Aggressive Management of Trade Working Capital Can Erode The Kingdom’s Fortunes
A quick history lesson first. Bear with me, as aggressive management of Trade Working Capital goes back 500 years.
King Richard III: You there! Fix this bloody horseshoe or I will have you flogged to within an inch of your life!
Blacksmith: Certainly, m’Lord. Now let me just have a look in the back…
King Richard III: There’s no time! The Tudors are on my tail. Just fix the shoe to the nag forthwith and with great haste, forsooth! My kingdom may fall, and all this because you want to rummage in the store room, you blaggard!
Blacksmith: I’m just not sure we have those particular nails in stock, m’Lord. Y’see, you’ve got the model IV horseshoe and they require them there longer nails and we durn’t have ’em. I’m part of the new smithy franchise and we cut back on all the nails and shoes to save a bit of cash.
King Richard III: What about those nails in that bucket? Damn your eyes, you impudent slob of a man!
Blacksmith: They be left-overs that we keep just in case we need ’em. A squirrel stores if you like. You is not meant to see ’em.
King Richard III: Well I have seen ‘them nails’ and I will have them. Start doing whatever it is you blacksmiths do and I will reward you handsomely. There is not a moment to be lost, for as you see, Harry Tudor is nearly upon me!
Blacksmith: Hang on a minute! Henry Tudor, the young pretender who would most probs struggle to explain his legitimacy should he win the battle of Bosworth?
King Richard III: Yes! Yes, exactly. Him! Absolute illegitimate scoundrel. He’ll say anything to the peasants to convince them of his claim to my throne. I’ve just come from Bosworth and need to leave post-haste.
Blacksmith: He promised us better payment terms, he did. I’m rather fond of his policies for smaller businesses and their struggles to stay afloat. He cares about us.
King Richard III: What in the modern world of 1482 are you blathering about?
Blacksmith: Well, take you, m’Lord. To protect your own cash flow, your treasury department has put us on one hundred and twenty-day payment terms. I’ll forge you a special nail for that there model IV horseshoe, but no penny will arrive in my purse until you’re dead and buried under some car park in Leicestershire. Whereas Harry there – gosh, he can ride at quite a gallop – promises us payment within ten days of purchase. I could hold more options in inventory with that kind of thinking.
King Richard III: But how would I fund my war campaigns, lavish gifts on my courtiers and teach those wild-haired, unwashed, kilt-wearing Scots a lesson in obedience if I did not stretch the payments?
Blacksmith: I do like a kilt. Practical and very airy in the summer months. Here, where are you running off to, sire? What about yer horse?
And so ended the Plantagenet rule. If Tricky Dicky the Third had followed a less pernicious and aggressive application of the measure of Trade Working Capital on behalf of his shareholders at court, we might have been spared Henry VIII. Anne would have kept her head. Bloody Mary would have been deprived of the pleasure of burning heretics at the stake, and puff shoulder jackets would never have made a resurgence in the late 1980s.
The Hidden Destruction of Trade Working Capital in Mining
I’ve been involved with several mining companies implementing Lean for the last fifteen years. I have covered continents and different latitudes and longitudes to find these inconveniently placed mines, underground and open pit. And all, bar a very few, suffer the perennial challenge of variable flow of product and shortages of parts for assets. A plague is amongst these kingdoms, where the measure of Trade Working Capital is affecting operational capability with its ever tightening stranglehold on operational excellence.
I understand the intent: we want to preserve cash flow for operational liquidity by making sure customers pay on time and by stretching our accounts payable. But then comes the question of inventory, or work in progress. How did this become such an important talisman for our leaders and the shareholders we serve?
Trade Working Capital (TWC) is a metric familiar to most leaders, but with it has come this skewed view on inventory and the purpose it serves for operations. In moderation, it helps companies weather commodity cycles and preserve liquidity, so it can’t be all bad, right? But in mining, when taken to extremes, TWC becomes a blunt instrument; one that can quietly erode operational integrity, safety, and long-term shareholder value.
It took a while for me to realise that the set-up of mining organisations divorces operations leaders from the two book ends of TWC (accounts receivable and payable), leaving only inventory in their sights. And when told from above that inventory holdings give shareholders indigestion, it’s not surprising that this waste, yes, that’s right, one of the seven wastes, is going to get it right in the proverbials. Most mine managers are now there to simply execute the estate. They do not live the cash flow cycle. They are not there to make sure suppliers are paid promptly or to chase the money from customers. But boy, can they influence the inventory on hand.
When TWC Destroys Value
Mining is intensive. It involves big and expensive kit. Shovels the size of a London terrace house. Wheels that stand at twice the height of a 6-foot person. Trucks the size of swimming pools and crushers that eat the very rocks from the earth. Overlay this costly business with TWC as a top-line KPI and we see it it seep into the fabric of leadership thinking and begins to erode the value stream’s performance. So what have I seen that prods me enough to write this?
