REPLY Age of material in a stock (SD6423)

[SDMAIL Magne Myrtveit]

Posted by  "Magne Myrtveit" <magne at myrtveit.com>

Jay Forrester writes:


>>Can someone supply some examples of where the way of computing
>>age in a stock will alter the direction of policy
>>recommendations to improve the behavior of a system?

In Dynaplan we recently created a model to study the behaviour of the DSO
(days sales outstanding) key figure. It is used to measure how long (in
average) it takes from a sale is made until payment is received from the
customer. If sales go up or down, payment terms are changed, or customers
change behaviour, this will be reflected in the account receivables stock
(and hence, in the DSO). Different ways to compute the DSO might influence
the (transient) behaviour of this key figure when sales and/or payment
flows change.

Since investors make use of the DSO measure (together with other key
figures) to make investment decisions, the particular way to measure DSO
might actually influence decisions.

In our concrete case, the objective was not to come up with the best way
to compute the DSO, but rather to understand how the DSO would react over
time in different scenarios (decreasing sales, increasing number of
unhappy customers who delay payments or refuse to pay, extension of
payment terms, etc.)

Best regards,

Magne Myrtveit

PS
I have made two blogs that might interest people who work with system
dynamics and spreadsheets.

Why is the spreadsheet so popular when it is so bad?
http://www.dynaplan.com/blog.php?page=thread&tid=572

Why is system dynamics used by so few when it is so good?
http://www.dynaplan.com/blog.php?page=thread&tid=574

Comments are welcome  :-) 
Posted by  "Magne Myrtveit" <magne at myrtveit.com>
posting date  Fri, 20 Apr 2007 14:45:40 +0200