Reducing Working Capital Requirement (WCR), a complex approach to leverage work-in-progress but an excellent way to improve its industrial performance

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In times of stress on finances, and therefore on liquidity, the optimization of the Working Capital Requirement composed of trade receivables, trade payables and all stocks and work-in-progress, is one of the keys to maintaining the business activity.

To achieve this, and obtain the associated cash flow, it is necessary to operate levers on these 3 WCR positions, knowing that the means to act on the first 2, namely trade receivable and trade payable, are well known, but quite limited in number and involve a lot of negotiation work with third parties:

  • longer payment terms for suppliers,

  • transfer of annual rebate discount on invoice,

  • shortening customer payment deadlines, reducing down payments and assets,

  • recovery of unpaid bills and prosecution of bad payers,

  • development of the discount, generalization of the drawdown, ...

Solutions to reduce physical stocks are more numerous. And although they depend only on internal players in the company, their accessibility is reduced because of the involvement of many professions and the impression of "security" conveyed by stocks vis-à-vis service rate and sales. Thus, to reduce the level of raw materials, consumables, parts and subassemblies held, the R & D, Product Marketing, Methods and Production departments will have to associate to undertake redesign and technical innovation actions:

  • optimization of material consumption (eg: thickness of a package),

  • waste and material losses reduction,

  • limitation of the number of basic references to cover the same range,

  • standardization of subsets of products,

  • lower consumption of energy and consumables, ...

The work to limit the stocks of finished and semi-finished products which can be sold in the state must, above all, bring together the services Commercial, Customer Marketing and Logistics:

  • rationalization of the product portfolio and abandonment of some references,

  • resizing the size of the packaging (eg: packaging in sets of 10 instead of 20),

  • transition to a central platform of products with high added value and low turnover,

  • development (with R & D) of delayed differentiation, ... 

Finally, for the work-in-progress reduction and intermediate products, it is mainly necessary to solicit Production and Methods:

  • compression of manufacturing cycles by controlling the availability, flexibility and productivity of equipments (including bottlenecks) including series changeover times,

  • professionalization of the master plan of production and planning,

  • lower waste / scrap, and no quality,

  • adaptation of the industrial organization (eg creation of dedicated product lines),

  • reduced manufacturing batch sizes and campaign times, ... 

In return for a higher implementation difficulty, all these actions on inventories and WIP reduction  place the company and all its components in a logic of continuous search for performance, thereby strengthening its competitiveness with production delays. However, to be effective and sustainable, without generating a break or imbalance, these actions must be grouped together in a real plan for global improvement.

Such programs require a strong change in business practices but also human, managerial, ... Our experience gained through many missions and operational functions in industrial companies, allows us to provide concrete answers to our customers on these challenges, with first and foremost a sustainable reduction of their inventories and therefore a reduction of their working capital requirement by more than 15%.

About Marris Consulting

Marris Consulting is an industry consulting and training company specialized in the Theory of Constraints (ToC) and Critical Chain Project Management. We focus on improving the performance of manufacturing and process industries by using Constraints Management combined with Lean and Six Sigma. To boost project performance, we also use Critical Chain Project Management (CCPM), which we sometimes combine with Lean Engineering. Our 2-day performance audits, our performance consulting services and our project management, Lean, ToC & CCPM training by our industry consultants offer a wide range of solutions to help our clients around the world reach the highest possible levels of performance.

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