A. T. Cross Company A. T. Cross Company is a Rhode Island-based manufacturer of quality writing instruments and is well known for its pens. The company was hit especially hard by the recession of the early 1990s and made changes in its inventory management methods and production facilities. First, the company reduced raw materials costs by forming partnerships with key vendors. This allowed them to negotiate costs more aggressively, improve the quality of the parts they received, and control the flow of materials into the manufacturing facility. This change in procurement methods was a modified version of the widely popular just-in-time (JIT) inventory program. Second, the company physically reorganized its production facility to speed up production. The new set-up more closely resembles the path a product takes through production and distribution. Both changes were expected to increase efficiency and to lower inventory costs The operating cycle is a useful tool in analyzing the effectiveness of a firm's working capital policy and is often taught in both financial ratio analysis and in working capital management. The operating cycle is the length of time it takes a firm to convert raw materials to cash. For manufacturing firms, raw materials are delivered and stored until needed, then moved into the production process where they are converted to a good over a period of time, and then the finished goods are stored until such time as an order is received. The order is then shipped (and the item passes from the inventory account to accounts receivable) and the purchaser is invoiced. Payment is received at some later date. Thus, in its simplest form, the operating cycle is defined as the length of time from the receipt of raw materials to the recovery of cash from the sale of finished goods Computationally, Operating Cycle = Day in Inventory + Days Sales Outstanding where Days in Inventory = 365 Inventory Turnover Inventory Turnover Cos Inventory and Days Sales Outstanding- Accounts Receivable Sales/365 Days in inventory is an especially interesting ratio since so many aspects and production management affect it. For example, management techniques such as just-in- time or materials resource planning will obviously shorten days in inventory if used effectively to time the arrival of necessary raw materials. Increased production efficiency, which should shorten the length of time that it takes to actually produce a good, should shorten days in inventory. Finally, to the extent that a firm's credit policy speeds sales, it