In our earlier article, Short-Term Cash Flow Forecast: Because While Profit is an Opinion, Cash is a Fact, we highlighted the growing importance of cash conversion – the ability to turn profit into cash.

When it comes to cash conversion, working capital is central. Managed well, it reflects the DNA of a company, offering deep insights into its health, agility, and growth potential:

Slow-moving working capital beyond what’s needed to sustain operations often signals inefficiency. It ties up cash, limits the ability to invest, pay dividends, and grow.

Excessively rapid turns can indicate over-cutting, leaving too little buffer to sustain operations, risking lost sales and damaged supplier or customer relationships.

The key is to understand a company’s baseline working capital requirement, given its supply chain and operational constraints. We call this the Setpoint.

SETPOINT Group’s Lean Working Capital is a holistic end-customer centric approach, focused on balancing supply chain risk and right-sizing buffers – while minimizing lead-times and waste. The concept has been developed in response to a set of common working capital management misconceptions we have encountered over the years:

misconception #1 – you must choose between working capital and profitability
Most organizations do not realize or overlook the substantial impact a sustained improvement in working capital has on both top-line and cost.

misconception #2 – good working capital always equate little working capital
Companies typically define success as the amount of working capital you reduce, not the optimization of capital required to sustain or grow operations. Top-down push for an unsubstantiated reduction delivers at best short-term gains, often with negative long-term effect on both working capital and P&L.

misconception #3 – working capital projects must be triggered by an event
Few companies approach working capital as a preventative measure, but rather as a response to external factors, e.g., paying debt, finance CAPEX and other investments, solving delivery issues, etc.

misconception #4 – working capital is managed through 3 separate processes (ptp, ftf & otc)
Even though each track can be relevant by itself, there are multiple cross functional connectors making it hard to deliver sustainable impact without a holistic end-to-end process focus. Functional campaigns with a narrow focus often turn into a whack-a-mole game, where parts of – or all outcome – would create issues somewhere else in the organization.

misconception #5 – working Capital Management is a finance concern
Even though cash is typically overseen and managed by finance executives, a significant portion of the cash conversion cycle is owned and influenced by operations.

Finding and approaching your setpoint

A company’s Setpoint reflects its processes and supply chain realities. Achieving it requires alignment across multiple stakeholders—often with competing goals.

You can’t reach it through a simple top-down directive or by averaging across business units. A company could hit a “net” target yet still be imbalanced if slow-moving items tie up resources at the expense of high-demand products.

Because much of working capital is influenced by operations, the solution requires a cross-functional, end-to-end perspective. FIGURE 1. SETPOINT Group’s Lean Working Capital – Cash Conversion Cycle

Improvement Pathways

Once the Setpoint is defined, companies can measure performance against it and choose the right improvement path:

• Incremental Approach
  Gradual improvements to close the gap, often via targeted process adjustments, housekeeping, and fine-tuning existing workflows.
• Structural Approach
  Larger-scale changes that redefine the Setpoint itself—such as new tools, altered supply chain footprints, or redesigned processes.

In summary – Lean Working Capital helps organizations reach and maintain optimal working capital levels, to sustain or grow operations. It is based on achieving or improving a company’s working capital SETPOINT – a state in which all processes operate flawlessly, impacting cash conversion not only through improved working capital but also an improved EBITDA.

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.