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11/29/2010

The Dollars and Cents of Supply Chain

The financial aspect of a supply chain is every bit as important as the efficient flow of product and information. Dan Gardner, vice president of business development with ATC Logistics & Electronics, outlines some of the elements on which global companies ought to be focusing.

Companies are well-accustomed to focusing on the global movement of physical goods, as well as the documentation that goes along with them. They are less skilled in managing the third important aspect of any supply chain: the money. Gardner says they need to be tracking such key financial elements as total landed cost and cash flow.

Setting up specific key performance indicators can aid them in their task. They include total return on assets, inventory expense, accounts receivable and inventory turns. Traditional formulas for measuring financial performance in domestic operations can be applied to global supply chains, says Gardner. “It just has to be in proper context.”

Financial concerns are not always on the mind of the typical supply-chain manager, whose level of expertise depends on the individual corporate culture. Awareness of financial issues should be “pervasive” throughout the organization, Gardner says. “Execution is very important – but what are the financial implications? Are you carrying millions of dollars in inventory to achieve the goal of good customer service?”

There are pitfalls in merging supply-chain execution with financial outcomes, he acknowledges. Companies attempting to apply the same principles in both areas must deal with long lead times, multiple time zones and ethnic and cultural differences. They must have a clear idea of how the steps in an international transaction can cause glitches in the chain.

The recession has prompted a rethinking by many companies of their approach to global financial management. In the process, they might discover that actions that seemed to make sense from a cost standpoint, such as reducing inventory levels, ended up costing more in the long run. Yet another important consideration is a company’s ability to secure credit or obtaining financing for new-product launches. For a time, Gardner says, access by most businesses to credit came to a halt. “I don’t think it’s in crisis mode [today],” he says. “It’s come back a bit.”

 

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