Slide 1How do you create financial value in an organization?Supply Chain Impact on ROISlide 4Cash FlowUsual Distribution of Customer (or Product) ProfitabilityTotal Cost of OwnershipThe Cost of InventoryFunctional vs. Activity Based CostsActivity Based Costing and ManagementAssessing DCPSlide 12Business Administration 331Supply Chain ManagementChapter 3Dr. John E. BellAssociate Professor of Supply Chain Management 343 Stokely Management [email protected] do you create financial value in an organization?2Discussion QuestionA. Revenue increaseB. Operational cost reductionC. Working capital reductionD. Fixed capital reductionE. Return on Asset improvementSupply Chain Impact on ROI3Return on InvestmentCapital EmployedProfitSales RevenueFixed AssetsInventoryNet RcvblesCashCostsCustomer Service (Effectiveness)Operating EfficiencyPipeline MgmtCredit Mgmt (i.e., accounts receivable/payableInventory Policy (e.g., JIT)Asset MgmtFrom Martin Christopher, Logistics and SCM, 4th ed., 2010, Prentice-Hallhttps://www.youtube.com/watch?v=zDMLl-Y4NEk4Walmart* elements example:•Correct order entry•Items are available•Ship date allows delivery•Order picked correctly•Paperwork complete•Timely arrival• Product as expected•Shipment not damaged•Correct invoice•Accurate overcharges•No customer deductions•No errors in payment processingThe Perfect Order – “if you ain’t perfect you’ve failed”= # of orders perfect on all elements / total ordersCash Flow5Metric:Cash-to-Cash Cycle = Days of Inv + Days Accts Rec – Days Accts PayUsual Distribution of Customer (or Product) ProfitabilityFrom Martin Christopher, Logistics and SCM, 4th ed., 2010, Prentice-Hall6200%=Total Cost of Ownership150%100%Cost (%)Landed CostInventory Carrying CostSupport Cost Material price Transportation Customs Inspection Taxes++ Holding Inspection Insurance Obsolescence Technology Supplier Mgmt Mfg Support R&D Lost Sales Capital Costs Storage Handling Administration Warranty Field Failures Disposal+ +Life-Cycle Cost Opportunity Cost7Total Cost of Ownership Investment ($) in Inventory Interest/Financing ExpensesCapitalCostsThe Cost of Inventory Insurance on Inventory Taxes on InventoryService Costs Mfg. Plant Warehouses Company owned Warehouses Rented Warehouses Public WarehousesStorage Space Costs Obsolescence Damage Shrinkage (Theft) RelocationInventory Risk CostsTheCostofInventory8Functional vs. Activity Based Costs9•ABC and ABM are allocation techniques that make it possible to more precisely assess true segment profitability•Allocations are more realistic than traditional cost accounting which relies on sales volume or direct labor hours to allocate “overhead”.Traditional Cost ViewSalaries $120,000Supplies 30,000Deprec. 20,000Etc. 60,000Total $230,000ABC ViewTake Orders $110,000Fill Orders 80,000Collect 40,000Total $230,000H. S. Sponge represents 5% of our sales volume. However he also represents 10% of our orders, 15% of our deliveries, and is notoriously a slow pay taking about 10% of our accounting and collection cost. What is the true cost of serving H.S. Sponge?•Traditional View .05 x $230,000 = $11,500•ABC View .1($110,000) + .15(80,000) + .1(40,000) = $27,000Activity Based Costing and Management1011Note – this is the Mkt/Sales P&LFrom Martin Christopher, Logistics and SCM, 4th ed., 2010, Prentice-HallAssessing DCPBusiness Administration 331Supply Chain ManagementChapter 3Dr. John E. BellAssociate Professor of Supply Chain Management 343 Stokely Management
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