A Linkage Model of Supply Chain Operation and Financial Performance for Economic Sustainability of Firm

Suk Ho Jin, Suk Jae Jeong and Kyung Sup Kim
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Suk Ho Jin: Department of Information and Industrial and Information Engineering, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul 03722, Korea
Suk Jae Jeong: Business School, Kwangwoon University, 20 Kwangwoon-ro, Nowon-gu, Seoul 01897, Korea
Kyung Sup Kim: Department of Information and Industrial and Information Engineering, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul 03722, Korea

Sustainability, 2017, vol. 9, issue 1, 1-23

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’s executives and shareholders for all periods, unlike the results of the general model.

Keywords: supply chain operation model; financial supply chain model; firm value maximization; economic sustainability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:9:y:2017:i:1:p:139-:d:88250

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