U. S. Airfilter has hired you as a supply chain consultant. The company makes air filters for residential heating and
U. S. Airfilter has hired you as a supply chain consultant. The company makes air filters for residential heating and air- conditioning systems. These filters are made in a single plant located in Louisville, Kentucky, in the United States. They are distributed to retailers through wholesale centers in 100 locations in the United States, Canada, and Europe. You have collected the following data relating to the value of inventory in the U. S. Airfilter supply chain:
a. What is the average inventory turnover for the firm? b. If you were given the assignment to increase inventory turnover, what would you focus on? Why? c. The company reported that it used $ 500M worth of raw material during the year. On average, how many weeks of supply of raw material are on hand at thefactory?
Transcribed Image Text:
QUARTER I JANUARY QUARTER3 QUARTER4 THROUGH MARCH) THROUGH JUNE) SEPTENBER) DECEMBER) 375 QUARTER 2 APRIL JULY THROUGH OCTOBER THROUGH Sales (total quartery: United States Canada Europe 75 Cost of goods sold (total quarter) 350 Raw materials at he Louisville plant (end-of-quarter) 100 105 Work-in-process and finished goods at the Louisville plant (end-of-quarter) 150 Distribution center inventory (end-of-quarter) United States Canada Europe 27 15 All amounts in millions of U.S, dollars
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes.
Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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