Working Capital Study 21/22

From recovery to growth in the face of supply chain instability

The corporate focus is shifting from stabilise and survive to recovery and growth. But unstable supply chains are disrupting operations and heightening the pressure on working capital, the cash needed to run day-to-day operations.

Why it matters

Net working capital (NWC) days reached a five-year-high in 2020, driven by the shock and uncertainty of the COVID-19 pandemic. While many of the spikes in working capital had unwound by mid-2021, the ending of government support, elevated levels of debt and ongoing supply chain disruption all mean that capital efficiency has to be front of mind as we go into 2022.

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What’s the story?

The pandemic exposed the slow reaction of supply chains to external shocks, leading to a significant rise in NWC. This lack of agility in adapting working capital levels to disruptive external events is a concern as we face continued challenges in the global supply chain. The heightened complexity and lack of visibility over most supply chains also mean that the move from ‘just in time’ to ‘just in case’ planning in order to manage supply risk may bring further working capital challenges. That is why 65% of executives in our survey named working capital efficiency as the main objective for change management and restructuring activities.

Key findings

DSO reached a five-year-high of 54.1 days as customers delayed payments. At the same time, companies stretched their creditors, with DPO also increasing by 7%. With increased uncertainty over demand and supply, inventory days also saw an increase of 5%. However, the impact wasn’t felt evenly across all industries and regions, and the lack of agility to react to changes at pace will continue to be a significant driver of working capital.

ROIC took a hit, dropping by 1.4% to its lowest level for five years. At the same time, net debt levels reached a five-year-high. With the winding down of government support, it’s important to keep a close eye on capital efficiency and liquidity.

The deterioration in working capital performance reflected the exceptional volatility experienced by many companies. The pandemic has also exposed the slow reaction of supply chains to external shocks. Since Q3 2020, there have been signs of recovery, with revenues growing above pre-pandemic levels. However, it’s sobering to note how little the nominal value of working capital changed during one of the most significant demand and supply shocks for many years. This lack of agility to move with external events meant NWC days rose seven days above pre-pandemic levels.

Continued disruption in global supply chains is having a major impact on working capital performance. Shortages of raw materials will inevitably result in stock shortages and operational disruptions in manufacturing businesses. Logistics volatility, as well as the drive to Net Zero, are likely to lead to an increase in nearshoring where possible, along with a heightened focus on the stability of critical external suppliers.

During times of uncertain demand, agility in the supply chain and inventories are more important than ever. It is in that context that organisations are thinking hard about supply chain resilience, sustainability and risk management. Leading organisations are moving towards convergence, with procurement and supply chain teams working together to integrate and respond to supply chain risks.

We can help you to

  • identify and realise cash and cost benefits across the end-to-end value chain
  • improve operational processes that underpin the working capital cycle
  • implement digital working capital solutions and data analytics
  • achieve cash conservation in crisis situations
  • create a 'cash culture' and upskill the organisation to adapt to the current situation
  • roll-out trade and supply chain financing solutions
  • create short-term cash flow forecasting and related action plans
  • stand up surge teams and resolve backlogs
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Stephen Tebbett

Stephen Tebbett

Partner, Working Capital Management and Execution Managed Services, PwC United Kingdom

Tel: +44 (0)7717 782240