While supply chains are increasingly recognized as vital to corporate finance and risk mitigation, not all supply chain managers yet understand the need to be total business leaders and provide growth solutions.
In a new white paper, “Driving Shareholder Value with your Supply Chain,” the Global Supply Chain Institute at the University of Tennessee, Knoxville’s Haslam College of Business emphasizes the financial performance of best-in-class companies.
The paper provides strategies for companies to unlock their working capital to drive economic profit, says lead author J. Paul Dittmann, assistant head of the Department of Supply Chain Management at Haslam. In doing so, the links between shareholder value and supply chain excellence are explored through the lens of cost, cash and growth.
“We absolutely believe shareholder value is driven by supply chain excellence,” Dittmann says. “Supply chain plays in all the buckets of economic profit: revenue, cost, working capital and physical capital. If you believe that drives stock price, then supply chain clearly is a big factor in determining shareholder value.”
The white paper features self-assessment tools for analyzing whether companies are using their supply chains to drive shareholder value. It also includes best practices, case studies and the Total Value Optimization (TVO)™ Pyramid from supply chain consultant Maine Pointe, which sponsored the paper.
“Total Value Optimization delivers the greatest value to all parties in the end-to-end supply chain at the lowest cost to business,” says Steve Bowen, CEO of Maine Pointe. “In the white paper’s case studies, we can see how TVO best practices are used to find those value drivers, create an action plan to achieve growth and deliver bottom-line increases in profit and shareholder value.”
Dittmann says shareholder value is the language of the CEO and the board of directors. “If you want to be relevant in the overall corporate structure, you need to speak their language. Your career is tied in a major way to the overall health of the company.”
Although the white paper offers a number of definitions for supply chain excellence, Dittmann emphasizes the concept will vary between companies.
“What is it for your company, and how can your performance drive shareholder value?” he asks. “We encourage companies to come up with their own opinion on supply chain excellence and then think through how it’s going to drive shareholder value and how to communicate that throughout the company.”
Chad Autry, head of the Department of Supply Chain Management and FedEx Corporation Endowed Professor of Supply Chain at Haslam, says this research is a valuable contribution to the Global Supply Chain Institute’s library of approximately 20 white papers.
“The implications of supply chain management on shareholder value is an area that often goes unaddressed,” Autry says. “Best-in-class companies drive down their working capital using the techniques described in this paper so they don’t impede free cash flow through their systems and are able to beat analysts’ expectations for economic profit.”
Issued April 9, “Driving Shareholder Value with your Supply Chain,” is the fourth of the Global Supply Chain Institute’s Strategy Series. It is based on original research including interviews with leading companies, and was co-authored by Dan Pellathy of Grand Valley State University in Michigan. Ted Stank, the Bruce Chair of Excellence in Business at Haslam, served as a contributing editor.