A Strategic Guide to Optimizing Working Capital with SAP

Working capital management has become a primary focus for organizations in today’s economic landscape, which is marked by supply chain disruptions and inflation. John Stevens, SVP, Global Head of Capital Markets, Financial Institutions & Working Capital at Kyriba, indicated in a recent article that liquidity is a critical component of strategic stability. For finance departments, this requires moving beyond manual processes and leveraging ERP systems – as well as experienced partners like Kyriba – to create a more agile and data-driven operation.

Optimizing the Cash Conversion Cycle

Effective working capital management can be measured by the Cash Conversion Cycle (CCC), which indicates the time it takes for a company to convert its investments in inventory and resources into cash flows from sales. To minimize the time cash is tied up in operations, CCC employs three primary levers: Days Sales Outstanding (DSO), or receivables; Days Inventory Outstanding (DIO), or inventory; and Days Payable Outstanding (DPO), or payables.

However, the challenge of managing these levers across multiple business units and jurisdictions can be addressed through a unified SAP landscape.

• Streamlining Accounts Receivable (DSO): Systems like SAP S/4HANA Finance become a game-changer for organizations looking to break free from an aging receivables system. For example, predictive analytics can empower collections management by highlighting at-risk accounts before they become a challenge. The right tools can also automate the invoice payment matching process, freeing up the finance team for more strategic work.
• Improving Inventory Management (DIO): Excess inventory ties up cash reserves, while insufficient stock results in lost sales opportunities. However, AI and advanced analytics can help businesses achieve more accurate demand forecasting, enabling companies to align their inventory levels with anticipated sales, thereby minimizing carrying costs. Additionally, real-time inventory data can ensure accurate visibility across the supply chain, preventing stock discrepancies and enabling more efficient inventory turnover.
• Strategic Management of Accounts Payable (DPO): Extending payment terms must be balanced with maintaining strong supplier relationships. Kyriba’s platform, and tools like SAP Ariba, can facilitate this by creating a collaborative platform for suppliers and buyers, enabling strategies such as dynamic discounting, where suppliers can choose early payment for a discount. This provides suppliers with needed liquidity while offering a financial benefit to the buying organization, transforming the payables function from a cost center into a strategic tool for strengthening the supply chain.

Stevens cites Kyriba’s recent CFO survey which indicates, over 70% of finance leaders express concern about the impact of supply chain volatility on their organization. With uncertainty here to stay, organizations must become more resilient. He points to the  case of one manufacturer that turned market disruption into an advantage through proactive measures – illustrating the value of such strategic agility. An integrated SAP environment provides the technological foundation required to achieve similar results.

 What This Means for SAPinsiders

Shift to real-time financial data. SAPinsider research highlights that finance functions are shifting away from periodic reporting toward live, data-driven operations to better navigate economic uncertainty. The modern objective is to leverage an ERP system as a central platform for real-time analytics and predictive forecasting, enabling more resilient and agile financial management.

Ecosystem-based liquidity optimization is the way forward. Leading organizations are now looking at the entire buyer-supplier ecosystem to unlock cash. Treasury solutions, such as those offered by Kyriba, demonstrate the effectiveness of tools that facilitate supply chain finance. This strategy, which can be implemented via third-party platforms or native SAP solutions, treats payables and receivables as strategic opportunities to optimize liquidity for both the organization and its partners.

Leverage integrated intelligence for a strategic advantage. The ability to capitalize on market volatility as a strategic advantage depends on having a fully integrated technology suite. For example, the combination of SAP S/4HANA’s clean data core, Business Technology Platform’s integration capabilities, and the planning functions of SAP Analytics Cloud creates a unified view of the enterprise. This integrated intelligence, which can be implemented by SAP partners like Kyriba, enables leadership to execute complex scenario analyses and make data-driven strategic decisions with speed and confidence.