World Cash Movement

Supply Chain and Working Capital Management
ME 2054, Lecture 4
KTH February 8th 2013

WCM - Working Capital Management

WCM – Working Capital Management
 Working Capital is the capital needed in order to finance the ongoing business  Working capital is mainly tied up in
 Cash  Inventory  Accounts receivable

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The Aim of improving WCM is always increased Profitability
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 Reducing working capital improves cash flow...
 ...giving direct results on the profit  A successful WCM project is not only a “financial” project but as much a matter of improving operational conditions in the supply chain.

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All activities in a WCM and SCM project must be balanced in order to achieve increased profitability.
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The Cornerstones of Logistics

SERVICE

Profitability 

Profit Captal
CAPITAL

COSTS

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The importance of cash flow

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Income vs Cash Flow
Income
Supplier

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Customer

Purchase

Sales

Cost
Production

Income

Cash Flow
Supplier Customer

Outgoing payment

Incoming payment

Capital tied up - from Order to Cash
Suppliers

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Customers

FINISHED PRODUCT

Purchasing Capital tied up
Material from supplier delivered Cash payment to supplier

Production

Sales

Machine delivered and Payment from customer invoiced customer Customer’s credit time Operating margin Machine placed in finished stock Machine produced

Working Capital tied up
Credit time from supplier
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Time

Exercise: Calculation of released capital


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A company has a total sales of 180 millions. How much operating capital can be released by having the customer’s payment 3 days earlier?

180 millions = 0,50 x 3 days = 1,5 millions 360 days
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What we want to achieve
Goods received
Average inventory lead time

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