1. Revisit ownership of working capital management.
Cash flow management never fits neatly within a single team. Multiple functions all make decisions and take actions that can boost or erode working capital performance. Don’t leave those variables to chance. Instead, elevate the strategic importance of working capital and centralize accountability for managing it.
In a KPMG LLP (KPMG) survey of 201 CFOs and other senior executives, less than half reported having a dedicated resource who is accountable for working capital performance. If you haven’t already, appoint a leader to be responsible for your overall process and targets. Having a dedicated leader will help not only maintain focus but also assign ownership of key performance indicators (KPIs) for driving action and tracking results.
Make working capital everyone’s business
Along with a leader dedicated to working capital performance, you need structured incentives that encourage everyone to improve it. Ideally, every employee whose role affects working capital should be evaluated and incented based on their performance.
Align goals and rewards by function—for example, with supply chain targeting inventory by material type, sales teams working to meet objectives for invoicing terms, and engineering on the hook for excess inventory so they can track the impact of change orders and new product launches.
2. Put working capital metrics under the microscope.
The KPMG survey also found that most companies track working capital health using high-level financial metrics like days sales outstanding (DSO), days payable outstanding (DPO), and days inventory outstanding (DIO). Though valuable, these metrics aren’t sufficient for true optimization. For that, you need to put working capital health under the microscope—generating insights starting at the transaction level.
With this approach, you can identify and prioritize clear actions for improving performance. And you can set and track progress against specific targets for wringing out inefficiencies and delivering lasting value.
If you aren’t using highly granular metrics for accounts receivable (AR), accounts payable (AP), and inventory, you may not be able to identify the levers for lasting performance improvement.
