Working capital is measured through the balance sheet, but much of it is created before finance closes the month.
When a production order is released too early, cash begins waiting in a queue. If completed goods are placed on quality hold, the physical work may be finished while the company remains unable to invoice the customer. An unstable schedule creates the same problem when purchasing builds additional inventory to protect the plant from its own uncertainty.
Finance can measure how much cash is tied up. Operations can explain how it became trapped. Releasing it requires both functions to examine the same flow of work.
The Cash Cycle Begins With the Schedule
Releasing a production order does not create value unless the plant is ready to complete it.
If the required material has not arrived or the next operation has no capacity, the order becomes work in process. The accounting system records an asset, while the plant experiences another queue that must be stored and managed.
Keeping every resource busy can make the operation appear productive. In practice, it often causes work to enter the plant faster than finished goods can leave. Priorities then change as overdue orders compete for attention, making the schedule even less reliable.
A credible production plan releases work according to what the operation can finish. This discipline shortens the time between purchasing material and collecting from the customer, even if it means that some equipment is not running every available minute.
Large Batches Create a Cost Elsewhere
A large batch can make one machine look efficient because the setup cost is spread across more units. The rest of the plant may pay for that decision.
Orders wait until the batch ahead of them is complete. If a defect is discovered late in the run, more units require inspection or rework. The plant also becomes less able to respond when demand changes because capacity has already been committed to inventory that may not be needed immediately.
The appropriate batch size should reflect how the product is actually sold and how quickly the plant can change from one item to another. Material with stable demand and a long replenishment time will not be managed in the same way as a product with irregular orders and a short shelf life.
A smaller batch may increase cost at one operation while improving cash and customer lead time across the entire plant. Local utilization should not be allowed to hide that trade-off.
Poor Quality Delays the Financial Completion of an Order
Scrap is easy to see because material is discarded. The working-capital effect of poor quality is often less visible.
A product placed on hold remains in inventory while the company determines whether it can be released. Rework consumes capacity that was expected to produce new orders. If the customer disputes the result, invoicing or collection may be delayed even after the plant believes the job is complete.
The monthly defect rate does not show how much cash is sitting in unresolved holds. Finance and operations need to understand the value and age of that inventory. They also need a clear decision on whether it will be released, repaired, returned, or written off.
The most valuable action is usually to remove the cause of the recurring hold. Negotiating longer supplier terms may provide temporary relief, but it does not solve a quality problem that continues to consume cash.
Procurement Cannot Manage Inventory Alone
A buyer may secure a lower unit price by committing to more volume. The saving is visible immediately, while the cost of holding the additional stock appears gradually.
Operations may still support the purchase because unreliable production makes the extra material feel necessary. Over time, inventory begins protecting weaknesses in the operating system rather than genuine customer demand.
An arbitrary reduction creates a different risk. Material that is difficult to replace cannot be treated like a commonly available item. Management needs to understand why each category of stock exists and whether the condition it protects is likely to continue.
KPMG’s 2025 working-capital guidance recommends embedding cash management within business operations and giving every department responsibility for working-capital performance. It also points to stronger demand planning and more deliberate inventory segmentation as important parts of the forecast-to-deliver process.
This is a broader management responsibility than negotiating price. Procurement can improve working capital only when the production plan, service expectations, and supply risks are understood on the same basis.
Use Flow Time as a Common Measure
Finance reports inventory in dollars. The plant experiences it as time.
A partially completed order may require only a few hours of actual work while spending several weeks waiting between operations.
That elapsed time is where cash becomes trapped.
A joint review should therefore separate processing time from waiting. Once that distinction is visible, management can see whether inventory exists because the product is being transformed or because no one has resolved the condition preventing it from moving.
McKinsey’s 2025 work on working-capital improvement emphasizes mapping the processes behind the cash-conversion cycle and establishing cross-functional ownership. It also notes that working-capital responsibility should reach the front line rather than remain solely with finance.
That approach gives the CFO and COO a common way to assess the problem. Instead of discussing an inventory balance in isolation, they can identify where time is being added and which operating decision is responsible.
Give an Operating Decision a Cash Value
Consider an illustrative manufacturer with annual cost of goods sold of $24 million. Assuming costs are incurred relatively evenly throughout the year, one additional day of inventory represents approximately $65,800.
If stronger schedule discipline removes eight days from the production cycle, the potential cash release is about $526,000. The actual result will depend on product mix and the timing of purchases, but the calculation gives plant management a financial value for improving flow.
The same principle applies after production. If shipping documentation is incomplete, an otherwise finished order may wait several days before the invoice is issued. Finance sees the delay later in receivables, even though the cause began in the operating process.
Giving these delays a cash value helps management decide which problems deserve immediate attention. It also prevents working capital from being treated as a general reduction target with no connection to the decisions that created it.
Run the Diagnostic Together
The CFO can show where inventory has increased and how much liquidity the business needs. The COO can explain what is happening inside the schedule and why certain materials are being held.
Together, they should select a meaningful product flow and follow it from the customer commitment through collection. System dates should be compared with what physically happened to the order. When the records do not agree, the difference often reveals the process that needs attention.
A 13-week cash forecast remains important because it shows when the company expects to receive and spend cash. Its value increases when operating actions explain why those dates will change. Reporting the same delay more accurately does not release the money.
In a business under pressure, an interim CFO or COO can establish this joint discipline when the permanent team lacks the capacity to lead it. The objective is to make working capital part of daily management and leave the organization with a process it can continue.
Cash is released when work moves through the business more reliably. Finance measures the result, but the improvement begins on the shop floor.
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