Once in the shop, the clay base is mixed with water and rests one day to set up to the proper texture. It takes one day to spin the vase, three days to dry, one day to paint and one more day to dry. The production cycle from wetting clay to drying the paint is seven days. Because it takes seven days to produce seven days worth of sales, the company never lets its stock of vases shrink to less than seven days worth of sales. The delivery phase is very short because most of the product will be delivered in the immediate area.
Management estimates that delivery takes one day at most.
If clay is ordered today, a vase made of that clay can be delivered to a customer no sooner than 22 days from now. Now let's also assume that Company management likes to keep an additional five days of inventory on hand as a cushion to cover any delays in receipt of the clay and production of the vases. Therefore, the company's total inventory cycle is 27 days. To keep the cycle running smoothly, the company must keep its investment in inventory equal to 27 days worth of sales. The company must keep an investment in inventory equal to its inventory cycle.