The document summarizes a PwC report on working capital performance in the manufacturing sector from 2009-2013. It finds that while revenue growth has stalled, companies have improved working capital performance by focusing on inventory management. However, €100 billion remains trapped in working capital across the industry. The report also notes that performance varies widely, and that improving working capital could release €100-162 billion in additional cash for the industry.

1. Sector Analysis, 2014
Cash for Growth
Working Capital in the
Manufacturing Sector
www.pwc.com/workingcapital

2. 2 PwC – Cash for Growth
Joel Segal
Partner –
Industrial Products and
Services Leader
Foreword
Welcome to PwC’s Working Capital Survey of the
manufacturing sector.
Working capital is the life blood of every company and is
a barometer for how freely cash flows. In efficiently run
businesses, cash runs freely; in others, cash gets trapped in
working capital, restricting the company’s ability to grow. This
is particularly true for manufacturing companies, as these are
capital intensive and more sensitive to economic swings.
In this survey we look at how companies have performed
and what the key trends are around the globe and across
sectors. We are working with many companies to help them
optimise their working capital and achieve sustainable
performance improvements.
This study shows that working capital continues to present a
significant opportunity for releasing cash and should therefore
receive special attention as companies seek to take full
advantage of the global economic upturn.

3. 3
November 2014
Daniel Windaus
Partner – Working
Capital Management
Executive summary
Working capital can deliver cash today,
for growth tomorrow
Globally, the largest companies within the manufacturing
sector have experienced a challenging trading environment
over the past two years, which has been highlighted by
declining revenues.
This recent trend has put pressure on companies to proactively
manage their cash position, causing ‘cash management’ to
feature further up the corporate agenda for the first time since
the economic recession.
This increased focus has already translated into working
capital improvements, with the first decrease in days working
capital since 2009. Improved inventory management has
been the key driver of this trend. However, working capital
performance varies widely across the industry, with good
performers getting better and bad performers getting worse.
To return to the levels of revenue growth achieved in 2010
and 2011, companies need to invest in their future, which
will require significant extra cash over the next few years.
Our survey shows that if companies were to move to the next
performance quartile, they would generate a total of €100bn
of cash, while moving to upper quartile performance would
release €162bn of cash. Cash is at your finger-tips.

4. 4 PwC – Cash for Growth
Number of companies in the study
Number of companies in the study
Whilst revenue growth has stalled in recent years…
Sales for the largest 1,175 companies in the
manufacturing sector grew by 32% over the past four
years equivalent to a Compound Annual Growth Rate
(CAGR) of 7%. This was achieved in 2010 and 2011
following the start of the financial crisis. However, over
the past 2 years revenue has decreased with a CAGR of
-1.3% since 2011.
309
619
247 Americas
Asia, Africa & Australasia
Europe
€ 754 billion
€ 647 billion
€ 793 billion
Americas
Asia, Africa & Australasia
Europe
Total global revenue in the manufacturing sector
20.9%
11.8%
-1.2% -1.4%
-5%
0%
5%
10%
15%
20%
25%
0.0
0.5
1.0
1.5
2.0
2.5
2009 2010 2011 2012 2013
Revenue
value
€
trillion
Revenue YoY revenue growth

5. 5
November 2014
... companies have focused on improving working capital
performance as a source of cash
Working capital performance across the sector has improved by
2.2% during the past year. Despite this, an additional €100bn
has been trapped in working capital across the industry
compared to 2009.
Since 2010, working capital performance has steadily
deteriorated with first signs of improvement becoming visible
over the past year . This suggests that cash is returning to the
fore-front of companies’ agendas once again.
€100bn of extra cash tied up in working capital
69.8 69.3
70.6
72.3
70.7
50
55
60
65
70
75
80
85
90
95
100
0
50
100
150
200
250
300
350
400
450
500
2009 2010 2011 2012 2013
DWC
Working
capital
€
millions Net Working Capital DWC
Manufacturing sector working capital trend
2.2%
€100bn
increased
working capital
decrease in days
working capital
between 2012 and
2013

6. 6 PwC – Cash for Growth
Key
Days of working capital
Percentage change between 2012 and 2013
Working capital performance has improved in all regions, with
Europe achieving the greatest development
-0.6%
-0.3%
-5.4%
Europe
Americas
Asia, Africa & Australia
73.8
70.0
72.6 72.6
68.6
2009 2010 2011 2012 2013
62.9
68.6 68.6
71.9 71.5
2009 2010 2011 2012 2013
72.9
69.1 70.4 72.4 72.2
2009 2010 2011 2012 2013

