Working capital is a topic that rarely disappears from management agendas. It is discussed regularly, monitored closely, and often targeted for improvement. At the same time, many organizations approach working capital primarily as a financial outcome rather than an operational one.
This perspective misses a critical point: Working capital is not managed on the balance sheet. It is created and consumed in the supply chain.
Leading CFOs have recognized this for quite some time. What distinguishes them is not a stronger focus on working capital, but a different perspective on where and how it is shaped in everyday operations.
Where Working Capital Is Operationally Created
Despite its importance, working capital is still often treated as an abstract, primarily financial topic. In many organizations, it remains a topic raised by Finance rather than one actively managed in operations. In reality, working capital is one of the most powerful operational levers a company has to secure liquidity, maintain financial independence, and ultimately create enterprise value.
At its core, working capital describes the time gap between paying suppliers and receiving cash from customers. This cash to cash cycle is driven by three levers:
- Days Sales Outstanding (DSO)
- Days Inventory Outstanding (DIO)
- Days Payables Outstanding (DPO)
These KPIs help to measure performance. However, they rarely explain why performance is good or bad. The true drivers sit much deeper. They can be found in forecasting accuracy, planning parameters, replenishment logic, production lot sizes, service promises, agreed payment terms, and the extent to which standards and policies are consistently applied in day-to-day execution.
In other words: DSO, DIO, and DPO are symptoms. The causes lie in the end to end supply chain.
It is also important to acknowledge that working capital is not universally something to be minimized. In many industries, higher inventory levels or longer cash cycles are deliberate and strategically sound choices. They may serve to secure service levels, strengthen resilience, or enable growth.
Even strategically intended working capital, however, is ultimately executed through operational processes. Whether capital is tied up deliberately or unintentionally becomes visible in the same place. It shows up in daily planning decisions, execution discipline, and operational behavior along the supply chain.
A Recurring Pattern in Working Capital Management
Most companies do not fail at working capital management due to a lack of awareness. They fail due to timing and behavior. Unfavorable working capital trends are usually visible early on through regular reporting, but are often only actively addressed once pressure escalates. Under such pressure, management reacts with immediate measures: These typically include payment or purchasing stops, ad hoc inventory reductions or write offs, fire sales, and aggressive collections without a clear structure.
While such actions may improve reported numbers in the short term, they come at a price. They disrupt supply chains, strain customer and supplier relationships, and introduce operational inefficiencies. These effects tend to reappear later, often in amplified form. Short-term working capital actions may improve the balance sheet. However, they frequently damage operational performance at the same time.
Where Cash Is Really Tied Up
A closer look at daily operations reveals recurring patterns. Across accounts receivable, inventory, and accounts payable, working capital inefficiencies typically do not stem from isolated mistakes. Much more often, they result from structurally tolerated process weaknesses.
Accounts Receivable
Invoices are sent late, disputes are handled manually and with delay, and responsibilities are fragmented. As a result, teams spend a significant amount of time managing exceptions instead of actively steering cash inflow.
Inventory
Planning parameters are often outdated. Safety stocks are set too high “just in case”, and forecast errors are compensated with additional stock rather than corrected at the root. Over time, this leads to structurally inflated inventories, even in organizations with otherwise mature supply chains.
Accounts Payable
Invoices are paid too early, discounts are applied inconsistently, and payment terms lack adherence. These effects are rarely the result of conscious strategic choices. In most cases, they are the outcome of inefficient or weakly governed processes.
Across all three areas, the same pattern emerges: Working capital inefficiencies are produced by everyday processes that were never explicitly designed to manage cash. They are triggered by countless daily decisions made by people, often without being aware of their direct impact on liquidity.
The CFO’s Role: From Scorekeeper to Value Driver
This is where the focus of the CFO role increasingly shifts in day-to-day leadership.
Modern CFOs have long played a central role in performance steering and strategic decision-making. What is evolving further is how consistently these responsibilities are translated into operational decision-making across the supply chain.
Rather than optimizing working capital against operations, CFOs enable value creation through operations. Their role is not to run the supply chain. It is to create the conditions under which better decisions can be made by the organization.
