Working Capital Optimisation through Asset Turnover Gap Closure For Industrial Supplies Wholesaler

Project Context

In asset-intensive trading businesses, working capital is the engine of growth. Inventory and receivables often represent the majority of invested resources, while operating cash is continuously recycled to meet short-term obligations.

In this engagement, the client was facing:

• Constrained liquidity despite stable revenues

• Declining return on invested capital

• Limited ability to fund growth without external financing

With profit margins and leverage already under pressure, the only sustainable value lever available was better utilization of existing assets.

Objective

The objective of the project was to increase return on investment (ROI) by improving asset turnover, with a strong focus on:

• Accounts Receivable turnover

• Inventory turnover

• Identification and elimination of “working capital drainers”

This initiative was positioned as a prerequisite to:

• Any new investments

• Resource reallocation

• Future growth initiatives

Analytical Framework

The engagement was structured around a gap-closure methodology, built on four layers:

1. Rationale & Target Setting

   • Define a minimum viable asset turnover benchmark aligned with the business model

   • Quantify the performance gap between current and target utilization

2. Gap Assessment

   • Analyze working capital concentration across receivables and inventory

   • Identify assets with high capital absorption but low economic return

   • Apply Pareto logic (“the mighty few”) to isolate the most damaging items

3. Receivables Turnover Gap Closure

   • Segment customers by turnover, exposure, and payment behavior

   • Introduce a structured credit policy framework balancing control and sales enablement

   • Define preventive and corrective actions for overdue and slow-paying accounts

4. Inventory Turnover Gap Closure

   • Classify SKUs by stock duration, value, and GMROI

   • Separate strategic fast-moving items from capital-locking slow movers

   • Define differentiated actions per SKU class (pricing, write-offs, forecasting discipline)

Key Design Principles

1. Focus on Economic Reality, Not Averages
Rather than optimizing averages, the analysis focused on:

• Incremental ROI

• Capital intensity per customer / SKU

• Justification of working capital usage via GMROI where margins varied

2. Controlled Flexibility
The credit policy was intentionally designed not to enforce zero deviation.
The goal was to:

• Reduce harmful variability

• Avoid sales destruction through over-control

• Maintain commercial competitiveness in imperfect markets

3. Operational Ownership
Recommendations were translated into:

• Clear decision rules

• ERP-ready parameters (credit limits, review cycles)

• Defined ownership between finance, sales, and collections

Deliverables

• Asset turnover gap quantification and target roadmap

• Working capital drainer identification matrix (customers & SKUs)

• Credit policy design (limits, terms, escalation logic)

• Receivables collection action playbook by customer class

• Inventory segmentation and SKU-level action plans

• Practical guidance for cross-functional execution (finance, sales, supply chain)

Business Impact

Without changing the business model or increasing leverage, the client achieved:

• A clear and attainable path to double-digit improvement in asset turnover

• Release of trapped working capital through better receivable and stock discipline

• Improved liquidity resilience

• A structurally stronger ROI profile driven by efficiency, not risk

Most importantly, the organisation gained a repeatable decision framework for preventing future working capital leakage.