Mirroring payment terms and lead times

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..

Name thesis:degree_name

Master

Department dc:contributor.department

Massachusetts Institute of Technology. Supply Chain Management Program

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2020

Author dc:creator

• Dale, Matthew J.M. Eng.Massachusetts Institute of Technology.

Advisor dc:contributor.advisor

• James B. Rice, Jr.

• Supply Chain Management Program.

Statement dc:rights

• MIT theses may be protected by copyright. Please reuse MIT thesis content according to the MIT Libraries Permissions Policy, which is available through the URL provided.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/127109

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/127109