Lawrence Sports Benchmarking

Lawrence Sports Benchmarking

The global marketplace requires companies to improve continuously to remain competitive. One of the essential tools for improvement is the ability to establish optimal working capital strategies and practices. According to Brealey, Myers, and Allen (2005), short-term or current assets and liabilities are known as working capital. Working capital practices include the management and delicate balance of accounts receivables, accounts payables, inventory levels, sources of short-term borrowing, and cash flows. Each component of working capital is associated with time and money. Financial managers view how well these items are managed as a sign of the company's efficiency and strength (UOP Simulation, 2008).

The working capital manager at Lawrence Sports knows the company is now in a difficult position following delays on receivables from the Mayo Stores. The result has placed a cash flow deficit on Lawrence Sports, which has forced the company to take out large bank loans with higher interest payments. Lawrence Sports has a few opportunities available that may help correct the current situation. One example, the company could restructure the working capital policy efficiently to meet cash budgeting issues (Brealey, Myers and Allen, 2005). A useful aid in making these decisions often comes from benchmarking other companies that have faced similar challenges (UOP Simulation, 2008).

Whirlpool

Whirlpool was originally known as the Upton Machine Company. Sears was its largest customer, selling more washers than the Upton Machine Company could manufacture. In 1915, one of Upton's biggest clients decided to build its own washers. This had a major impact on the Upton Company. To build up the company's working capital, the company traded 20,000 of its stock to purchase American Tool Works to manufacture popguns and small metal toys. This is how Upton raised the capital to remain in the business of manufacturing washers. Whirlpool, like Lawrence Sports had setbacks and had to make some financial decisions to remain in business.

Today, Whirlpool Corporation is the world's leading manufacturer of major home appliances and markets brand names such as Whirlpool, Kitchen-Aid, Maytag, Jenn-Air, and Amana. Whirlpool's efficiencies and innovations are what help reduce operation costs in procurement, product development, and information technology.

Wal-Mart

Since Wal-Mart is the world's largest retailer, its economies of scale allow the company to offer lower prices than its competitors. Wal-Mart is known as a "one-stop shopping" destination to the consumer. Wal-Mart has been successful for many reasons: its variety of products, customer-friendly service, advertising and promotions, and mainly, its prices are lower than its competitors. According to an article written by Kirklin (2006), "economic progress means an increasing level of wealth for the individual and for the economy." Wal-Mart does not hold its wealth in the form of cash, but as wealth for the future called capital. Most of Wal-Mart's current capital is in the form of inventories. Exhibit 1 illustrates Wal-Mart's working capital and the company's overall operational performance.

Exhibit 1: Wal-Mart's Working Capital Productivity

Source: seekingalpha.com/article/67640-wal-mart-remains-undervalued

Because Wal-Mart is a retail supplier, it collects most of its cash from the consumer at the time of the sale whereas Lawrence Sports is a business that offers credit policies to its suppliers. Lawrence had to make financial arrangements with some of its suppliers while also borrowing a minimal amount from the bank to offset its cash deficits for the week.

Lowe's

Lowe's is the second largest home improvement retailer worldwide and the 8th largest retailer in the United States. Inventory is the most critical element of Lowe's working capital. Lowe's latest working capital survey showed that the inventory had a 10% increase in days of inventory outstanding. This caused the overall day's working capital to ascend 24% to 60 days and dropped Lowe's as one of the top performers. Lowe's recorded an inventory reserve for its losses associated with selling below cost. The reserve is based on the company's knowledge of inventory levels and sales trends.

Lowe's realized that inventory results were fading. A quick thought was to delay payables, which would boost the cash. This was the least valuable portion of the cash tied up in the working