VideoIn a feat rare for a company so large and fast-growing, Dell posted better numbers in every category of our survey this year when compared with last year, including a decline in DWC, from 13.6 to 9.3. That ranked it third in its industry group, behind Cisco Systems Inc. and Adaptec Inc.
Conversion Factors
Unlike Dell, Cisco wasn't able to improve in every category of our survey this year. But the $12.2 billion (fiscal 1999 revenue) company, which makes three-quarters of the world's routers, switches, and related computer-networking equipment, did find a way to convert more of its sales to cash last year. Its CCE rating of 27.8 percent was up from 25.6 percent in 1999, and was good enough to rank it first in the computer office equipment category for the second consecutive year and 61st overall.
Interestingly, Cisco vice president and treasurer David Rogan credits Dell, indirectly, for a role in Cisco's good performance. "About two-and-a-half years ago Tom Meredith, who was Dell's CFO at the time, came to talk at one of our financial managers' meetings and mentioned that Dell was doing a much better job of managing its working capital than Cisco," Rogan explains. "He sort of threw down the gauntlet, and it prompted us to start improving our inventory turns and DSO. Since then, we've made a concerted effort to do that, with this important caveat: we do not want to do anything in the inventory area that would impact customer satisfaction with regard to getting shipments out on a timely basis, or that would inhibit our growth in any way."
To drive down its DSO, Cisco thoroughly reexamined its activities and discovered problems in its accounts receivable practices. Most important, it learned that its customers were not always looking at the same information available to its own staffers, which led to inevitable disputes over how much was owed and when. Cisco responded by developing a Web-enabled information system that allows customers to look at the same information available to its accounts receivable staff. "Now, we also try to prompt our customers, between days 10 and 15, to look at what we're looking at," says Rogan. "If there are any issues outstanding with regard to an invoice, we can get those issues raised before the money is actually owed to us, and hopefully get them resolved before day 30."
Cisco also now sets weekly, monthly, and quarterly goals for its accounts receivable teams in which the target is to have no more than 10 percent of cash accounts receivables more than 30 days past due. Rogan reviews the numbers weekly, and teams that meet their goals are recognized with a Cisco Achievement Award, which carries a modest monetary incentive.
"In a sense, this sort of recognition for cash flow and DSO actually goes all the way to the top [of the executive ladder] because our investors look at that as a way to gauge the overall health of our business," Rogan says. "To the extent we can keep our working capital in good shape and in particular our DSO and inventory turns, investors understand that the business is well managed."
Casey's at the Cash
Casey's General Stores Inc., a $1.3 billion operator of more than 1,100 convenience stores, could hardly be more different from Cisco or Dell in terms of size or sex appeal. But like Dell, it works with an exceedingly low amount of working capital (0.6 days in the latest survey), and like Cisco leads its industry group in CCE, at 5.9 percent. (While the company is only a middling performer in that category overall, the average CCE for its industry group, food and drug stores, is only 2.9 percent.)
Also like Dell, the company credits corporate culture for its success in controlling working capital. "We're not so much managing our cash flow as we are managing our business," says Casey's vice president and CFO Jim Shaffer. "The cash flow follows from the way we do that."
A number of factors conspire to allow Casey's to perform with little or no cash tied up in working capital. One is its line of business, another is the way it prosecutes that business. "Not only are we a convenience-store operator, but we also run our own distribution center, while most of our peers buy through wholesalers," Shaffer explains. "Because we run our own center, we are very conscious about managing inventory, and will turn our warehouse 27 or 28 times a year."
Combine an inventory that is held only about two weeks with 30-day payables, and Casey's is able to sell most of its products, usually for cash, before it must pay for them. The same holds true for gasoline, which accounts for about half the company's revenues. Casey's stocks about five days' worth of gasoline sales in its tanks at any one time, but has 10 days to pay for its gas purchases.
Still, tight ships aren't run on serendipity alone. Shaffer ventures that the company has probably never missed an early-payment discount on payables, a practice he credits with bolstering relationships with its suppliers. "They know we're prompt to pay, and I think they take that into consideration when negotiating with us for space in our stores," he says.
Shaffer also notes that store managers can be confident of receiving "about 99.5 percent" of everything they order from the company's warehouse each week, despite its aggressive turnover rate. And while it may not contribute directly to cash flow, the timeliness of those deliveries speaks volumes about the Casey's approach to doing business. "Those orders get delivered within 15 or 20 minutes of the same time, the same day, every week," Shaffer says. "We're very consistent."
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