Working capital management 2013: all tied up
The results for companies’ working capital (WC) performance in 2012 show diverging trends between the US and Europe. Cash-to-cash (C2C) increased by 2% in the US from its level of 2011, while dropping by 4% in Europe over the same period.
In the US, 58% of the companies reported a deterioration in WC performance, while 59% of those in Europe achieved improved results.
For the US, these headline results almost wiped out the gains achieved in the previous year. By contrast, Europe reported significantly improved WC performance after a stable outcome the year before.
In the US, 58% of the companies included in our research reported a deterioration in WC performance, while 59% of those based in Europe achieved improved results. Each sub-region and country in Europe except the UK posted lower C2C in 2012 than in 2011.
Companies in other regions and countries scored poorly last year, with overall C2C increasing by 3% (and by 4% excluding the oil and gas and metals and mining industries).
Interestingly, SMEs fared better in 2012 than larger companies in the US, further narrowing the WC gap between the two segments.
During 2012, measuring “true” progress in WC performance may have been made more difficult by the impact of rapidly changing global economic and financial conditions. However, a close analysis reveals major variations both in WC trends and also in the degree of change achieved by different participants in each regional industry.
Leading perfomers, for example, have continued to make major strides in improving WC management. They’ve done this by taking a numbers of steps, including:
- Streamlining their supply chains
- Managing payment terms more effectively with customers and suppliers
- Collaborating more closely with each of the partners in the “extended enterprise”
- Globalizing procurement
- Tailoring their WC strategies to emerging markets conditions
- Enhancing their risk management policies
- Changing internal behaviors
In contrast, many poorer-performing companies still fail to address the “root and branch” aspects of WC policies, processes and metrics. They tend to focus on short-term actions rather than more substantial and sustainable operational and structural changes.
Overall, our research findings suggest that most companies have huge opportunities for improvement in many areas of WC. A high-level comparative analysis indicates that the leading 2,000 US and European companies have up to US$1.3 trillion of cash unnecessarily tied up – an amount equivalent to nearly 7% of their combined sales.
Learn more about this year’s working capital analysis: