Background: Days on Hand or Days in Inventory provides a metric for comparison of supply chain operations within the same industry. Days in Inventory represent “the average number of days a company holds its inventory before selling it.” A lower number of days indicates a lower cash investment and less inventory on the floor. Less inventory on the floor results in less floor space needed, less chance for obsolescence, and less chance for damage and theft.
Calculate Days on Hand by dividing the inventory by daily COGS. Annual COGS (Cost Of Goods Sold, Cost of Revenue, or Cost of Sales) is found on the Income Statement, and Inventory is found on the Balance Sheet. Each of these financial documents can be found in the companies’ annual report Form 10-K. Look for the “Financial Statements and Supplementary Data” section. (Refer to the section on Measuring Supply Chain Performance in Chapter 11 of the text.)
Improvement in operational efficiency, as indicated by a lower Days on Hand, yields two financial benefits. First, the reduced inventory results in a lower inventory carrying cost. Second, the reduced inventory results in a first-year reduction in expenditures (operations based on already purchased inventory) and, therefore, a positive cash flow impact equivalent to the reduction in inventory.
You cannot just declare a lower inventory level. You can not reduce inventory without reducing the need for inventory (i.e., variation in lead time, forecast accuracy, or quality). Reducing inventory without reducing the need results in problems in operations and customer satisfaction.
Assignment: Compare the 2019 Days on Hand results for Nike and Under Armour. You can find the data you need in the annual reports for each of these companies on the internet.
Write an executive summary (use the model provided) detailing the daily Cost of Goods Sold, respective days of inventory for 2019, and the potential financial impact if the under-performing company could match the Days on Hand measure of the higher-performing company (by improving processes so that they would require less inventory to operate). Assume a 25% carrying cost ratio. There is information on how to do these calculations in the example provided.
Be careful to use the correct units for the financial impact. (Financial numbers in Income Statements and Balance Sheets are often in $ millions.) Also, comment on any other noticeable differences in performance or situation. Provide the date for the financial information.
Explain differences in performance (merely stating that a difference in size exists is not adequate).
Submit to D2L a single Word document with a minimum of one page single-spaced, 12 pt font. Your submission should follow the format of the example analysis provided. Use good grammar. Get help if you need it (Grammarly is one option). Use expressive language. Be careful about using the word “very” (what does that mean?) and do not use the word “thing” – not even once. Submit one file with the filename DaysOnHand.docx.
Grading: Assignment is worth 45 points as follows:
• Introduction 10 points
o Comparison of the two companies in a manner that gives the reader an understanding of the industry, company sizes, sturctures, sales, and strategies
• Results Table 8 points
• Result Calculations 4 points
o 1 point for each formula (2 formulas) 2 points
o 1 point for each result (2 results) 2 points
• Results Narrative 5 points
o Assessment of results
• Improvement Opportunity 11 points
o Narrative assessment 5 points
o 1 point for each formula (3 formulas) 3 points
o 1 point for each result (3 results) 3 points
• Formatting 2 points
• Style/Grammar 5 points
o 0-1 style/grammar issues 5 points
o 2-3 style/grammar issues 4 points
o 4-5 style/grammar issues 3 points
o 6-7 style/grammar issues 2 points
o 8-9 style/grammar issues 1 point
o >9 style/grammar issues 0 points
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