Team 2_03 Chap 5

# 8 transaction cost and revenue quantification value

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: gure 5.8) Transaction cost and revenue quantification ◦ Value added by logistics Channel ◦ satisfaction metrics How logistics cost and service are Revenue – Cost Issues The Revenue-Cost Issue Conflict between goals of top management and SCM can be resolved by converting cost savings into equivalent revenue increases The Revenue – Cost Savings Connection To transform cost reductions into equivalen revenue increases, use: Profit = Revenue – Costs Where Cost = (X%)(Revenue) Then Profit=Revenue–(X%) (Revenue)=Revenue(1-X%) Where Revenue = Cost Saving (or Profit)/Profit Margin Sales 100/ .10 = 1,000 Revenue =Equivalent of Supply Chain Cost Savings CLGN 2010 (000) Percentage Sales Equivalent for Cost Savings of: \$200,000 Sales 150,000 100.0 Total Cost 139,500 93.0 2,657,143 Net Profit 10,500 7.0 200,000 *\$200,000 cost saving / .07 profit margin **\$500,000 cost saving / .07 profit margin ^\$1,000,000 cost saving / .07 profit margin \$500,000 \$1,000,000 \$2,857,143 \$7,142,857 \$14,285,71 * ** 4^ 6,642,857 13,285,714 500,000 1,000,000 Lower profit margin = higher the revenue equivalent Logistics cost savings have &lt; revenue impact for organizations with low profit Equivalent Sales with Varying Profit Margins margins Profit Margins 20% 10% 5% 1% Sales \$50,000 \$100,000 \$200,000 \$1,000,000 Total Cost 40,000 90,000 190,000 990,000 Cost saving / profit 10,000 10,000 10,000 10,000 The Supply Chain Financial Impact The absolute size of the profit must ne considered in relation to stockholders net investment Example: Company A makes a profit of \$1 million, and company B makes a profit of \$100 million. It appears that company B is a better investment, however, if A has a net worth of \$10 million and B \$10 billion, the return on Return on Assets (ROA) – a financial performance metric that is used as a benchmark to compare management and organization performance to that of other organization in the same industry or similar industries The more efficient and productive the supply chain, the greater the profit potential of the organization, and vice versa. Supply Chain Impact on Return on Ass...
View Full Document

## This document was uploaded on 02/14/2014 for the course MKT 3359 at Texas Tech.

Ask a homework question - tutors are online