Key areas firms manage time for competitive advantage

A sand timer showing the significance of time

George Stalk Jr., coined the phrase, “time-based competition.” In his seminal book, Competing Against Time, he argues for the management of time in a competitive setting. In essence, the firm that moves the fastest will likely be first on the competitive finish line. From the 1970’s to the 1980’s, improving product quality was the main thrust of most business firms. But as quality-improvement techniques became the norm, firms shifted toward speed—speed in serving customers, speed in product introductions, and speed in all types of transactions and processes.

There are several visible areas where firms manage time for competitive advantage. These include:

Innovation cycle time

Innovation fuels the growth of any business. Firms must constantly introduce new products and services to continue to grow and survive. Innovation cycle time starts from the time an idea or concept is generated to the time the product is available. Many key activities fall in between these two events such as research & development (R&D), consumer product tests, market research, vendor sourcing and development, and manufacturing capacity planning and investment.

Firms that hesitate to innovate can pay a very high price. Nokia is experiencing irreparable damage for not introducing smart-phone models as fast as Apple and Samsung. Apple has aggressively brought in new models of tablets, smart-phones, music players, desktop and laptop computers in its tooth-and-nail war with various competitors.

Order to delivery time

Delivering customer orders on-time has been a challenging area for many firms. Order-to-delivery (OTD) is defined as the time from when the customer places an order to the time it is finally and completely received. Some firms short-cut this business measure by starting the clock when the order is encoded into a computer or measuring only up to when the first delivery is made, even if that first delivery only partially serves the order. As much as managers may claim these short-cut metrics focus on the more controllable aspects of customer service, experience has shown these can and do mislead executives on the firm’s true customer service performance.

OTD can be a very touchy issue between customers and vendors. Large supermarkets, for example, would cancel orders not delivered within a few days. Industrial shipbuilders are given years to deliver new vessels but any delay could mean millions of dollars in penalties and the higher chance the customers may cancel the order altogether.

Several critical factors govern OTD. These include the time it takes to prepare the order, placing it, and having it received by the vendor. For the delivery side, how fast items can be retrieved or picked, packed or marshalled, loaded into transport, and shipped are the important factors. Inventory management and flexibility of manufacturing systems and suppliers play just as important roles in OTD.

Cash to cash cycle time

How much cash a company can avail on a periodic basis is determined by its cash-to-cash cycle time. Cash-to-cash (C2C) cycle time refers to the time cash assets are unavailable for use by the firm. It measures the length of time a firm’s cash is tied up in inventories and receivables versus the length of time the same firm’s cash is held before paying bills from suppliers or for expenses.

In practical terms, firms would collect from customers as fast as possible and try to keep inventories low to minimize the length of time cash is tied up in working capital. At the same time, firms would wait till the last minute to pay bills to maximize the cash they are holding (and thereby earn more interest).

As much as managing inventories, collections, and vendor payables seem obvious, C2C can reveal laggard issues in cash-flow. A large wholesaler invested large sums in inventories as he expanded his consumer-goods warehouse-style supermarket branch network in Luzon in the late 1990’s. He thought that since vendors gave him very good terms (up to 60-90 days to pay) and consumers paid cash outright from buying at his stores, he wouldn’t have a problem with cash-flow. He was wrong. The huge inventories he invested overwhelmed the cash from customers and the lax purchase terms. The wholesaler ended up losing his business after several years. Because he didn’t pay attention to his C2C, the wholesaler had seen his cash tied up in inventories and other assets despite the appearance of millions in cash sales from his branches.

Time is a finite resource and the firms, who manage it wisely in the competitive marketplace, win.

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About the author

Jovy Jader

Managing Partner, Prosults Consulting LLP

Jovy is a supply chain consultant and speaker of Prosults Consulting LLP. His clients include multinational companies in the food, pharmaceutical, consumer goods, energy, and export industries. He is the author of Speed Kills…Your Competition “Driving Growth Through Supply Chain Excellence”, and has been a regular contributor to BusinessWorld. Jader was with Procter & Gamble Philippines and PriceWaterhouseCoopers, assisting companies across Asia in Supply Chain Management improvement projects. Jader holds MBA from the University of the Philippines and a BS in Chemical Engineering from Pamantasan ng Lungsod ng Maynila.

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April 23-25, 2020

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July 9-11, 2020

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