Managing Supply Chains A Logistics Approach International Edition 9th Edition Coyle Solutions Manual 1

Supply Chain Performance Measurement and Financial Analysis Chapter 5
Solution Manual for Managing Supply Chains A

Logistics Approach International Edition 9th
Edition Coyle Langley Gibson Novack 111153392X
9781111533922
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CHAPTER 5 SUPPLY CHAIN PERFORMANCE MEASUREMENT AND

FINANCIAL ANALYSIS
LEARNING OBJECTIVES
After reading this chapter, you should be able to do the following:
• Understand the scope and importance of supply chain performance measurement.
• Explain the characteristics of good performance measures.
• Discuss the various methods used to measure supply chain costs, service, profit, and
revenue.
• Understand the basics of an income statement and a balance sheet.
• Demonstrate the impacts of supply chain strategies on the income statement, balance
sheet, profitability, and return on investment.
• Understand the use of the strategic profit model.
• Analyze the financial impacts of supply chain service failures.
• Utilize spreadsheet computer software to analyze the financial implications of supply

chain decisions.
5-1
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER OVERVIEW
Introduction
Many organizations today have realized that performance metrics are critical to managing
the business and achieving desired results. Many organizations want to do the “right
things” (effectiveness) and do them “right” (efficiency). However, simply stating those
two objectives is not adequate unless they have specific, measurable metrics that enable
the organization to gauge whether or not these objectives are achieved.
The purpose of this chapter is to (1) introduce the dimensions of supply chain
performance metrics, (2) discuss how supply chain metrics are developed, (3) offer some
methods for classifying supply chain metrics, and (4) use quantitative tools to show how
these metrics can be linked to the financial performance of the organization.
5-2
Dimensions of Supply Chain Performance Metrics
What is the difference between a measure and a metric? Traditionally, the term measure
was used to denote any quantitative output of an activity or process. Today, the term
metric is being used more often in place of the term measure.
Second, what are the characteristics of a good metric?
The first question to be asked about a metric is, “Is it quantitative?” While not all metrics
are quantitative, this is usually a requirement when measuring the outputs of processes or
functions.
The second question to be asked about a metric is, “Is it easy to understand?” This
question is directly related to the fifth question, “Is it defined and mutually understood?”
The third question to be asked about a metric is, “Does it encourage appropriate
behavior?” A basic principle of management is that metrics will drive behavior.
The fourth question to be asked is, “Is the metric visible?” Good metrics should be
readily available to those who use them.
The sixth question to be asked is, “Does the metric encompass both outputs and inputs?”
Process metrics, such as on-time delivery, need to incorporate causes and effects into
their calculation and evaluation.
The seventh question to be asked is, “Does it measure only what is important?” The
supply chain operation generates huge volumes of transactional data on a daily basis.
The eighth question to be asked about a good metric is, “Is it multidimensional?”
Although a single metric will not be multidimensional, a firm’s metric program will be.
This is where the terms scorecard and key performance indicators (KPIs) will apply.
The ninth question to be asked is, “Does the process use economies of effort?” Another
way to ask this question is, “Do we get more benefits from the metric than we incur costs
to generate it?”
The last question to be asked about a good metric is probably the most important: “Does
it facilitate trust?” If it does not, complying with the other nine characteristics makes little
or no difference for the effectiveness of the metric.
Evaluating current or potential supply chain metrics is critical to a sound metrics

