AbstractsBusiness Management & Administration

Increasing Working Capital Efficiency - Accelerating Cash Flows by Identifying and Reducing Excess Tied-Up Capital in Finished Goods Inventories

by Martin Johansson




Institution: Chalmers University of Technology
Department:
Year: 2013
Keywords: Working capital; cash conversion cycle; inventory turnover; finished goods inventory; order-to-delivery process; order scheduling
Record ID: 1341133
Full text PDF: http://studentarbeten.chalmers.se/publication/180019-increasing-working-capital-efficiency-accelerating-cash-flows-by-identifying-and-reducing-excess-tie


Abstract

Efficient working capital is an important aspect of a firm’s financial strength in terms of ability to finance its daily operations and growth. By releasing tied-up capital and increasing inventory turnover, a firm’s working capital can become more efficient. Based on this, the purpose of the thesis is to investigate which business processes that cause excess tied-up capital in finished goods and create a set of actions for speeding up inventory turnover without decreasing the current service levels. In order to reach the purpose a case study based on a combination of qualitative and quantitative methodology was carried out. A first phase of qualitative data collection through interviews was performed. In the next phase extensive amounts of quantitative data was collected from the case company’s ERP-system. The quantitative data was then analyzed and complemented by another phase of qualitative data collection. The analysis is built around a framework developed by the researchers, which categorizes finished goods inventory in relation to how these inventories were created and how they are governed. Each category is then analyzed and the results suggest that lack of appropriate information sharing and transparency along with conflicting KPI’s and prioritizations between various functions and actors in the order to delivery process result in excess tied-up capital in finished goods. Furthermore, the fact that the company on which this case study is based, offers a flexible product mix, but lacks an efficient system for matching configured engines with new customer orders tend to slow down inventory turnover. Suggestions for improvement include the adaption of a more holistic view across processes, functions and actors through better communication and information sharing as well as an improved search and allocation functionality for configured engines.