Mirroring payment terms and lead times
Author(s)Dale, Matthew J.M. Eng.Massachusetts Institute of Technology.
Massachusetts Institute of Technology. Supply Chain Management Program.
James B. Rice, Jr.
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In a simple representation of a supply chain, products flow from suppliers to customers, and currency flows from customers to suppliers. The period it takes a supplier to satisfy a customer order is called lead time. The period it takes a customer to pay a supplier for product is called payment term. The question this thesis will answer is: Can payment terms be used to offset lead times? Three frameworks are developed in this thesis to quantify the payment term required to offset lead times: the Pipeline and Safety Stock Inventory Offset Framework, On Hand Inventory Offset Framework, and the On Hand Inventory and Ordering Cost Offset Framework. All three build upon the commonly used total cost equation. Empirical analysis of annual reports submitted to the United States Securities and Exchange Commission in 2019 observed a relationship between payment terms and lead times. This thesis makes two contributions to the supply chain literature. First, the total cost equation is updated to differentiate between components of lead time as well as incorporate payment terms. Second, the observation that there is a relationship between payment terms and lead times provides a starting point for future research..
Thesis: M. Eng. in Supply Chain Management, Massachusetts Institute of Technology, Supply Chain Management Program, May, 2020Cataloged from the official PDF of thesis.Includes bibliographical references (page 47).
DepartmentMassachusetts Institute of Technology. Supply Chain Management Program
Massachusetts Institute of Technology
Supply Chain Management Program.