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Assume an organization's current service level on order fill is as follows: Current order fil-70% Number of orders per year-10,000 Percent of unfilled orders back-ordered-85%
Assume an organization's current service level on order fill is as follows: Current order fil-70% Number of orders per year-10,000 Percent of unfilled orders back-ordered-85% Percent of unfilled orders canceled = 15% Back order costs per order $100 Lost pretax profit per canceled order = $15,000 Invoice deductions per order - $250.00 Begin with the lost cash flow to the seller at this 70 percent service level? * Cash Flow Lost = (3,000 x 85% x $100) + (3,000 x 15% x $15,000) + (3,000 x 85% x 250) ($255,000)$6,750,000 $637,500) = $7,642,500 cash flow lost at 70% order fill rate 1.) What is the nature of cash flow lost to increasing order fill rate? Calculate cash flow lost for order fill rates from 70% to 95%, by 5% increments. It may help to graph your answer or look at the percent change in cash flow lost for each 5% increase in order fill rate. In words, what is the nature of cash flow lost to increasing order fill rate? 2.) What does this mean to supply chain managers regarding investments to decrease cash flow lost
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