Understanding cash conversion principles to facilitate and motivate manufacturing development initiatives

Paper in proceeding, 2012

A common problem for manufacturing related practitioners is to show stakeholders how improvement suggestions actually provide benefits to their organisations. Previous research explains that improvement actions need top management support to be successfully implemented. Top management is however driven by financial performance requirements and thus there is a need for manufacturing developers to present ideas and suggestions that are generating true financial impact and investment value. Related problems are derived to many sources, for instance difficulties to isolate improvement actions to certain cost locations in the financial statement, accounting method in use, cost fluctuations over time and the ability of practitioners to speak the financial language. This paper provides a concept for analysing manufacturing related cash flows aiming to give developers the means to persuade or at least, increase stakeholders risk willingness to invest in manufacturing development. A central concept of this paper is the cash-to-cash (C2C) cycle that explains how working capital, i.e. capital necessary for running the business, is tied up in different forms on its journey towards value creation. Additionally, operational improvement examples are provided to explain cause and effect relations between financial performance and manufacturing improvement initiatives.