Performance firms, financial measures

Figure 20 provides some illustrative examples of financial and nonfinandal measures for a large management consulting firm, using the measurement framework shown in Figure 19. The performance measures are designed to provide feedback regarding implementation of strategic initiatives.

We will demonstrate in this section that improvement in some selected supply chain metrics also results in improvements in some important financial metrics of the firm, which should, of course, be closely correlated with its overall business performance. To illustrate this relationship, let us consider several interrelated inventory measures—inventory turns, days of inventory, and inventory capital— and how they affect some important financial measures—return on assets, working capital, and cash-to-cash cycle. 

In this chapter, our goal is to link key financial measures of firm performance to supply chain performance. We introduce the three logistical drivers—facilities, inventory, and transportation—and the three cross-functional drivers—information, sourcing, and pricing—that determine the performance of any supply chain. We discuss how these drivers are used in the design, planning, and operation of the supply chain. We define several metrics that can be used to gauge the performance of each driver and its impact on financial performance. 

In Chapter 1, we discussed how growing the supply chain surplus is the ultimate goal of a supply chain. Our premise was that increasing the surplus allows for a growth of supply chain profitability, which facilitates an improvement in the financial performance of each member of the supply chain. In this section, we define important financial measures that are reported by a firm and affected by supply chain performance. In later sections, we link supply chain drivers and associated metrics to the various financial measures. The definitions of financial measures in this section are taken from Dyckman, Magee, and Pfeiffer (2011). To illustrate the various financial measures, we use the financial results reported in 2013 by Amazon.com and Nordstrom Inc. and assume a tax rate of 0.35. 

Describe key financial measures of firm performance. The key financial measures of firm performance include return on equity return on assets accounts payable turnover profit margin asset turnover and accounts receivable turnover inventory turns property, plant, and equipment turns and cash-to-cash cycle. 

Although we focus on the financial performance of a firm in this book, money is by no means the only extent in which a corporation should be measured. As described in a popular 1992 Harvard Business Review article, the balanced scorecard introduced by Robert Kaplan and David Norton shows that financial performance is only one aspect of firm performance. Several other areas must be considered in the overall performance of an organization. For example, qualitative and nonfinancial measures such as environmental and corporate social responsibility measures are equally important. In addition, customer satisfaction, internal business processes, and learning each play important roles in organizations. 

Given that all performance measures have potential problems, it helps to understand how all the measures selected are related to the firm s and the supply chain s financial success. Gable (1997) illustrated this in Table 3.3. 

The 1996 acquisition of the Southern Pacific and the Chicago and North Western railroads by UP resulted in cost-cutting measures to improve the financial performance of the merged firm. These cost-cutting measures were followed by decreases in safety performance. 

The majority of supply chain professionals perform well in their functional roles. At the same time, many of these professionals find it difficult to see the company s larger goals or to see how their actions affect other functional areas. Furthermore, supply chain professionals fail to see how their decisions or actions connect to and affect the financial goals and objectives of the firm. Pointing this out is not to degrade supply chain professionals they are measured by operational performance metrics, which, by all accounts, are plastered on most shop walls. These metrics are what they know and live by. Because the management of supply chains is critical to the long-term prosperity and sustainability of any firm, supply chain professionals who intend... 

The objective of the contribution is to identify the fundamental problems in the measurement of performance of individual members of the cluster and of the cluster as a whole, with the particular attention to financial performance, and to propose suitable criteria for the measurement. The problems in methodology, that will be identified here are based on the performed analysis of financial performance of eighteen plastic processing companies, which are founder members of cluster in the Zlin Region, known as PLASTR -(details about the cluster see [4]). This paper also shows the possibilities for interconnection of university research activities and the firms everyday working practice. 

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