Download Focus of working capital management shifts towards process efficiency

2016 WCM study
Focus of working capital management shifts
towards process efficiency
Well-structured working capital management makes a significant contribution to improving
process efficiency within companies. This is aided by current trends such as digitization and
greater cooperation beyond company borders.
Working capital management (WCM) is highly important, even in times of low or even negative interest
rates. In the current market environment, the focus is tending to shift from liquidity and capital
commitment towards the improvement of process efficiency. These are the results of the third, and most
recent, study on Working Capital Management as summarized by the Swiss Post Supply Chain Finance
Lab at the University of St. Gallen.
The good liquidity situation in many Swiss companies can for example be used to digitize payment
processing or to shorten turnaround times in warehouses. This WCM concept makes a real contribution
to safeguarding margins, conclude the authors of the study.
Digitization opens up considerable potential for optimization
In particular, Swiss companies identity huge potential for future improvements in WCM in digitization
and in the range of trends together referred to by the term “Industry 4.0”. Invoices are more and more
frequently issued electronically (e-bills), while orders are increasingly placed digitally via online catalogues
(e-procurement). And exchanges with customers are also becoming more and more digital (e-commerce).
Within inventory management in particular, the Internet of things and big data, i.e. the analysis of large
data sets, are opening up further interesting opportunities. Predictive analytics – the identification of
patterns in the available data sources and the prediction of future events based on such patterns – is
simplifying and improving demand forecasts. This in turn can lead to a reduction in safety stocks and
specifically save money.
Despite the recognized benefits, digitization and Industry 4.0 are so far only being implemented
tentatively in WCM in Switzerland. Many companies still balk at the complexity associated with the
changeover, as well as the high IT costs.
Cross-company partnerships
Within WCM, Swiss companies are increasingly working together with their suppliers and, to a lesser
extent, with their customers. The aim is to optimize tied-up capital along the entire value chain. The
approaches taken include improving the exchange of information or carrying out joint WCM projects.
Purchasing pools are also relatively widespread, according to the study findings. Partnerships of this kind
can involve more than simply combining demand, and include bundling storage, transport or financing.
Limited use of innovative financing solutions
Companies are reluctant to use innovative financing solutions, however. The keywords here are peer-topeer lending or crowdfunding. As in the past, Swiss companies above all trust their main bank for their
financing. At most, they make use of fintech companies with new approaches when experiencing
liquidity shortfalls.
Capital in Swiss companies again tied up for longer
The length of average capital commitment (cash-to-cash cycle) in Swiss companies grew slightly in 2015.
This key WCM benchmark measures the time interval between payments to suppliers and the receipt of
payments from customers. In 2015, it rose by 2% to 87 days in comparison with the previous year. The
debt ratio of Swiss companies also increased. At 129%, the figure is 22 percentage points above the
prior-year level, and has reached a new record high.
Swiss companies have sufficient liquidity in the current low interest rate environment. They can also
access inexpensive external financing. Due to both these factors, pressure on “traditional” WCM seems
to have eased off slightly, explained study leader Professor Erik Hofmann at the Swiss Working Capital
Management Event 2016. This entails risks, however, as the market environment will change again. He
therefore advises companies to use the current positive situation proactively to invest in working capital
management in order to prepare for the future.
Author: Christoph Gaberthüel
About the study: The Working Capital Management study was carried out for the third time in 2016. The
study focused firstly on the impact of current changes in the market environment on WCM. Secondly, it
examined the significance of the specific trends of digitization and Industry 4.0, innovative solutions and
partnerships, for WCM. External data sources (annual reports and databases) were analysed together
with responses given by 140 Swiss companies from a range of industries. The study was conducted by
the Swiss Post Supply Chain Finance Lab at the University of St. Gallen.