It is important to understand that within any organization there are three generic flows:
- Information flow,
- Product or Service flow, and
- (The almighty) Cash flow.
Many organizations have the need to constantly strive to improve cash flow. This is particularly important in an organization that is growing, because cash is necessary to re-invest into operations to support the growth of the organization. The only way to effectively improve long term cash flow is to improve either the information flow, the product or service flow, or both.
By understanding the information and product / service flows, it provides insight into where the leverage points are within the organization. A leverage point is defined as the place in the organization, with some level of effort to improve this area, will produce significant results for the organization. In the basic supply chain model, it is the place in the organization that if an improvement is made, it will provide the best opportunity to improve flow (or reduce lead-time) and to shorten the cash conversion cycle resulting in improved cash flow.