program. Also important to note is that metrics need to change over time; not only the
performance standard but also the individual metric as well.
5-3
“Internal” metrics focus on the performance of the shipping firm while “external” metrics
measure the experience of the customer.
Total cost is a measure of efficiency and was the rationale supporting physical
distribution management. Least total cost was later used to support the logistics
management approach. The focus upon a least total cost system required measuring the
tradeoff costs when a suggested change was made in one of the components or elements
of the system.
Developing Supply Chain Performance Metrics
The implementation of new technologies and the changing business environment have
prompted many firms to reexamine their supply chain metrics programs. Another driving
influence for this reexamination has been the desire of organizations to change their
supply chain focus from a “cost” center to an “investment” center.
First, the development of a metrics program should be the result of a team effort. Second,
involve customers and suppliers, where appropriate, in the metrics development process.
Third, develop a tiered structure for the metrics. Fourth, identify metric “owners” and tie
metric goal achievement to an individual’s or division’s performance evaluation. Fifth,
establish a procedure to mitigate conflicts arising from metric development and
implementation. Sixth, the supply chain metrics must be consistent with corporate
strategy. Finally, establish top management support for the development of a supply
chain metrics program.
Performance Categories
The text identifies four major categories with examples that provide a useful way for
examining logistics and supply chain performance: time, quality, cost, and supporting
metrics. A number of approaches can be used to classify supply chain performance
metrics. Time has traditionally been given attention as an important indicator of logistics
performance, especially with regard to measuring effectiveness.
There are five widely used metrics for time. The metrics capture two elements of time:
the elapsed time for the activity and the reliability (variability) for the activity. The
second category is cost, which is the measurement for efficiency.
Quality is the third category of metrics and several dimensions in the Quality category are
important to logistics and supply chain management.
Another metric classification scheme that has been receiving increased attention is that
developed by the Supply Chain Council and contained in the Supply Chain Operations
and Reference (SCOR) model. The five major categories of metrics that need to be used
to measure the performance of Process D1: reliability, responsiveness, flexibility, cost,
and assets.
5-4
Finally, another perspective suggests that performance metrics for logistics and supply
chain management should include logistics operations costs, logistics service metrics,
transaction cost and revenue quantification, and channel satisfaction metrics.
Order cycle time (OCT) is another very important logistics service metric. OCT
influences product availability, customer inventories, and seller’s cash flow and profit.
Transaction cost and revenue relates to the value added by logistics. In other words, what
is the service and price relationship, and what specifically is the customer’s perception of
service quality? To add logistics value from the seller’s perspective, there are three basic
alternatives as follows:
• Increased service with a constant price to the customer
• Constant service with a reduced price
• Increased service with a reduced price
Another perspective on transaction cost and revenue focuses on how a seller’s cost
influences a customer’s profit and on how a seller’s service impacts a customer’s
revenue. If the cost of a seller’s logistics service allows a customer to make more profit
from the seller’s product, the customer should be willing to buy more products from the
seller.
The final category is channel satisfaction. This essentially looks at how logistics cost and
service are perceived by channel members.
The Supply Chain–Finance Connection
The supply chain process influences the flow of products from the supplier to the final
point of consumption. The resources utilized to accomplish this flow process determine,
in part, the cost of making the product available to the consumer at the consumer’s
location. This landed cost, then, impacts the buyer’s decision to purchase a seller’s
product.
The decision to alter the supply chain process is essentially an optimization issue. Supply
chain management involves the control of raw material, in-process, and finished goods
inventories.
The level of logistics service provided has a direct impact on customer satisfaction.
Efficiency of the supply chain impacts the time required to process a customer’s order.
Order processing time has a direct bearing on an organization’s order-to cash cycle. The
order-to-cash cycle includes all of the activities that occur from the time an order is
received by a seller until the seller receives payment for the shipment.
5-5
The Revenue–Cost Savings Connection
While process efficiency and cost savings are worthy goals, top management generally
refers to corporate improvements in terms of increases in revenue and profit. The
apparent conflict between the goals of top management and supply chain management
can be readily resolved by converting cost savings into equivalent revenue increases.
To accomplish this, the following equations can be used:
Profit = Revenue − Costs
where
Cost = (X%)(Revenue)
then
Profit = Revenue − (X%)(Sales) = Revenue(1 − X%)
where
(1 − X%) = Profit Margin
Sales = Profit/Profit Margin
The Supply Chain Financial Impact
A major financial objective for any organization is to produce a satisfactory return for
stockholders. This requires the generation of sufficient profit in relation to the size of the
stockholders’ investment to assure that inventors will maintain confidence in the
organization’s ability to manage its investments.
The absolute size of the profit must be considered in relation to the stockholders’ net
investment, or net worth. An organization’s financial performance is also judged by the
profit it generates in relationship to the assets utilized, or return on assets (ROA).
The supply chain plays a critical role in determining the level of profitability in an
organization. The level of inventory owned by an organization in its supply chain
determines the assets, or capital, devoted to inventory. The order-to-cash cycle affects the
time required to receive payment from a sale, thereby impacting the accounts receivable
and cash assets.
Channel structure management includes decisions regarding the use of outsourcing,

