One of the newest approaches to cutting working capital has been developed in the vendor managed inventory (VMI) space. VMI refers to a supply-chain technique in which the responsibility for managing and replenishing inventories is left with the supplier, distributor or manufacturer rather than the buyer. VMI software sets up an electronic link by which the supplier, say Gillette Co., monitors inventory levels of its goods held by a buyer, such as Wal-Mart Stores Inc. The inventory sits on the books of the supplier, but it is received, issued, credited and adjusted through the buyer's ERP systems. It moves onto the buyer's books once it leaves inventory. VMI software helps to eliminate discrepancies that might arise months later by reconciling a transaction on-the-spot between the ERP systems of the buyer and supplier.

Aceva, based in San Mateo, Calif., just introduced an algorithm-based VMI transaction reconciliation tool that it says can eliminate write-downs by catching such unreconciled transactions while they're still manageable. The software promises to reconcile all transactions and inventory positions between the buyer and the supplier in real time. "The beauty of this tool is you'll see the results the morning after," says Sanjay Srivastava, COO at Aceva. "You're finding out today about a transaction that's wrong that you would otherwise find out about three months from now."

Aceva developed the tool while working with Santa Clara, Calif.-based Applied Materials Inc., the world's largest supplier of semiconductor equipment. Srivastava estimates that companies using this VMI tool can free up as much as $100 million a year by reducing inventory discrepancies. "It's taking just-in-time inventory to the next level," he says.

Installing the latest software is only part of the process, however. "Technology enables you to start managing the whole process," says REL's Payne. "I've seen companies spend hundreds of millions of dollars on technology and make no improvement in their working capital because of what they haven't done. They haven't done the fundamentals. They haven't changed their policies, prices or the alignment of the organization. When you're replacing old with new technology, the only way you're going to get the incremental benefit is if you change the processes and policies behind it."

In its survey, REL found that The Gillette Co., based in Boston, managed to cut its net working capital by an extra 15% in 2003 and 14% in 2002 by addressing its collection practices, payment terms and implementing inventory and supply chain optimization programs. To accomplish this, Gillette didn't only implement sophisticated software. It actually overhauled its entire order-to-delivery process by recognizing it also had to change its corporate culture.

According to REL's survey released last month, the industries showing the biggest improvements in "days working capital" were computer hardware, household nondurable, cosmetics/personal care, retailers and telecom operators. Telecom, containers and packaging, medical devices/supplies and pharmaceutical industries all showed deterioration. Payne said retailers continue to improve their DWC by improved cash collections, optimizing their supply chains and better terms with suppliers. Wal-Mart remains the leader, improving its inventory turns to 7.5 times in 2003 from just 4.7 times in 1995, while the competition moved on average to just below five times over the same period.

U.S. Xpress's Swafford stresses the importance of weighing a solution's cost versus the benefits, including the savings from the interest costs on borrowed money just to carry the receivables. He continues to look for ways of using the GetPaid tool more effectively. Optimizing working capital "is a measure of our stewardship as to the contribution we're making to the financial health of the company," says Swafford. "You can't have what you call loafing capital."