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In Praise of Centralization

Readers comment on stories about order-to-cash processes, working capital, international corporate tax, and accounting from &splt;i>CFO&splt;/i> and CFO.com.

15Dec

As the former director of customer financial operations (order-to-cash processes) at several large businesses, and a consultant for several publicly and privately held companies, I have to take the statement “Companies with decentralized order-to-cash processes are more likely to report high levels of customer satisfaction” (“The Long and Winding Road,” October) at face value.

As for the statement “Companies that distribute their order-to-cash activities among corporate subsidiaries or business units report higher levels of customer satisfaction with those activities,” I have to ask, who is reporting this information from these companies? Is it being reported from the sales departments, where the majority wants decentralization? Or is it from the executive team members, who in many instances devalue the management of the order-to-cash processes within their organization?

In my experience, the centralization of the order-to-cash processes creates fiduciary control over one of the largest assets on your balance sheet, creates much more efficiency across all departments, is much more cost effective than decentralization, and is much more customer satisfying for your external and internal customers with the hiring of the right people, and the proper management and structure within the organization.

DJ Hobson

Senior Sales Executive

Impact Steel Canada

Ferndale, Michigan


Doing the Right Thing, Just in Time

Re: “Capital Companies” (see the sidebar in “Too Much of a Good Thing,” July/August), it may seem entirely commendable to be ranked highly on the Working Capital Scorecard. But forcing customers to pay quicker and slowing payments to suppliers has its downside. To some extent it pits the CFO against the supply-chain-management and “partners-in-profit” elements in the company.

A more serious issue relates to increasing working capital by reducing days inventory outstanding (DIO). This is beneficial all around when based on successes in lean manufacturing. In the 30 years that lean (earlier called just-in-time, or JIT, production) has been active beyond Japan, work-in-process (WIP) inventories have commonly shrunk from months or weeks to days. On the other hand, inventories in supply and distribution channels have gone the other way, and commonly today dwarf WIP.

Instead of seriously undertaking supply-chain collaborations — joint value-chain efforts — it’s easier simply to use guile and clout to get inventory off your balance sheet and onto that of suppliers and distributors/retailers. Resorting to this expediency does wonders for one’s DIO and balance sheet, but to the overall detriment of the company and its external partners.

In the mid-1980s, when IBM established a pilot lean/JIT manufacturing project in its Raleigh, North Carolina, complex, the high-powered management team in charge came up with a metric they called “joint inventory”: how much of a key supplier’s inventory is held at the IBM plant plus what the supplier has already produced for IBM and is holding at its facilities. The rationale? If we just measure our own purchased inventories, we’ll resort to pushing inventory upon the supplier: no improvement.

For CFOs serious about true improvement — financially and otherwise — pursuit of good working-capital numbers should be done collaboratively, both within the company and with outside value-chain partners.

Richard J. Schonberger

Independent Researcher, Author, Speaker

Bellevue, Washington


The Buzz on CFO.com

Much of the recent buzz on CFO.com was a caffeine buzz, as it swirled around Andrew Sawers’s November 19 story, “Angry U.K. Lawmakers Confront Starbucks CFO.” Responding to a report that Starbucks hadn’t paid any UK corporate tax during the last three years while taking in more than $3 billion in revenue, a British parliamentary committee demanded to know from CFO Troy Alstead whether tax-avoidance shenanigans were afoot. (The UK corporate rate is 24%.) For his part, Alstead maintained that the sceptered isle was “the single most competitive coffee and espresso market anywhere in the world” and that after 15 years in the country, Starbucks had made a profit only once, and a small one at that.

“Just another example of bureaucrats not understanding one speck of business,” acidly commented one reader. “If they did they would not have a broken economic model and might stop demonizing companies.” Another reader poured on the scorn: “I bet that they never ever even bothered to read the financial statements of those entities that they are questioning” (officials from Google and Amazon were also roasted by the parliamentarians). “International tax planning is complex, and corporations spend millions on that every year. Do these pols really believe that there is something desperately illegal going on?”

A third reader who worked for a multinational financial-services firm says that before he was summoned to justify the firm’s transfer-pricing model to tax collectors in the UK, France, and Germany, the firm’s auditors signed off on the model. “So where are the auditors for Starbucks, Amazon, Google, and company?” he asked. “Do they defend these practices?”

In addition to the brouhaha over coffee, there were hard questions about walnuts. In “Diamond Foods: When Accounting Goes Wrong” (November 16), Katherine Hoffelder told of the snack maker’s efforts to bounce back from a scandal that involved improper accounting for payments made to walnut growers. Not only did the company restate its financial results for the periods in question, it sacked its CEO and CFO, added five new directors to the board, and made several changes to smooth relations with the growers.

To three readers, however, these measures failed to get to the nut of the problem. They wondered why the firm’s internal auditors didn’t crack the case first, and recommended that the company overhaul that department. Hoffelder did note that during a November earnings call, acting CFO Michael Murphy said Diamond has taken measures to improve financial and operational reporting throughout the company.

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