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

Abstract

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.

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