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The Supply Chain–
More and more companies are discovering what the leaders have known for some time: There’s a clear and direct connection between supply chain execution and financial performance. The challenge for many, though, has been how to make that linkage. This article offers a practical way to successfully accomplish thattask.

Finance
Link
By William D. Presutti Jr. and John R. Mawhinney

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SepteMbeR 2007

he concept of the supply chain, with its emphasis on linkages among all of the value-adding activities in the chain, did not emerge until the early 1990s. Since then, supply chain—and supply chain management—have become pervasive terms in the business and academic vernacular. So pervasive, in fact,that they have virtually displaced the predecessor term, “business logistics,” in the business literature. One might even argue that the supply chain’s emergence is perhaps the most significant development in business management since the early 1980s when U.S. firms began adopting the just-in-time concept. Why the overwhelming attention being paid to supply chain management? The short answer is thatsavvy business executives are discovering that effective management of the supply chain can help boost a firm’s performance. In particular, they recognize that supply chain management can provide a distinctive and sustainable competitive advantage and improved profitability. They understand that a well-managed supply chain can help them succeed on the four dimensions of competitiveness—cost,quality, response time, and flexibility. This article explores that critical link between supply chain performance and business performance. Specifically, we demonstrate how supply chain metrics can be coordinated and linked to corporate financial metrics. The supply chain performance metrics used are based on the Supply Chain Operations Reference-model (SCOR), developed by the Supply Chain
WilliamD. Presutti Jr., Ph. D., C.P.M., is an Associate Professor and John R. Mawhinney, MBA, CPIM, CTL is an Executive Assistant Professor of Supply Chain Management, both in the John F. Donahue Graduate School of Business, Duquesne University. They can be reached, respectively, at Presutti@duq.edu and Mawhinney@duq.edu.

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S u p p ly C h a i n M a n a g e M e n t R e v i e w ·

www.scmr.comJean-FrancoisAllaux

Council.1 (For more on why the SCOR model was chosen, see accompanying sidebar.) The financial metrics are keyed to Economic Value Added (EVA), a widely accepted set of financial performance measures developed by the global consulting firm of Stern Stewart and Co.2 Our conclusion: There is a clear and direct link between how effectively supply chain activities are executedand how well the business performs. Making and measuring that link is critical in satisfying two of the firm’s most important stakeholders—its customers and shareholders. Customers are impacted most directly by the supply chain, shareholders more so by corporate financial performance. Yet there’s a synergy between the two. For example, customers may expect consistent on-time delivery to supportJIT operations. Metrics that focus on inventory and transportation activities in the supply chain will determine how effectively the firm is satisfying a customer’s need for JIT support. Getting those activities right may improve the firm’s competitive position by yielding higher revenues through greater market share.
www.scmr.com 

What the Literature Tells Us Over the past few years, articlesin the academic and business press have attempted to address the impact of supply chain management on corporate financial performance. Some have described the financial supply chain and the impact of effective supply management on a firm’s cash flows.3 Others have considered the impact of just-in-time operations on financial performance, the relationship between total quality management...