Business Recovery Services
Cash for Growth
Working Capital Management in the Automotive Industry
April 2017
Strictly private and confidential
Executive summary
Ever since the sudden shock of the 2007 financial crisis, the global automotive industry has shown relentless growth and is set to pass the 100-million unit mark in 2017. With a mix of mature, extremely competitive, and developing yet highly volatile markets, running an automotive business requires strict risk management and cash awareness. Due to the impending automotive transformation towards connected, automated, shared and electrified vehicles - as well as towards digital business models - both operational spending and asset investments are increasing in volume and relevance.
In this survey, we will be highlighting and analysing the importance of efficient working capital management in comparison with other sectors. In total, automotive performance improved, with net working capital (NWC) days decreasing by 10% to 33 days over the last five years. While this shows increasing efficiency and professionalism on a greater scale, individual performance can vary by as much as 30 days between the best and worst performing segments.
PwC is working with global automotive companies on all supplier levels, OEMs, distributors and retailers to optimise working capital and achieve sustainable performance improvement.
We hope you find this report both interesting and enjoyable. We would be happy to provide you with any additional information and discuss the topic further with you.
Preface
Felix KuhnertPartner – Global Automotive Advisory Leader
PwC
April 2017Strictly private and confidential
9
25
25
28
33
33
34
34
45
45
45
53
69
69
70
75
78
90
2015 average NWC days per sector
88 88 88 88 87
31 31 3133 31
57 56 55 56 56
0
10
20
30
40
50
60
70
80
90
2011 2012 2013 2014 2015
Working capital performance in the last 5 years has improved by 10% in the automotive sector but still €200 billion in cash is still tied up
4Cash for Growth
There are big differences between OEM and Non-OEM and also within the two groups.
The discrepancy between OEM and non-OEM (automotive supplier) is a result of variation in business models and customers served as well as fundamental differences in the relative sharpness of management focusing on cash and the effectiveness of working capital processes.
We have identified an improvement for OEM of close to 15% over the last y ears, whereas the non-OEM group only improved by just over 6%.
Non-OEM
Medi anLow er quartile U pper quartile
Engineering and construction
Pharma and life sciences
Indu strial manufacturing
Chemicals
Forest, paper and packaging
A erospace, defense and security
Entertainment and media
Technology
Metals and mining
Government/public services
Consu m er
Healthcare
Transport and logistics
Automotive
Energy and utilities
Hospitality and leisure
Retail
Com m u nication
Source: CapitalIQ, annual reports
NW
C d
ay
s
30 3028 29 28
-1 0-3
0
-5
1922
1822 22
-10
0
10
20
30
40
50
2011 2012 2013 2014 2015
OEM
NW
C d
ay
s
No
n-O
EM
OEM
OE
M
PwC
April 2017Strictly private and confidential
62 62 60
63 63
52 50 54 52
46
-
10
20
30
40
50
60
70
2011 2012 2013 2014 2015
OEM’s DSO and DIO levels are improving but are partly offset by a decrease in DPO; more than €70 billion in cash is tied up
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OEM – DSO trend OEM – DPO trend
OEM – DIO trend
DSO improved 22% over the past five years which has been realised through better management of the receivables, eg, in the field of joint ventures and strategic alliances.
DPO has decreased by a little more than 10%. The upper quartile performance is fairly stable, whereas the lower quartile’s performance is deteriorating year after year.
We have seen more spend consolidation and the use of financial instruments like supply chain finance.
DIO levels show a slight improvement, and the spread between upper and lower quartiles narrowed significantly.
The closer collaboration and process alignment with the automotive suppliers is reflected in the improvement.
