Structure of the Book
Throughout this book, you will think about (1) how the decisions you make each day affect the financial performance of your firm, (2) why certain decisions are typically made, and (3) to increase your fiscal aptitude. After reading this book, you will be able to speak to finance and operation questions with confidence. Some questions you will be able to address include:
- Why are executives quick to jump on the “reduce cost bandwagon?” Why not focus more on increasing revenues?
- Which financial performance measures are affected by a supply interruption?
- How does a poor project implementation affect net earnings?
- Does poor quality affect gross margins, net earnings, ROIC, or ROA?
- Does cash equal profit?
- Which affects net earnings more, a 10% reduction in the cost of goods sold or a 10% increase in revenue, and why?
To provide you the knowledge to answer such questions, a number of subjects have been identified that will take you on a journey from myopically thinking of operational performance measures to thinking more in financial and value terms. Then you will be able to participate in financial conversations with greater confidence and a strong knowledge base.
The book began by introducing the financial performance measures that are important to company executives and an explanation of why. Then the book explored the idea of value. The remainder of the book will progress in this way.
Financial statements will be discussed, including the balance sheet, income statement, and statement of cash flows. Understanding the aspects of financial statements allows us to identify where pertinent information resides in each statement. This, in turn, helps supply chain managers as we talk about financial ratios, how we affect the ratios with our decisions, and how to calculate them. Financial statements also set the stage for the rest of the book. Once we understand financial statements, we can dive into firm valuation and what comprises value. After developing knowledge of valuation, the final chapters will discuss specific decision areas made by supply chain and operations professionals—projects, network planning, sourcing, managing assets and costs, transportation, logistics, inventory, and forecasting. Finally, we will examine how these areas contribute to value creation (or destruction).
Throughout the book, operational performance measures and their link to financial ratios and financial statements will be introduced and discussed. This will help you see exactly how operations decisions affect financial statements, thus affecting corporate economic goals and objectives. Further, you will see how operations decisions affect the corporation’s ability to borrow and attract funds, its ability to reinvest in itself, and its share price and corporate valuation.