Question

Why is the cash-to-cash cycle time such an important supply chain performance measure?

Short answer

Cash-to-cash cycle time refers to the delay between paying for raw materials and receiving payment for the finished product.

Step-by-step solution

Step-by-Step Solution Step 1: Cash-to-cash cycle time

The cash to cash cycle time is the length of time among which a company pays money to its vendors for stock as well as when it collects payment from its clients. The notion is used to calculate the sum of money required to finance continuing operations as well as is an important aspect in predicting financing needs.

Cash-to-cash cycle time is such an important supply chain performance measure

Cycle times can be used to evaluate performance in a variety of ways. Here are a few measures that, if consistently analyzed, can help you identify methods to improve your supply chain performance. Cycle Time Promised to Customers: This cycle time performance measure indicates how long it will take from the moment a customer order is placed to the time it is delivered. Only change the cycle time when you know you can provide a (hopefully) shorter time from order to delivery.

The promised cycle time for custom orders will be the benchmark against which you will measure the following metric in this list. The time it takes for a customer order to be fulfilled is called the cycle time. Actual Cycle Time for Customer Orders: If you wish to calculate this cycle time metric, you can use the formula below. Calculating accounts’ receivable cycle time is the first step in estimating the cash-to-cash cycle time.

This metric indicates how long it takes a company to turn a sale into cash. To put it another way, how long does it take a company to collect money owing for goods that have already been sold. The cash-to-cash cycle time is an interesting metric for assessing a company's supply chain effectiveness. Some firms can run the measure with a negative value. This entails the ability to invest in the company as required the need for additional capital. ERP data can be used to efficiently report metrics like cash-to-cash cycle time. If necessary, these metrics can even be reported in real-time.