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Unit 1: 21st Century Supply Chains

commitments at a specified net price. Invoice payment, based on negotiated net price is completed Notes
upon verification of physical receipt. Such payment is typically in the form of Electronic Funds
Transfer (EFT), thereby streamlining both the flow of physical goods and cash among supply
chain partners. Managing supply chain logistics as a continuous synchronized process also
serves to reduce dwell time.
1.5.2 Dwell Time Minimization

Traditional distribution arrangements typically involve independent business units loosely
linked together on a transaction-to-transaction basis. A transaction view of traditional business
operations results in a series of independent transactions buffered by inventory. In contrast, a
supply chain has the potential to function as a synchronized series of interdependent business
units. At the heart of supply chain operating leverage is the willingness to transfer inventory on
an as-needed basis, taking advantage of as much collaboration and information as possible.
Such collaboration and information can be focused on maintaining the continued flow and
velocity of inventory moving throughout the supply chain. The potential of such synchronization
is a key benefit of supply chain connectivity. A significant measure of supply chain productivity
is dwell time.

Dwell time is the ratio of time that an asset sits idle to the time required to satisfy its designated
supply chain mission.

Example: Dwell time would be the ratio of the time a unit of inventory is in storage to
the time that it is moving or otherwise contributing to achieving a supply chain’s objectives.

To reduce dwell time, firms collaborating in a supply chain need to be willing to eliminate
duplicate and non-value-adding work.

Example: If three different terms perform identical processes as a product flows along a
supply chain, dwell times will accumulate.

Designating a specific firm to perform and be accountable for the value-added work can serve to
reduce overall dwell. Likewise, timely arrival and continuous inventory flow between supply
chain partners reduce dwell. When a product flows from a supplier through a retailer’s cross
dock sortation process without coming to rest or being diverted to warehouse storage, dwell
time is minimized. A collateral benefit of reducing dwell time and the associated logistics cost
is the ability to reduce investment in inventory and related assets.

1.5.3 Cash Spin

A popular term for describing the potential benefits of reducing assets across a supply chain is
cash spin, sometimes referred to as free cash spin. The concept is to reduce overall assets committed
to supply chain performance. Thus, a dollar of inventory or the rent of a warehouse, if eliminated
by a reengineered supply chain arrangement, represents cash available for redeployment. Such
free capital can be reinvested in projects that might otherwise have been considered too risky.
Naturally, cash spin opportunity is not unique to the supply chain. The potential to spin cash
applies to all areas of a firm. What makes the potential of supply chain cash spin so attractive is
the opportunity to collaborate between firms. The benefits flowing from fast cash-to-cash
conversion, reduced dwell time, and cash spin combine to increase the financial attractiveness of
effective collaboration. Another major force driving expansion of supply chain management is
the growing involvement of most firms in international operations. Expanded global business
is a result of two significant opportunities: market expansion and operating efficiency.

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