COMILLA UNIVERSITY

Department of Management Studies

Assignment on: Supply Chain
Management

Submitted To:
Md. Anamul Haque
Lecturer,
Department of Management Studies
Comilla University.

Submitted By :

Fuzulor Rahman Tanjil

ID:11705043
Department of Management Studies
Comilla University.
Submission Date: 22th November, 2020
Question-1:Describe key financial measures of firm performance.
From a shareholder perspective, return on equity (ROE) is the main summary measure of a
firm’s performance.ROE =Net Income/Average Shareholder Equity

Whereas ROE measures the return on investment made by a firm’s shareholders, return on
assets (ROA) measures the return earned on each dollar invested by the firm in assets.

ROA =Earnings before interest/Average total assets=Net income + [Interest expense * (1 - Tax
rate)]/Average total assets

Financial performance of Amazon :

ROE = 645 / 2672 = 24.13 % ( 2008 )

ROE = 902 / 5257 = 17.2 % ( 2009 )
ROE = 1152 / 6864 = 16.8 % ( 2010 )

And , ROA = 645 + [ 71x ( 1 - .35 ) ] / 8314

= 645 + 46.15 / 8314 = 8.31 % ( 2008 )

ROA = 902 + [ 34x ( 1-35 ) ] 13813

= 6.7 % ( 2009 )

ROA = 1152 + [ 39x ( 1-35 ) / 18797

= 6.3 % ( 2010 )

The difference between ROE and ROA is referred to as return on financial leverage ( ROFL ) , So
here are the solution.

ROFL = 24.13-8.31 = 15.82 % ( 2008 )

ROFL = 17.2-6.7-10.5 % ( 2009 )

ROFL = 16.8-6.3 = 10.5 % ( 2010 )

Thus an important ratio that defines financial leverage is accounts payable turnover .
 APT = Cost of goods sold / Accounts payable

In Amazon's case, in 2009

APT = 18,978 / 7,364 = 2.58

In 2010.
APT = 26,561 / 10,372 = 2.56

A small APT indicates that Amazon was able to use the money it owed suppliers to finance a
considerable fraction of its operations. In 2009, Amazon effectively financed its own operations
for about 52 / 2.58 = 2018

(52 / 2.56 = 20.31 in 2010) weeks with its suppliers' money. A low value of APT helps Amazon
improve its financial performance.

ROA can be written as the product of two ratios profit margin and asset turnover as shown
below:

ROA = Earnings before interest / Sales revenue (profit margin) xsales revenue / total asset
(asset turnover)

Thus, a firm can increase ROA by growing the profit margin and / or increasing the asset
turnover.

[902 + 34 (1 - .35)] / 24,509 = 3.8% (2009)

[1,152 + 39 * (1 - .35) /34,204=3.4 percent in 2010).

The key components of asset turnover are accounts receivable turnover , inventory turnover
and property , plant and equipment turnover . These are ,

ART = Sales revenue / Accounts receivable

INVT - Cost of goods sold / Inventories
PPET = Sales revenue / PP & E
Amazon achieved accounts receivable turnover of 24,509 / 1.260-19.45

( 34,204 / 1,785 = 19.18 in 2010 ) in 2009 Amuzon collected its money from sales relatively
quickly in about 52 / 19.45 = 2.7 weeks on average in 2009 ) after it made a sale . Amazon
turned its inventory about 18,978 / 2,171 = 8.74 ( 26561 / 3,202 = 8.30 in 2010 ) times and had
PPET- 24,509 1,290-19,00 ( 34,204 / 2,414- 14.17 in 2010 in 2009. Thus , inventory sat with
Amazon in 2009 for about 52 / 8.74-5.95 ( 52 / 8,30- 6.27 in 2010 ) weeks on average , and each
dollar invested in property , plant and equipment supported about $ 19 ( 514.17 in 2010 ) of
sales in 2009. Observe that Amazon saw its inventory turns and PPET decrease in 2010 relative
to 2009.

There are two important measures, however, that are not explicitly part of a firm’s financial
statements. They are markdowns and lost sales. Markdowns represent the discounts required
to convince customers to buy excess inventory. Financial statements show only the revenue
received from sales, not the revenue that “could” have been received. For General Motors
(GM), one of the biggest problems in the early part of the 21st century was the discounts
required to move excess inventory from dealer lots. These discounts significantly hurt financial
performance. In 2010, one of the biggest improvements in financial performance for GM was its
ability to sell its cars with much smaller discounts because the supply chain had far less excess
inventory. Lost sales represent customer sales that did not materialize because of the absence
of products the customer wanted to buy. Every lost sale corresponds to product margin that is
lost. Both markdowns and lost sales reduce net income and arguably represent the biggest
impact of supply chain performance on the financial performance of a firm.

Firms like Amazon, Wal-Mart, and Zara that achieve strong financial performance do so in large
part because their supply chains allow them to better match supply and demand,thereby
reducing markdowns and lost sales. From our brief discussion of Amazon’s financial statements,
supply chain management activities such as planning, transportation, inventory,and
warehousing clearly have a significant impact on financial performance.
Question - 2: Identify the major drivers of supply chain performanc.

