Money through production.
WHAT THE PATTERN IS
Materials, labour and power paid before the product sells.
WHAT THAT PRODUCES
Cash tied up in materials, work in progress and finished goods simultaneously.
WHAT TO CALCULATE
The cycle from paying for material to being paid for product.
WHY
It determines how much cash the operation consumes.
WHAT TO MEASURE
Days of raw material held Days of work in progress Days of finished goods held Days customers take to pay
WHAT TO SHORTEN
All of them.
WHAT WORK IN PROGRESS REPRESENTS
Material and labour consumed, not yet saleable.
WHY IT MATTERS
It is invisible in most small operations and it is substantial.
WHAT TO DO ABOUT IT
Reduce batch sizes and shorten production lead times.
WHY SMALLER BATCHES
Less cash is committed at any moment.
WHAT TO BALANCE
That against setup efficiency.
WHAT TO AVOID
Producing to stock without demand.
WHY
It converts cash into product that may not sell.
WHAT TO ESTABLISH
Deposits on made-to-order production.
WHY
Bespoke product has no alternative buyer.
WHAT TO NEGOTIATE
Supplier terms, which are the cheapest funding available.
WHAT TO MONITOR
Cash position weekly Material, work in progress and finished goods values Debtors
WHAT TO WATCH
Stock rising while sales do not.
WHAT THAT MEANS
Production disconnected from demand, and cash disappearing into inventory.
