Problem:
One of your long-standing clients is a domestic manufacturer, who up until now has not only manufactured their products solely in the US but also only sold their products in the US. About a month ago, their CEO visited and said they were planning to "go global"; this would include both sourcing of manufactured parts from overseas, and selling their products all over the world. Back then, he asked you to prepare a report on how he should expect this new direction to change the existing challenges of cash flow and working capital management. Given Joan now being on board, prepare a report in Question and Answer format.
The questions to be answered are:
• What are the components of working capital management; which are under the control of a firms management, and which does management have little if any control over?
• Describe what the cash conversion cycle is all about and which parts of it change negatively when sourcing parts from overseas?
• Which parts of it change negatively when selling products overseas?
• What strategies a firm can use to mitigate the disadvantages described in 2 or 3 above?