Recession hinders inventory management

The recession has made it tougher for the largest 1,000 public companies in the United States to manage inventory as well as collect money owed them from customers, according to a recent study conducted by a consulting firm that specializes in cash management. REL, a division of the Hackett Group Inc., said that in 2009 these companies had US $740 billion in cash unnecessarily tied up in working capital, which it defined as the sum of receivables, inventories, and payables. That was the worst performance relative to working capital management in five years, REL's analysts said.

The company's research found that U.S. companies took three days longer to collect from customers in 2009, going from 34.2 Days of Sales Outstanding (DSO) in 2008 to 37.7 in 2009. Days of Inventory Outstanding (DIO) rose from 29.7 in 2008 to 32.3 in 2009. One working capital metric—Days of Payables Outstanding (DPO)—did show improvement; companies took 31.7 days to pay suppliers rather than the 28.5 days they required in 2008.

During the first quarter of 2009, REL said, companies were particularly hard-pressed in the area of working capital management. By the end of the year, most were able to improve their situation. "The economic crisis hit hard last year and companies hunkered down, focused on cash, and drove improvements in working capital that reduced their need for credit," said REL President Mark Tennant. "Now that the worst of the global economic problems are behind us, companies are returning to their traditional mindset, with an emphasis on revenue and profits. Working capital is likely to be placed on the back burner, and we're likely to see further deterioration in performance as we move through 2010."