Supply Chain Management: Strategy,

Planning, and Operation

Seventh Edition, Global Edition

Chapter 3
Supply Chain Drivers and
Metrics

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Learning Objectives (1 of 3)

3.1 Describe key financial measures of firm performance.

3.2 Identify the major drivers of supply chain performance.
3.3 Define the key performance metrics for facilities and discuss
their role in creating strategic fit between the supply chain
strategy and the competitive strategy.

Copyright © 2019 Pearson Education, Ltd.

Learning Objectives (2 of 3)

3.4 Define the key performance metrics for inventory and discuss
its role in creating strategic fit between the supply chain strategy
and the competitive strategy.
3.5 Define the key performance metrics for transportation and
discuss its role in creating strategic fit between the supply chain
strategy and the competitive strategy.

Copyright © 2019 Pearson Education, Ltd.

Learning Objectives (3 of 3)

3.6 Define the key performance metrics for information and

discuss its role in creating strategic fit between the supply chain
strategy and the competitive strategy.
3.7 Define the key performance metrics for sourcing and discuss
its role in creating strategic fit between the supply chain strategy
and the competitive strategy.
3.8 Define the key performance metrics for pricing and discuss
its role in creating strategic fit between the supply chain strategy
and the competitive strategy.

Copyright © 2019 Pearson Education, Ltd.

Financial Measures of Performance (1 of 7)
• From a shareholder perspective, return on equity (R OE) is the
main summary measure of a firm’s performance

Net Income
ROE 
Average Shareholder Equity

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Financial Measures of Performance (2 of 7)
• Return on assets (ROA) measures the return earned on each
dollar invested by the firm in assets

Earnings before interest

ROA 
Average Total Assets
Net Income  Interest Expense  (1  Tax Rate)

Average Total Assets

net-income adjusted for interest expenses to isolate the

company's operational performance and to negate the
impact of the company's financial structure on its
profitability

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Financial Data for Amazon and Nordstrom (1 of 6)

Table 3-1 Selected Financial Data for Amazon.com and

Nordstrom Inc.
Blank Amazon.com Nordstrom Inc.
Period Ending 31-Dec-13 2-Feb-13
Total Revenue 74,452,000 12,148,000
Cost of Goods Sold 54,181,000 7,432,000
Gross Profit 20,271,000 4,716,000
Selling, General, and Administrative 19,526,000 3,371,000
Operating Income or Loss 745,000 1,345,000
Total Other Income/Expenses Net –98,000 –
Earnings Before Interest and Taxes 647,000 1,345,000
Interest Expense 141,000 160,000

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Financial Data for Amazon and Nordstrom (2 of 6)

Table 3-1 [Continued]

Blank Amazon.com Nordstrom Inc.
Period Ending 31-Dec-13 2-Feb-13
Income Before Tax 506,000 1,185,000
Income Tax Expense 161,000 450,000
Minority Interest – –
Net Income 274,000 613,000
Assets Blank Blank
Cash and Cash Equivalents 8,658,000 1,285,000
Short-Term Investments 3,789,000 –
Net Receivables 4,767,000 2,356,000
Inventory 7,411,000 1,360,000

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Financial Data for Amazon and Nordstrom (3 of 6)

Table 3-1 [Continued]

Blank Amazon.com Nordstrom Inc.
Period Ending 31-Dec-13 2-Feb-13
Other Current Assets – 80,000
Total Current Assets 24,625,000 5,081,000
Property, Plant, and Equipment (P P&E) 10,949,000 2,579,000
Goodwill 2,655,000 175,000
Other Assets 1,930,000 254,000
Total Assets 40,159,000 8,089,000
Liabilities and Stockholder Equity Blank Blank
Accounts Payable 21,821,000 1,415,000

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Financial Data for Amazon and Nordstrom (4 of 6)

Table 3-1 [Continued]

Blank Amazon.com Nordstrom Inc.
Period Ending 31-Dec-13 2-Feb-13
Short-/Current Long-Term Debt – 7,000
Other Current Liabilities 1,159,000 804,000
Long-Term Debt 3,191,000 3,124,000
Other Liabilities 4,242,000 341,000
Deferred Long-Term Liability Charges – 485,000
Total Liabilities 30,413,000 6,176,000
Total Stockholder Equity 9,746,000 1,913,000

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Financial Measures of Performance (3 of 7)
• An important ratio that defines financial leverage is accounts
payable turnover (APT)

Cost of Goods Sold

APT 
Accounts Payable

The Accounts Payable Turnover (APT) ratio is a

financial metric that measures the rate at which a
company pays off its suppliers

Copyright © 2019 Pearson Education, Ltd.

