In the aftermath of the global financial and economic crisis, company leaders are reorienting themselves, shifting their focus from liquidity to growth and profitability. As a result, capital commitment is attracting renewed attention. Reducing it helps achieve the following goals: the company increases its financial scope for action, its value-based performance indicators improve, and the company value is positively impacted. The keyword in all of this is working capital management, an approach to optimising the relevant levers.
Current developments in the business environment are driving the need to reap the benefits offered by working capital management. Examples include more stringent lending rules (Basel III), increasing pressure on margins and unsatisfactory changes in liquidity.
In practice, companies use tools such as improved debtor management, reduced stockholding, faster stock turnover and better payment terms to work towards such improvements. They are anchored in management processes such as order-to-cash, forecast-to-fulfilment and procure-to-pay, each of which cuts across functions. The challenge in reducing capital commitment therefore lies in the need to strive for cross-process and cross-functional optimisation while harmonising procurement, distribution, accounting, planning, production and supply chain processes.