Working capital management (WCM) has become a hot topic for organizations of all sizes. As the impact of the recent economic downturn has hit, senior executives have looked for ways to do more with less. Many have come to realize that they make a significant investment in their working capital, and some of this investment may not be necessary if working capital management can be improved. In this study we examined three major firms to see how they handle their working capital and what general conclusions can be drawn from their approaches.
All three organizations clearly consider effective working capital management as a necessary component of their growth and profitability. By turning to their working capital as a source of funds, each organization actively reaps the benefits from efficient, streamlined working capital management. Each organization actively manages its working capital, but with differences m approach due to the nature of the companies' business lines as well as the relative importance of one area of working capital.
Common to each organization is a cross-functional approach to working capital management. These companies do not wait for problems to occur; they anticipate them and make adjustments in near real time. Tapping Into companywide systems, such as enterprise resource planning, allows organizations to disseminate information faster than by using more conventional means (e.g., written reports). The accumulation and use of data are hallmarks of an effective working capital management system.
Finally, nothing brings working capital management to a halt more than senior management indifference. The successful track records of the three best-practice companies in this study show that senior management was anything but indifferent. Each company m its own way took steps to engage managers across organizational levels. This active support from top to bottom is clearly effective, as these firms' improvements m working capital management show. All in all, these companies have much to share.