After nearly a decade of annual reductions in working capital, overall the 1000 largest U.S. companies (excluding automakers and financial institutions) showed no improvement in 2006 in large part due to increased inventory as a result of both slowing sales growth rate and increased use of overseas manufacturing facilities, according to results of the Tenth Annual Working Capital Survey conducted jointly by REL and CFO Magazine.

This survey further pointed to the fact that while metrics such as Days Sales Outstanding (DSO) showed improvement gains in 2006, these gains were offset by increases in Days Inventory Outstanding (DIO). While sales continued to grow in 2006, growth was slower than the overall 2005 pace, resulting in companies housing more inventory due to a lag in supply adjusting to a gradual slowdown in overall demand. Secondly, the fact that more companies are sourcing or manufacturing materials and finished products in geographically distant low cost countries with increased lead times, results in companies housing more inventory, as well as hinders their speed of response to demand changes.

For further details to this study, please view
link to 6-26-2007 TWC Press Release from REL/CFO Magazine

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