How do you align your net operating cycle with your business strategy and goals?

1 Assess your current NOC

The first step is to measure your current NOC and compare it with your industry benchmarks and competitors. You can calculate your NOC by adding your days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO), and subtracting your cash conversion cycle (CCC). A lower NOC means you are generating cash faster and have more liquidity. A higher NOC means you are tying up more cash in your operations and have less flexibility.

2 Identify your strategic objectives

The next step is to identify your strategic objectives and how they relate to your NOC. For example, if you want to grow your market share, you may need to invest more in inventory and offer longer credit terms to your customers, which could increase your NOC. If you want to improve your profitability, you may need to reduce your inventory and receivables, and negotiate better payment terms with your suppliers, which could decrease your NOC. You should also consider the trade-offs and risks involved in changing your NOC, such as customer satisfaction, supplier relationships, and financing costs.

3 Implement best practices

The third step is to implement best practices to optimize your NOC and align it with your strategic objectives. These practices include forecasting sales and inventory levels to adjust according to demand and seasonality, streamlining procurement and production processes to minimize waste and obsolescence, implementing effective inventory management systems and techniques such as just-in-time, lean, and ABC analysis, enhancing credit management policies and procedures like credit scoring, invoicing, collection, and dispute resolution, leveraging technology and automation to improve order-to-cash and purchase-to-pay cycles while reducing errors and delays, and seeking alternative sources of financing such as trade credit, factoring, and supply chain finance to improve cash flow and reduce borrowing costs.

4 Monitor and review your NOC

The final step is to monitor and review your NOC regularly and evaluate its impact on your business performance and goals. You should track key indicators, such as sales, gross margin, operating expenses, net income, cash flow, return on assets, and return on equity, and compare them with your targets and expectations. You should also identify any gaps or issues that may affect your NOC and take corrective actions as needed. By doing so, you can ensure that your NOC is aligned with your business strategy and goals and supports your long-term success.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?