Measurements are important. It has been often said that if you can measure it, you can manage it. Most measures are inward looking but others are dyadic and can measure exchange activities between firms. For supply chain management to continue evolving we need to use multiadic measures that extend across the entire supply chain. One which should be in your managerial toolbox is Cash-to-Cash (C2C), aka "Cash-out to Cash-in", aka the "Cash Conversion Cycle." This measures the time from when you pay your supplier to when your customer pays you. In short, C2C follows the money in your supply chain.

Five financial numbers are needed to calculate C2C: Accounts Payable, Cost of Goods Sold, Inventory, Accounts Receivable, and Net Sales. To develop C2C you convert Payables, Inventory, and Receivables from dollars to days, producing a common measure for analysis:

Payables (in days) = (Accounts Payable/Cost of Goods Sold) x 365 days
Inventory (in days) = (Inventory/Cost of Goods Sold) x 365 days
Receivables (in days) = (Accounts Receivable/Net Sales) x 365 days
Therefore: C2C (in days) = Payables + Inventory + Receivables

The C2C metric integrates the financial segments of inbound supply (days of Accounts Payable), internal flow (days of Inventory), and outbound demand (days of Accounts Receivable). By bridging across the supply chain performance of supplier, manufacturer, and customer C2C exposes the number of days you are financing your supply chain - an important hidden cost. With a smaller C2C your company is more cash liquid and typically more cost effective, as studies have shown that: (1) the more liquid the process the higher the value, and (2) in 88 of 116 industries the direct relationship between C2C performance and profitability is that firms which improve their C2C are at a financial advantage. In some, C2C may even be a negative number because the firm uses "other people's money" and receives cash before paying suppliers.

The financial measures that comprise C2C are readily available for the 22,000+ publicly traded U.S. firms, and allows C2C to benchmark:

Within a firm to compare processes inside and across divisions.

Between firms (Dell, for example, includes C2C in quarterly and annual reports). When a firm benchmarks against other companies within the same industry, insight may be gained regarding competitive advantage. One firm that I worked with had "average" industry C2C performance. However, when the detail was broken down we discovered that the firm had superior Accounts Receivable performance and average Inventory management performance, but was performing badly in Accounts Payable. In fact, the firm was paying four times faster than the industry norm without reaping any benefit for early payment. This led management to focus on payment policies.

Across international boundaries. C2C has been used to quantify how the evolution of the European Union has benefitted European business. It illustrated how conversion to a common currency, the Euro, improved business cash flows by eliminating the time it took to convert currencies. It also showed that implementation of the Schengen "Open Borders" Accord reduced inventory levels by avoiding delays at border.

Multiadic metrics such as C2C are still in the early stages of development but offer a meaningful addition to the managerial toolbox. Recent research has suggested using this to identify where inherent advantages occur between trading partners with differing costs of capital and inventory. By identifying and leveraging these advantages, supply chain management can adjust trading terms and responsibilities for the benefit of the entire supply chain and achieve increased productivity for all trading partners.

Dr. Martin Theodore (Ted) Farris II, Ph.D., CTL is a Professor at the University of North Texas Professional Program in Logistics and Supply Chain Management. He is a Charn Uswachoke International Scholar and was a 2008 Austrian-American Fulbright Scholar at the Fachhochschul Studiengang Produktionsund-Managementtechnik in Steyr, Austria. Prior to joining academia, he worked for IBM and INTEL Corporations in systems, new logistics development, international purchasing, inventory and production control, and traffic. Ted is also the First Vice Chair of ISM's Logistics & Transportation Group and can be reached at Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.