How do you calculate supply chain length?

Answer 1

Total length of the chain:

The total length of the chain is arrived at by adding up the days of inventory for raw materials, work in progress and finished goods.

The duration of time taken by the material flow is captured by this measure. Firms like Dell Computers perform very well on this dimension.

Calculating the Length of Various Stages of the Chain

The following formula (terms defined in table) are used to calculate the length of various stages of the supply chain:

DRM, DWIP, DFG = Days of raw material, work in process, and finished goods.

Table 1: terms directly obtained from the financial statements

Terms from the income and expenditure statement

Symbol

Cost of raw materials*

CRM

Cost of production*

CP

Cost of distribution*

DC

Cost of sales*

CS

Net sales*

NS

Inventories (inclusive of raw materials, semi-finished goods and finished goods)

INV

Raw materials inventory

RM

Semi-finished goods inventory

SFG

Finished goods inventory

FG

Account receivables (excluding loans and advances)

AR

Account payables

AP

*Data for one financial year

DRM = RM x 365/CRM

DWIP = SFG x 365/CP

DFG = FG x 365/CS

the totla length in days = DRM + DWIP + DFG

Source:

Shah, J., Supply chain management: Text and Cases. New Delhi: Pearson Education, 2009