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The inventory turns ratio is a financial metric that measures how efficiently a company manages its inventory. The inventory turns ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory investment. The cost of goods sold is the direct cost of producing or purchasing the goods sold by the company. The average inventory investment is the average value of the inventory held by the company over a period of time. A higher inventory turns ratio indicates a higher inventory turnover and a lower inventory holding cost.

In this case, the company sold 8,400 units last year, and the unit cost is $207. Therefore, the cost of goods sold is:

COGS = Unit cost x Units sold = 207 x 8,400 = $1,738,800

The average inventory investment was $42,000. Therefore, the inventory turns ratio is:

Inventory turns ratio = COGS / Average inventory investment = 1,738,800 / 42,000 = 41.4

To express the inventory turns ratio as a whole number, we can round it to the nearest integer. Therefore, the inventory turns ratio is 5.

References: CPIM Exam Content Manual Version 7.0, Domain 5: Plan and Manage Inventory, Section 5.1: Develop Inventory Plans, Subsection 5.1.2: Describe how to develop an inventory policy (page 44).

Reducing distribution network inventory days of supply will have the impact of increasing turnovers and reducing cash-to-cash cycle time. Distribution network inventory days of supply is a measure of how long it takes for a company to sell its entire inventory in its distribution network, which includes the warehouses and transportation systems that deliver the products to the customers1. It is calculated by dividing the average inventory by the cost of sales per day1. A lower distribution network inventory days of supply indicates that the company is selling its inventory faster and more efficiently, while a higher distribution network inventory days of supply indicates that the company is holding too much inventory or having difficulty selling its products.

Turnovers, also known as inventory turnover or stock turnover, is a measure of how many times a company sells and replaces its inventory in a given period. It is calculated by dividing the cost of goods sold by the average inventory2. A higher turnover indicates that the company is selling its inventory quickly and efficiently, while a lower turnover indicates that the company is holding too much inventory or having difficulty selling its products.

Cash-to-cash cycle time, also known as cash conversion cycle or net operating cycle, is a measure of how long it takes for a company to convert its cash outflows into cash inflows. It is calculated by adding the days sales outstanding (DSO), which is the average time it takes for customers to pay for their purchases, and the distribution network inventory days of supply, and subtracting the days payable outstanding (DPO), which is the average time it takes for the company to pay its suppliers3. A shorter cash-to-cash cycle time indicates that the company is managing its cash flow more effectively, while a longer cash-to-cash cycle time indicates that the company is tying up more cash in its operations.

Therefore, reducing distribution network inventory days of supply will have the impact of increasing turnovers and reducing cash-to-cash cycle time, as it will decrease the average inventory level, increase the cost of sales per day, and decrease the distribution network inventory days of supply component in the cash-to-cash cycle time formula. This will improve the efficiency and profitability of the company’s operations and reduce its working capital needs.

References : Inventory Days Of Supply | Supply Chain KPI Library | Profit.co; Inventory Turnover Ratio | Formula | Calculator (Updated 2021); Cash Conversion Cycle - CCC.

The cumulative available-to-promise (ATP) method is based on an assumption that available inventory in a period can be committed to demand in that period and any future period in the planning horizon. The planning horizon is the time span for which plans are made and executed1. The cumulative ATP is a running total of the ATP figure in the master schedule, which shows the planned production or purchase of a product over a series of time periods2. The cumulative ATP method allows the company to account for future shortages and build up inventory for large or seasonal orders3.

The other options are not correct. The demand time fence (DTF) is a point in the near future, usually equal to the cumulative lead time, beyond which changes to the master schedule are not allowed4. The cumulative ATP method does not depend on the DTF, as it considers all future periods in the planning horizon, regardless of whether they are inside or outside the DTF. Future periods with a planned receipt are periods where there is an expected supply of inventory from production or purchase orders2. The cumulative ATP method does not only commit inventory to these periods, but also to any other periods where there is demand.

References : Available-to-Promise (ATP) - Tutorial; Planning Horizon Definition; Demand Time Fence (DTF) Definition; Cumulative Available-to-Promise | Cargoz.

Process improvement is a method of analyzing and enhancing the production methods and techniques to increase productivity and performance. Process improvement aims to reduce costs, waste, defects, and errors, as well as to improve quality, efficiency, and customer satisfaction. When considering process improvement, the first approach that should be considered is making better use of existing resources. This means that the production system should optimize the utilization and allocation of the available resources, such as materials, labor, machines, and space. This can be achieved by implementing various techniques, such as lean manufacturing, six sigma, kaizen, or 5S. Making better use of existing resources can help to improve the process without requiring additional investment or expenditure.

The other options are not the first approaches that should be considered as part of process improvement. Hiring more skilled people to perform the job is not the first approach, as it may increase the labor cost and require more training and supervision. Hiring more skilled people may not necessarily improve the process if the existing methods and techniques are inefficient or ineffective. Buying better and faster equipment is not the first approach, as it may involve a large capital outlay and a long payback period. Buying better and faster equipment may not necessarily improve the process if the existing resources are underutilized or misallocated. Applying stricter quality control is not the first approach, as it may increase the inspection and testing cost and time. Applying stricter quality control may not necessarily improve the process if the existing methods and techniques are prone to errors or defects. References: CPIM Exam Content Manual Version 7.0,Domain 8: Manage Quality, Continuous Improvement, and Technology, Section 8.2: Continuous Improvement Concepts, p. 46; Process Improvement; Process Improvement Definition.