A company’s cash-to-cash cycle time is 36 days. How many weeks of inventory are on hand if the average collection time from customers is 60 days, and the company pays its vendors in 45 days?
The cash-to-cash cycle time is the duration it takes for a company to convert its investments in inventory into cash flows from sales. The formula to calculate the cash-to-cash cycle time is:
Rearranging the formula to find the Inventory Days: Inventory Days=Cash-to-Cash Cycle Time+Payables Days−Receivables DaysInventory Days=Cash-to-Cash Cycle Time+Payables Days−Receivables Days Inventory Days=36+45−60=21 daysInventory Days=36+45−60=21 days
To find the number of weeks of inventory on hand: Weeks of Inventory=Inventory Days7=217=3 weeksWeeks of Inventory=7Inventory Days=721=3 weeks
References:
APICS Dictionary
"Supply Chain Management: Strategy, Planning, and Operation" by Sunil Chopra and Peter Meindl
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