TABLE OF CONTENTS Given the complex nature of international supply chains, the metrics chosen to measure financial performance must converge on revenue, profitability, productivity, asset utilization and cash flow. Of equal importance, tools that are capable of exposing the cause-and-effect relationships between financial outcomes and areas such as sales, landed costs, lead times and inventory management must also be employed. Because financial performance has the last word on supply chain execution, the methodology for identifying causal relationships should be a diverse exercise that focuses on the elements of time, variance, utilization and profitability. Applying different techniques to period-specific figures puts supply chain execution in the crosshairs of management, allowing managers to make decisions based on a variety of information and angles.
For better or for worse, many stockholders, institutional investors and creditors base their evaluation of a company on its short-term, period-specific financial results. In fact, judging by how most senior executives are compensated (quarterly or yearly bonuses linked to net income), the same could be said about how those same organizations gauge their own performance.
Because companies are measured in the short term, the natural inclination of most management teams is to focus on results found on the income statement. There is no question that the income statement provides valuable information on sales, cost of goods sold, general, sales and administrative expense and net income. Also, many cause-and-effect relationships can be spotted between individual line items and areas like velocity, productivity and variance. However,...
