Alternative recipe to more expensive credit – thanks to the banking crisis: help yourself!

Herzogenrath October 13, 2008 – The international banking crisis has made corporate loans more than 10 percent more expensive. Dr. Götz-Andreas Kemmner, managing partner of the consulting firm Abels & Kemmner GmbH, therefore recommends that the manufacturing industry finance due investments with its own funds in order to save costs. The consultants discovered around € 78 billion in short-term liquidity reserves in companies’ portfolios alone.

The facts: The Euribor, the index for interest rates on interbank transactions, rose between 0.628 and 0.806 percentage points between September 2007 and September 2008. This made loans between banks significantly more than 10 percent more expensive. Nor is it foreseeable that the banks will quickly regain trust. Ultimately, borrowers have to pay for this mistrust. The fact that existing credit lines with short-term interest terms are likely to become even more expensive is particularly critical. That is why action is needed.

Abels & Kemmner sees room for maneuver in companies’ inventories: The inventories of German companies in the manufacturing sector amount to €416.5 billion. Total liabilities to banks amount to €308 billion, of which around 47% or €144.5 billion are current liabilities. This means that over € 900 million more is being paid for short-term interest on loans alone than was usual a year ago, based on the 0.628 percentage points as the smallest increase in the Euribor index.

This need not be the case, as a comprehensive study by Abels & Kemmner, based on analyses of over 60 companies, concludes that German manufacturing companies have between 24% and 49% inventory reduction potential (25% and 75% quantiles; median: 33.7%; mean: 36.8%). Of this excess stock, between 11.2% and 25.2% (25% or 75% quantiles; median 16.4%, mean 18.8%) can be collected within 6 months. This corresponds to liquidity of around € 78.3 billion that can be released in the short term. This would reduce companies’ current liabilities to banks by around 54% and investments due could be financed from the portfolio. Around € 4.3 billion in interest on loans would then be saved at an assumed interest rate of 5.5 percent.

The strategic lever: professional inventory management

Liquidity reserves can be salvaged through professional inventory management. In most companies, however, only comparatively simple means are used to work on inventory reduction potential, as there is often a lack of awareness, time and specialist knowledge. Sustainability is also a reason for failed portfolio reduction projects. Management consultants Abels & Kemmner can help you analyze the potential for reducing your inventory and set up a professional and sustainable inventory management system. The consultants need two days of brief analysis to be able to provide reliable evidence of a company’s most significant potential for action to reduce inventory. The consultants need around four weeks for the first pilot projects, in which company data is recorded and analyzed in detail and the optimization of logistical parameters is simulated for the first pilot article groups. Depending on the size of the company and the potential for stock reduction, it is then worthwhile to map the updating of the scheduling parameters in the system, to have the scheduling parameters set externally and to readjust them cyclically at a later date, or to constantly work on the optimum stock levels internally with the help of professional scheduling optimization software. “No matter which of the two solutions is implemented in the end: There is hardly a company where at least 20 percent inventory reduction potential is not realistic,” explains Dr. Götz-Andreas Kemmner.

About Abels & Kemmner

One focus of the company, which operates throughout Europe, is the streamlining of value chains (supply chain optimization) for series and variant manufacturers as well as wholesale companies. Abels & Kemmner deals with the optimization of planning and control processes, the article and supplier portfolio to be handled and the processes at the execution level (lean logistics).

The consultants develop solutions from conception to implementation, both in terms of organization and IT support. In the SAP area, we go as far as customizing and adaptation programming if necessary. Typical of A&K’s projects is that the supply chain is made predictable in the literal sense. Supply chain concepts that A&K has developed with its customers have already won best practice awards three times.

The second focus is on restructuring and earnings enhancement projects. Here, the consultants develop going concern forecasts as well as restructuring and downsizing concepts and implement these in the companies. They have made a name for themselves in crisis and turnaround management through the successful restructuring of medium-sized companies.

Picture of Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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