Our client had over 200 UK stores, was highly leveraged, faced tight cash constraints and was struggling to forecast their medium-term cash flows. While they had a detailed short-term cash flow forecasting process, it was cumbersome, time consuming and did not enable them to make the most informed tactical and strategic decisions, particularly as they entered periods when cash flow was tightest.
Cutting through complexity
We ensured we understood their current process and availability of data and plan information, and then we mapped the relationships between business drivers such as product sales, margins, store portfolio changes and working capital and cash flows. It was essential this took account of the specific complexities around store by store inventory, sale or return and consignment stock arrangements and complex supplier terms. The weekly operational forecasting was linked to monthly financing and working capital cycles, which helped the business to better understand the inter- and intra- monthly swings in working capital thus providing new insight into the dynamics of the business.
Tools to support ongoing planning and decision making
This detailed understanding of relationships is vital to accurately forecasting monthly cash movements. It was incorporated into a set of tools which are now used to perform ongoing medium-term forecasting. They illustrate the detailed impact of store portfolio strategies, product focus and working capital initiatives and show the future position of the business in terms of cash flow, financing constraints and profitability at both category and store level.
Improved decision making
Our client is now able to make quicker, more accurate tactical and strategic decisions, without having to reforecast from the bottom up each time. The modelling allows many scenarios to be run from the model dashboard and to immediately understand the impact. It has provided the ability to quickly assess the cash impact of operational decisions and answer questions such as “What is the cash flow impact of changing my supplier terms?” or “How much margin is that worth?”. Store portfolio strategies can be assessed against a range of potential market scenarios.
Our work reduced the forecasting cycle from two weeks to less than a day. In a challenging retail landscape, this depth of understanding the across the range of potential outcomes of strategies is key to making timely and resilient decisions.