33
30 30 31
27
18
12 12 12 11
27 25 24 25
22
-
5
10
15
20
25
30
35
2011 2012 2013 2014 2015
54
48 44 46 46
35 36 34 33 33
40 41 39 41
38
-
10
20
30
40
50
60
2011 2012 2013 2014 2015
Da
ys
Da
ys
Medi anLow er quartile U pper quartile
OEM
Da
ys
OE
M
PwC
April 2017Strictly private and confidential
Company NWCToyota 25
Volkswagen 50
General Motors (5)
Daimler 58
PSA (22)
There are significant differences between – and even within –different automotive supplier segments resulting in more than €120 billion being tied up
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Source: CapitalIQ, annual reports
Co mpany NWCKor ea autoglass 42Xi nyi Glass 60Asahi India Glass 82Sai nt-Gobain (2)W ebasto 63
Co mpany NWCAutoliv 53Hy undai Sungwoo 32Tak ata 62Toy ota Gosei 45Kongsberg Autom. 44
Co mpany NWCAisin Seiki 35
F-tech Inc. 50
Magna 37
Plastic Omnion 3
Tower 4
Co mpany NWCFaurecia (13)
Johnson Controls 71
Lear 23
Magna 37Toyota Boshoku 14
Company NWC
Continental 44
Delphi 33
Denso 40
Robert Bosch 87
TI Automotive 33
Company NWC
Bridgestone 80
Continental 44
Goodyear 38
Michelin 83
Pirelli 25
Company NWC
Calsonic Kansei 24
Eberspacher 31
Faurecia (13)
Futaba 16
Tenneco 18
Company NWC
American Axle 33
Dana 35
GKN 52
Magna 37
ZF Friedrichshafen 33
Company NWC
Akebono Brake 34
Continental 44
Hyundai Mobis 44
Cie Automotive (13)
Cooper Standard 61
Company NWC
Benteler 25
Hyundai Mobis 42
KYB Corp 72
Tower 4
ZF Friedrichshafen 33
Company NWC
Aisin Seiki 35
American Axle 33
Magna 37
Schaeffler 67
Valeo (3)
Co mpany NWCSogefi 11
Calsonic Kansei 24
Denso 40
Valeo (3)
Dometic 67
Company NWC
BorgWarner 42
Continental 44
Delphi 33
Denso 40
Mahle 62
Co mpany NWCContinental 44
Delphi 33
VOXX 94
ASTI 86Visteon 23
Co mpany NWCContinental 44
Delphi 33
Denso 40
Sumitomo Elec. 86
Yazaki 51
Company NWC
SAIC (2)
Nexteer Autom. 29
NSK 102
Takata 62
R. Bosch Steering 41
Electrical components
Powertrain
Body and interior
Body glass Passenger restraints
InteriorA udio and telematics
Electronics and electrical
Climate control and
engine cooling
Engine T ransmission Braking SteeringA xles, driveshafts and components
Body and structural
Wheels and tires
Suspension
Exhaust
Fuel system
OEM
No
n-O
EM
PwC
April 2017Strictly private and confidential
Size generally affects suppliers’ average NWC days position but regional influence plays an important role
7Cash for Growth
Evolution of automotive suppliers’ NWC days
Americas
3736
3637
7880
2011 2015
4039
+1%
EMEA
4955
4046
4846
20152011
4853
-9%
Asia Pacific
5162
5458
7264
20152011
5761
-7%
Regional average
Large companies
> €5 billion 2015 revenues
Medium-sizedcompanies
€1-5 billion 2015 revenues
Small-sizedcompanies
< €1 billion 2015 revenues
No
n-O
EM
PwC
April 2017Strictly private and confidential
There is a significant gap in DSO between body and interior and other automotive suppliers and …
8Cash for Growth
Gap between Body and interior and other suppliers. There is a discrepancy between Body and interior and other suppliers for all working capital areas with the largest one on the receivables side, which has a delta of 8 days compared with all non-OEM companies.
The general DSO performance is fairly stable at around 61 days. Overall, slight DSO improvement is attributable to more efficient billing and collection systems, improved payment term management at supplier level, and supply chain risk policies at OEM level.
Takeaways
Inv entory
Automotive suppliers’ working capital performance depends on product footprint, regional set up and the level of collaboration with OEMs.
Inventory is the area with the largest spread between the supplier segments caused by the different set up of the supply chain and the dependency of the OEMs.
Many suppliers have reported actions in this area, especially in the field of billing and cash collection, supplier payment terms, and supply chain efficiency.
62
59 60
61 61
50
52
54
56
58
60
62
64
66
2011 2012 2013 2014 2015
Average non-OEM DSO performance 2011-2015
Powertrain Electrical components
Body & interior Total non-OEM
No
n-O
EM
Suppliers
PwC
April 2017Strictly private and confidential
… the DIO performances show more variation than DSO or DPO
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Converging performance
Lean practice implementations have improved inventory levels with 5 days for powertrain and electrical components but body and interior suppliers’ DIO increased 2 days.
The entire non-OEM group has improved DIO by 2 days (4%). Key drivers are more upstream and downstream collaboration in demand forecasting, better process coordination, and global sourcing optimisation.
Top non-OEMs are DPO leaders
Focus on procurement and sourcing benefitted most segments over the past four years but this positive trend is preceded by a 3-day decrease in 2011-2012 DPO positions.
As a result, 2015 levels are mostly in line with performance levels of 2011.
Key drivers for the recent improvements are spend consolidation, supply chain streamlining, and global sourcing programmes.
43 42 41
42 41
30
35
40
45
50
55
2011 2012 2013 2014 2015
Averagenon-OEM DIO performance 2011-2015
Powertrain Electrical components
Body & interior Total non-OEM
50
47
49
50 51
40
44
48
52
56
2011 2012 2013 2014 2015
Average non-OEM DPO performance 2011-2015
Powertrain Electrical components
Body & interior Total non-OEM
No
n-O
EM
No
n-O
EM
PwC
April 2017Strictly private and confidential
How can we support you?
