Identifying working capital models in value chains: Towards a generic framework

Abstract

Emerging research stream of financial supply chain management emphasizes inter-organizational perspective to the optimization of working capital in order to increase the competitiveness of the whole value chain. To achieve this target, it is required to recognize the working capital positions in the value chain. In this thesis, these positions are mapped by studying working capital models applied by companies in the value chain context. Consisting of the management of inventories, accounts receivable and accounts payable, the concept of working capital model brings together perspectives from two research streams (finance and operations management), and provides a holistic view to working capital. The purpose of this thesis is to provide a novel perspective to the timely discussion of financial supply chains by identifying different working capital models in the value chain context, and by developing a framework for working capital models.

This study employs grounded theory research method. The empirical archival data of the research is collected from the official financial statements of companies operating in the automotive, ICT and pulp and paper industries. Quantitative data is analyzed with the financial value chain analysis and statistical cluster analysis. The results of the study indicate that value chain stages have a typical working capital model, but it is not applied by all companies within the stage. Similar working capital models were found in all studied value chains, but the value chains differ in how the working capital models are emphasized. Based on the empirical findings, a generic framework for working capital models is introduced. The framework consists of six working capital models: Minimizers, Aiming-at-Minimum, Moderates, Inventory holders, Financiers and Underperformers. Additionally, sub-model Trade credit users is included in the framework.

This thesis contributes to the literature of financial supply chain management by building theoretical foundation for different working capital models in the value chains. It introduces a novel approach for the value chain wide working capital management and supports the sustainable reduction of the cycle times of working capital. The results deepen the understanding of the current state of working capital management in the value chains, and encourage and support managers in the collaborative management of working capital and financial supply chains.