A firm has DIO = 40 days, DSO = 30 days, and DPO = 50 days. It is considering two policies:
Policy 1 : reduce inventory by 10 days through better forecasting.
Policy 2 : increase payment delay to suppliers by 10 days through buyer power.
Which statement is most consistent with the lecture?

Question

A firm has DIO = 40 days, DSO = 30 days, and DPO = 50 days. It is considering two policies: 
 Policy 1 : reduce inventory by 10 days through better forecasting.  
 Policy 2 : increase payment delay to suppliers by 10 days through buyer power. 
 Which statement is most consistent with the lecture?

Accepted Answer

Both policies reduce the cash conversion cycle by 10 days, but Policy 2 may worsen supplier liquidity and increase supplier default risk

Answer

Both policies reduce the cash conversion cycle by 10 days and are equally beneficial for the whole supply chain

Answer

Only Policy 1 reduces the cash conversion cycle, because DPO is a balance-sheet item rather than a timing measure

Answer

Only Policy 2 reduces the cash conversion cycle, because inventory reductions do not affect working capital

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A firm has DIO = 40 days, DSO = 30 days, and DPO = 50 days. It is considering tw...

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