Extraordinary circumstances, such as the COVID-19 outbreak and the Ukraine war, force us to revisit and question past behaviors and business approaches. Our everyday inefficiencies, usually kept at bay by strategically placed buffers and manual workarounds, are relentlessly brought to the surface as markets plummet and supply chains disrupt. Warren Buffet captured this well in his quote: only when the tide goes out do you discover who's been swimming naked.

How do we adapt to whatever normal looks like going forward? Liquidity and cash-flow will play an even more vital role, placing the balance sheet and working capital efficiency in greater focus. As the tide turns for the better, we can either relapse to old behaviors, hoping our past buffers and workarounds still hold, or rather, take this opportunity to go from good to great.

Why bother to improve, if good enough has worked before? We can think of at least three reasons why improved working capital practices would be advised.

• First and foremost, we live in an era where disruptions are intensifying. Powerful global forces keep changing the playing field and how supply chains operate, not only through pandemics, environmental catastrophes, and political unrest, but through shifting global economic balance, changing demographics and digital innovations.
• Secondly, cash is and will continue being king. Alfred Rappaport famously said that while profit is an opinion, cash is a fact. This has become even more relevant as of late, given the increasing cost of capital, higher material costs and disrupted supply chains, forcing companies to revisit their old working capital approach.
• And finally, it is axiomatic that if a company does not improve, its competitors ultimately will.

Unfortunately, there are few, if any, one-size-fits-all solutions. Still, SETPOINT Group strongly advocates that any improvement journey would do well to include the following strategic and operational considerations:

1. Keep your balance sheet as lean as your P/L

Focus on cash, not instead of sales and profitability, but additionally. While companies can manipulate their reported profits, the ability to convert profit into cash can mean the difference between success and failure in times of crisis – and a decisive competitive advantage when times are good.

And as always when it comes to cash conversion - working capital plays an instrumental role and needs to be understood and managed properly. Cash conversion and working capital ratios are strong indicators of how efficiently a company is managing its processes and therefore mandate a greater focus.

Efficient working capital practices provide flexibility and empowers corporates to free up capital from their balance sheets, providing flexibility to build liquidity buffers during slowdowns and strategically invest in de-leveraging or growth opportunities when the timing is opportune.

Furthermore, a Lean Working Capital approach will also place your company in a more agile position for whatever next disruption to come. And don’t forget, companies with strong working capital practices tend to be more profitable.

1. Be holistic and agile in your planning and target setting.

The ability to plan and re-plan swiftly across functions and entities will play an important role going forward, allowing companies to make timely and informed decisions even in times of crisis and change without tying up too much capital in the process.

Also, no matter the area, companies should ensure their plans have an end-to-end process focus with clear cross functional consideration. We often see functional campaigns with a narrow focus turn into a game of whack-a-mole, where parts of, or all outcomes, would create issues somewhere else in the organization: e.g.,

1. A sales organization plans to realize its sales volume target by promising shorter lead times and increased availability of goods (increasing top-line);
2. An inventory manager has been instructed to reduce stock levels (improving working capital); and
3. The purchasing department is pushing for supplier discounts by committing to larger volumes (reducing cost).

These individual activities could all be relevant in themselves. However, together they could easily counteract each other, driving inefficiencies where at least one area of the organization would miss its targets. Understanding these cross-functional implications and aligning targets across the organization is critical if you want to ensure sustainable and long-term results, without having to sacrifice any part of the overall business targets, e.g., working capital for topline or profitability.

Keeping all together is one of the more challenging tasks for any company, and requires a high level of transparency, supported by robust processes, relevant KPIs and formalized control hubs.

Also, we have in recent years seen innovative information management software surface, allowing companies to efficiently visualize and manage across functions. Companies would do well in reviewing these options as part of their digitalization strategies.

1. Don’t wait to fix the roof until it is raining

Many companies view working capital and cash as a free resource. Only a few approaches working capital as a preventative measure, but rather as a response to external factors, e.g., need to pay off debt, finance CAPEX and other investments.

However, strong working capital practices do not only facilitate a healthy cash-flow but can also drive topline and profitability. Not only from the opportunity to leverage an improved cash position, but also through improved effectiveness and efficiency gains.

Properly applied, lean working capital improvement activities looks at removing supply chain bias and inefficiencies, resulting in improved availability of in-demand goods or services, increased flexibility to meet changes in short-term demand, as well as less costly operations.

A Lean Working Capital approach will help balance supply chain risk, improve right first time, right-sizing buffers, while also minimizing lead-times and waste - not only releasing capital but also placing your company in a stronger and more agile position for whatever next disruption to come.

An additional benefit is also that working capital projects are often less disruptive to an organization compared to traditional cost focused margin enhancing initiatives.

Where does your company stand? Download the free Working Capital Benchmark 2026 or run the Cash Check – it takes three minutes. Or book a 30-minute call with Johan Nordstrom.