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SIM Cash to Serve

Problem definition

A smartphone manufacturer wants to determine the cost-effectiveness of each distribution center. This can be done by analyzing operating cash flow, i.e., we need to obtain detailed information on cash flows within the supply chain (including cash on hand, loans, interests, account payable and account receivable) for the period of one year.

We consider a supply chain in Asia comprising:

  • Smartphone supplier located in South Korea,
  • Customers in China, South Korea, and Japan
  • Distribution centers in:
    • Changleng and Tianjin (China)
    • Seoul and Miryang (South Korea)
    • Hachioji (Japan)

Transportation is done by:

  • Truck from factory to China and South Korea
  • Plane from factory to Japan
  • Medium truck from DCs to customers

The expected order delivery lead time depends on the destination country:

  • China – 2 days
  • Japan – 1.5 days
  • South Korea – 1 day
Demand

Demand is of stochastic nature. The order interval on average is 7 days.

Constraints

Initial cash is negative and is equal to the initial inventory value.
Payment deadlines for suppliers are shorter than payment deadlines from customers.

Every distributor's cash account has its own initial cash and payment terms in every country:

  • China account:
    • Initial cash = $ 1138680
    • Days payable outstanding (DPO) = 15 days
    • Days sales outstanding (DSO) = 45 days
    • When distributor purchases smartphones from the supplier the down payment persistence is 10%
    • When customers order smartphones from the distributor the down payment persistence is 30%
  • Japan account:
    • Initial cash =$ 175440
    • Days payable outstanding = 15 days
    • Days sales outstanding = 35 days
    • When distributor purchases smartphones from the supplier the down payment persistence is 10%
    • When customers order smartphones from the distributor the down payment persistence is 30%
  • South Korea account:
    • Initial cash = $ 183360
    • Days payable outstanding = 10 days
    • Days sales outstanding = 35 days
    • When distributor purchasing smartphones from the supplier the down payment persistence is 20%
    • When customers order smartphones from the distributor the down payment persistence is 30%
Goal

Analyze operating cash flow, obtain detailed information on cash flows within the supply chain (including cash on hand, loans, interests, account payable and account receivable) for the period of one year.

Сompare the cost-effectiveness of distribution centers in different countries.

Result
The example allows us to simulate financial flows in the supply chain for distributors with different financial inputs.

According to the collected statistics we earn more than we spend:

However, the Cash page shows that not everything is so great.

We reach the break-even point in:

  • China - only by the end of the year
  • Korea - in the middle of the year
  • Japan - in the middle of the second quarter of the year

Analyze results on:

  • The debt dynamics on the Accounts Payable\Receivable tab.
  • The cost of the loan service on the Loan and Interest tab.
  • The ELT level in the Service Level tab, which shows that the ELT is down for some customers in Japan and China.
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