Production Cycle

Another factor which has a bearing on the quantum of working capital is the production term production or manufacturing cycle refers to the time involved in the manufacture of goods. It covers the time span between the procurement of raw materials and the complete manufacturing process leading to the production of finished goods. Funds have to be during the process of manufacture, necessitating enhanced working capital. In there is some time gap before raw materials become finished goods. To sustain such a need for working capital is obvious. The longer the time span (i.e, the production cycle), will be the tied up funds and, therefore, the larger is the working capital needed and vice-versa. There are enterprises which, due to the nature of business, have a short operating distillery, which has an ageing process, has generally to make a relatively heavy inventory. The other extreme is provided by a bakery. The bakeries sell their intervals and have a very high inventory turnover. The investment in inventory and, consequently working capital is not very large.

Further, even within the same group of industries, the operating cycle may be different technological considerations. For economy in working capital, that process should which has a shorter manufacturing process. Having selected a particular process of manufacturing steps should be taken to ensure that the cycle is completed in the expected time. This need for effective organisation and coordination at all levels of the enterprise policies concerning terms of credit for raw materials and other supplies can help working capital requirements. Often, companies manufacturing heavy machinery and minimize the investment in inventory or working capital by requiring advance customers as work proceeds against orders. Thus, a part of the financial burden manufacturing cycle time is passed on to others.

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