Why CFOs Must Optimise Net Working Capital in 2025 – And How to Do It Right

NWC Deterioration in Industrial Goods

The H&Z Net Working Capital Study 2025, which analysed NWC trends across 290 manufacturing companies in the DACH region, found a notable working capital performance deterioration across the Industrial Goods sector. Between 2019 and 2023, NWC days increased by 10 days (or 11%), rising from 91 to 101 days on average.

More strikingly, the sector’s NWC is now 16% (14 days) higher than the general industry average. The primary driver of this is an increase in DIO—up 14% (10 days) from 74 to 84 days—suggesting that companies are holding onto inventory for longer, tying up valuable capital that could be used more efficiently elsewhere.

For industry professionals, this is no surprise. For years, low interest rates kept financing costs low, making high NWC a minor concern for overall profitability.  With minimal pressure to optimise working capital, many companies allowed their NWC to rise without immediate concern.

Then came major supply chain disruptions—the COVID-19 pandemic, the Russia-Ukraine war, the Suez Canal blockage and attacks in the Red Sea. A global shortage of electronic components compounded the issue, making product availability a top priority. To safeguard against supply chain uncertainty, many businesses increased inventory levels, driving NWC even higher.
 

The Time to Act is Now

In today’s economy, companies must reassess internal resource allocation and make NWC and liquidity optimisation a top priority.

With rising interest rates, the cost of financing is increasing, making high NWC more expensive to sustain—especially for businesses relying on overdrafts or short-term loans to bridge liquidity gaps. As interest expenses climb, pressure on balance sheets grows, demanding a leaner, more disciplined approach to working capital management.

Excess inventory also carries substantial costs—not only for warehousing and staffing but also due to depreciation, obsolescence, and potential write-offs. Beyond these direct financial burdens, there are significant opportunity costs. Cash locked in inventory is capital that could be used for innovation, operational improvements, or strategic growth.

Companies that fail to act will find themselves at a disadvantage, while those that optimise working capital will gain the flexibility to invest, adapt, and strengthen their competitive position. The time to act is now.
 

First Steps to NWC Optimisation

An effective approach to NWC management requires a tailored strategy that aligns with a company’s business model, market conditions, and production processes. By optimising working capital, businesses can strike the right balance between liquidity, operational efficiency and long-term resilience.
Key levers to achieve this include:

1. Planning 
•    Improved Forecasting & Demand Planning: Use real-time demand signals, promotions, and external factors to enhance forecasting accuracy.
•    Supply Network Planning: Capacity utilisation and review of safety/buffer stock/re-order point
•    Material Supply Planning: Adjusted lot sizes, frequency, lead time, quantities, order time
•    Distribution Planning: Planning of forwarders, lead times

2. Procurement 
•    Supplier Performance & Reliability: Reduced reliance on safety stocks by improving supplier accuracy and securing reliable sourcing.
•    Flexible Contracts & Inventory Models: Mixed use of binding/non-binding contracts, consignment stock, and vendor-managed inventory 
•    Optimised Lot Sizes & Lead Times: Adjusted order sizes and frequencies to align with actual demand.

3. Production Framework 
•    Balanced Capacity: Optimised production flexibility, frozen horizon planning and lot sizes.
•    Waste Reduction & Recycling: Reused leftover materials and reduced scrap.
•    Obsolete Stock Management: Identification, repurposing or liquidation of slow-moving stock.

4. Storage & Warehouse 
•    Right-Sized Warehouse Operations: Adjusted warehouse footprint, stock levels and throughput times.
•    Optimised Inventory Flow: Reduced transportation times and distribution hubs.
•    Lean Logistics Management: Improve forwarder planning and delivery schedules.

5. Product Portfolio & Design 
•    Variant Management: Number of variants and latest point to create variant
•    Modular Product Architecture: Usage of interchangeable components across product lines 
•    Phase-In/Phase-Out Planning: Maintenance of optimal stock levels while ensuring efficient use of capital
•    Reducing complexity: Standardisation of components and simplification of product offerings