Cash flow management of early life cycle products: a supply chain management perspective Online publication date: Fri, 01-Dec-2006
by Hongze Ma, Olli-Pekka Hilmola
International Journal of Electronic Finance (IJEF), Vol. 1, No. 3, 2007
Abstract: New Product Introduction (NPI) activity has considerably increased due to ever shortening product life cycles. Therefore, cash flow management is a vital part of NPI, and is based on the cumbersome equation of customers, demand development, product margin, payment programmes, supply lead times and assembly duration. Until today cash flow management of this whole system has been completed with rather primitive methods (e.g., spreadsheets or 'rule of thumb'). However, these alternatives have barely been able to show the most negative cash flow point, or sensitivity of it. In this paper we will introduce a system dynamics model incorporating all of the important elements, which will have an effect on cash flow management of early life cycle products. Based on this, methods to improve cash positions, and also manage cash flow as volumes grow and new investments are needed are being proposed. System dynamics simulation gives more support for e-finance based management, as opposed to inflexible spreadsheet models.
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