Managing Working Capital During Unpredictable Times

February 9, 2024 Mimi Torrington

business leader looking at graphs holding a pen

The COVID-19 pandemic has caused unprecedented levels of disruption and uncertainty for companies across all sectors and geographies. And even in the best of times, many management teams struggle to sustain control over short-term cash flows and managing the working capital that drives them during unpredictable times. However, the COVID-19 crisis has been unique in its combination of challenges, making mitigation even more complex.

How are businesses dealing with the changes in supply chain, alterations and disruptions to cash flow, and ensuring that their suppliers, vendors, and customers are going to remain financially viable?

On this episode of CFO Weekly, we sit down with Peter Woolery. Peter is the Chief Financial Officer at Summit Bicycles, and began his career with the company cleaning floors, toilets, and assembling kid’s bicycles for the holidays, working his way all the way to the executive team.

Readjusting the Supply Chain

peter woolery

While the bicycle industry is already a highly seasonal industry, seeing peak demand during warmer months, and waning demand during the Winter, this year has been especially volatile for the industry, and for Summit as a business.

When all the gyms and fitness facilities closed back in May, they saw a huge spike in demand for bicycles, more so than a typical year. Bicycles were taking months, or in some cases for particular models, up to a year to get into stock for waiting customers.

What this did mean was an enormous jump in online interest, as people were sequestered in their homes and left without their typical fitness routines. They turned online, and began ordering bicycles.

“We are up over 700% in online sales for the year, which has really forced us to adjust our practices as a company," Woolery said.

Forcing a Change in Operations - Managing Working Capital During Unpredictable Times

managing working capital

Beyond just an increase in demand, the COVID-19 pandemic has forced companies like Summit to change the way that they're doing business, particularly when concerning inventory and ordering.

No longer just selling what is in stock and refilling it the next week, companies like Summit are having to sell against future inventory. In order to secure bikes for the following model year, they’re having to back-order those up front and adjust systems to account not for what they have on hand, but to report on what they’re going to have in the future.

And as you can imagine, this presents particular challenges for current bicycle sales, as well as dealing with customers who want to order a bicycle to use right now and don’t want to have to wait nine months or longer for their item.

“We've had to adjust our systems to not just report what we have, but build new systems so that our frontline sales staff can communicate to our customer, what the eta is on a particular bike, what the probability is that it'll show up at that time, and then adjust our selling practices to communicate what might be a better option that we can get in a more realistic time, or we might have in one of our warehouses right now," Woolery said.

A Sourcing & Supply Chain Logjam

It’s safe to say that the bicycle industry has seen an increase in demand over the last year, but they’ve also had an increasingly complex set of problems when it comes to sourcing and supply chain.

In the wake of the initial COVID-19 outbreak, a lot of the bicycle products that were coming from China were relocated to places like Vietnam or Cambodia. And while those parts of the world were shut down quickly, they were also reopened far more quickly than parts of the United States.

But production hasn’t caught up with demand yet. So most of the spare or replacement bicycle parts needed for a company’s service department are increasingly difficult to get, as most of the parts are being used for new bicycles, not repairs or services.

Managing Cash Flow - Working Capital

As you may imagine, even with a steady cash flow coming in from the order of new bicycles, the supply chain disruptions have made things challenging. Rather than invest dollars into future orders, companies have had to divert dollars and convert them into physical inventory. Bicycle shops have much more inventory than in the past, at least that’s the case with Summit.

So from a CFO’s point of view, the challenge is finding where on the balance sheet the dollars are actually allocated. Are they allocated to current inventory, future orders, or backorders?

One of the things that Peter did was to write a program to view cash flow in real time. He wasn’t getting good day-to-day sales info from the point of sale systems, so he wrote a program that allows him to see live cash flows every day, updated every five minutes, in order to better update weekly cash flow projections. To see where they need to convert dollars into future orders.

The Good Coming Out of 2023

While 2023 has been hard for a lot of businesses, there have been some silver linings to come from the pandemic. One of Peter’s highlights was the increase in automation for things that normally relied on human input.

They are seeing tremendous volume in online sales, but one of the bottlenecks they were experiencing was simply entering those sales into the point of sale system. Now that they’ve written a program to do that for them, it’s made a huge difference in the efficiency and productivity that the teams are experiencing.

And after things have returned to normal, they hope to build on those automations to not only get better productivity out of the staff, but to make their jobs easier and make them look forward to coming to work every day and getting people out and moving.

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