Working capital performance is down, cash is king.
This survey, which reviews the working capital performance of the 2,000 largest companies (by sales) in the US and Europe, found that cash-to-cash (C2C) increased by as much as 6% in the US and 3% in Europe in 2009 compared with 2008.
Ironically, these results came at a time when many companies intensified their management of working capital.
Companies focus new attention on improving working capital strategies, but the numbers are down. Why?
In the most recent Capital Confidence Barometer, 86% of respondents reported that their companies have reviewed working capital processes and are now more focused on cash.
This discrepancy raises the question of whether companies have implemented truly effective working capital management strategies.
The surveyed companies now have an aggregate total of up to US$1.1 trillion in cash unnecessarily tied up in working capital, an amount equivalent to nearly 7% of sales. This is a higher figure than a year before (when it was 6%), suggesting that the gap between best and worst performers has widened.
Going forward, the leading companies will be those that take a structured “root and branch” approach to improving working capital by:
- Working even more closely with key customers and suppliers
- Driving ever greater efficiency out of the supply chain
- Sharing real-time information about supply and demand
- Having robust risk management policies in place