10Cash for Growth
PwC can complete a working capital benchmarking exercise to compare your performance against your peers and identify potential improvement opportunities.
We can perform a diagnostic review to identify quick wins together with longer-term working capital improvement opportunities.
Develop detailed action plans for implementation to generate cash and make sustainable improvements.
Assist the realisation of sustainable working capital reduction by implementing robust, efficient and collaborative processes.
1.
2.
3.
4.
How to address the key levers:
• Identification, harmonisation and improvement of commercial terms.
• Process optimisation throughout the end-to-end working capital cycles.
• Process compliance and monitoring.
• Creating and embedding a “cash culture” within the organisation, optimising the trade-offs between cash, cost and service.
Inventory • SKU rationalisation • Consignment stock • Near sourcing • Safety stock and minimum order quantity optimisation • Lead time compression • Balanced cash, cost and services • Lean and agile supply chain strategies • Sales and operations planning (S&OP) • Demand management and forecasting techniques • Accurate tracking of inventory quantities • Differentiated inventory segmentation per product group • Collaborative replenishment strategies
• Aftersales management
Accounts receivable • Credit risk policies • Self-billing processes• Commercial revenue billing timeliness and quality • Billing for tooling
• Dispute resolution and root cause elimination • Good contract and customer terms management/usage
management• Timely order entry and order processing • Formalised collections strategy with a tailored and proactive
collections approach
Accounts payable • “Centre led” procurement • Consolidated spending • Purchasing channels • Payment method and frequency • Payment terms standardisation • Improved visibility of cash/cost trade-offs across the supplier base
to enable conscious optimal decision making • Establishment and optimisation of supply chain finance
programmes (through an association with an independent finance provider)
Cash culture and visibility ‒ The aim is to create a culture in which cash is important and performance is clearly visible
Key cash driver focus areas:• Cash-related management incentives • Top management sponsorship • Clear roles and accountabilities • Corporate working capital framework • Defined targets per division/country • Working capital reporting dashboards by division/country
Examples of areas where PwC could help you to release cash from optimised working capital management
PwC
April 2017Strictly private and confidential
Our approach to sustainable working capital
12Cash for Growth
Full-scope working capital project for a German automotive supplier.
T he key issue
For m ore than two years, the company had experienced h istorical stressed
liqu idity and an approx. €6m credit facility was due for repayment in the follow ing y ear. As a r esult, the ov erseas shareholder requested that inventory
lev els be r educed by approx. €6m in or der to meet the credit facility r epayment; however, this was deemed to be unfeasible by the company.
How we helped
Pw C kick-started with a workshop to raise working capital awareness among
th e company’s key stakeholders. Following this, we performed a complete w or king capital diagnostic r eview in a short t ime frame. This included a “deep
div e” into the procure-to-pay (creditors) and forecast-to-fulfil (inventories) cy cles for three different company sites, plus a g eneric or der-to-cash (debtors)
r ev iew.
Ou r efficient and quick approach (completed within three weeks) was essential for r aising organisational awareness of poor cash performance and for
iden tifying potential benefits.
T he result
We identified potential n et working capital cash benefits of more than €6m.
In con trast to the initial management opinion that the company had suspected poor inventory performance, 80% of the potential benefits were identified
w ithin the procure-to-pay process (with only limited potential identified w ithin the forecast-to-fulfil process). This was an area of focus that had n ot
or ig inally been considered by management or the ov erseas shareholder.
We th erefore used these r esults to mediate between management and the ov erseas shareholder at an operational level.
We supplement our working capital and cash management methodologies with core consulting approaches to make sure that improvements are tangible and sustainable.
Change management
Esta blish a more cash-focused
cu lture that is able to sustain th e higher levels of
per formance and drive con tinuous improv ement.
Working capital
optimisation
Cash management
En su re effective utilisation
a n d forecasting of cash.
Stakeholder management
En su re that key stakeholders
r emain engaged during the pr oject.
Benefits realisation
En su re that cash generation
objectives are achieved and m aintained.
