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Finance & Accounting
Pages 4 (1004 words)
Name: Name of institution: Tutor: Date of Submission: Dell’s Product Policy The main advantages of Dell’s inventory is it ensures low finished products, low carrying costs, as it strengthens its custom build-to-order strategy. The strategy makes marketing for defective products much easier, something that is not rare in technological products.
This translates to their system having low cash conversion cycle hence cash is generated steadily. However, the system has its limitations. The low inventory held means shortage is a possibility in cases where manufacturers delay in supplying the PC chips, like in 1996. The very high dependence on on-time component supply by manufacturers poses a major threat to steady supply. In addition, changes in product means an overhaul in processes which is an expensive venture. This means that working capital can be funded through the management of inventory and cash flow cuts (Ruback & Sesia 2003). Working capital is the measure of efficiency and liquidity in a company. To obtain the computation, one needs to subtract current liabilities from the firm’s current assets. Inventory process For comparison, we assume that the cost of goods sold by the competitors remains constant. We observe that the carrying costs only depend on the DSI (Ruback & Sesia 2003). For 1995, the cost of sales =$2737, equivalent to a daily COS of 2737/365= $7.5% We make a comparison with the highest observed DSI of the competitor, Compaq, 73. Hence the inventory Compaq holds over dell is (73-32)*75=$307.5 m This means that for Compaq to acquire new goods, it has to sell its old inventory. ...
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