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 S millions) of component parts, work-in-process, and finished computers at the DC for the past four YEAR 1 2 3 4 Component parts $20.5 27.8 30.8 37.3 Work-in-process 4.2 6.77.19.5 Finished computers 3.6 7.28.6 10.1 Cost of goods sold 226.0 345.0 517.0 680.o 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)
(b)
Note that the number of inventory turns has gradually increased in these four years. Also, the CoGS (which is the indicator of sales) is improving. This indicates that the company is keeping less inventory and the overall inventory level as a percentage of sales is reducing. This indicates an efficient supply chain.
(c)
Note that the biggest amount of inventory is invested in terms of the component parts. So, if the company focuses on products which consume high-value components, and make an arrangement with the supplier to reduce the inventory of these components, the supply chain performance will further improve.
1 2 3 4 Component parts $20.50 $27.80 $30.80 $37.30 WIP $4.20 $6.70 $7.10 $9.50 Finished Goods $3.60 $7.20 $8.60 $10.10 CoGS $226 $345 $517 $680 Total inventory $28.30 $41.70 $46.50 $56.90 Inventory turns per year(CoGS/Total inventory) 7.99 8.27 11.12 11.95 Days of Supply
(365 / Inventory turns) 45.71 44.12 32.83 30.54
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