Days of supply calculation , Accounting Basics

Using the data from the Dell Computer annual report 

determine  how  Dell  calculated  the  four  days'  supply  of  raw  materials.  Do   you think four days'supply is a valid representation of the amount of raw material Dell has on hand at the end of the year? Why or why not?       

Net revenue (fiscal year 2005)                                                                    $49,205

Cost of revenue (fiscal year 2005)                                                              $40,190

Production materials on hand (28 January 2005)                                     $228

Work-in-process and finished goods on hand (28 January 2005)         $231

Days of supply in inventory                                                    4day

 

Solution

Days of supply calculation = ($228+$231/$40190)*365days  = 4.17 days 

Dell effectively utilizes just in time. They have revolutionized the selling of personal computers using a direct-business model whose fundamental tenets include taking orders directly from customers, thereby reducing inventory and streamlining distribution .After Dell has received a customer order, they then begin production of the product that the customer desires. A pull system is reactive whereby production is executed in response to a customer order. Customer receives the order in maximum 4 days and at a competitive price by following the supply chain operations. It is a powerful approach to production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise. 

Posted Date: 8/9/2012 6:23:29 AM | Location : United States







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