VideoOn the other hand, companies can take advantage of the inefficiencies of a merger target to squeeze extra cash out of the revenue it acquires. "Often when we buy a company we have opportunities to take down its working capital," says Fearon. "And that, of course, becomes a cash inflow to us." Of the $1.6 billion of operating cash flow that Eaton recorded in 2009, about 50% came from reductions in working capital.
Once a company is integrated into a supply chain, the parent can cut costs by tying supply shipments more closely to the fluctuating needs of customers. TriMas, a packaging and machine-parts company, pores over historical order patterns for each of the company's five business units. "As you understand customer demand," CFO Mark Zeffiro observes, "you can then streamline your production, fulfillment, ordering, and ultimately your supply chain at large in terms of its shipment costs."
Armed with such understanding, the manufacturer has been able to slim down its inventory. Sometimes that requires thinking outside the box — literally. On Chinese docks, for instance, workers pry open containers from many supply points and pack an assortment of as many as 10 different products into a single 40-foot box. That repackaging results in shipments that contain smaller volumes of more products, which "will more likely meet customer needs than ordering lots of the same things in each container," Zeffiro says. "As a result, we don't have such large stocks in our U.S. warehouses."
David M. Katz is New York bureau chief for CFO.
Reader Comments» Post a comment