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Cash conversion is king

How improved inventory performance can revitalise life sciences

Download the full report


Cash conversion is kingCash conversion is a measure of the working capital tied up in a business. For manufacturing businesses this is largely driven by effective supply chain management.

Rapid cash conversion is a vital indicator of business health. Slow cash conversion i.e. high working capital is a burden on a company’s finances, a drag on its growth and a depressant on the share price.

Few businesses outside of the consumer goods sector succeed in maintaining both low inventories and favourable net payment terms – If the leading life sciences businesses achieved consumer goods levels of supply chain cash conversion, this would release over $350BN of cash across the sector.

About the survey

This study takes a 5 year view of supply chain cash conversion in over 100 manufacturing companies. These companies include representatives of five major manufacturing sectors; aerospace and defence; automotive; consumer goods; industrial engineering, and life sciences.

This is the result of ongoing research over several years, with the analysis based upon publicly available data and the interpretation based upon engagement with the key players in each sector.

Geoff Tomlinson: PA supply chain expert, explains how to master the balancing act of smart inventory management
Geoff Tomlinson: PA supply chain expert, explains how to master the balancing act of smart inventory management

Comparison is made between the sectors identifying the best and worst performers as “cash kings and “cash casualties” and also those whose working capital performance makes them “supply chain supporters” or “supply chain dependants”.

This report examines the life sciences sector in detail, applying the study criteria at company level and identifying the best and worst performers in a sector which has significant opportunities for improvement.

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Highlights for life sciences

The life sciences sector has the highest levels of working capital and therefore we have categorised the sector overall as a ‘cash casualty’ with an average 149 day cash conversion cycle (consumer products turn their cash seven times faster). In addition there are significant diferences between life sciences companies, indicating some potential for individual improvement.

Cash conversion is king

How to improve cash conversion

  1. Balance customer & supplier terms and instigate a programme to optimise inventory along the supply chain based on requirements and insights from other sectors & companies
  2. Embed new ways of working to sustain optimised inventories whilst improving the reliability of supply and responsiveness

Our report provides a snapshot of how the life sciences industry is handling cash conversion challenges and provides a series of recommendations to help overcome them.

Download the full report

Download the report

The full PA report on cash conversion and inventory management in the life sciences sector is now available for download. Click for more information as to how PA Consulting Group can help your organisation understand:

  • How the leading life sciences companies are performing relative to one another and their individual strengths and weaknesses
  • How the life sciences sector performance compares with that of four higher performing sectors
  • How each sector has responded diferently to the economic cycle of the past 5 years
  • The key challenges companies now face in taking control of their inventories and cash
  • What leading companies are doing, and what laggers should do to regain control

Download the full report

PA has significant experience of diagnosing, designing and implementing improvements in cash conversion across a number of sectors. For further information and examples please contact us

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