Comments on: Jim Varilek on Supply Chain http://www.esourcingforum.com/archives/2007/01/30/jim-varilek-on-supply-chain/ The source of information and best practices in strategic sourcing. Fri, 09 Jan 2009 21:53:28 +0000 http://wordpress.org/?v=2.6.2 By: Mark Usher http://www.esourcingforum.com/archives/2007/01/30/jim-varilek-on-supply-chain/#comment-4357 Mark Usher Tue, 30 Jan 2007 16:51:05 +0000 http://www.esourcingforum.com/?p=364#comment-4357 Yes, nice article. In addition to linking supply chain optimization to a "x% cost reduction" I would add that to really talk in the language of the CEO and CFO we should be linking procurement and supply chain directly to metrics such as earnings, cash flow,ROIC, and ultimately enterprise value. Personally I think free cash flow FCF (=cash flow from operations + invested capital) represents one of the most unambiguous linkages to enterprise value. Using free cash flow also allows avery granular analysis of how procurement and supply chain can impact enterprise value through the FCF components of revenue (great quality and customer service), cost of sales (direct product costs), operating expenses (indirect materials), working capital (inventory) and fixed assets (capital equipment TCO). The end game is "board level scorecard" that tracks how supply chain is moving each of these enterprise value drivers. The other beauty of this approach is that the specific financial metrics of EPS, cash and ROIC all fall out of the FCF calculation. Yes, nice article. In addition to linking supply chain optimization to a “x% cost reduction” I would add that to really talk in the language of the CEO and CFO we should be linking procurement and supply chain directly to metrics such as earnings, cash flow,ROIC, and ultimately enterprise value.

Personally I think free cash flow FCF (=cash flow from operations + invested capital) represents one of the most unambiguous linkages to enterprise value. Using free cash flow also allows avery granular analysis of how procurement and supply chain can impact enterprise value through the FCF components of revenue (great quality and customer service), cost of sales (direct product costs), operating expenses (indirect materials), working capital (inventory) and fixed assets (capital equipment TCO). The end game is “board level scorecard” that tracks how supply chain is moving each of these enterprise value drivers. The other beauty of this approach is that the specific financial metrics of EPS, cash and ROIC all fall out of the FCF calculation.

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