7 Important Supply Chain Drivers:

For any firm to be successful, its supply chain strategy and competitive strategy must have a
strategic fir like, both supply chain and competitive strategies should have the same goal.
Strategic fit requires consistency between the priorities of the customers that the competitive
strategy is designed to satisfy and the capabilities that the supply chain aims to build.

In other words, strategic fit requires that a firm achieve the balance between responsiveness
and efficiency in its supply chain which best meets the needs of the company’s competitive
strategy.

To understand how a firm can improve supply chain performance in terms of its responsiveness
and efficiency, we need to examine the drivers of supply chain performance.

These drivers of the supply chain are discussed in the following paragraphs:

1. Production

The performance of the supply chain is very much dependent on a production like, what is
produced, how it is produced (the manufacturing process used), and when it has to be
produced.

2. Inventory

All raw material, work in progress and finished goods within a supply chain are referred to as
inventory. Any change in inventory policies can greatly affect the efficiency and responsiveness
of the supply chain.

Decision such as how much to store and where to store (in the firm’s premises or warehouses
or at the retailer’s premises).

For example, a retailer can quickly meet customer demand by keeping a large inventory of an
item, but it will increase the retailer’s cost, thereby affecting its efficiency even though
res[ponsivenss has increased.

On the contrary, reducing inventory will increase the retailer’s efficiency but will affect its
responsiveness.
3. Transportation

Inventory has been moved from point to point in the supply chain using transportation facilities
taking the form of many combinations of modes (multimodal) and routes, each having its own
performance characteristics.

The responsiveness and efficiency of the supply chain is significantly affected by the choice of
transportation modes and routes (affecting the speed and cost of transportation).Hence,
decisions regarding issues related to how to move a product from one location to another and
by what mode of transportation are usually trade-off decisions.

It is necessary to evaluate economies on one hand and the desired level of customer
satisfaction of the other.

4. Facility Location

Facilities are the places in the supply chain network where inventory is stored, parts are
fabricated and assembled into finished goods. The decision regarding the location of the
facilities (plant), their capacity, and the flexibility of the facilities have a major impact on the
performance of the supply chain.

For example, an automobile firm can locate its spare parts distributors and service centers close
to customers to increase responsiveness at the cost of efficiency.

On the contrary, fewer spare parts distributors and service centers may increase the efficiency
of the supply chain network at the cost of its responsiveness.

5. Information

Information consists of data and analysis regarding inventory, facilities (location, capacities,
etc.) transportation and customers throughout the supply chain.

Information affects each of the other drivers and hence is the biggest driver of supply chain
performance. Information is helpful in making the supply more efficient and responsive at the
same time.

For example, information regarding customer demand patterns results in a more accurate
forecast of demand, which in turn will enable a firm to produce the required quantity of the
product at the right time to meet customer demand. This makes the supply chain more
responsive and yet efficient.
6. Sourcing

Sourcing is another important area in supply chain management. The source is a specific
location or enterprise from here goods are obtained. Sourcing is the right activity of buying or
procuring the right materials in the right quantities of the right quality, in the right condition, at
the right time, at the right price from the right supplier.

The term outsourcing should not be confused with the term sourcing as they are different.
Outsourcing s the term used to describe the activity of purchasing parts, components,
assemblies, and other services that were previously done within the firm, from sources outside
the firm.

7. Pricing

Pricing is the process by which a firm decides how much to charge customers for its goods and
services. Pricing affects the customer’s segment which is price sensitive. Also, customers’
expectations are based on the prices they pay for goods purchased. Therefore pricing affects
the supply chains n terms of the level of responsiveness required and the demand profile that
the supply chain attempts to serve.

Also, pricing is used as a lever to match supply and demand. Sellers may use incentives such as
short term price discounts to eliminate supply surpluses or decrease season demand surges by
postponing the demand to a later period. Pricing is one of the most important factors which
affect the level and type of demand by supply chain managers. Pricing plays a significant role in
a firm’s competitive strategy. For example, if customers in a customer segment expect low
prices but are comfortable with a lower level of product availability, then the steady prices can
ensure that demand stays relatively at a stable level.

Firms serving such a customer segment can design their supply chain structure appropriately so
that the supply chains can be very efficient (like, of low cost), at the expense of some
responsiveness. In contrast, some other forms may use pricing that varies with the response
time desired by the customer. In such cases, the firm will vary its pricing according to the
degree of responsiveness or efficiency desired of the customers a structure its supply chain
which can meet the two divergent needs. All pricing decisions should be made with the
objective of increasing the profits of the firm.

For this, it is essential to have an understanding of the cost structure of performing the logistics
and supply chain activities and the value these activities bring to the supply chain.
Some pricing strategies such as “every other pricing low pricing” may promote stable demand
and allows for efficiency in the supply chain.

Some other pricing strategies may lower logistics and supply chain costs, retain market share or
even increase market share. Customers with varying needs may be attracted by using
differential pricing strategy which helps to either increase revenues or decrease costs.