A linkage model of supply chain operation and financial performance for economic sustainability of firm

Suk Ho Jin, Suk Jae Jeong, Kyung Sup Kim

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

Although several studies have explored the relationship between the operation and performance of a supply chain (SC), a general SC model cannot deliver the expected financial results at a company-wide level. In this paper, we argue that this cannot guarantee the maximization of a firm's overall value because short-term financial performance metrics do not reflect the risk to businesses and the invested capital. Owing to the varying natures of risk and the capital invested, firms with multiple divisions should assess each division separately, and the results can be compared for decisions concerning the allocation of the firm's capital and resources to maximize the overall value of its businesses. We propose a linkage model to consider operational activities and financial performance simultaneously in a firm's supply chain model. To exhibit the superiority of the proposed model that connects SC operation and financial indicators, we first compare the differences between models for maximizing profit and enterprise-wise economic value added (EVA) as objective functions. To examine uncertainty in the operational and financial parameters of the SC, the results of sensitivity analyses are then reported. Experimental results showed that our model, using the EVA approach, is more effective and superior in terms of maximizing the firm's overall value from the long-term perspective while satisfying the target values for financial ratios set by the firm'sexecutivesandshareholdersforall periods, unlike the results of the general model.

Original languageEnglish
Article number139
JournalSustainability (Switzerland)
Volume9
Issue number1
DOIs
Publication statusPublished - 2017 Jan 1

Fingerprint

Supply chains
Sustainable development
sustainability
supply
firm
Economics
economics
performance
economic value
value added
Industry
guarantee
Profitability
profit
uncertainty
resource
resources
Values

All Science Journal Classification (ASJC) codes

  • Geography, Planning and Development
  • Renewable Energy, Sustainability and the Environment
  • Management, Monitoring, Policy and Law

Cite this

@article{b7e0491ff0964ab6a10966d36199ee2a,
title = "A linkage model of supply chain operation and financial performance for economic sustainability of firm",
abstract = "Although several studies have explored the relationship between the operation and performance of a supply chain (SC), a general SC model cannot deliver the expected financial results at a company-wide level. In this paper, we argue that this cannot guarantee the maximization of a firm's overall value because short-term financial performance metrics do not reflect the risk to businesses and the invested capital. Owing to the varying natures of risk and the capital invested, firms with multiple divisions should assess each division separately, and the results can be compared for decisions concerning the allocation of the firm's capital and resources to maximize the overall value of its businesses. We propose a linkage model to consider operational activities and financial performance simultaneously in a firm's supply chain model. To exhibit the superiority of the proposed model that connects SC operation and financial indicators, we first compare the differences between models for maximizing profit and enterprise-wise economic value added (EVA) as objective functions. To examine uncertainty in the operational and financial parameters of the SC, the results of sensitivity analyses are then reported. Experimental results showed that our model, using the EVA approach, is more effective and superior in terms of maximizing the firm's overall value from the long-term perspective while satisfying the target values for financial ratios set by the firm'sexecutivesandshareholdersforall periods, unlike the results of the general model.",
author = "Jin, {Suk Ho} and Jeong, {Suk Jae} and Kim, {Kyung Sup}",
year = "2017",
month = "1",
day = "1",
doi = "10.3390/su9010139",
language = "English",
volume = "9",
journal = "Sustainability",
issn = "2071-1050",
publisher = "MDPI AG",
number = "1",

}

A linkage model of supply chain operation and financial performance for economic sustainability of firm. / Jin, Suk Ho; Jeong, Suk Jae; Kim, Kyung Sup.

In: Sustainability (Switzerland), Vol. 9, No. 1, 139, 01.01.2017.

Research output: Contribution to journalArticle

TY - JOUR

T1 - A linkage model of supply chain operation and financial performance for economic sustainability of firm

AU - Jin, Suk Ho

AU - Jeong, Suk Jae

AU - Kim, Kyung Sup

PY - 2017/1/1

Y1 - 2017/1/1

N2 - Although several studies have explored the relationship between the operation and performance of a supply chain (SC), a general SC model cannot deliver the expected financial results at a company-wide level. In this paper, we argue that this cannot guarantee the maximization of a firm's overall value because short-term financial performance metrics do not reflect the risk to businesses and the invested capital. Owing to the varying natures of risk and the capital invested, firms with multiple divisions should assess each division separately, and the results can be compared for decisions concerning the allocation of the firm's capital and resources to maximize the overall value of its businesses. We propose a linkage model to consider operational activities and financial performance simultaneously in a firm's supply chain model. To exhibit the superiority of the proposed model that connects SC operation and financial indicators, we first compare the differences between models for maximizing profit and enterprise-wise economic value added (EVA) as objective functions. To examine uncertainty in the operational and financial parameters of the SC, the results of sensitivity analyses are then reported. Experimental results showed that our model, using the EVA approach, is more effective and superior in terms of maximizing the firm's overall value from the long-term perspective while satisfying the target values for financial ratios set by the firm'sexecutivesandshareholdersforall periods, unlike the results of the general model.

AB - Although several studies have explored the relationship between the operation and performance of a supply chain (SC), a general SC model cannot deliver the expected financial results at a company-wide level. In this paper, we argue that this cannot guarantee the maximization of a firm's overall value because short-term financial performance metrics do not reflect the risk to businesses and the invested capital. Owing to the varying natures of risk and the capital invested, firms with multiple divisions should assess each division separately, and the results can be compared for decisions concerning the allocation of the firm's capital and resources to maximize the overall value of its businesses. We propose a linkage model to consider operational activities and financial performance simultaneously in a firm's supply chain model. To exhibit the superiority of the proposed model that connects SC operation and financial indicators, we first compare the differences between models for maximizing profit and enterprise-wise economic value added (EVA) as objective functions. To examine uncertainty in the operational and financial parameters of the SC, the results of sensitivity analyses are then reported. Experimental results showed that our model, using the EVA approach, is more effective and superior in terms of maximizing the firm's overall value from the long-term perspective while satisfying the target values for financial ratios set by the firm'sexecutivesandshareholdersforall periods, unlike the results of the general model.

UR - http://www.scopus.com/inward/record.url?scp=85011072489&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85011072489&partnerID=8YFLogxK

U2 - 10.3390/su9010139

DO - 10.3390/su9010139

M3 - Article

AN - SCOPUS:85011072489

VL - 9

JO - Sustainability

JF - Sustainability

SN - 2071-1050

IS - 1

M1 - 139

ER -