channel inventories, information systems, and channel structure. By outsourcing supply
chain activities, the organization might realize lower supply chain costs (outsourcing
5-6
firms possess greater functional expertise and efficiencies), a reduction in assets (use of
an outsourcing firm’s facilities), and increased revenue (from improved supply chain
service). Decisions that lower supply chain assets and/or improve revenue through supply
chain service improvements result in a higher ROA.
Inventory management decisions that reduce inventory (safety stock, obsolete and/or
excess stock) and optimize inventory location (in relation to sales or use patterns) reduce
the investment in inventory. Effective order management not only reduces supply chain
costs but also supports increased revenue, the combined effect resulting in a higher ROA.
Finally, reducing transportation transit time and the variability of transit time will have a
positive impact on revenues as well as on inventory levels.
Financial Statements
Attention must now be given to two very important financial statements: the income
statement and the balance sheet.
Financial Impact of Supply Chain Decisions
Another methodology available to perform the same financial analysis is the strategic
profit model (SPM). The SPM makes the same calculations that were made in the
spreadsheet analysis. Asset turnover is the ratio of sales to total assets and indicates how
the organization is utilizing its assets in relation to sales. Return on equity indicates the
return the stockholders are realizing on their equity in the organization.
Supply Chain Service Financial Implications
The results of supply chain service failures are added to the cost to correct the problem
and lost sales. Figure 5-19 shows the methodology for determining the cost of service
failures. When supply chain service failures occur, a portion of the customers
experiencing the service failure will request that the orders be corrected and the others
will refuse the orders. The refused orders represent lost sales revenue (refused orders
times revenue per order) that must be deducted from total sales. For the rectified orders,
the customers might request an invoice deduction to compensate them for any
inconvenience or added costs.
SUMMARY
• Performance measurement for logistics systems and, especially, for supply chains is
necessary but challenging because of their complexity and scope.
• Certain characteristics should be incorporated into good metrics—be quantitative, be

easy to understand, involve employee input, and have economies of effort.
5-7
• Important guidelines for metric development for logistics and supply chains include
consistency with corporate strategy, focus on customer needs, careful selection and
prioritization of metrics, focus on processes, use of a balance approach, and use of
technology to improve measurement effectiveness.
• There are four principal categories for performance metrics: time, quality, cost, and
miscellaneous or support. Another classification for logistics and supply chains suggests
the following categories for metrics: operations cost, service, revenue or value, and
channel satisfaction.
• The equivalent sales increase for supply chain cost saving is found by dividing the cost
saving by the organization’s profit margin.
• Supply chain management impacts ROA via decisions regarding channel structure
management, inventory management, order management, and transportation
management.
• Alternative supply chain decisions should be made in light of the financial implications
to net income, ROA, and ROE.
• The SPM shows the relationship of sales, costs, assets, and equity; it can trace the
financial impact of a change in any one of these financial elements.
• Supply chain service failures result in lost sales and rehandling costs. The financial
impact of modifications to supply chain service can be analyzed using the SPM.
ANSWERS TO STUDY QUESTIONS
1. “Performance measurement for logistics managers is relatively recent. Their focus was
previously directed toward other managerial activities.” Do you agree or disagree with
these statements? Explain your position.
Answer: A question might be raised as to whether or not the focus on performance

measurement is a recent event in industry. The answer to that question is a definite “no.”
Recall from Chapter 2 that the development of the physical distribution and logistics
concepts was based upon systems theory with the specific application focused upon least
total cost analysis. Total cost is a measure of efficiency and was the rationale supporting
physical distribution management. Least total cost was later used to support the logistics
management approach.
The focus upon a least total cost system required measuring the tradeoff costs when a
suggested change was made in one of the components or elements of the system. For
example, this could include switching from rail to motor transportation or adding a
distribution center to the distribution network. Cost has long been recognized as an
important metric for determining efficiency. This is still true today. However, we have
5-8
evolved from measuring functional cost to supply chain cost. This means the relevant
point of measurement has changed from totally internal to a firm to the collective costs of
many firms involved in the supply chain.
The second part of the question is subjective and must be evaluated in that light
2. What role should employees, in general, play in the development of performance