Maintenance Facilities Bereft of Parts: At what point is it too costly to hold a critical part? I’ve had a maintenance manager tell me you need to be a twenty-truck operation (this is open pit) before you warrant holding a spare transmission or engine. Interesting. I can’t find a single O ring in his racks ready for use. He’s talking about expensive engines, but even the basics seem affected. How big a truck operation do you have to be to hold simple consumables, C Class and B Class items in a rack or on a Kanban? Skilled technicians lose hours searching for nuts, bolts, and parts that should be on the shelf. Robbing from other assets is common practice in maintenance bays, sometimes easier than having an argument with stores and the requisition process – computer says no. MTBF of assets is alarming, and “invisible losses” start to accumulate in production. On MTTR, if you look carefully enough, you will find a significant portion is waiting for parts. We are starving maintenance and operations, so when the parts do arrive on site and the asset is back in play, it gets thrashed to within an inch of its life to try and claw back the lost tonnes.
Anaemic Stockpiles: Stockpiles exist to buffer against poor feed of product, weather, or breakdowns. When they are run down to release working capital, material flow from mine to load-out becomes brittle, with a higher risk of stoppages or the dreaded ‘black belt’ – empty conveyors. Efficiency of direct feed is seen as a smart play, when in fact, it’s introducing variability and variation into the process.
Mining carries an inherent level of the unknown as far as ore body knowledge goes. We want to save on the cost of drilling to understand what’s in the ground (fair enough), but not prepared to manage the variation that presents itself at the face with some make-up of strategic buffers. And to top that off, we accept the variability of feed as just the ‘way things get done’. So the two Vs of variation and variability win out over stability and throughput by hiding behind efficiency and the need to manage TWC.
End-of-Quarter Fire Sales: Pressure to chase quarterly TWC targets, while it may close the books neatly, undermine commercial strategy, creates volatility in customer relationships, and exposes the business to spot market risk.
TWC, not held in check, can hollow out the operational foundations that make a miner best-in-class. Over time, the mine runs the risk of becoming less reliable, less safe, and less profitable. A mine with anaemic stock – parts or buffers – has little chance of hitting the peaks. A wee bit more inventory – yes, waste, I grant you – means that the wheels of the value stream are greased and the opportunity to hit On Time In Full is there to be had.
The Need for Balance
I would be naïve indeed to argue that TWC has no place amongst the top metrics. Mining is capital-intensive, and disciplined cash management is essential, especially in down-cycles. The problem is not the measure itself but the fanaticism with which it is applied when it comes to inventory.
A balanced approach asks:
•Does working capital optimisation undermine production stability or asset health?
•Are we stripping inventories below critical operating levels and affecting our customers?
•Are we sacrificing long-term customer trust for short-term liquidity?
A healthier TWC practice should support liquidity without compromising the system’s integrity and ability to replenish itself for the benefits of throughput.
Alternative Metrics to Counterbalance TWC
To shift the conversation, leaders can put forward metrics that safeguard operational excellence while still demonstrating financial discipline. Examples include:
1. Overall Equipment Effectiveness (OEE) and Reliability KPIs – Protecting maintenance budgets and spares ensures uptime, which in turn protects revenue and cash flow.
2. Free Cash Flow after Sustaining Capex – A better measure of long-term cash generation than short-term TWC gains.
3. Resilience Ratios – e.g., days of critical spares in stock, or minimum stockpile cover; framing them as risk management rather than “lazy working capital.”
4. On Time In Full – Measures that show the cost of short-term liquidity grabs on long-term revenue stability.
Managing Shareholder Expectations
Now I’m no Warren Buffet. But somewhere there should be a reward for sustainable returns coming from thoughtful use of strategic buffers, rather than a scorched earth policy on working capital. Operational excellence does not and cannot operate without appropriate levels of inventory based on the capability to deliver. After all, the stockpile is there to turn, for the benefit of the operation and the shareholder. And with buffers comes throughput, so someone do the maths. The medium term view is that, once you get better at managing variation and variability, you can bleed the buffers off – because you’ve standardised more, kept a drumbeat and understand where the true problems are.
So, can the quarterly review somehow pass the slide rule over how well a company uses its strategic stock in the value stream and correlate that to its throughput performance and systematic reduction of waste based on a Plan-Do-Check-Act cycle?
Go on, where is the first brave soul to say: ‘inventory ain’t all that bad when it’s managed carefully and helps us ‘pull’ based on customer demand.’
Or another who squeaks: ‘TWC is not inherently bad, as long as we don’t elevate it to a religion where it corrodes the very systems that make us durable.’
Final Thought
I’ll leave the last words to our blacksmith:
‘Stop countin’ me number of nails and punishing me fer ‘avin one or two more than you’d like. Or how fast I swings me hammer. Look at how many horses I shoed and put on their way instead. Morning, Mr. Tudor. Nice to make your acquaintance. He went that way.’
Note: all the characters depicted in the narrative from 1482 are absolutely real. Every word spoken was from the same single source: My Time as a Smithy Just Off The M69, 1478-1492. Published in 1496 by Lucky Horseshoe Books.
