1、Interrelating operational and nancial performance measurements in inventory control Ralf W. Seifert Financial supply chain management and working capital management are increasingly receiving attention as important avenues to increase profitability in supply chains. By actively managing payment term
2、s and working capital requirements, managers can influence financial performance and achieve significant cost savings. However, measures to improve financial performance implicitly restrict and influence operational performance. In our research we elaborate on the benefits of equally considering bot
3、h operational and financial aspects in decision-making for the physical and financial supply chain. We develop a mathematical model that determines the optimal purchasing order quantity under working capital restrictions and payment delays. We analyze the trade-offs between the most commonly used fi
4、nancial and operational measurements, such as service level, return on investment, profit margin and inventory level. Our results demonstrate the significance of payment delays: Increases/decreases in the upstream/downstream payment delays favor the systems operations by decreasing operational costs
5、. Moreover increases in the working capital employed in the system decrease the total operational cost, increase the total financial cost and lower the return on working capital investment. 1. Introduction Financial supply chain management and working capital management are increasingly recognized a
6、s important means to increase profitability in a supply chain. The physical product flow has long been addressed by researchers and practitioners. However, now companies have identified the financial side of the supply chain as a promising area for improvements. Prominent examples of companies that
7、have integrated, to some extent, financial and physical flows include Intel, GE and Deutz. Intel advocates the necessity of a transparent view of supply chain information, which covers both the flow of physical goods and the ultimate financial settlement (Intel Corporation, 2007). Along the same lin
8、es, GE saved 12% of their total accounts payable by using an electronic invoice system (Hausman, 2005). This new tool improved GEs ability to forecast cash flow requirements and to perform financial flow and information flow tasks at the same time. This trend is confirmed in Europe as well, where De
9、utz, a German motor manufacturer, optimized their inventory levels, accounts payables, accounts receivables and payment delays in order to overcome high working capital levels and high operating costs, (Bernhard, 2008). However, the interdependency of financial flows and operational flows is rarely
10、recognized and decisions are often made based on other criteria. Operations managers decide from an operational point of view concerning inventory, service levels or capacity needs to drive financial performance in terms of profit, working capital requirements and return on investment (Fig. 1). At t
11、he same time, financial managers make partially arbitrary decisions concerning ranges of desired financial performance and thereby inevitably come to constraint operational performance. The trade-off between operational decisions and financial decisions is not explicitly tackled by the current pract
12、ices as companies are not always able to predict the outcome of a decision on both the operational view and financial view. For example, efforts to improve working capital position might have counterproductive outcomes: overemphasizing a decrease of accounts payables can lead to increased supplier p
13、rices and thus, excess working capital requirements (Reason, 2005). In addition, most companies might improve their overall days of working capital needs, but few will succeed in ameliorating their receivables and inventory results. Academics and practitioners agree that more than ever in todays accelerated business environment, the convergence of the physical supply chain and the financial supply chain can enhance cash flow predictability, reduce risk-related costs and improve working capital. By optimizing the
