Recently, the MetalMiner team shared a laugh over BMW's announcement that it would introduce a "subscription service" in certain markets for the use of their cars' heated seats. While some of us remain avid BMW aficionados, whether or not customers will pay for the right to warm their seat remains unclear.
Nevertheless, BMW and other car makers are starting to recognize the overall attractiveness of the subscription model. That is, it's a huge help when it comes to cash flow. Even Tesla has intimated it would add "software subscriptions" to its cars. But while company representatives didn't specify when this might happen, recent events suggest sooner might be better than later.
Just last week, the WSJ reported that Tesla's free cash flow fell from $2.2b during Q1 to $621m in Q2. Shocking as this may be, it's not due to some avant-garde Muskian business model. Like other car manufacturers, Tesla generates revenue when it delivers its vehicles to customers. Whatever is left over after the company pays its suppliers is profit.
When deliveries grow, cash flow increases. But when deliveries drop, so does the cash flow. Of course, every manufacturer recognizes revenue and generates cash flow a bit differently. Still, the Tesla example serves as a reminder that procurement also plays a strategic role in helping improve or maintain cash flow.
Procurement's Cash Flow Levers
It's important to remember that companies have multiple levers to mitigate slowing cash flow. The procurement department "owns" several of these levers and, therefore, must support the business accordingly. Some of these levers include:
By AG Metal Miner
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