Working Capital Study

M&D executives prioritize cash flow strategy but struggle with execution

Crowe Horwath LLP study explores working capital management best practices

Working Capital Study

CHICAGO (Aug. 23, 2016) – Manufacturing and distribution leaders believe strongly in having a strategy to manage the day-to-day cash flow of their organizations, but more than half (54 percent) have not implemented a strategic plan to optimize working capital, according to the 2016 Working Capital Study conducted by accounting, consulting and technology firm Crowe Horwath LLP.

The survey, which incorporated responses from 153 financial and senior executives, explored the challenges and opportunities U.S. manufacturers and distributors face as they work to maintain optimum liquidity while making investments for the future. Most respondents realize the importance of managing working capital and understand how it can improve profitability. However, the results indicate that the actual practice of managing the activities that have a direct impact, including accounts payable, accounts receivable, capital expenditures, raw materials inventory and finished goods inventory, leaves much to be desired.

“We found the financial losses for manufacturing and distribution companies are two-fold and mutually reinforcing,” said Bart Kelly, principal in Crowe advisory services. “First, they’re not taking advantage of their expensive enterprise resource planning (ERP) systems that generate an abundance of essential data. Second, this data could reveal specific, actionable opportunities that could result in marked improvements to their balance sheet and bottom line.”  

Highlights from the 2016 Working Capital Study include:

  • Disconnect between awareness and execution – Eighty-two percent of respondents consider working capital optimization to be either “extremely important” or “very important” to their company’s success, and 88 percent believe improved working capital management would boost their profit margins. Despite the importance and potential outcomes, 54 percent have yet to implement a working capital strategy.
  • External and internal factors – The most difficult external factors affecting working capital management include the economy (49 percent), unreliable customer-demand forecasts (48 percent) and industry issues (46 percent). The most difficult challenges within executive control are long supply-chain lead times (31 percent), inaccurate sales and operation planning (SIOP) (27 percent), delinquent receivables (26 percent) and business analytics (25 percent).
  • Improve inventory levels, improve sales – Not surprisingly, the faster a company can turn over its inventory, the faster it frees up cash for other purposes. But two-thirds of respondents say their companies turn inventory monthly at best, and 14 percent have three turns or fewer. Volatile market factors (28 percent) are commonly cited for creating obsolete inventory, followed closely by poor scheduling processes (27 percent).
  • Lacking returns on invested capital – Capital expenditures represent a sizeable component of working capital for industrial organizations. Yet a large majority (75 percent) of companies earn a 20 percent or less return on invested capital.

“While there are certainly external factors that can be attributed to working capital difficulties, companies do not consistently use available methods to better grasp their financial situation. Whether it’s minimizing process wastes and lowering inventories, or improving supply forecasting and fulfillment with customers and suppliers, this study reveals the delicate balance and cross-functional collaboration that executives must work to achieve,” Kelly added.

About the 2016 Working Capital Study 
During the first quarter of 2016, Crowe Horwath distributed a survey to financial and senior executives at manufacturing and distribution companies large and small, public and private, to determine best practices and benchmark performances for working capital management. The results were tabulated, analyzed and released in June 2016.

For more information and to receive the complete survey report, please visit

About Crowe Horwath 
Crowe Horwath LLP ( is one of the largest public accounting, consulting, and technology firms in the United States. Crowe uses its deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk and performance services. Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest global accounting networks in the world. The network consists of more than 200 independent accounting and advisory services firms in more than 120 countries around the world.

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Amanda Reich
Amanda Reich