Timo Kärri

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.

Modelling costs in maintenance networks

Purpose – The purpose of this paper is to create a cost model at the general equipment level for industrial maintenance services.Design/methodology/approach – The study is divided into two main sections. In the first phase the idea is to create a framework for a cost model with a literature review. The second, empirical part of the study is based on costing information from interviews and information given by network companies: a pulp mill, a maintenance company and an equipment provider. The maintenance of three different equipment processes is examined in the network through a case study, to get more specific information from real world situations to develop the model.Findings – The findings concern the cost items that should be considered in the model, the structure of the model, and how the general cost model is constructed. During the research the model has been extended, and new cost categories included.Practical implications – The cost model can be used in various performance measurement and decisi...

Profitable working capital management in industrial maintenance companies

Purpose – The purpose of this paper is to analyze the impact of working capital management on profitability. This connection is further studied in industrial maintenance service companies. Design/methodology/approach – Analytical modeling has been used as the research method. The empirical analyses have been made on the basis of financial statements. Findings – The paper presents an analytical flexible asset management (FAM) model, which reveals a significant negative correlation between the cycle times of operational working capital and the return on investment. The importance of working capital management is emphasized in the industrial maintenance service sector, because of light fixed assets and good profitability. Research limitations/implications – There are some mathematical limitations in the applicability of the model introduced in this paper. These limitations should be addressed in further research. Practical implications – The FAM model can be utilized as a tool in decision making in firms, bo...

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.

Modifying the cash conversion cycle: revealing concealed advance payments

Purpose – The cash conversion cycle (CCC) is widely used in the academic studies of working capital management and supply chain efficiency. The purpose of this paper is to introduce a modification of this measure that takes into account advance payments as a component of operational working capital. Design/methodology/approach – A new measure, the modified cash conversion cycle (mCCC) is introduced and tested with empirical data of companies in Helsinki Stock Exchange. Findings – The mCCC reveals the real efficiency of operational working capital in companies that receive advance payments to a remarkable extent. Research limitations/implications – The mCCC can be used in empirical analysis in academic studies. In this paper, the empirical data are used only for testing the mCCC. The paper concerns received advance payments, but the mCCC can also be extended also to other components of operational working capital ignored by the traditional CCC. Practical implications – The paper offers insights into the va...

Flexible Investment Planning and Collaborative Maintenance Management

In this paper we aim to bring forth the significance of managing the planning, design and development stages in the life cycle of the physical assets and related services. In these early phases of asset life cycle we may influence on the efficiency of the later phases, such as operations and maintenance, and have viewpoints on optimizing the future cash flows in a firm, which is crucial for managing the increasing number of uncertainties in turbulent business environments. The approaches, methods and tools to cope with these issues are described based on the main competences, projects and specific case studies conducted by the research groups of cost management as well as innovation and technology management at the department of Industrial Management at Lappeenranta University of Technology, Finland.

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.