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, you asked her to prepare a report to give him 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?