Cash & Liquidity ManagementCash ManagementAccounts PayableWorking Capital Management: No Backsliding Expected

Working Capital Management: No Backsliding Expected

During the credit crisis, chief financial officers (CFOs) and their teams proved to be very adept at slashing costs and liberating cash otherwise trapped in operations. By the middle of 2010, US companies were holding close to US$2 trillion in cash on their balance sheets. “That is about 40% more in cash and cash equivalents, relative to revenues, than four years ago,” noted Charles Mulford, professor of accounting and director of the financial analysis lab at the Georgia Institute of Technology.

How did they raise all that cash? They stopped spending on people, capital equipment and business services. Many of the largest cash-laden organisations rode the yield curve down and refinanced their debt. Wherever possible, organisations cut overhead, some making moves such as shifting from unionised to non-unionised plants in North America. A host of large organisations sought authorisations to execute share repurchase programmes but, in reality, they did buybacks slowly and carefully. Most invested in better working capital management and sought ways to accelerate the cash conversion cycle.

In early 2009, when the recession was deeply troubling senior management teams, the financial management research team at APQC began studying what large organisations were doing to increase their free cash flow margins. It may be hard to imagine now, but when storied Wall Street banks such as Lehman Brothers collapsed, a number of CFOs and treasurers worried about whether their access to external capital might be blocked for some undeterminable time. To protect their shareholders’ investments, they began to raise cash from operations with a fervour not seen in the past 30 years. In essence, they created a safety blanket of vast liquidity.

So, what now? According to APQC research, CFOs will not stop harvesting unproductive cash from operations in the future – even when the skies are completely clear and it is time to aggressively ramp up growth investments. In APQC’s 2010 study ‘Working Capital Management: New Strategies for Maintaining Financial Strength Through Economic Cycles‘, senior finance executives at 355 large organisations indicated that improving working capital management is a goal that CFOs now want to pursue continuously (Figure 1). In short, the effort to raise liquidity during the recession delivered some astonishing lessons learned. The most compelling is this: strong disciplines in working capital management lead to strong disciplines in operations – and that is what drives significant gains in resource productivity and, by extension, economic profit growth. Beyond that, after spending tremendous effort to raise cash levels – and learning what works and what does not when it comes to driving meaningful gains in process performance – CFOs realise it would be folly to let bad habits slide back in.

Figure 1: “We Feel a Sustainable Commitment to Improving Working Capital Management Would Offer Clear Operating Benefits”

Source: APQC

Best Practices

The ‘Improving Working Capital Management and Cash Flow Intelligence’ study, which was summarised in a report published by APQC in late-January 2011, uncovered 14 best practices to drive continuous improvement in working capital management and generate high-quality cash flow intelligence:

  1. Align overall operational processes with stated strategic intent.
  2. Engage executive-level support for and involvement in working capital optimisation as a prerequisite for reducing the amount of cash invested in operations.
  3. Centralise and standardise financial transaction processing to drive maximum efficiency and to draw meaningful insights out of underlying data.
  4. Take a cross-functional approach to working capital accountability and continuous improvement of receivables and payables processes.
  5. Use data from an enterprise resource management (ERP) system to inform daily credit and collection activities.
  6. Conduct real-time analysis of cash flow drivers to ensure reliable forecasts and optimise spare cash.
  7. Analyse, measure, and advise operating units on how to increase the return on working capital invested in operations.
  8. Design custom measures of working capital management that are relevant to their business models.
  9. Apply quality and productivity tools to process improvement efforts in finance.
  10. Leverage change management principles and practices in finance.
  11. Identify and resolve data discrepancies on the front end of the process.
  12. Manage working capital risk.
  13. Offer self-service to drive efficiency.
  14. Conduct transactions electronically whenever possible and work with vendors so they can do the same.

Overview of Best Practice Organisations

The best-practice organisations selected for in-depth review have developed varied, successful approaches to manage working capital that reflect their unique cultures and strategic concerns.

General Mills

Minnesota-based General Mills is a Fortune 500 company that specialises in food products manufacturing, sales and distribution. With 33,000 employees, it operates globally and has offices in 30 countries. In 2009, the organisation reported US$14.7bn in revenue from its portfolio of brands, including Betty Crocker, Pillsbury, Green Giant, Nature Valley, Yoplait, Häagen-Dazs, and Cheerios.

General Mills considers its top three working capital management processes to be:

  1. Efficient accounts receivable (A/R) processes and customer risk management.
  2. Supply chain finance approach.
  3. Integrated working capital review process for setting objectives and reviewing results.

One of the key visions for General Mills in terms of working capital management is a commitment to cross-functional collaboration. General Mills holds monthly meetings with its working capital management team composed of its corporate controller, treasurer, vice president of finance for supply chain, vice president of the retail sales organisation, and director of global business services. These meetings assess upcoming changes in working capital requirements and levels, as well as identify problem areas.

