The nature of cash flow lost to increasing order fill rate

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Reference no: EM131688452

Assume an organization’s current service level on order fill is as follows:

Current order fill = 70%

Number of orders per year = 10,000

Percent of unfilled orders back-ordered = 85%

Percent of unfilled orders cancelled = 15%

Back order costs per order = $100

Lost pretax profit per cancelled order = $15,000

Invoice deductions per order = $250.00

What is the nature of cash flow lost to increasing order fill rate? Calculate cash flow lost for order fill rates from 70% to 95%, by 5% increments. It may help to graph your answer or look at the percent change in cash flow lost for each 5% increase in order fill rate. In words, what is the nature of cash flow lost to increasing order fill rate? What does this mean to supply chain managers regarding investments to decrease cash flow lost?

Reference no: EM131688452

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