Financial Measures of Performance (4 of 7)
• ROA can be written as the product of two ratios – profit margin
and asset turnover

Earnings before interest SalesRevenue

ROA  
Sales Revenue Total Assets
 Profit Margin  Asset Turnover

Asset turnover: indicates how efficiently a company

uses its assets to generate sales

Copyright © 2019 Pearson Education, Ltd.

Financial Measures of Performance (5 of 7)
• Key components of asset turnover are accounts receivable
turnover (ART); inventory turnover (INVT); and property,
plant, and equipment turnover (PPET)

Sales Revenue Cost of Goods sold

ART  ; INVT  ;
Accounts Receivable Inventories
Sales Revenue
PPET 
PP & E
ART: measures how many times a company can turn its
accounts receivable into cash
PPET: measures a company's ability to generate net sales
from fixed-asset investments, particularly property, plant,
and equipment (PP&E).

Copyright © 2019 Pearson Education, Ltd.

Summary of Learning Objective 1

The key financial metrics of firm performance include return on

equity; return on assets; accounts payable turnover; profit
margin; asset turnover; accounts receivable turnover; inventory
turns; property, plant, and equipment turns

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Framework for Supply Chain Decisions (1 of
2)

Figure 3-1 Supply Chain Decision-Making Frame work

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Framework for Supply Chain
Decisions (2 of 2)
• Logistical Drivers
– Facilities
– Inventory
– Transportation
• Cross-Functional Drivers
– Information
– Sourcing
– Pricing
• Interactions determine overall supply chain performance

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Summary of Learning Objective 2

The major drivers of supply chain performance are facilities,

inventory, transportation, information, sourcing, and pricing.
Each driver affects the balance between responsiveness and
efficiency and the resulting strategic fit. Thus, it is important for
supply chain designers to structure the six drivers appropriately
to achieve strategic fit.

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Drivers of Supply Chain Performance: six
drivers

• Facilities
– The physical locations in the supply chain network where product is stored,
assembled, or fabricated
• Inventory
– All raw materials, work in process, and finished goods within a supply chain
• Transportation
– Moving inventory from point to point in the supply chain
• Sourcing
– Choice who do a particular activity: production, storage, transportation,
selection of suppliers
• Information, Pricing

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Inventory Read inventory-related metrics p. 66
(included in the exam)

• Role in the Supply Chain: Buffer against mismatch between

supply and demand due to differences in lead time and
limitation in capacity
To be responsive should you
• Type of inventories: hold more or less inventory?
– Cycle inventory: average amount of inventory to satisfy (forecasted) demand.
Balancing holding costs vs ordering costs (EOQ)
– Safety inventory: safety buffer in case demand exceeds expectations
(uncertainty). Balancing excessive inventory vs costs shortage or lost sales.
– Seasonal inventory: to counter predictable seasonal variability. Example of
predictable vs unpredictible?

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Facilities Read facilities-related metrics p.
63 (included in the exam)
• Role in the supply chain
– The “where” of the supply chain
– Manufacturing or storage (warehouses)

• Role in the competitive strategy

– Economies of scale (efficiency priority)
▪ More centralized, high utilization
– Larger number of smaller facilities (responsiveness priority)
▪ Closer to customer, excess capacity

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Transportation Read transportation-related
metrics p. 68 (included in the
• Role:
exam)
– Moves the product between stages in the supply chain
– Faster transportation allows greater responsiveness but lower cost efficiency
– Has impact inventory and facilities. How?

• Components:
– Design of transportation network
– Selection of transportation modes (plan, rail, trucks, sea vessel)

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Sourcing Read Sourcing-related metrics
p. 72 (included in the exam)

• In-house or outsource
– Perform a task in-house or outsource it to a third party

• Supplier selection
– Number of suppliers, evaluation and selection criteria, direct negotiations or
auction

• Procurement
– The supplier sends product in response to customer orders

Copyright © 2019 Pearson Education, Ltd.

Read information-related metrics p.
70 (included in the exam)

Information
• Role
– Right information helps a
supply chain better meet
customer needs at lower cost adaptalift

– Improves visibility of transactions and coordination of decisions across the

supply chain (Cross Docking)

• Component
– Demand planning
– Coordination and information sharing
– Sales and operations planning

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Pricing/Marketing Read pricing-related metrics p.
74 (included in the exam)
• Role in the Competitive Strategy
– Firms can utilize optimal pricing strategies to improve efficiency and
responsiveness
– Pricing strategies vary to meet different customer responsiveness requirements
– Every day low price vs high-low pricing
– Fixed pricing vs menu pricing

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Home Work I due date 1st Feb 2024
• Read the financial sheet of the case study on page 82 of chapter 3.

• Answer the given related questions and write them in a report.

• Submit your work via Blackboard.

• Please note that late submission will be penalized.

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