Case study:
PwC
April 2017Strictly private and confidential
Working capital automotive experts and global network
13Cash for Growth
Malaysia
Ganesh GunaratnamTel: +603 2173 0888E-mail: [email protected]
Switzerland
Reto BrunnerTel: +41 58 792 1419E-mail: [email protected]
Austria
Manfred KvasnickaTel: +43 1 501 88 2937E-mail: [email protected]
Turkey
Kadir AyazTel: +90 212 355 2317E-mail: [email protected]
The Netherlands
Danny SiemesTel: +31 88 792 42 64E-mail: [email protected]
France
François GuilbaudTel: +33 156 578 537E-mail: [email protected]
Singapore
Caroline ClavelTel: +65 62363047E-mail: [email protected]
CEE
Petr SmutnyTel: +42 25 115 1215E-mail: [email protected]
Italy
Marco GhiringhelliTel: +39 02 66720345E-mail: [email protected]
Sweden
Jesper LindbomTel: +46 70 9291154E-mail: [email protected]
Australia
Jonas SchöferTel: +61 2 82664782E-mail: [email protected]
USA
Paul GaynorTel: +1 925 699 5698E-mail: [email protected]
Middle East
Mihir BhattTel: +971 4304 3641E-mail: [email protected]
Finland
Michael HardyTel: +358 50 346 8530E-mail: [email protected]
Denmark
Rene Brandt JensenTel: +45 3945 9160E-mail: [email protected]
Spain
Josu EcheverriaTel: +34 91 598 4866E-mail:
Hong Kong
Michael P GildeaTel: +852 2289 1816E-mail: [email protected]
Norway
Jørn JuliussenTel: +47 95 26 00 60E-mail: [email protected]
Belgium
Rudi BogaertTel: +32 9 268 80 13E-mail: [email protected]
United Kingdom
Daniel WindausTel: +44 20 780 45012 E-mail: [email protected]
Co-authors of the study
Sebastian LeidigSenior Consultant Germany
Nick De SmedtConsultant Germany
Stephan Dellermann
Partner – GermanyTel: +49 170 987 9253E-mail: [email protected]
Rob Kortman is a leading partner in PwC’s European
specialist Working Capital practice. He has ov er eighteen y ears of experience delivering working capital
management programmes to generate cash for corporate
and PE clients. He started his career as a strategic buyer at Ford Europe.
Rob Kortman
Senior Manager – Germany Tel: +49 151 26818204E-mail: [email protected]
Stephan Dellermann is a Senior Manager in PwC’s
specialist Working Capital practice. He adv ises clients globally on delivering finance performance
im provement, from process analysis and redesign, to
shared services and WCM.He started his career as controller at Daimler AG.
PwC
April 2017Strictly private and confidential
Glossary
14Cash for Growth
Metric Definition Ba s is of ca lcula tion
NWC %
(net working ca pital %)
NWC % m easures working capital requirements relative to
th e size of thecompany.
(A ccounts receivable + inventories –a ccountspayable)/sales
NWC da ys
(net working capital days)
In dication of the total days to complete the full cash
conv ersion cycle.
(A ccounts receivable + inventories –a ccounts payable)/sales x365
DSO
(da y s sa les outstanding)
DS O is a measure of the average number of days that a
com pany takes to collect cash after the sale of goods or after
serv ices have been delivered.
A ccounts receivable/sales x 365
DIO
(da y s inventories on-hand)
DIO g iv es an idea of how long it takes for a company to
conv ert its inventory into sales. Generally, the lower
(sh orter) the DIO, th e better.
In v entories/sales x 365
DPO
(da y s payables outstanding)
DPO is a n indicator of how long a company takes to pay its
tr ade creditors.A ccountspayable/sales x 365
T erm Definition
OEMOr iginal equipment manufacturer. Data includes the 15 most relevant OEMs based on 2015 revenue
a n d available data; financial services have been excluded.
Non -OEMRa n ge of companies manufacturing automotive parts and components based on Capital IQ primary
in dustry. Da ta includes 596 suppliers based on 2015 revenue and available data.
Powert ra inSelection of n on-OEM companies based on Primary SIC code: producing components that generate
pow er and deliver it to the road surface (engines, transmissions, wheels, etc)
Elect rical com ponentsSelection of n on-OEM companies based on Primary SIC code: producing components related to
tr ansformers, meters, electrical coils, etc.
Body a nd interiorSelection of n on-OEM companies based on Primary SIC code: producing components related to car
bodies, plate work, seats, etc.
Methodology
A u tomotive data is based
on th e publicly available
da ta (CapitalIQ) of 611
com panies in the
a u tomotive sector,
a ccording to Capital IQ
sector segmentation.
Th e division in non-
OEM is ba sed on Capital
IQ Pr imary Industry
cla ssification, whilst the
seg ment categorisation is
ba sed on Capital IQ
pr imary SIC codes (data
a v ailable for 42% of
sa mple). Div ision in
r eg ions is based on
Ca pital IQ Pr imary
Cou ntry.
OEM da ta is derived
fr om the annual
a ccounts of a selection of
th e top automobile
m anufacturers in terms
of r ev enue. For OEM
da ta the financial
serv ices arm has been
ex cluded.
© April 2017 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft. All rights reserved. In this document “PwC” refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.