Sari Viskari

Advanced model for working capital management: bridging theory and practice

The paper introduces an internal information tool, the advanced cash conversion cycle (ACCC), for controlling the amount and cost of working capital, by refining and extending the concept of the weighted cash conversion cycle. The ACCC model has been developed with a real world value chain case from the pulp and paper industry, and it addresses issues overlooked in the prior model. The ACCC offers visibility through the value chain, elimination of the problem of a negative margin, a more simple calculation of accounts payables compared to the prior model, and new metrics to control working capital in companies.

A model for working capital management in the inter-organisational context

The purpose of this paper is to introduce a concrete model for working capital management on operational level in an inter-organisational value chain. With the model, working capital committed to a product can be observed through the whole value chain. The value chain partners can manage working capital holistically through a collaborative view as well as benchmark their own position in the value chain. The scenarios presented in the paper demonstrate how inter-organisational working capital management actions can decrease financing costs caused by working capital. Opportunities for value creation and improvement of efficiency can be found for example through reduction of the cycle time of inventories, reduction of product costs, inventory shifting, using shorter payment periods, and by taking advantage of different costs of capital.

Improving profitability by managing working capital in the value chain of pulp and paper industry

Working capital management is an essential element in short-term financing and cash flow. Previous studies have also discussed the impact of working capital management on the relative profitability of a company. In this paper, we study the effect of the management of working capital components (inventories, accounts receivable and accounts payable) on profitability in the context of the value chain. The findings suggest that the components of working capital should be managed together to achieve positive effects on profitability. Companies also need to take account of the other companies of the value chain in their management of working capital components.

The investment logics of Finnish industrial maintenance service providers

Finnish industrial companies are today highly dependable on industrial maintenance service providers practising maintenance in industrial companies. Outsourcing has led to an increased demand of maintenance services, and maintenance service providers have made substantial investments to meet the growth. The total investment rate was on average 1.9 in large companies and 6.4 in small- and medium-sized enterprises (SMEs) in 2003–2007. There are major differences in the investment logics of large companies and SMEs. The target of large companies is to gain a market share with a long-term strategy whereas; SMEs compete with flexible investment logic to face the current demand situation. Investment scenarios are created to calculate the needed investment rates with a forecasting model to face target profitability rates. The investment needs seem to be more moderate than expected, which gives a managerial perspective to investment planning to maintain good profitability.

Appeasing company owners through effective working capital management

In the dynamic financial climate of the present day, companies should be aware of the potential of effective working capital management in reacting to market transformations. It is important to include the company owners viewpoint in the research perspective. In this paper, we study the connection between working capital management and the return on equity. The managerial and financial perspectives of flexible asset management are integrated through analytical modelling. We conclude that the return on equity can be improved by shortening the cycle time of operational working capital. Both the interest rate of debt and the debt-to-equity ratio are taken into account in order to study the effects of dynamic financial conditions. Changes in the financial conditions could be compensated through effective management of working capital.

Using working capital management to improve profitability in the value chain of automotive industry

The impact of operational working capital management (including inventories, accounts receivable and accounts payable) on relative profitability in the value chain context is studied. The empirical study offers numerical analysis with real world numbers concentrating on improving profitability through working capital management. The prior finding of a negative relation between the cycle time of working capital and profitability is too blinkered, as companies in the value chain have and should have different working capital management strategies. By analysing the cycle times of working capital components, the value chain partners can work together to increase the profitability of the value chain. The findings of the study suggest that the most efficient way to increase the profitability of the value chain is to manage all the components of working capital simultaneously. In addition, a radical reduction of payment terms would increase profitability.

Modeling the Impact of Working Capital Management on the Profitability in Industrial Maintenance Business

In this paper, we present an analytical model for flexible asset management, which is a new tool for company decision-making. The model reveals a significant negative correlation between the cycle times of operational working capital and the return on investment. Conventional research on working capital management has mostly focused on manufacturing industries. We show that working capital should be managed actively also in unconventional environments like service industries. The focus is on the industrial maintenance service providers, which still remain somewhat unexplored in academic literature. The importance of working capital management is actually emphasized in this industry, due to its light fixed assets and good profitability. Interestingly, there are some major differences between large enterprises and small and medium size enterprises in the industrial maintenance service sector. These can be explained through economies of scale and the fact that large maintenance service enterprises often focus on providing services mostly for their former host companies.

A cycle time model for analysing the efficiency of working capital management in a value chain

When technology already enables just-in-time operations and immediate financial transactions, financial supply chain management has emphasised the importance of financial flows and working capital management, which consist of the management of inventories, accounts receivable and accounts payable. However, the literature lacks concrete models and practices to control working capital, especially in the inter-organisational context. This paper introduces a working capital management (WCM) model for analysing the efficiency of working capital management at corporation level and for observing the financing cost caused by tied-up working capital in an inter-organisational value chain. The model emphasises the benefits of a new cycle time measure, the adjusted cash conversion cycle, when observing the inter-organisational context, and when calculating the financing cost. The WCM model was applied to a value chain of four companies in the automotive industry, a raw material supplier, a component supplier, a system supplier and a car manufacturer. A numerical example of the model with the data of financial statements is shown.

The missing link between maintenance contracts and flexible asset management

The paper shows how additional value can be created in maintenance collaboration through integrating the features of flexible asset management into maintenance contracts. We expand the traditional typology of maintenance contracts and introduce a new contract type, flexible asset management contracts. Also value sharing in the new contract type is discussed. Our logic for sharing the value is based on reaching for win-win situations in industrial maintenance collaboration. Finally, we present scenarios which prove that significant financial benefit can be achieved through adopting these novel contracts. In the dynamic and challenging operating conditions of the present, companies should actively search for this kind of possibilities for closer collaboration with their customers and suppliers.

Benchmarking working capital management in the inter-organisational context

This paper benchmarks working capital management in the inter-organisational context by applying the financial value chain analysis method. The method extends the value chain analysis to industry level. Working capital management is studied in ICT, pulp and paper and automotive industries with the cash conversion cycle (CCC). The CCC of these industries is approximately 40, 60 and 70 days, respectively. The difference is mainly a consequence of the different cycle time of inventories. The 2008 financial crisis affected the working capital management of the industries similarly. Both the cycle time of accounts receivable and accounts payable increased between 2008 and 2009. Inside each industry, the CCC of the branches of the industry varies. The difference of the CCC between the branches that have the shortest and the longest CCC is six-fold in the ICT industry, two-fold in the pulp and paper industry and three-fold in the automotive industry.