Best practice

This is what the Tornos Group achieved with WCM

The mechanical engineering company introduced WCM measures – out of necessity – and implemented them with such passion that the company is flourishing again today, partly thanks to WCM. For this reason it received the Swiss WCM Award 2018 in the “Performance Excellence” category. Bruno Edelmann, CFO of Tornos, on the main measures and the battle over WCM that had to be fought internally.

Tornos found its way out of the crisis that had befallen it in 2016, not least thanks to systematic WCM. What happened and which measures did Tornos take?

The euro crisis and the diesel scandal in Germany, which led our automotive sector customers to move their investments, meant that Tornos posted losses in 2016. We drew up a multi-point programme to counteract these effects. Part of this was WCM. Today, we are performing outstandingly well. We are debt free, achieving good results and our share price has risen so sharply that we were amongst the top performers in the Swiss Performance Index on the stock exchange last year.

You mentioned that WCM was part of the programme that put Tornos back on track. Just how important was the role it played?

It was an extremely important one that also enhanced our image externally. The reduction in net working capital (NWC) enabled us to release over CHF 20 million – and this capital allowed us to repay all of the Group’s loans, so that we are now debt-free again. We’ve also optimized certain processes which also ensured an improvement of NWC over the long term.

What were the key WCM measures?

Firstly, we introduced rigorous accounts receivable management so that customers now pay us more quickly. Secondly, we introduced a lean assembly approach and now only make machinery to order and no longer keep it in stock. On the one hand, this enabled us to reduce machinery assembly time by around 30% and, on the other, it meant that we could drastically reduce our finished machinery inventories. Thirdly, we generally only settle our accounts payable after 60 days. The fourth measure was the most significant – the systematic implementation of new payment terms for our customers. We generally require 30% of the amount upon order signature, 60% before delivery and 10% after acceptance of the machinery. We don’t always succeed in achieving this goal. However, we aim to obtain an advance payment of at least 10% and to have 70% of the cash in-house before the machinery leaves the company.

Did you consider the risk of upsetting customers by taking this step?

There was an element of risk. However, the low interest-rate environment is favouring us. If the capital bore interest of 6% or 7% today, the customers’ response would probably be different. Winning over the sales team was a vitally important part of this measure. They were rewarded with a bonus if they managed to maintain this payment term and had to discuss any variations with the Head of Sales or myself beforehand. Initially, they all struggled with this, but now the sales team has really got to grips with it as they see the positive results.

So does establishing WCM always mean a battle internally?

That’s right. The CFO is usually a lone warrior, particularly in the mechanical engineering industry. You constantly have to convince other people – you’re battling with sales over accounts receivable and payment terms, with purchasing over procurement and with supply chain management over inventories. You will only emerge triumphant if you know exactly which goals you’re pursuing, if you’re persistent, lead by example and can demonstrate success as quickly as possible. And everyone has to be pulling in the same direction. Going it alone with WCM will never work. The award is recognition for everyone who helped in this battle.

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