion

NWC %

(net working ca pital %)

NWC % m easures working capital requirements relative to

th e size of thecompany.

(A ccounts receivable + inventories –a ccountspayable)/sales

NWC da ys

(net working capital days)

In dication of the total days to complete the full cash

conv ersion cycle.

(A ccounts receivable + inventories –a ccounts payable)/sales x365

DSO

(da y s sa les outstanding)

DS O is a measure of the average number of days that a

com pany takes to collect cash after the sale of goods or after

serv ices have been delivered.

A ccounts receivable/sales x 365

DIO

(da y s inventories on-hand)

DIO g iv es an idea of how long it takes for a company to

conv ert its inventory into sales. Generally, the lower

(sh orter) the DIO, th e better.

In v entories/sales x 365

DPO

(da y s payables outstanding)

DPO is a n indicator of how long a company takes to pay its

tr ade creditors.A ccountspayable/sales x 365

T erm Definition

OEMOr iginal equipment manufacturer. Data includes the 15 most relevant OEMs based on 2015 revenue

a n d available data; financial services have been excluded.

Non -OEMRa n ge of companies manufacturing automotive parts and components based on Capital IQ primary

in dustry. Da ta includes 596 suppliers based on 2015 revenue and available data.

Powert ra inSelection of n on-OEM companies based on Primary SIC code: producing components that generate

pow er and deliver it to the road surface (engines, transmissions, wheels, etc)

Elect rical com ponentsSelection of n on-OEM companies based on Primary SIC code: producing components related to

tr ansformers, meters, electrical coils, etc.

Body a nd interiorSelection of n on-OEM companies based on Primary SIC code: producing components related to car

bodies, plate work, seats, etc.

Methodology

A u tomotive data is based

on th e publicly available

da ta (CapitalIQ) of 611

com panies in the

a u tomotive sector,

a ccording to Capital IQ

sector segmentation.

Th e division in non-

OEM is ba sed on Capital

IQ Pr imary Industry

cla ssification, whilst the

seg ment categorisation is

ba sed on Capital IQ

pr imary SIC codes (data

a v ailable for 42% of

sa mple). Div ision in

r eg ions is based on

Ca pital IQ Pr imary

Cou ntry.

OEM da ta is derived

fr om the annual

a ccounts of a selection of

th e top automobile

m anufacturers in terms

of r ev enue. For OEM

da ta the financial

serv ices arm has been

ex cluded.

© April 2017 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft. All rights reserved. In this document “PwC” refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.

cash for growth - pwc · coordination, and global sourcing optimisation. top non-oems are dpo...

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