Companies Dramatically Slowed Payments to Suppliers While Disrupted Demand Caused Inventory to Reach Record Levels; Cash-on-Hand and Debt Both Also Rose to Record Levels

The pandemic drove significant changes in working capital performance among the 1000 largest non-financial U.S. companies in 2020, according to new research from The Hackett Group, Inc. (NASDAQ: HCKT). Drops in revenue and cost of goods sold were seen in many industries, and this was a major factor affecting overall working capital performance, the survey found. But companies also dramatically slowed payments to suppliers, and disrupted demand and unsold products drove inventory to higher levels. In addition, companies increased their cash on hand by 40% to protect themselves from the impact of the pandemic, and continued to accrue debt at record levels, with debt rising by 10% year-over-year. Capital expenditures also fell to record low levels, as companies cut spending and conserved cash in anticipation of further market uncertainty.

Days Payable Outstanding (DPO) was the main working capital shift evident in 2020, rising by 7.6%, with typical companies now taking more than 62 days to pay suppliers, an all-time high. Days Sales Outstanding (DSO) and Days Inventory Outstanding (DIO) also rose to all-time highs. DSO increasing by 3.8% to 41.5 days, and DIO rose by 7.1% to 54.4 days.

The Hackett Group’s research identified a working capital improvement opportunity of more than $1.2 trillion among the companies surveyed. Upper quartile companies now convert cash more than 3x faster than typical companies (15.7 days versus 46.4 days). Top performers collect from customers 41% faster (29.0 days versus 48.8 days), hold less than half the inventory, (29.4 days versus 62.5 days) and pay suppliers 56% slower (76.7 days versus 49.3 days). The largest year-over-year shift was in payables, where the performance gap between top quartile and median companies increased by 10 percentage points in 2020.

Overall, the Cash Conversion Cycle (CCC), a standard measure of working capital performance, deteriorated by 2% in 2020, driven by increases in inventories and receivables. But excluding the oil and gas industry, which faced special challenges because of the fall in oil and gas prices, CCC actually improved by 4%. Performance also varied widely in other industries. Commercial closures, lockdowns, and stay at home orders impacted many industries, driving deterioration in working capital in many industries, including airlines (903% year-over-year CCC deterioration), hotels and recreation (47% deterioration), and railroads and trucking (25% deterioration). But pandemic-related shifts in demand allowed companies in some industries to see improvements in working capital performance. These included household and personal care (113% year-over-year CCC improvement), media (106% improvement) and Internet and catalog retail (65% improvement).

The survey also found that cash on hand increased by 40% year-over-year, the first significant increase in a decade, as companies sought to safeguard against continued uncertainty, and in some cases prepare for potential opportunities. Debt continued its long-term upward climb, driven by low interest rates and available credit, increasing 10% year-over-year. Debt has risen by 67% since 2015. The pandemic also drove companies in many industries to cut capital expenditures, with Capex declining by 10%.

The Hackett Group’s annual working capital survey is featured in June/July issue of CFO Magazine. A summary of The Hackett Group’s 2021 Working Capital Survey findings is available on a complimentary basis, with registration, at this link: http://go.poweredbyhackett.com/uswcspg2106sm

“Liquidity was of crucial importance as companies responded to the pandemic, driving companies to conserve cash and increasing debt, to put themselves in a better position to extend terms to customers, support suppliers, and weather unforeseen changes in market conditions,” said Craig Bailey, Associate Principal, Strategy & Business Transformation, The Hackett Group. “On payables, we saw many companies simply forced their suppliers to take 30-day term extensions. But some were able to support weaker suppliers to protect their supply chain. On the inventory side, companies in many industries saw dramatic revenue drops, and responded by consolidating their offerings or otherwise simplifying their mix of products.”

“The pandemic has also driven significant changes in consumer buying habits,” said Bailey. “Customers have leaned heavily on e-commerce this past year, and looking forward, it’s hard to predict if or when traditional demand patterns and buying habits will come back. Companies need to foster greater agility, so they can dial production up or down to match demand, and also shift sales channels as necessary, moving more business to e-commerce if customer demand warrants it.

“Inventory management will also be key. There’s a lot of uncertainty going forward, and companies that have greater ability to manage inventory levels will be in a better position to respond quickly to market shifts. But inventory has historically been a difficult area for companies to optimize, as different parts of a company, like sales or manufacturing, often have competing priorities and goals in terms of inventory.”

The Hackett Group Working Capital Survey and Scorecard calculates working capital performance based on the latest publicly available annual financial statements of the 1,000 largest non-financial companies with headquarters in United States, sourced from FactSet/FactSet Fundamentals. The survey takes an industry-based approach to ranking companies according to the four key working capital metrics Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO), Days Payables Outstanding (DPO) and Cash Conversion Cycle (CCC). For each industry the companies are ranked according to overall CCC days. Companies are classified according to the FactSet industry classification system, using data sourced from FactSet. For purposes of the survey and presenting the results we have grouped certain industries together. Historical comparisons within the survey are made on a like for like basis.

About The Hackett Group

The Hackett Group^® (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking firm to global companies, offering digital transformation including implementation of leading enterprise cloud applications, workflow automation and analytics that enable digital world class performance.

Drawing from our unparalleled IP from nearly 20,000 benchmark studies with the world’s leading businesses – including 93% of the Dow Jones Industrials, 91% of the Fortune 100, 80% of the DAX 30 and 55% of the FTSE 100 – captured through our leading benchmarking platform, Quantum Leap^®, and our Digital Transformation Platform (DTP), we accelerate best practices implementations.

More information on The Hackett Group is available at: www.thehackettgroup.com, info@thehackettgroup.com, or by calling (770) 225-3600.

Cautionary Statement Regarding “Forward Looking” Statements

This release contains “forward looking” statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Statements including without limitation, words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, seeks”, “estimates” or other similar phrases or variations of such words or similar expressions indicating, present or future anticipated or expected occurrences or outcomes are intended to identify such forward looking statements. Forward looking statements are not statements of historical fact and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward looking statements. Factors that may impact such forward looking statements include without limitation, the ability of Hackett to effectively market its digital transformation and other consulting services, competition from other consulting and technology companies who may have or develop in the future, similar offerings, the commercial viability of Hackett and its services as well as other risk detailed in Hackett’s reports filed with the United States Securities and Exchange Commission. Hackett does not undertake any duty to update this release or any forward looking statements contained herein.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210715005120/en/