metrics? Why is this role important?
Answer: First, the development of a metrics program should be the result of a team effort.
Successful metrics implementations involve development teams comprised of individuals
representing functional areas within the firm that will be impacted by the metrics.
Because this phase of development requires metric identification and definition, it is
critical that all impacted areas agree on the appropriate metrics and their definitions. This
agreement will lead to a more successful implementation and use of the metrics to
manage the business. Identify metric “owners” and tie metric goal achievement to an
individual’s or division’s performance evaluation. This provides the motivation to
achieve metric goals and use metrics to manage the business.
3. “Metrics must focus upon customer needs and expectations.” Explain the meaning of
this statement. Why have customers become more important for performance
measurement? What role, if any, should customers play in developing supply chain
metrics?
Answer: Involve customers and suppliers, where appropriate, in the metrics development
process. Because customers feel the impact of metrics and suppliers are actively involved
in the execution of the metrics, their involvement is also critical to successful
implementation.
Another perspective on transaction cost and revenue focuses on how a seller’s cost
influences a customer’s profit and on how a seller’s service impacts a customer’s
revenue. If the cost of a seller’s logistics service allows a customer to make more profit
from the seller’s product, the customer should be willing to buy more products from the
seller.
As to the second and third part, the student should present their thoughts based on
classroom discussion and the case studies in this chapter.
4. It is generally recognized that organizations go through several phases on the path to

developing appropriate supply chain metrics. Discuss the stages of supply development
for supply chain metrics. Choose which of the stages of evolution you think would be
most challenging for an organization. Explain your choice.
Answer: The implementation of new technologies and the changing business

environment have prompted many firms to reexamine their supply chain metrics
5-9
programs. Another driving influence for this reexamination has been the desire of
organizations to change their supply chain focus from a “cost” center to an “investment”
center.
First, the development of a metrics program should be the result of a team effort. Second,
involve customers and suppliers, where appropriate, in the metrics development process.
Third, develop a tiered structure for the metrics. Fourth, identify metric “owners” and tie
metric goal achievement to an individual’s or division’s performance evaluation. Fifth,
establish a procedure to mitigate conflicts arising from metric development and
implementation. Sixth, the supply chain metrics must be consistent with corporate
strategy. If the overall corporate strategy is based upon effectiveness in serving
customers, a supply chain metrics program that emphasizes low cost or efficiency could
be in conflict with expected corporate outcomes. Finally, establish top management
support for the development of a supply chain metrics program.
Successful metrics programs cost more than expected, take longer to implement than
desirable, and impact many areas inside and outside the organization. Top management
support is necessary to see the development and implementation of the metrics program
to its successful conclusion.
As to the second and third part, the student should present their thoughts based on
classroom discussion and the case studies in this chapter.
5. Using a spreadsheet computer software program, construct a supply chain finance

model and calculate the profit margin; ROA; inventory turns; and transportation,
warehousing, and inventory costs as a percentage of revenue for the following: Sales =
$200,000,000
Transportation cost = $7,000,000
Warehousing cost = $1,600,000
Inventory carrying cost = 28%
Cost of goods sold = $70,000,000
Other operating costs = $65,000,000
Average inventory = $10,000,000
Accounts receivable = $30,000,000
Cash = $15,000,000
Net fixed assets = $90,000,000

