Profitable working capital management in industrial maintenance companies

Abstract

Purpose -The purpose of this paper is to analyze the impact of working capital management on profitability in industrial maintenance service companies.Design/methodology/approach -Analytical modeling has been used as the research method. Finnish industrial maintenance companies have been analyzed on the basis of their financial statements.Findings -We reveal a significant negative correlation between the cycle times of operational working capital and the return on investment of industrial maintenance companies. Ligth fixed assets and good profitability of the maintenance sector emphasize the importance of working capital management. Large maintenance service companies seem to achieve competitive advantage over small and medium sized maintenance service providers through both fixed assets-and working capital-related economies of scale, and through the fact that large maintenance service providers often focus on providing services mostly for their host companies.Research limitations -The scarcity of large enterprises in the market in question precludes the use of a more extensive sample in the analysis.Practical implications -In the industrial maintenance service business, more attention should be paid to active management of working capital. We can conclude that this holds true especially in large industrial maintenance service enterprises.Originality/value -We contribute to the unexplored perspective of industrial maintenance companies. Previous studies of industrial maintenance companies have not addressed working capital management, which gains more and more attention under the volatile economic circumstances of the present day.Keywords Industrial maintenance services, Profitability, Working capital, Flexible asset management model Paper type Research paper IntroductionThe focus of this paper is on the working capital management of industrial maintenance service providers. There is not much previous research about industrial maintenance service providers, although maintenance performance has grown t o be of high importance to industrial companies (e.g. Al-Turki 2011;Simões et al., 2011). Previous research has been mainly done from the point of view of service buyers, concerning mostly outsourcing. On the other hand, several researchers have already linked the asset management perspective to the company-level goals and profitability (e.g. Aoudia et al., 2008;Tam and Price 2008). Considering the present state of industrial services, the global trend towards networkin g and focusing on core competences has led to some notable changes (Broedner et al., 2009;Boulaksil and Fransoo, 2010;Holschbach and Hofmann, 2011). A vast majority of outsourced business functions can be classified as services (Bailey et al., 2002;Benson and Ieronimo, 1996;Kakabadse and Kakabadse, 2002;Harland et al., 2005;McIvor et al., 2009). Bailey et al. (2002) reported that 70% of the companies in their research sample had outsourced one or more of their business functions. Gradually the outsourcing practi ce has extended to more and m...

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