Sunday, August 12, 2012

Operating Cash Flow (OCF) - Should it Be The "King" Metric?

In deference to the great writing at Supply Chain Digest by David Schneider (David K. Schneider and Company) I will not rewrite the premise of the article he wrote over at SCD titled "The One Best Supply Chain Metric". I will only say I highly encourage you to click on the link above and go to the article and read it if you are even remotely interested in a different metric to follow.

Now, on to my opinion (hopefully you have linked over and read the article):  Operating cash flow is a "king" metric or an "outcome" metric as some may call it.  It is the ultimate scorecard.  Are you truly making real money (i.e., Cash) or are you making "paper money" (through income statement shenanigans) and burning through cash?  Remember, the only thing which allows you to reinvest in your business is the generation of cash.  Measure cash in a big way.

I get very nervous when I hear companies want to "push out payables" not because I think it is just wrong to do but also because of the signal it sends which is their cash from operations is probably going down so they are grabbing a one time cash infusion from suppliers.

Ultimately, cash from operations will determine the success or failure of your business because ultimately you will run out of financing (of which pushing out payables is essentially that - you are financing through your suppliers) and investing options.  When that happens, if you are not generating cash from operations, you will find your "Emperor has no clothes".

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