How StratoSTACK Can Help You Vol. 4
How StratoSTACK Can Help You Achieve Your Personal and Financial Dreams
Volume 4…Plumbing company Howe, Kanwe & Cheetum wants to keep their business…
The commercial plumbing company of Howe, Kanwe & Cheetum (HKC) recently visited with their CPA and found their cash conversion cycle metric above thirty was excessively positive. They all smiled. The accountant was not smiling and calmly explained that ideally the metric should be near zero.
They were paying expenses on average 15-days after services were rendered. These expenses included wages every two weeks, spare parts purchased and warehoused, and transportation costs for travel to each client location. On average HKC collected from their clients 35-days after completing a job. They were facing financial ruin if they didn’t do something dramatic. Their jaws dropped!
Mr. Howe, Mr. Kanwe, and Mr. Cheetum walked out of the office. To survive, they developed a three prong strategy:
1. Reduce account receivables from 35-days to 18-days
2. Reduce plumbing parts inventory
3. Target residential customers
1. Reduce receivables from 35-days to 18-days:
HKC had outsourced invoicing and receivable collections to a third party vendor several years ago. Under the guidelines specified by HKC, the vendor was invoicing clients within 10-days after they finished each plumbing job but as the CPA noted, the client payments were posted to HKC accounts on average 35-days after job completion. HKC needed to revise the process.
First, HKC terminated the contract with their third party vendor and insourced the invoicing and receivable collections function. The HKC Finance team grew from one person to six with four people assigned to collect past due balances from existing clients. HKC deployed their call center in the offices of the warehouse they used to store commercial plumbing parts.
HKC had considered upgrading their telephony and computer network before they chose the outsourcing path. They all decided it was the time for a total upgrade. Mr. Kanwe, the self described technophile, volunteered to lead the project with the caveat the partners would reserve their comments until the project was complete.
Mr. Kanwe contacted the team at StratoSTACK about their StratoVoice and StratoVinci SaaS cloud services.
StratoSTACK’s StratoVoice applications were developed with the small-to-medium sized enterprise in mind.
The StratoVoice outbound module’s integration with SugarCRM enables the HKC personnel involved in collections to place outbound calls from a targeted list on the SugarCRM platform. HKC personnel can quickly enter customer card or ACH payment information, record the call for archiving, and select from multiple disposition options before they transition to the next call. The integration of outbound calling and SugarCRM via the StratoVoice apps increases the number of client contacts per hour enhancing HKC’s cash flow and reducing their outstanding receivables. Within the first two months, HKC’s average receivables time was reduced from 35-days to 23-days.
2. Reduce plumbing parts inventory:
A StratoVinci application was developed specifically for the retail industry enabling retailers to track and reduce their inventory holding times translating into improvements in their cash conversion cycle. With a little modification, the team at StratoSTACK was able to deploy the StratoVinci retail inventory tracking app at HKC. The StratoVinci app enabled the HKC team to separate the parts inventory into four categories based on usage at the job site. The inventory categories are:
A) Hot (average usage every 7-days)
B) Medium (average usage every 30-days)
C) Low (average usage every 120-days)
D) Obsolete (not used in 6-months)
As expected the HKC warehouse inventory metrics displayed that 40% of the inventory was considered obsolete, 45% as low, 10% as medium, and 5% as hot. Approximately 85% of the parts inventory was not used in the past 120-days.
HKC quickly eliminated the obsolete, low, and medium inventory categories from the warehouse. These items were sold on the secondary market for roughly 50% of their original retail price. Hot parts were stored and tracked to ensure that the inventory turnover ratio was not exceeding 7-days for any item.
On those rare occasions when items not stored in the warehouse were required for a plumbing job, the StratoVoice Three-Way Calling feature was used by HKC’s dispatchers. StratoVoice Three-Way Calling connected the HKC dispatcher and the remote HKC plumber with the parts supplier in order to schedule a parts pickup by the plumber or the supplier would ship the parts via courier to the job site.
The reduction in the amount of spare parts in the warehouse did not impact HKC’s ability to respond to client requirements as most of the inventory was not being used. This action also contributed to an improvement in the cash conversion cycle.
3. Target residential customers:
HKC started their plumbing enterprise twenty-five years ago by targeting small-medium businesses in a five county region. They felt comfortable working with businesses and avoiding the dog-eat-dog competition in the residential plumbing segment. However, one element of the residential segment greatly appealed to HKC: immediate payment at the time of job completion.
HKC deployed a series of media campaigns leveraging their experience with businesses to acquire residential clients. The StratoVinci marketing module and StratoVoice inbound module were heavily utilized during the campaigns.
The StratoVinci marketing module enabled HKC to segment prospects based on buying habits, geography, and demographics. The marketing module also enabled HKC to use multiple touch points for the prospects such as social media, direct mail, and door hangers.
The toll-free numbers included in StratoVoice were bombarded with calls from prospective clients. The efficient StratoVoice Call Queuing and pleasant Music on Hold features ensured that over 95% of the calls were completed. This metric is well within the standard benchmark of the 4% – 7% abandonment rate.
HKC found that the hot parts used for the commercial segment of their business were the same in the residential segment. Although the revenue per client was lower in the residential segment, the immediate payments were a blessing to improving HKC’s cash conversion cycle.
By partnering with the StratoSTACK team HKC was able to:
> Reduce their monthly expenses by:
– Improving inventory turns
– Reducing warehouse space
> Increase their annual revenue by:
– Targeting a new market segment
– Selling unused parts inventory
> Reduce the cash conversion cycle to almost zero rivaling the largest US retailers
> Convert the business from barely surviving to a thriving enterprise
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Randall Smith – StratoSTACK Product Manager
Illustrations and Copy Edit: Jaime Baldwin- StratoSTACK Digital Media Specialist