7. 7
November 2014
51.9 50.7 49.8 50.4 51.2
2009 2010 2011 2012 2013
59.1 59.7 61.7 62.0 60.9
2009 2010 2011 2012 2013
40.3 41.2 40.9 40.2 41.5
2009 2010 2011 2012 2013
55.5 52.7 51.2 49.5 48.9
2009 2010 2011 2012 2013
65.6 64.4 66.2 66.4
63.0
2009 2010 2011 2012 2013
44.9 47.1 44.8 43.4 43.2
2009 2010 2011 2012 2013
Inventory has been a key driver of improvement, particularly in
Europe
Global working capital performance
Days sales outstanding
Days sales outstanding
Days inventory on-hand
Days inventory on-hand
Days payables outstanding
Days payables outstanding
Working capital
performance has improved
by 1.6 days globally
between 2012 and 2013.
The primary drivers of the
trend are improvements
within the inventory and
payables cycles.
European companies have
achieved an even more
notable improvement of
3.8 days over the past
year. Enhanced inventory
performance was the
key driver of the trend.
Payables performance has
deteriorated, showing a
4-year declining trend.
European working capital performance
1.3day
improvement
0.2day
deterioration
0.8day
deterioration
1.1day
improvement
3.4day
improvement
0.6day
improvement

8. 8 PwC – Cash for Growth
Performance varies widely within the industry…
Working capital performance ranges widely across the manufacturing
sector, with a median of 81 days.
Notably, the variance between days payables outstanding and days sales
outstanding is low, which causes a relatively high level of cash to be
trapped in working capital across the industry.
As highlighted by the top performers in each cycle, there is room for
improvement across the sector.
36
41
55
51
56
60
34
81
0 50 100 150 200
DSO
DIO
DPO
DWC
Working capital performance range
Key
Median
Upper Quartile Min/Max Range

9. 9
November 2014
Varying working capital performance across sub-sectors is one of the
drivers of the wide performance gap in working capital cycles.
The Metals and Paper & Packaging sectors have achieved the greatest
improvement over the past year, whilst Building products remains the
best performing sub-sector within the industry.
Change in days working capital between 2012 and 2013
2012
2013
50 90
80
70
60
00 40
30
20
10
Working capital days
Rubber &
Plastics
Paper &
Packaging
Metals
Machinery
Fabricated
Products
Building
Products
-2%
-7%
-7%
0%
+3%
-3%
… which is partly caused by the mix of sub-sectors

10. 10 PwC – Cash for Growth
55%
The leaders
55% of companies with
days working capital
above the industry
median have improved
their performance over
the past year.
43%
The laggards
Only 43% of those
performing below the
median improved.
In addition, 10% of companies operating below the industry median
deteriorated by more than 40 days, whilst this was only 2% for those
operating above the industry median.
The good getting better, and the bad getting worse

11. 11
September 2014
Working
capital
€
€
€
€ € €
€100bn to
€162bn
Globally, €100bn to €162bn of cash could be released from working capital in the
manufacturing sector

12. 12 PwC – Cash for Growth
How can we support you?
Complete a working capital benchmarking exercise to compare performance
against peers and identify potential improvement opportunities.
Perform a diagnostic review to identify ‘quick wins’ and longer‑term working
capital improvement opportunities.
Develop detailed action plans for implementation to generate cash and make
sustainable improvements.
Assist the realisation of sustainable working capital reduction by
implementing robust, efficient and collaborative processes.
Addressing the key levers:
• Identification, harmonisation
and improvement of commercial
terms.
• Process optimisation throughout
the end‑to‑end working
capital cycles.
• Process compliance and
monitoring.
• Creating and embedding a ‘cash
culture’ within the organisation,
optimising the trade‑offs
between cash, cost and service.
1.
2.
3.
4.

