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Improving cash flow and liquidity with Lean

Linda Herrera Linda Herrera

Every manufacturer will know that the more quickly and efficiently you can produce a high quality product and deliver it to your customers, the better for your bottom line.

And there is now a wealth of innovative solutions available to help businesses take manufacturing to the next level. From predictive maintenance and the Internet of Things to 3D printing and robotics, technological advancements are constantly paving the way for business to manage their operations more effectively.

However, there are also several challenges stemming from shorter product life cycles, escalating energy and transportation costs, skill shortages and the general effects of macro-economic events, such as the global financial crisis and Brexit.

Identifying these crucial business needs and investing in solutions allows companies to leverage the supply chain for competitive advantage. But many businesses find themselves in a position of either not being able to afford the tools required or having to use credit to do so.

If manufacturing companies want to exploit the opportunities and manage the challenges in the market, it is clear they will need to increase their responsiveness and flexibility. Taking a Lean approach can help businesses free up working capital to invest in more efficient technologies and improve output.

Working capital

Our working capital study suggests the amount of cash trapped in working capital is rising. As much as £136 billion cash is tied up in working capital on the balance sheets of UK corporates, while cash on hand decreased in 2017 for the first time in five years.

Failure to release this cash means businesses are less willing and less able to invest and grow, limiting their agility in response to the market.

We often observe our clients struggling with a lack of integrated systems, lack of standardisation, weak infrastructure and poor online tools. This all contributes to a slowdown in the cash flow process.

Inefficient management of the financial operations can result in further inefficiencies, including high levels of bad debt expense, slow payments cycles and poor customer service.

A Lean approach

The implementation of a Lean approach to the operations in these businesses has generated working capital improvements. Through streamlining complex operational processes across the business, good practices for revenue maximisation and profit optimisation have been embedded.

Lean is a methodology that focuses on reducing waste and maximising value add activity by optimising the flow of the various functions and technologies across the business. It provides tools to analyse process flows and delay times at each activity in a process, identifies the true root cause of problems and highlights effective countermeasures to eliminate issues.

Lean work flow chart

Implementing a Lean approach can help you to gain a better understanding of your cost of complexity, and how you can reduce or eliminate this. It looks to understand and address the impact of working capital improvement on shareholder value to deliver operational returns across the business. 

Releasing working capital allows businesses to invest in new equipment and product development, take cash out of the business, service debt and more. Freeing up the cash tied to inventory and account receivables also means your business can manage its operations more efficiently.

Our working capital methodology and Lean approach implementation helps businesses identify any issues and make improvements based on value and speed to deliver.

If you would like to discuss further how a lean approach can support your working capital improvement, please contact Linda Herrera.

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