Discuss the Supply Chain Financial Impact on an organization
A major financial objective for any organization is to produce a satisfactory return for stockholders. This requires the generation of sufficient profit in relation to the size of the stockholders' investment to ensure that investors will maintain confidence in the organization's ability to manage its investments. Low returns over time will see investors seek alternative uses for their capital. High returns over time, however, will buoy investor confidence to maintain their investments with the organization.
The absolute size of the profit must be considered in relation to the stockholders' net investment, or net worth. For example, if Company A makes a profit of $1 million and Company B makes a profit of $100 million, it would appear that Company B would be a better investment. However, if A has a net worth of $10 million and B $10 billion, the return on net worth for a stockholder in Company A is 10 percent ($1 million/$10 million) and for Company B it is 1 percent ($100 million/$10 billion).
An organization's financial performance is also judged by the profit it generates in relationship to the assets utilized, or return on assets (ROA). An organization's return on assets is a financial performance metric that is used as a benchmark to compare management and organization performance to that of other organizations in the same industry or similar industries. As with return on net worth, return on assets is dependent on the level of profits for the organization.
The supply chain plays a critical role in determining the level of profitability in an organization. The more efficient and productive the supply chain, the greater the profit potential of the organization. Conversely, the less efficient and less productive, the higher the supply chain costs and the lower the profitability.
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