In terms of analytics and measures, General Mills tracks its days sales outstanding (DSO), days payables outstanding (DPO), and days sales of inventory (DSI). Also, as an extension of its cross-functional collaboration efforts, the organisation communicates and dissects the drivers of return on capital (ROC), and it isolates, to the extent practical, working capital and fixed assets management performance for each business unit. The point is to continually educate operations personnel on the critical nature of working capital efficiency and to discuss ways that key performance drivers can be influenced proactively. By emphasising that ill-conceived deployment of working capital carries a cost that should be avoided, the cross-functional management team shows how profitability can be impacted when working capital is sub-optimised.

To assess the progress of its working capital management improvements over time, General Mills annually benchmarks peers’ working capital management processes. This benchmarking exercise covers a variety of measures and processes within finance.

Through the implementation of several technologies, General Mills has automated more than 70% of its processing (such as invoice processing and transaction processing). Much of the treasury function at General Mills is automated. General Mills uses sophisticated cash flow forecasting tools as a result of the automated data inputs.


Ohio-based Owens-Illinois is the world’s largest producer of glass containers, with more than 22,000 employees and more than 80 factories in 21 countries. Serving primarily the food and beverage industries, Owens-Illinois has been on the Fortune 500 list since its inception in the 1950s, with revenues of US$7.1bn in 2009 and the bulk of its business occurring outside of North America.

Owens-Illinois implemented Lean Six Sigma to transform its operations, which affected working capital by improving processes and promoting better cross-functional collaboration. Lean Six Sigma also helped assimilate the organisation’s financial shared services organisation and its mission into the culture of the organisation. Owens-Illinois reinforces this collaborative environment through meetings, training and Lean Six Sigma events.

Owens-Illinois has key performance metrics for each working capital management process. These metrics are generated and reported automatically and tracked daily. Clearly designated owners immediately act on any underperformers.

The company annually benchmarks working capital management as part of its process improvement efforts. Finance executives understand the need for continued improvement and are committed to exploring new tools and techniques to facilitate better process controls and growth.

Owens-Illinois’ finance team uses a report writing tool to generate fresh data each day on the anticipated payments of key customers. This approach allows the company to identify quickly the day’s top priorities for collection outreach. It allows the team to be proactive and to reach to customers in a collaborative manner to resolve issues that are holding up payments. The tool is independent of IT support, and the team is virtually self-sufficient in its use. Owens-Illinois also has automated many of its working capital management processes through SAP. Last, its working capital management owners have developed simple tools for vendors, sales representatives, logistics personnel, and customers to use. These tools facilitate better decisions about factors that may affect working capital.

Nevada-based is one of the largest shoe and accessory retailers online, with more than 2,000 employees in its family of companies and more than US$1bn in yearly gross sales. The organisation was purchased by in 2009. An independently operated subsidiary, is currently adopting many of Amazon’s processes and expanding sales to include apparel, housewares and beauty products. The acquisition has transformed from a net borrower to a net investor. is committed to cross-functional collaboration throughout its working capital processes. The organisation holds a training course to expose all employees to working capital management principles and explain the impact of working capital on overall profitability. Its working capital management team has developed tools to enable staff outside of the finance function to make better decisions that will affect working capital.

The organisation tracks key performance indicators (KPIs) on a weekly basis, and provides sales figures to the entire organisation daily. Its operational control committee oversees the measures and helps to identify any areas in need of improvement. This process of weekly reviews helps to make working capital management decision makers aware of potential issues before they become problems. holds monthly manager meetings to assess its financial performance. Managers from across the organisation meet to discuss actual performance results relative to forecasts. When there are shortfalls in performance, these meetings serve as a platform to discuss improving operational efficiencies. The monthly managers meetings keep cash flow goals at the forefront of managers’ minds throughout the organisation.

To bolster its controls on working capital management, developed an online vendor portal for supplier communication. Additionally, the company uses Oracle Workflow to track all steps in the payables process. is also implementing an organisation-wide system that will create real-time visibility of all exception data.


Many organisations today are carefully re-examining their working capital metrics and where cash on the balance sheet is invested. These organisations wish to avoid punishing customers and suppliers while improving their cash flow. More specifically, CFOs, controllers and treasurers are seeking new procedures and systems that provide fast, actionable information about current and future cash flows and working capital requirements. And they are increasingly eager to leverage information management and network/platform innovations that can help them be opportunistic with cash flows.

Optimising working capital management and cash flow planning capabilities is both a challenge and a necessity for organisations. Concerns such as demand volatility, access to bank credit, and customer payment defaults/delays make working capital management and cash flow intelligence key strategic issues that must be addressed for organisations to sustain financial viability under unpredictable circumstances.

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