Research Paper: Management System -- Working Capital

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[. . .] " (Dong and Su, 2010 )Stated as limitations of the study reported by Dong and Sun is that the study is referenced to internal factors only but fails to consider external factors including "industry dummy, level of economic activity…" (Dong and Su, 2010)

V. Trends in Working Capital

Trends in working capital are explored in the work of Padachi (2006) specific to the impact that working capital management has on Firms' Performance. A working capital management process and system provide positive contributions to the firm's created value. (Padachi, 2006, paraphrased) The study of Padachi had as its purpose to analyze the trend in working capital needs and profitability of the firms participating in the study. Reported as the dependent variable is the return on total assets used as a measure of profitability and the relation between working capital management and corporate profitability is investigated for a sample that totaled 50 small manufacturing firms, using panel data analysis for the period 1990." ( Padachi, 2006)

VI. U.S. Department of Energy Working Capital report

The work of the U.S. Department of Energy: Working Capital Fund "Guidebook for Creating and Managing Working Capital Funds Business" published in February 2003, examines a 'working capital fund' stating that it is a financial tool for managing common administrative services within a Federal agency." (U.S. Department of Energy: Working Capital Fund, 2003) It is reported that the conversion of an activity "from a conventional administrative framework, with direct funding and centralized management, to a working capital fund "business" will change the ways in which decisions are made, vesting more decision-making in customers organizations. This conversion is intended to promote efficiency through customer incentives to conserve resources, fair and visible "full cost" allocation of resources, and flexibility for supplier organizations to meet customer needs." (U.S. Department of Energy: Working Capital Fund, 2003)

The U.S. Department of Energy: Working Capital Fund" (2003) report states that working capital funds are "consistent with the President's management Agenda and with Federal Accounting Standards Advisory Board criteria for managerial cost accounting." (U.S. Department of Energy: Working Capital Fund, 2003) The working capital fund is reported to provide structural support to supplementation rather than replacement of other formal forms with the option to either party to appeal the issues to the Deputy Secretary. No appeals have as of yet been forthcoming. The Fund is comprised of several lines of business with each of these bearing the burden of operating "on a breakeven basis whereby business earnings are sufficient to cover business expenses." (U.S. Department of Energy: Working Capital Fund, 2003) The Fund publishes business type financial terms and statements and managers are under the direction of governmental regulations regarding "financial control, procurement, human resources, and the like." (U.S. Department of Energy: Working Capital Fund, 2003)

The U.S. Department of Energy: Working Capital Fund" states that the financial management features of fund businesses including such as "…formal pricing policies, customer advance payments, monthly billings that create business earnings, quarterly cost accruals,, and business-type treatment of capital acquisition sand inventory transactions." (U.S. Department of Energy: Working Capital Fund, 2003)

VII. Quarterly Duties of Reporting

Each quarter it is reported that the Fund Manager undergoes a review of each of the business lines reporting to the board the following stated information:

(1) Whether current year earnings will cover business expenses;

(2) Whether customer organizations are paying their bills;

(3) Whether there have been any violations of administrative control of funds procedures;

(4) Whether budget estimates have been accurate;

(5) Whether pricing policy changes are needed; and (6) Whether billing and other financial systems have produced accurate and timely information. (U.S. Department of Energy: Working Capital Fund, 2003)

VII. Five-Year Plan requirement for the Board

Geared toward assisting business managers in identification of issues and supporting customer organizations plan budgeting the Board requests that each of the business lines prepare a five-year plan through use of the Balanced Scorecard concepts uphold in Harvard Business Review over the past ten years. The Scorecard highlights four specific dimensions of perspective for performance management stated to include the following four dimensions:

(1) Customer Perspective;

(2)Financial Perspective;

(3) Learning and Growth Perspective; and (4) Internal Business Process perspective. (Dong and Su, 2010)

