Cash conversion cycle effects
Let's consider three different inventory management solutions: assuming 0 DSO (days sales outstanding) and DPO (days payable outstanding) for simplicity
- Buy and got delivered 1 lot of inventory ($30k of value) the first day of each month, produce at PC=1 piece/day and deliver a single batch of 30 pieces at the end of each month with a gross margin of 20%;
- Buy and got delivered 1 lot of inventory ($30k of value) the first day of each month, produce at PC=1 piece/day but deliver each 10d a batch of 10 pieces
- Buy and got delivered 3 lots of inventory ($10k of value) every 10 days, produce at PC=1 piece/day but deliver each 10d a batch of 10 pieces
I'm wondering what is the impact on CCC, NWC, and NP and cash flow.
What makes sense to me is that:
- being able to collect revenues beforehand should makes me able to pay back some current debt rised to finance NWC account. Thus it provides me some FINEX relief
Still I'm missing the whole picture.
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