Supply Chain Efficiency

1. Supply Chain Efficiency Measuring Cash to Conversion Cycle

2. Inventory Turnover(IT) = Total cost of goods sold /Average inventory value = # of times you turn your inventory annually Inventory Days’ Supply(IDS) = 365 days/IT = how many days inventory you keep Accounts Receivable Turnover(ART) = Total revenue/Average accounts receivable = # of times you turn your accts. rec. annually Accounts Receivable Days’ Supply(ARDS) = 365/ART = how long it takes to get $ owed paid to you Accounts Payable Turnover(APT) = Total revenue/Average accounts payable = # of times you turn your accts. payable annually Accounts Payable Days’ Supply(APDS) = 365/APT = how long you take to pay your bills

3. Chapter 9 Dell’s Supply Chain Cash-to-Cash Conversion Cycle • Dell’s Inventory Turnover = Cost of Goods Sold/Average Inventory Value = $29.1 billion/$.306 billion = 95.1 times per year (see page 366 in the book) • For 2003, The inventory days’ supply, which Dell calls "inventory velocity," was IDS = 365 days/IT = 365/95.1 = 3.8 days • ART = Revenue/Ave. accts. Receivable = $35.4 billion/$2.586 billion = 13.69 times per year • ARDS = 365/13.68 = 26.8 days • APT = Revenue/average accounts payable = $35.4 billion/$5.989 billion = 5.91 times per year • APDS = 365/5.91 = 61.8 days

4. Chapter 9 Dell’s Supply Chain Cash-to-Cash Conversion Cycle • Cash-to-Cash Conversion Cycle = IDS + ARDS - APDS • Therefore, in 2003, Dell's cash-to-cash conversion cycle is C2C = 3.8 days + 26.8 days – 61.8 days = - 31.2 days. • The negative value means that Dell receives customers’ payments (accounts receivable) 31.2 days, on average, before Dell has to pay its suppliers (accounts payable). • This means that Dell's value chain is a self-funding cash model!