Question
Assume an organizations current service level on order fill is as follows: Current order fill = 85% Number of orders per year = 8,000 Percentage
Assume an organizations current service level on order fill is as follows: Current order fill = 85% Number of orders per year = 8,000 Percentage of unfilled orders back-ordered = 75% Percentage of unfilled orders cancelled = 25% Back order costs per order = $500 Lost pretax profit per cancelled order = $17,500 a) What is the lost cash flow to the seller at this 85 percent service level? b) What would be the resulting increase in cash flow if the seller improved order fill to 90 percent? c) If the seller invested $2.1 million to produce this increased service level, would the investment be justified financially? Calculate ROI or another financial metric to answer this question.
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