India Inc gets faster: Work-in-progress cycle drops to decade low at 14 days

Faster production and smarter tech are helping companies make goods quicker and use their money better

Companies are taking the least time in years to turn raw materials into finished goods, with the work-in-progress (WIP) cycle shrinking to 14.2 days in 2024-25 (FY25), provisional data from the Centre for Monitoring Indian Economy (CMIE) shows.

 

The numbers cover 328 listed non-financial companies for FY25 and all available listed firms for earlier years. The WIP cycle has steadily shortened over the past decade, down from 23.4 days in FY15.

 

The changes have been less pronounced in raw material and finished goods cycles. The raw material cycle tracks the number of days the raw materials take to enter the production process after acquisition. The finished goods cycle shows the number of days taken for finished goods to be sold and dispatched. Both have seen more limited change compared to a decade ago.

 

 

Improved logistics and infrastructure have helped create an environment for increased efficiencies even as companies adopt more digital technologies to improve productivity, said Deven Choksey, managing director at DRChoksey FinServ. “Industry 4.0 is also a reality, at least in some industries,”he said, referring to the adoption of technologies, such as connected devices, machine learning analytics, and automation in the production process.

 

Consumer companies, for example, are increasingly use predictive artificial intelligence (AI) for forecasting demand.Some companies have moved to just-in-time manufacturing where raw materials are not stored for long periods, but this may not yet have shown up in the aggregate numbers for the raw material cycle, where many companies may still follow older methods. This is due to their insecurity about logistical timelines and vendor reliability, according to independent market expert Deepak Jasani.  

 

But overall, there is increased awareness of the need for improved capital utilisation and the benefits of faster turnaround times. The younger generation of promoters is more open to adopting new manufacturing practices from abroad and India.

 

Companies that are dependent on exports may lead in introducing more efficient practices, as large export orders often have low per-unit profitability, suggested Jasani. “Exports will give you volumes, but maintaining margins needs efficient practices,” he said.

 

Faster collection of outstanding amounts from customers and the reduction in WIP cycles have helped reduce the overall working capital cycle by around 10 days.

 

This can translate into lower working capital requirements for day-to-day operations, which frees up capital for longer-term reinvestment requirements.

 

Sustained improvements in the WIP cycles are seen in the construction and real estate sector in addition to services (other than financial). Numbers have fluctuated more widely for other sectors, including manufacturing, though the provisional FY25 numbers show a broad improvement over FY19.

 

The outlook for increased efficiencies remains robust, according to Choksey, who feels current gains are only the beginning.

 

This is going to go a long way,” he said. “The pace of improvement may reduce after a certain point, but the awareness has spread and people are learning from their peers to improve manufacturing efficiencies... that will continue,” added Jasani.