Understanding cash conversion principles to facilitate and motivate manufacturing development initiatives
Paper i 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.