5-10
Interest = $10,000,000
Taxes = 40% of (EBIT – Interest)
Current liabilities = $65,000,000
Long-term liabilities = $35,000,000
Stockholder’s equity = $45,000,000
Answer:
5-11
TC WC IN Warehouse
Increase Increase Increase Outsource
Symbol Base
Sales S 200,000 200,000 200,000 200,000 200,000
Cost of Goods Sold CGS 70,000 70,000 70,000 70,000 70,000
Gross Margin GM=S–CGS 130,000 130,000 130,000 130,000 130,000
Transportation TC 7,000 8,050* 7,000 7,000 7,000
Warehousing WC 1,600 1,600 1,840* 1,600 0*
Inventory Carrying IC=IN×W 2,800 2,800 2,800 3,220* 2,660*
Other Operating Cost OOC 65,000 65,000 65,000 65,000 66,200*
Total Operating Cost TOC 76,400 77,450 76,640* 76,820* 75,860*
Earnings before EBIT 53,600 52,550* 53,360* 53,180* 54,140*
interest and taxes
Interest INT 10,000 10,000 10,000 10,000 10,000
Taxes TX 17,440 17,020* 17,344* 17,272* 17,656*
Net Income NI 26,160 25,530* 26,016* 25,908* 26,484*
Asset Deployment
Inventory IN 10,000 10,000 10,000 11,500* 9,500*
Accounts Receivable AR 30,000 30,000 30,000 30,000 30,000
Cash CA 15,000 15,000 15,000 15,000 15,000
Fixed Assets FA 90,000 96,000 90,000 90,000 76,500*
Total Assets TA 145,000 145,000 145,000 146,500* 131,000*
Ratio Analysis
Profit Margin NI/S 13.08% 12.8%* 13.01%* 12.95%* 13.24%*
Return on Assets NI/TA 18.04% 17.6%* 17.94%* 17.68%* 20.2%*
Inventory Turns/year CGS/IN 7.00 7.00 7.00 6.09* 7.4*

Transportation as % of TC/S 3.5% 4.03%* 3.5% 3.5% 3.5%
sales
Warehousing as % of WC/S .8% .8% .92%* .8% 0%*
sales
Inventory carrying as IC/S 1.4% 1.4% 1.4% 1.6% 1.33%*
% of sales
*Denotes change from base.
5-12
Sales Ch.5 Q6
Transportation Cost
200,000
Increase
200,000 Gross
Margin
130,000
COGS 130,000
70,000 Net
Profit
70,000
Logistics 26,160 Net Profit

Costs 25,530 Margin
11,400
Total 13.08%
12,450*
Costs Sales 12.8%*
Return
Other 103,840 200,000 Return on
Costs 104,470* 200,000 on Assets Equity
92,440 18.04% 58.13%
92,020* 17.6%* 56.7%*
Inventory Sales
10,000 Current 200,000 Asset
10,000 Assets 200,000 Turnover
55,000 Total 138%

Acct. Rec. 55,000 Assets 138%
30,000
30,000 Fixed 145,000
Assets 145,000
90,000
Cash 90,000
15,000 Base
15,000 Proposed
*Change
from base
5-13
Sales Ch.5 Q6
Warehouse Cost Increase
200,000
200,000 Gross
Margin
130,000
COGS 130,000
70,000 Net
Profit
70,000

Costs 26,016* Margin
11,400
Total 13.08%
11,640*
Costs Sales 13.01%*
Other 103,840 200,000 Return Return

Costs 103,984* 200,000 on Assets on Equity
92,440 18.04% 58.13%
92,344* 17.94%* 57.81%*
Inventory Sales
10,000 Assets 200,000 Turnover
55,000 Total 138%

Acct. Rec. 55,000 Assets 138%
30,000
Fixed 145,000
30,000
Assets 145,000
90,000
Cash 90,000
15,000 Base
15,000 Proposed
*Change
from base
5-14
Sales Ch.5 Q6
Inventory Increase
200,000
200,000 Gross
Margin
130,000
COGS 130,000
70,000 Net Profit
70,000
Costs 25,908* Margin
11,400
Total 13.08%
11,820*
Costs Sales 12.95%*
Return
92,440 18.04% 58.13%
92,272* 17.68%* 57.6%*
Inventory Sales
11,500* Assets 200,000 Turnover
55,000 Total 138%

Acct. Rec. 56,500* Assets 136.5%*
30,000
Fixed 145,000
30,000
Assets 146,500*
90,000
Cash 90,000
15,000 Base
15,000 Proposed
*Change
from base
5-15
Sales Ch.5 Q6
Warehouse Outsourced
200,000
200,000 Gross
Margin
130,000
COGS 130,000
70,000 Net Profit
70,000