The scorecard was specifically designed for particular private sector organizations however, the scorecard has been used in public organizations as well. The customer perspective is stated to include considerations of "what goods and services does the business produces for customers and what pricing policy options are available to be considered by the Board? " (U.S. Department of Energy: Working Capital Fund, 2003)

The Financial Perspective is stated to include it necessary to consider the cost structure of the business and how it is that business expenses experience variation in response to customer demand? As well, questioned should be the savings that might be effected and how it is that this type cost structure could be made compatible with the pricing policy earnings structure.( U.S. Department of Energy: Working Capital Fund, 2003)

In regards to learning and growth it is stated that necessary considerations include:

(1) What organizational and employee development/training requirements are driven by creation of a new "business"? And (2) What information systems are needed to support periodic billing of customers and measurement of business success? (U.S. Department of Energy: Working Capital Fund, 2003)

Internal Business Processes include the necessary consideration of:

(1) What process improvements are needed and which have the highest payoff for customers?

(2) What can the business learn about practices in other Federal agencies, especially those with similar business lines being operated on a fee-for-service basis? (U.S. Department of Energy: Working Capital Fund, 2003)

IX. Dell Case Study

The work of Fisher (1998) entitled "Inside Dell Computer Corporation: Managing Working Capital" reports that Dell Computer Corporation's direct sales "is one of the most successful strategic innovations of the past 15 years." (Fisher, 1998) Dell is reported to have used a very simple concept or that of 'bypassing the retail channel to sell directly to consumers and provide shareholder a return several times that of market averages." (1998) The report relates that Dell "… stumbled badly four years ago and might have failed, were it not for the timely addition of seasoned management and with it the adoption of a new structure, new processes and new metrics. " (Fisher, 1998) While Dell is today the largest of all personal computer companies and the fastest growing. Is reported that Dell (1993) "would soon discover the limitations of a strategy based exclusively on growth, and of its own management and structure. In 1993, Dell expanded its product line to include notebook computers, but had to abruptly withdraw the ill-conceived and unreliable new machines from the market. And, succumbing to the conventional wisdom that direct sales would never be more than a niche market, Dell moved partly into the retail channel, offering its products through PC superstores, like CompUSA, and power retailers, including Wal-Mart, Best Buy and Staples. The company grew, with sales reaching $2.8 billion in the fiscal year ended Jan. 31, 1994, but at a net loss of $36 million." (Fisher, 1998) Singular focus on growth resulted in the profitability and liquidity of the company being risks and it is reported that while growth "…is an extremely important driver of shareholder value, there are other pieces to the puzzle." (Fisher, 1998) Therefore, Dell was refocused on what is termed the cash conversion cycle, comprised by "inventory, parables, receivables and cash flow from operations." (Fisher, 1998) Ultimately Dell abandoned retail as the managers lacked the experiential management skills needed. Dell was organized by functioning divisions across the globe for marketing worldwide. This didn't work for Dell so Dell is reported to have made a move to a regional structure empowering the regions to operate as stand-alone companies. It is reported that restructuring takes place every year and the company still seeks to segment the company into stand-alone units that are meaningful and empowering. Since Dell segments by customer set, Dell is able to "optimize its products to meet the criteria of customers." (Fisher, 1998) It is reported that one of the benefits of the direct model is that of inventory depreciation elimination. It is conldued that the changes that were needed for Dell to become a Working Capital Funds business "are not simple because the Fund structure adds to management and considerations -notably in terms of revenue generation and business-type accounting -- without relieving an activity from governmental regulation in such areas as finance, procurement and human resources. However, successful Working Capital Fund businesses have been able to use the market-like framework of the Fund and the enhanced information on customer priorities to operate efficiently, to introduce innovations, and to improve business performance. Fund business organizations and employees know that they are making value-added contributions to the Department's mission programs, and businesses have increased financial flexibility to… [END OF PREVIEW]

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Management System -- Working Capital.  (2011, December 21).  Retrieved July 22, 2019, from

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"Management System -- Working Capital."  December 21, 2011.  Accessed July 22, 2019.