It seems like every CFO has a favorite working capital improvement story these days, each one building up to a remarkably similar final chapter: In the end, the frog (working capital) is turned into a handsome prince (cash). Having so frequently heard this story dished out, I believe I have developed a discriminating palate when it comes to the plus-sized menu of working capital lore.
It is with this in mind that I feel compelled to share with you the story of Cytec Industries, a $2.8 billion supplier of specialty chemicals and materials. Now, permit me to preface my storytelling by simply saying: Here is a working capital tale worthy of telling.
Cytec's story is one best told by its CFO, David Drillock, and you will in fact have the opportunity to view David telling Cytec's tale early next week after I finish editing a video interview with him at The Hackett Group's 20th Annual Best Practices Conference held last week in Atlanta.
Perhaps the best place to begin Cytec's working capital story is in January 2009, when Drillock explains to the financial markets that the chemical supplier was expecting to nab $200 million in working capital improvements over the next 12 months. From that day forward Cytec's finance team was at odds with a number of false perceptions that had in the past prevented Cytec from pursuing an effective working capital management.
Drillock's List of False Perceptions
WC is a finance issue.
WC management is purely a balance sheet item.
WC is only in focus at year-end.
WC management will be detrimental to customer service.
WC management has limited ROI potential and doesn't align with business strategy.
In the end, Cytec succeeded in reducing its working capital by nearly 40 percent in 2009. However, I'll permit Cytec's CFO to tell the tale in full. So please look for our upcoming video. I'll link it to this blog post early next week. ###