Costs 26,484 Margin
11,400
Total 13.08%
9,660*
Costs Sales 13.29%
Return
92,440 18.04% 58.13%
93,856* 20.2%* 58.9%*
Inventory Sales
9,500* Assets 200,000 Turnover
55,000 Total 138%

Acct. Rec. 54,500* Assets 152.7%*
30,000
Fixed 145,000
30,000
Assets 131,000*
90,000
Cash 76,500*
15,000 Base
15,000 Proposed
*Change
from base
5-16
6. Using the supply chain finance model developed for Study Question 5, calculate the
impact on profit margin; ROA; inventory turns; and transportation, warehousing, and
inventory costs as a pcentage of revenue for the following scenarios:
Transportation costs increase = 15%
Warehousing costs increase = 15%
Average inventory increase = 15%
Warehousing is outsourced with:
Net fixed assets reduced = 15%
Inventory reduced = 5%
Warehousing costs = $0
Outsourcing provider costs = $1,200,000
7. Develop a strategic model to depict the scenarios given in Study Questions 5 and 6.
8. Construct a financial model to determine the redelivery/rehandling cost, lost sales,

invoice dedution cost, and net income for the following:
a. On-time delivery increases from 98 percent to 99 percent with a 2 percent increase in

transportation cost.
b. Order fill rate decreases from 99 percent to 98 percent with operating cost remaining
constant.
Selling price/order = $150/order
Gross profit/order = $35/order
Lost sales rate:
On-time delivery failure = 20%
Order fill failure = 25%
Supply Chain Performance Measurement and Financial Analysis 181
Annual orders = 200,000
5-17
Rehandling cost = $100/order
Invoice deduction/service failure = $75/order
Transportation cost = $1,000,000
Average inventory = $1,000,000
Interest cost = $1,500,000
Inventory carrying cost rate = 25%/$/yr.
Warehousing cost = $750,000
Other operating cost = $500,000
Cash = $3,000,000
Accounts receivable = $4,000,000
Fixed assets = $30,000,000
Answer:
5-18
A. On-Time Delivery B. Order Fill

98% 99% 99% 98%
Annual Orders 200,000 200,000 200,000 200,000
Orders Filled Correctly 196,000 198,000* 198,000 196,000*
Service Failure Orders 4,000 2,000* 2,000 4,000*
Lost Sales Orders 800 400* 500 1,000*
Rectified Orders 3,200 1,600* 1,500 3,000*
Net Orders Sold 199,200 199,600* 199,500 199,000*
Sales $30,000,000 $30,000,000 $30,000,000 $30,000,000

Less: Invoice Deduction 240,000 120,000* 112,500 225,000*
Lost Sales Revenue 120,000 60,000* 75,000 150,000*
Net Sales 29,640,000 29,820,000* 29,812,500 29,625,000*
Cost of Goods Sold 23,000,000 23,000,000 23,000,000 23,000,000
Gross Margin 6,640,000 6.820,000* 6,812,500 6,625,000*
Rehandling Cost 400,000 200,000* 200,000 400,000*

Transportation 1,000,000 1,020,000* 1,000,000 1,000,000
Warehousing 750,000 750,000 750,000 750,000
Inventory Carrying 250,000 250,000 250,000 250,000
Other Operating Cost 500,000 500,000 500,000 500,000
Total Operating Cost 2,900,000 2,720,000* 2,700,000 2,900,000*
EBIT 3,740,000 4,100,000* 4,112,500 3,725,000*
Interest 1,500,000 1,500,000 1,500,000 1,500,000
Taxes 896,000 1,040,000* 1,045,000 890,000*
Net Income 1,344,000 1,560,000* 1,567,500 1,335,000*

Profit Increase $216,000 $(232,500)
(Decrease)
*Change from base
5-19
Part A
Net Sales Ch.5 Q8

A. On-
29,640
Time
Delivery
Gross
29,820* Margin
6,640
COGS 6,820*
23,000 Net
Profit
23,000
Costs 1,560* Margin
2,400
Total Net 4.5%
2,200* Costs Sales 5.2%*
Return
Other 5,296 29,640 on Return on
Costs 5,260* 29,820* Assets Equity
2,896 3.5% 3.0%
3,040* 4.1%* 3.5%*
Net
Inventory Sales
1,000 Current 29,640 Asset Equity=$45,000
1,000 Assets 29,820* Turnover
Acct. 8,000 Total 78%