Key success factors include:
1. End-to-End Transparency
What cannot be measured cannot be improved. Meaningful transparency is built on transactional data across Purchase to Pay, Forecast to Fulfill, and Order to Cash. This creates a fact-based understanding of where cash is tied up and why.
2. Aligned Targets Instead of Functional Silos
Sales aims for availability. Operations focus on efficiency. Procurement seeks low prices. Finance pushes for lower capital tied up in inventories. All of these objectives are valid. However, they are often unaligned.
Sustainable working capital improvement requires consciously resolved target conflicts and differentiated segmentation. Blanket rules rarely work.
3. Standards and Continuous Improvement
Clear guidelines and well-designed standards reduce complexity and variability. Working capital improvements become sustainable only when embedded into daily routines, not when executed as one-off programs.
Stabilized planning parameters, replenishment logic, and execution processes help address root causes instead of symptoms. Continuous improvement ensures that working capital performance evolves alongside changing market and supply chain conditions.
4. Empowering People, Not Just Changing KPIs
Planners, buyers, and clerks influence millions in liquidity through their daily decisions. When decisions are taken based on “gut feeling” rather than clear standards, working capital outcomes become inconsistent and unpredictable.
Training, awareness, and clear guidelines turn working capital from an often-misunderstood finance topic into an operational responsibility.
5. Making Working Capital a Management Topic
As a cross-functional discipline, working capital requires clear coordination and strong sponsorship at top management level. Sustainable improvements are achieved only when working capital is embedded as a structural element of the operating model, rather than treated as a standalone initiative.
This requires defined ownership across functions, clear responsibilities along end-to-end processes, and the systematic integration of working capital targets into business planning and performance management.
Equally important is consistent top management communication. Only when the relevance of cash and capital efficiency is clearly articulated and a sense of urgency is established across the organization does working capital become a true management priority.
When cash and capital efficiency are firmly anchored in management routines, decision processes, and daily execution, working capital becomes part of how the organization operates, not a periodic finance exercise.
Redefining the CFO’s Role in the Supply Chain
The role of the CFO has already evolved significantly over recent years. Today’s CFOs are far more than financial scorekeepers. They actively shape strategy, steer performance, and balance risk, growth, and capital allocation.
What is changing now is not the level of responsibility, but the primary arena of value creation. In an increasingly volatile and capital-intensive environment, financial leadership extends deeper into operational decision-making along the end-to-end supply chain.
In this context, the CFO’s role is not to run the supply chain. It is to design the conditions under which better decisions are made. This includes creating transparency, shaping incentive structures, establishing governance mechanisms, and defining capital allocation logic that enable operations, commercial functions, and supply chain leaders to consciously manage trade-offs between service, cost, and cash. In other words, the CFO ensures that the operating model and management system consistently support better decisions.
When these conditions are in place, service levels, costs, and cash are no longer managed as competing objectives, but as an integrated system. Working capital, therefore, becomes more than a financial metric. It reflects supply chain maturity, planning quality, and organizational alignment.
CFOs who embrace this perspective move beyond functional boundaries. They act as value drivers of supply chain performance by strengthening liquidity, resilience, and long-term competitiveness at the same time.
What Should Companies Do Next?
The starting point is not another working capital program. It is a clear understanding of how working capital is created in daily operations. Leading companies begin by making processes transparent, identifying structural inefficiencies in planning and execution, and exposing the decision patterns that ultimately drive cash performance.
What differentiates successful organizations is consistency. They align targets across functions, translate them into clear decision rules, and ensure that planning and execution are guided by data rather than local optimization. This requires more than insight. It requires discipline in execution and the willingness to address structural issues instead of reacting to symptoms.
At cbs, we support companies in turning working capital from a reporting indicator into a measurable driver of performance and liquidity. We focus on where it matters most: improving decisions in daily operations and translating them into sustainable impact.
Especially in inventory management, sustainable improvements require transparency, differentiated steering mechanisms, and aligned operational processes. Our Operations Compass approach helps companies identify structural inefficiencies and balance liquidity, resilience, and service performance in a data-driven way:
The question is no longer whether working capital can be improved. The question is how consistently organizations manage their operations to create cash, improve performance, and strengthen resilience at the same time.
