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Working Capital Management in the Automotive Industry : Lean Manufacturing Systems and Just-in-time Inventory Methods are Key to Achieving Working Capital Efficiency, Frost & Sullivan

  • January 2015
  • 49 pages
  • Frost & Sullivan
Report ID: 2621255

Summary

Table of Contents

Research Objective:

This research service is an analysis of working capital management in the automotive industry. It examines the key determinants of working capital requirements. Regional and segment-level analysis is provided. Disadvantages of inadequate working capital are also discussed. A case study of a company with adequate working capital is given to present the methods adopted to achieve it.

Executive Summary

$ million Money locked up in Asia in automotive working capital
Lean manufacturing systems and just-in-time inventory methods are the most important factors that manufacturers are adopting to improve working capital efficiency.
Manufacturers are negotiating with suppliers to increase payable days and are taking steps to reduce receivable days. Original equipment manufacturers (OEMs) are having better bargaining power in extending payable days.
Companies are preferring to have more liquidity as there are opportunities for industry consolidation—especially in the chassis segment where there is a lot of overcapacity.
Globalization has led to more exports of vehicles and components from the home country, which is increasing the cash conversion cycle.
Centralization of treasury operations; integrating working capital functions such as trade finance, cash management, and foreign exchange; and automating liquidity management and collection processes are among the measures taken for companies to increase working capital efficiency.

Introduction

A total of $ x million of working capital was locked up in the entire automotive value chain for 2013, in proportion to the scale of operations. OEMs, which have the largest scale of operations, account for the largest share of total working capital. The chassis segment, which uses many raw materials such as metals and plastics, also has substantial working capital. The share of the tires and wheels segment is primarily due to the cost of rubber. Companies with more than 1 type of operations (Various) have multiple working capital requirements.
Locked-up working capital is in proportion with regional production. Asia accounted for nearly x % of global automotive production in 2013. Its production share is expected to increase since most demand is expected to come from emerging economies in the region. Its share of locked-up working capital, however, is less because most Asian manufacturers have a lean inventory system and just-in-time inventory method.

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