Contemporary Logistics Twelfth Edition Chapter 3 PDF

Contemporary Logistics Twelfth Edition Chapter 3 Strategic and Financial Logistics Copyright © 2018, 2015, 2...

Contemporary Logistics Twelfth Edition Chapter 3 Strategic and Financial Logistics Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved.  Learning Objectives (1 of 2) ‪ 3.1 To understand how logistics decision can influence an organization’s‪strategic‪financial‪outcomes ‪ 3.2 To review basic financial terminology used by logistics managers ‪ 3.3 To explain organizational financial reporting requirements affected by logistics activities ‪ 3.4 To employ the strategic profit model to highlight the financial impact of logistics activities Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Learning Objectives (2 of 2) 3.5 To consider the value of utilizing the Balanced Scorecard approach for examining the performance of a logistics systems 3.6 To compare some of the common performance measures for logistics activities Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (1 of 9) Logistics managers must find ways to:  Communicate how logistics capabilities provide value  Support corporate strategy and success in financial terms Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (2 of 9) Three generic strategies that can be pursued by an organization 1. Cost leadership strategy  Requires an organization to pursue activities that will enable it to become the low-cost producer in an industry for a given level of quality Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (3 of 9) Three generic strategies that can be pursued by an organization 2. Differentiation strategy  Entails an organization developing a product and/or service that offers unique attributes that are valued by customers and that the customers perceive to be distinct from competitor offerings Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (4 of 9) Three generic strategies that can be pursued by an organization 3. Focus strategy  Concentrates an‪organization’s‪effort‪on‪a‪narrowly‪ defined market to achieve either a cost leadership or differentiation advantage Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (5 of 9) Functional level strategies exist in:  Marketing  Finance  Manufacturing  Procurement  Logistics Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (6 of 9) Logistic strategy decisions involve:  Determining the number and location of warehouses  Selecting appropriate transportation modes  Deploying inventory  Investments in technology that support logistics activities Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (7 of 9) Logistics strategy is directly influenced by strategic decisions in functional areas of:  Marketing o Product availability, desired customer service levels, and packaging design directly influence logistics decisions  Finance o Rates of return may affect the decision to manage one’s‪own‪warehouse‪or‪use‪a‪third-party provider Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (8 of 9) Logistics strategy is directly influenced by strategic decisions in functional areas of:  Manufacturing o Strategic decisions by manufacturing to implement just-in-time system would influence logistics decisions in warehousing, transportation, and inventory management  Procurement o The decision to move from domestic to global sourcing would naturally affect logistics activities such as the potential use of new modes of transportation Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Connecting Strategy to Financial Performance (9 of 9) Logistics function can positively affect the financial outcome of an organization by designing a strategy to optimally support the requirement of the business Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Basic Financial Terminology (1 of 3) Income statement shows for a period of time:  Revenues o Also referred to as sales, provide a dollar value of all the products and/or services provided by a company  Expenses o Also referred to as costs, provide a dollar value for the costs incurred in generating revenues during a given period of time  Profit Also referred to as a profit and loss (P&L) statement Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Figure 3.1: Example Income Statement Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Basic Financial Terminology (2 of 3) Balance sheet reflects at any given point in time:  Assets o What a company owns and come in two forms: current assets that can be easily converted to cash and long- term assets that have a useful life of more than one year  Liabilities o The financial obligations a company owes to another party  Owner’s‪equity o Difference between what a company owns and what it owes at any particular point in time Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Figure 3.2: Example Balance Sheet Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Basic Financial Terminology (3 of 3) Statement of cash flows  Details how an organization generates cash and where cash is used  Positive cash flow enables an organization to: o Continue daily operations o Make investments for growth o Meet financial obligations o Ultimately remain in business Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Figure 3.3: Example Statement of Cash Flows Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Strategic Profit Model (SPM) (1 of 8) Issues with reporting financial figures without appropriate context Many financial measures reported as ratios Profitability analysis is useful in assessing logistics activities‪and‪proposed‪changes‪to‪a‪firm’s‪logistical‪ systems Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Strategic Profit Model (SPM) (2 of 8) Return on Investment (ROI)  Common measure of organizational financial success Return on Net Worth (RONW)  Measures profitability of funds invested in the business Return on Assets (ROA)  Indicates what percentage of every dollar invested in the business is ultimately returned to the organization as profit Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Strategic Profit Model (SPM) (3 of 8) Provides the framework for conducting ROA analysis Incorporates revenues and expenses to generate net profit margin Includes assets to measure asset turnover Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Figure 3.4: Strategic Profit Model Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Strategic Profit Model (SPM) (4 of 8) Provides a way for managers to examine how a proposed change to their logistics system influences profit performance and ROA SPM drawbacks include:  Fails to consider the timing of cash flows  Is subject to manipulation in the short run  Fails to recognize assets dedicated to specific relationships Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Strategic Profit Model (SPM) (5 of 8) Logistics connections to net profit margin  Net profit margin = net profit/sales  Multiple ways in which net profit margin can be influenced by managerial decisions  Relevant categories include: o Sales o Cost of goods sold o Total expenses Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Strategic Profit Model (SPM) (6 of 8) Logistics connections to net profit margin  Sales o The dollar value of all the products or services an organization provides to its customers during a given period of time  Costs of goods sold o Includes all the costs or materials and labor directly involved in producing a product or delivering a service  Total expenses o Made up of the variable and fixed costs that are not directly related to making the product or delivering a service Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Strategic Profit Model (SPM) (7 of 8) Logistics connections to asset turnover  Asset turnover = total sales/total assets  Asset turnover provides information on how efficiently capital is employed to support the business  Inventory is typically the most relevant logistics asset  Logistics decisions can influence the speed at which invoices are paid—accounts receivable Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Strategic Profit Model (SPM) (8 of 8) Logistics connections to asset turnover  Inventory can‪represent‪a‪significant‪part‪of‪a‪firm’s‪ current assets  Accounts receivable is the amount of money customers owe to an organization Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Balanced Scorecard (BSC) (1 of 2) Balanced Scorecard (BSC) is a strategic planning and performance management system used in industry, government, and nonprofit organizations Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Balanced Scorecard (BSC) (2 of 2) Management should evaluate their businesses from four perspectives  Customers  Internal business processes  Learning and growth  Financial results Forces managers to look beyond traditional financial measures (more holistic approach) Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Logistics Activity Measures (1 of 2) Transportation measures  Focus on labor, cost, equipment, energy, and transit time Warehousing measures  Include labor, cost, time, utilization, and administration Inventory measures  Include obsolete inventory, inventory carrying cost, inventory turnover, and information availability Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Logistics Activity Measures (2 of 2) Design and implementation of measures  Determination of key measures should be tailored to the organization and level of decision making  Data collection and analysis are a major part of a performance measurement system in logistics  Behavioral issues should be considered when establishing and implementing a system of logistics measures  Frequent communication and constant updating of the measures is a necessary condition for ensuring they are supporting organizational goals Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Key Terms (1 of 2) Assets Focus strategy Asset turnover Income statement Balanced Scorecard (BSC) Liabilities Balance sheet Cost leadership strategy Current ratio Differentiation strategy Expenses (costs) Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Key Terms (2 of 2) Net profit margin Statement of cash flows Omnichannel strategy Strategic Profit Model (SPM) Owner’s‪equity Return on assets (ROA) Revenues (sales) Sarbanes-Oxley Act (SOX) Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved. Copyright Copyright © 2018, 2015, 2011 Pearson Education, Inc. All Rights Reserved.