A Supply Chain-Oriented Approach of Working Capital Management

Journal Article

Authors:
Hofmann, Erik
Kotzab, Herbert
Publication year:
2010

This article analyzes and illustrates the role of payment terms for working capital improvements in supply chains. So far, research has shown how individual industries and powerful companies were able to enhance their cash-to-cash cycles at both their supplier’s and customer’s expense.

 

From a “network perspective,” the exploitation of individual advantages by a single powerful company lowers the overall financial wealth of the supply chain. Therefore, a collaborative working capital management approach is proposed, by which the cash-to-cash cycles of companies with the lowest weighted average cost of capital (WACC) should be extended, while companies with higher financing costs are relieved by a shortened cash-to-cash cycle.

 

An unequal distribution of power, however, between supply chain members can be the main hindrance for developing a collaborative working capital management solution.

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