This case study explores how supply chain management decisions have a direct bearing on the financial performance of the fictional company FMCG. The Du Pont model has been adapted to illustrate the impact of supply chain decisions on Return on Total Net Assets.
A fictional company and indicative financial figures are used to illustrate the impact of three typical supply chain scenarios: reducing inventory, outsourcing and extending accounts payables.
Supply chain decisions will have an impact on the organisation's revenue and its operating expenses and therefore profitability (Income Statement). A typical supply chain is comprised of non-current assets (property, plant and equipment) and working capital (current assets minus current liabilities), which are elements that are included on the organisation's balance sheet. Typical current assets include inventories, accounts receivables and cash, while current liabilities are short-term debts, such as accounts payable to suppliers, proposed dividends to shareholders and taxes owed to the government.
Aimed at students on supply chain management courses, it examines the Income Statement, Balance Sheet and financial ratios, which are used to measure the performance of a company. The Du Pont Model is presented and explained.
This case study demonstrates how the logistics and procurement functions' actions and performance are linked to the overall organizational performance.
Dr Simon Templar is Lecturer at the Centre for Logistics and Supply Chain Management at Cranfield School of Management.