Supplier perspective (cash to cash cycle)
The supplier’s perspective of the lead time is the cash to cash cycle, ie how long it takes to convert an order to cash.
In other words, it’s the pipeline time from sourcing the raw materials to the finished product, a cycle that needs to be financed throughout.
A pipeline typically includes the following elements:
- Raw material stock
- Sub-assembly production
- Intermediate stock
- Product assembly
- Finished stock at central warehouse
- Regional distribution centre stock
- Customer order cycle (order cash)
It’s clear that by increasing the pipeline, the supply chain will be less responsive to the demand changes. So, to conclude, the lead time from both the customer and supplier perspectives are important and should be shortened in the supply chain.
Consider two types of companies with longer and shorter logistical processes – and then contemplate the cash to cash cycle in these two companies, sharing your thoughts in the comments area.
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