Posted onNovember 17, 2016
Zappos.com, a leading online retailer of women’s shoes and accessories, was identified as a best-practice organization in APQC’s Collaborative Benchmarking study Improving Working Capital Management and Cash Flow Intelligence. The organization’s stated mission is “to provide the best customer service possible,” and its solid working capital management (WCM) program is structured to support this mission.
- The treasury team takes ultimate responsibility for WCM at Zappos.com. The senior treasury manager, who oversees both treasury and accounts payable at the organization, assists the treasury team. This dual role provides him with a holistic view of the company’s cash flow position, including payables, check runs, and ACH1
- Each employee is educated about his or her individual role in and impact on WCM, which follows the company’s growth and learning core value. Training and development enables the organization to communicate the strategic value of improved WCM to both finance and non-finance employees.
- Weekly cross-functional management meetings and monthly data triangulation meetings are held between treasury, financial planning and analysis, and accounting. Zappos.com believes the meetings ensure collaboration and calibration in WCM.
- The organization uses traditional WCM metrics, such as days sales outstanding, days inventory outstanding, and days payables outstanding. In addition, Zappos.com has created metrics based on its unique business and maintains weekly accounts payable metrics, including invoice count, paper versus EDI2, weekly invoices parked/posted, new vendor setups on the trade and non-trade side, and three-way match metrics.
Zappos.com achieved successful WCM with commitment and hard work. During the journey to improve working capital management and cash flow intelligence, Zappos.com’s management learned lessons that contributed to their success.
LESSONS LEARNED WHIL E ESTABLISHING A WORKING CAPITAL
Lesson 1: Make performance and system metrics part of the everyday process.
Key performance metrics should be reviewed on a regular schedule with the frontline employees who directly impact the metrics and with executives who are interested in and driven by metric results. Frontline employees may not understand all of the metrics, but if they review them on a weekly basis, employees will gain a firm grasp on business operations, understand the drivers behind the metrics, learn how to improve them, and take this knowledge with them as they progress into leadership positions.
It was through a review of key metrics that management at Zappos.com discovered problems in purchasing and receiving, and initiated the purchase handling exception at Zappos (PHEZ) project. This article Proactively Addressing Problems in Working Capital Management discusses this project in detail.
Lesson 2: Ensure the right sponsor for the project.
Project sponsors need to be active (not sponsors in name only) and need to provide credibility to the project.
When implementing a change project, Zappos.com first ensures that its senior executives have committed to follow-through. The lack of such commitment is a primary reason that organizations experience unsuccessful projects (Figure 1).