There are many angles produce professionals can take to differentiate their business from their competition, but the best long lasting strategy lies in understanding how to improve a key business metric called the cash conversion cycle (CCC). In an industry, where healthy cash flow is necessary to survive, understanding how to manage your CCC differentiates healthy, fast-growing companies from the rest.
In its simplest form, this metric measures the time it takes for a company to convert its resources (such as raw materials and inventory) into cash. Managing their CCC effectively helps businesses ensure that they:
- Have enough cash on hand to purchase raw materials at the most opportune times,
- Can produce and sell product before it spoils at optimal rates, and
- Collect payment from their customers in the most efficient and timely manner possible.
There is not a one-size-fits-all answer to what is considered a bad, average, or good cash conversion cycle metric in the food supply chain. This is because the outcome greatly depends on several factors such as a company’s business model, their company size, the seasonality, market conditions, and the product or inventory mix they offer. The goal of measuring your CCC is rather to better understand your business and areas you can improve on it. Once businesses have established a baseline, they can find the optimal balance that meets their company's needs and circumstances.
Take the first step in evaluating your cash conversion cycle with a guide that walks perishable food businesses through how to calculate, baseline, and improve the three key processes of their CCC. Get real-world insight into how businesses are applying technology and capital to their CCC to enhance outcomes. Download it today.