Total Working Capital Optimisation

Total Working Capital Management is the optimization of every aspect of every process, every system and every structure across the entire supply chain, as the figure below shows.

Total Working Capital Management

Source & Copyright©2012 - J&W Associates 

The objective of Total WCM is to shorten the whole Cash Conversion Cycle (CCC) and extract the maximum liquidity without harming the company's business efficiency and customer relations. This requires an optimum balance of: 1) extending payment cycle and long-term supplier relationships, 2) minimising the number of Days Sales Outstanding and achieving maximum efficiency in accounts receivable processing whilst having happy and returning customers, and 3) a level of inventory that allows the company to meet their customers' requirements without unnecessary stock. This is not easy and detailed analyses of the company's culture, customers, business flows, processes, credit agreements and contracts are required to develop an effective Total WCM strategy and programme.

Total WCM Programmes
To achieve long term improvements in WCM and release significant levels of working capital requires real changes to existing business processes. The Volvo Group 'Cash for Growth' programme, which has been one of the most successful WCM projects ever, involved all parts of the company. The global task force even developed games to show all levels of staff how the CCC affected all departments and processes. Over three years the program cut receivables by 32%, inventories by 52% and trade payables by 13% releasing €180 million working capital plus a 10% improvement in return on operating capital. Another example of forcing the company to focus on WCM is how Dell Computers set their regional sales managers DSO targets as well as the normal sales targets.

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