Rec. 8,000 Assets 78%
4,000
Fixed 38,000
4,000
Assets 38,000
30,000
Cash 30,000
3,000 98%
3,000 99%
*Change
from base
5-20
Part B
Net Sales Ch.5 Q8

B. Order
29,812.5
Fill
29,625* Gross
Margin
6,812.5
COGS 6,625*
23,000 Net
Profit
23,000
Net
Logistics 1,567.5 Profit
Costs 1,335* Margin
2,200
Total Net 5.26%
2,400*
Costs Sales 4.51%*
Return
Other 5,245 29,812.5 on Return on
Costs 5,290* 29,625* Assets Equity
3,045 4.1% 3.5%
2,890* 3.5%* 2.97%*
Net
Inventory Sales
1,000 Current 29,812.5 Asset Equity=$45,000
1,000 Assets 29,625* Turnover
Acct. 8,000 Total 78%

Rec. 8,000 Assets 78%
4,000
Fixed 38,000
4,000
Assets 38,000
30,000
Cash 30,000
3,000 99%
3,000 98%
*Change
from base
5-21

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Solution Manual for Managing Supply Chains A

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CHAPTER 5 SUPPLY CHAIN PERFORMANCE MEASUREMENT AND

After reading this chapter, you should be able to do the following:

• Understand the scope and importance of supply chain performance measurement.

• Explain the characteristics of good performance measures.

• Understand the basics of an income statement and a balance sheet.

• Understand the use of the strategic profit model.

• Analyze the financial impacts of supply chain service failures.

• Utilize spreadsheet computer software to analyze the financial implications of supply

Second, what are the characteristics of a good metric?

Evaluating current or potential supply chain metrics is critical to a sound metrics

Developing Supply Chain Performance Metrics

• Increased service with a constant price to the customer

• Constant service with a reduced price

• Increased service with a reduced price

The Supply Chain–Finance Connection

To accomplish this, the following equations can be used:

Profit = Revenue − Costs

Profit = Revenue − (X%)(Sales) = Revenue(1 − X%)

(1 − X%) = Profit Margin

Sales = Profit/Profit Margin

The Supply Chain Financial Impact

Channel structure management includes decisions regarding the use of outsourcing,

Financial Impact of Supply Chain Decisions

Supply Chain Service Financial Implications

• Certain characteristics should be incorporated into good metrics—be quantitative, be

ANSWERS TO STUDY QUESTIONS

Answer: A question might be raised as to whether or not the focus on performance

2. What role should employees, in general, play in the development of performance

4. It is generally recognized that organizations go through several phases on the path to

Answer: The implementation of new technologies and the changing business

5. Using a spreadsheet computer software program, construct a supply chain finance

Transportation cost = $7,000,000

Warehousing cost = $1,600,000

Inventory carrying cost = 28%

Cost of goods sold = $70,000,000

Other operating costs = $65,000,000

Average inventory = $10,000,000

Accounts receivable = $30,000,000

Net fixed assets = $90,000,000

Taxes = 40% of (EBIT – Interest)

Current liabilities = $65,000,000

Long-term liabilities = $35,000,000

Stockholder’s equity = $45,000,000

Inventory Turns/year CGS/IN 7.00 7.00 7.00 6.09* 7.4*

Logistics 26,160 Net Profit

55,000 Total 138%

Logistics 26,160 Net Profit

Other 103,840 200,000 Return Return

55,000 Total 138%

55,000 Total 138%

Logistics 26,160 Net Profit

55,000 Total 138%

Transportation costs increase = 15%

Warehousing costs increase = 15%

Average inventory increase = 15%

Warehousing is outsourced with:

Net fixed assets reduced = 15%

Outsourcing provider costs = $1,200,000

8. Construct a financial model to determine the redelivery/rehandling cost, lost sales,

a. On-time delivery increases from 98 percent to 99 percent with a 2 percent increase in