13. 13
November 2014
Examples of areas where PwC could help you to release cash from working capital
Accounts receivable
• Credit risk policies
• Billing timeliness and quality
• Systems-based dispute resolution
• Dispute root cause elimination
• Good contract management (for large scale project type businesses)
• Aligned and optimised customer payment terms across global
customer base
• Timely order entry & order processing
• Formalised collections strategy with tailored and proactive
collections approach
• Dispute management process to avoid/minimise queries resulting from
complex products, variants portfolio, and payment delays
Inventory
• Balanced cash, cost and services
• Lean and agile supply chain strategies
• Global manufacturing footprint
• Sales and operations planning (S&OP)
• Demand management and forecasting techniques
• Production planning and batch size optimisation
• Accurate tracking of inventory quantities
• Differentiated inventory segmentation per product group
• Standardisation of components
• Extended supply chain integration
• Collaborative replenishment strategies
• Transport and installation lead time compression
• Maintenance, repair and overhaul inventory optimisation
Cash culture & visibility – The aim is to create a culture
whereby cash is important & performance is clearly visible
Key cash driver focus areas:
• Cash related management incentives
• Top management sponsorship
• Clear roles & accountability’s
• Corporate Working capital framework
• Defined targets per division / country
• Working capital reporting dashboards by division / country
Accounts payable
• “Centre Led” procurement
• Consolidated spending
• Supply Chain Finance
• Purchasing channels (to avoid contract leakage)
• Payment method and frequency
• Early payment prevention
• Supplier payment terms standardisation and optimisation
programmes across global supplier base
• Improved visibility of cash/cost trade offs across the supplier base to
• enable conscious optimal decision making
• Assistance with establishment and optimisation of supply chain
finance programmes (through an association with an independent
finance provider)

14. 14 PwC – Cash for Growth
Our approach to sustainable working capital
Case study: Operational working capital improvement
programme for a wind turbine group
The key issue
The company was struggling to cope with lower demand and increased
competition in their industry. They were facing mounting debts and
a profit warning saw the company’s share price drop sharply. As a
consequence, the company were facing severe liquidity problems.
How we helped
After a restructure, we identified that cash targets were missing. Our team
worked with the company to assess their working capital improvement
potential and to investigate how the introduction of a cash-focussed
culture could be elevated on the agenda.
We performed a total working capital diagnostic review, including
procure to pay (creditors), forecast to fulfil (inventories) and order to cash
(debtors). This identified c €1bn of benefit potential.
Our fast pace approach was essential to raise organisational awareness to
poor cash performance and raise receptiveness to change behaviours.
This comprehensive six month programme was sponsored by the executive
board, with a focus on the core markets across Europe and North America,
with the objective to realise €1bn of working capital improvement and
deliver the cash benefits over a period of three to six months.
The result
We identified and delivered net working capital cash benefits close to
€1bn.
Over a 6 months period the benefits were realised by improving procure–
to-pay (creditors), improving order-to-cash (debtors) and reducing
inventories.
Financial results for Q2 2013, as a consequence of the project, delivered
negative working capital, and the announcement coincided with the
company’s share price rising sharply over six months.
We supplement our working capital and cash management methodologies
with core consulting approaches to make sure that improvements are tangible
and sustainable.
Change management
Stakeholder management
Benefits realisation
Cash management
Working
capital
optimisation
Change management – Establish a more cash
focused culture that is able to sustain the higher levels
of performance and drive continuous improvement.
Stakeholder management – Ensure that
key stakeholders remain engaged during
the project.
Benefits realisation – Ensure
that cash generation objectives
are achieved and maintained.
Cash management –
Ensure effective utilisation
and forecasting of cash.

15. 15
November 2014
For other sector-specific working capital studies,
please contact Daniel Windaus.
PwC’s Working Capital Management Group brings together
experienced practitioners from across the world. Our people
have many years of experience at delivering world class
working capital performance both as consultants and from
time spent in industry.
To find out more, please go to www.pwc.com/working capital

16. Joel Segal
T: +44 (0) 20 7804 41161
E: joel.segal@uk.pwc.com
www.pwc.com/workingcapital
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141106-164526-KJ-UK
Robert Smid
T: +44 (0) 20 7804 3598
E: robert.smid@uk.pwc.com
Robert Smid
Philip Hines
T: +44 (0) 20 7804 8099
E: philip.hines@uk.pwc.com
Darren Jukes
T: +44 (0) 20 7804 8555
E: darren.jukes@uk.pwc.com
Darren Jukes
Joel Segal
Daniel Windaus
T: +44 (0) 20 7804 5012
E: daniel.windaus@uk.pwc.com
Daniel Windaus
Contacts
Sector specialists Working capital specialists
Philip Hines