June 22, 2016 @ 12:37 by Alison Cowie
Improving working capital practices in the UK manufacturing sector could generate a cash injection of up to 6 per cent of turnover, according to the latest RSM working capital survey. For the sample data used, this equates to circa £400 million, highlighting a significant opportunity for UK manufacturers.
Introducing key improvements to reduce working capital through new or modified processes and compliance will help to generate cost savings, particularly transactional and operational.
The survey analysed a range of working capital metrics from 75 UK-based manufacturing companies and reaffirmed previous findings that inventory is the key driver of working capital. In addition, the sales and purchases data mirrored last year’s figures signifying that there has been no change and the sector continues to miss cash release opportunities through embedding working capital management.
Improving working capital practices does not only provide valuable cash for investments but it can also improve customer service with better on-time, in full performance and improving staff morale as they are able to spend less time on reactive fire-fighting.
Simon Atherton, consulting director at audit, tax and consulting firm RSM, said: “The manufacturing sector continues to face a number of challenges and accessing cash to invest in new technologies, skilled workers, energy reduction or international growth plans could transform a business, but unlocking capital is key to this investment.
“Although banks are becoming keener to lend, manufacturers should look closer to home and consider how to access much-needed cash from their own resources. The findings show that optimising working capital management across our sample could deliver a total cash release of up to £400m. However, this is just the tip of the iceberg and the opportunity for the wider manufacturing sector is far greater.
“Investments in the right areas can lead to an increase in productivity, improved consistency in quality and support further penetration in local, national and international markets, so a cash injection of up to 6 per cent of turnover could be a significant boost to support future growth for the UK’s manufacturing sector.”