10.6 The PM Computer Company makes build-to-order (BTO) computers at its distrib
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Question
10.6 The PM Computer Company makes build-to-order (BTO) computers at its distribution center year round. The following table shows the average value (in $ millions) of component parts, work- in-process, and finished computers at the DC for the past four years YEAR 1234 Component parts S20.5 27.8 30.8 373 Work-in-process 4.2 67 71 9.5 Finished computers 3.6 7.2 8.6 10.1 Cost of goods sold 226.0345-0517.o 680.0 a. Determine the number of inventory turns and the days of supply for each year b. As the company has grown, does it appear that the company's supply chain performance has improved? Explain your answer. c. If the company wants to improve its supply chain performance, what items should it focus on? Why?Explanation / Answer
a) Total inventory is sum of components, work in progress and finished computer inventory
Inventory Turns = Cost of goods sold / Total Inventory
Inventory days = 365 / Inventory Turns
Accordingly, the values are as mentioned below
30.5
b) The company supply chain has improved, since the inventory is moving faster ( inventory turns is increasing) and days of supply is reducing ( indicates that we are holding lesser inventory in system)
This indicates that we are holding less working capital as inventory and that the inventory holding period is also becoming shorter every year
c) If the company has to improve supply chain, it should focus on components because they are the major contributor to inventory cost and hence have the highest impact factor
Year 1 Year 2 Year 3 Year 4 Component Parts 20.5 27.8 30.8 37.3 Work in Progress 4.2 6.7 7.1 9.5 Finished computers 3.6 7.2 8.6 10.1 Total Inventory 28.3 41.7 46.5 56.9 Cost of goods sold 226.0 345.0 517.0 680.0 Inventory Turns 8.0 8.3 11.1 12.0 Days of supply 45.7 44.1 32.830.5
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