A manufacturer of air conditioner compressors is concerned that too much money is tied up in its value chain. Average raw material inventory is $50 million and work-in-process (WIP) production inventory is $20 million. Sales are $20 million per week and finished goods inventory averages $30 million. The average outstanding accounts receivable is $60 million. Assume 50 weeks in one year. The value chain is shown below:

a. What is the total flow (process) time of a throughput dollar?
b. What is the average dollar inventory in the value chain?
c. Which of the major stages€”raw materials, WIP, finished goods or accounts receivable€”is the best candidate for freeing up dollars for the air conditioner manufacturer?
d. What is the target level of average accounts receivable inventory if management can reduce the time a dollar spends in accounts receivable inventory (processing and collections) by one-half by improving the accounts receivable process?
e. What else does this flow time analysis problem demonstrate?

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Raw Material Inventory Production (WIP) InventoryFinished Goods Accounts Receivable