Control Of Logistics PDF

# CONTROL OF LOGISTICS ## Case Study: Tex-Style Manufacturing Tex-Style Manufacturing is a mid-sized company that produces clothes. The company's financial team wants to calculate the working capital requirement (WCR) to ensure they have enough liquidity to fund their daily operations. Here is th...

# CONTROL OF LOGISTICS ## Case Study: Tex-Style Manufacturing Tex-Style Manufacturing is a mid-sized company that produces clothes. The company's financial team wants to calculate the working capital requirement (WCR) to ensure they have enough liquidity to fund their daily operations. Here is the financial data for the most recent fiscal year: * **Raw materials inventory:** 100,000 * **Work-in-progress inventory:** 50,000 * **Finished goods inventory:** 150,000 * **Accounts receivable:** 150,000 * **Accounts payable:** 120,000 * **Other current liabilities:** 80,000 ## Question Calculate the working capital requirement using the given financial information. ## Interpretation Interpret the result: Does the company have a surplus or a deficit of working capital? What does this mean for the company's operations? **WCR = Besoin en fonds de roulement** ## Solution Steps The working capital requirement (WCR) is a measure of a company's liquidity and operational efficiency. It represents the amount of capital required to fund day-to-day operations. The formula for WCR is: **WCR = Current assets related to operations - Current liabilities related to operations** **Current Assets related to operations:** Inventories (raw materials, work-in-progress, finished goods) and accounts receivable. **Current Liabilities related to operations** Include accounts payable and other current liabilities. ## Interpretation The WCR is 350,000. A positive WCR means that the company needs to finance 350,000 to cover the gap between its operational current assets and current liabilities. This is the amount of working capital required to ensure smooth day-to-day operations without liquidity issues. ## Interpretation The company needs to ensure that it has at least 350,000 in available funds (cash, short-term loans, etc.) to meet its short-term operational needs, such as paying suppliers, managing receivables and collecting receivables. If the company does not have sufficient liquidity or credit lines to cover this (WCR), it could face difficulties in maintaining operations. **The more credit days of customers increase, the more WCR gets higher.** **The more credit days of suppliers increase, the more WCR gets lower.** ## Costs **Costs = Revenue - Margin** **Margin = Revenue - Costs** **Revenue = Costs + Margin** ## Inventory **Inventory = Days of inventory x Daily cost of sales** **30 x Revenue & Costs / 365** ## Forecasting WCR Suppose revenue is estimated to be 182,500 for the year, and the business offers 45 days of credit terms to its customers. **Account receivable - Daily credit/revenue** **= 45 x 182,500 / 365** **≈ 22,500** **In Y = 22,500 / 182,500** **≈ 12.3%** On average, at any one time, the working capital requirement resulting from offering credit to customers will be 22,500 or 12.3% of revenue. **WCR = Inventory + AR - AP** **AR high, Inventory high, AP is low** ## Account Payable & Days credit x Daily cost of sales The inventory represents almost 5% from the total annual revenue. The power this percentage is, the better situation. The company is in. ## WCR = I + AR - AP **AP:** Days credit x Daily cost of sales **AP:** Days credit x Daily revenue x (1 - Gross margin) **AP:** 20 x 182,500 / 365 x (1 - 40%) **AP:** 6,000 **AR%: 6,000 / 182,500 = 3.3% ** **The new WCR = 9,000 + 22,500 - 6,000 = 25,500** ## Accounts Receivable **Days** | **Amount** | **Percentage** ------ | -------- | ---------- 30 | 8,500 | 4.6% 20 | 31,500 | 17.2% 20 | 6,000 | 3.3% **Gross WCR** = **5,500** **Net WCR** = **13.9%** **AP** = 25 x 182,500 / 365 = **5,000** **Net WCR** = **5,500** **5,910 - 100 = 2.3%** **219,000** **218,600 x 100 = 8.21%** **219,000** **Gross** = **13,220 x 100 = 1.06** **WCR** = **219,000** **8700 x 100 = 3.97%** **219,000** **Net** = **14,500 x 100 = 6.63%** **WCR 219,000** The net WCR represents almost 7% from the annual revenue. This percentage should be kept at a lower percentage. ## Several Factors that can Influence the Amount of WCR * **Days of credit (terms to customer)** * **Days of credit (terms given by suppliers)** * **Days of inventory to beheld** ## SCM Characteristics In the context of the production industry, SCM is cooperation between producers of raw materials, production plants, distribution centers, warehouses, which intervene at different levels of the chain (storage of the raw materials, semi-finished products, or finished products). A cheese goals: - Achieve goals of quality services for final customers - Achieve general strategy of market satisfaction - Achieve quality goals of physical process feed by tactical planning - Achieve product satisfaction. ## Decision Taken: **Supply** | **Manufacturing** | **Distribution** | **Sales** ------ | -------- | ---------- | ------ Strategic | Supplier Selection | Production Unit Physical Structure | Strategic Marketing Long Term | | Location, Distribution Network | over 5 years | | Production System | | Size of the work force | Initial Production Planning | Distribution Planning | Sales forecasts | | Tasks attributions | Machine's programs | Transportation Planning | Sales force itinerary| | Social | Technological | Economic | Legal | | Environmental | Political | | Ethical |