The advantage of a smaller number of suppliers is that a closer relationship can be built with your suppliers. This can lead to long-term relationships, trust, information sharing, and exploiting the individual strengths of the organizations. However, by having fewer suppliers, the risk of something occurring to your source of
an item is increased because of a lack of redundancy.
2. What would be the different steps or elements in a supply chain for a service? Give an example.
Generally, the supply chain is shorter since there is very little, if any, raw material or component parts.
3. How has technology accelerated the trend toward disintermediation?
Better communications allows the gap to close between suppliers and customers regardless of their location in the world.
4. What are the main differences between having a vendor’s employees working in your manufacturing operation and you haring your own employees to do the same work?
The vendor’s employees have direct access to the vendor’s database and can provide the needed information in a shorter period of time.
5. Identify all of the steps in the supply chain for a hamburger that you buy at McDonald’s. How might this supply chain differ for a McDonald’s located in a developing country?
The steps would be growing of the food and manufacture of paper product (wrappers, etc.) to processing of the food, to distribution to the stores, to the customer. The availability of certain foods in developing countries could alter this system.
The marginal efficiency of capital is the MRP of an extra unit of capital less its cost.
MEC = MRP of Capital – Cost of Capital
The marginal efficiency of capital may fall for the following reasons:
(i) If the selling price of the finished good declined this would lead to lower revenue for the firm. This would reduce the MRP of each extra unit of capital employed and would lead to a fall in the MEC of capital.
(ii) If the MPP (Marginal Physical Product) of each extra unit of capital decreased. A fall in the MPP of capital could be due to the firm using old or worn-out machinery. This fall in output would lead to a lower MRP as MRP depends on the MPP.
(iii) If the cost of capital increased (assuming MRP remains the same), this would lead to a fall in the Marginal Efficiency of Capital. A higher cost of capital could be caused by inflation in the price of machinery and capital
goods or a shortage of these capital goods.
When evaluating cash flow, those factors directly affecting profit, revenue and expenses, are easy to understand and their affect on cash is straight forward; decreases in costs or increases in profit margin results in less cash going out or more cash coming in, and increased profits.
However, the working capital components of the Cash Conversion Cycle are a little more complex. In simple terms, an increase in the amount of time accounts receivables are outstanding uses up cash, a decrease provides cash; an increase in the amount of inventory uses cash, a decrease provides cash; an increase in the amount of time it takes you to pay your payables provides cash, a decrease uses cash.
For example, a decision to buy more inventory will use up cash, or a decision to allow people to pay for goods or services over 60 days instead of 30 days will mean you have to wait longer for payment, and will have less cash on hand.
Below is a numerical example of the cycle:
Accounts Receivable outstanding in days +90
Inventory in days +60
Accounts Payable outstanding in days -72
Cash Conversion Cycle +78
In the scenario, you have cash tied up for 78 days. It should be noted that you can have a negative conversion cycle. If this occurs it means that you are selling your inventory and collecting your receivables before you have to pay your payables. An ideal situation if you able to accomplish this. Before you say it is impossible, remember that companies such as Wal-Mart are today selling a large part of their inventory before they have to pay for it. While it is not easy it can be accomplished.