Interrelating operational and financial performance measurements in inventory control

Margarita Protopappa-Sieke and Ralf W. Seifert

European Journal of Operational Research, 2010, vol. 204, issue 3, 439-448

Abstract: Financial supply chain management and working capital management are increasingly receiving attention as important avenues to increase profitability in supply chains. By actively managing payment terms and working capital requirements, managers can influence financial performance and achieve significant cost savings. However, measures to improve financial performance implicitly restrict and influence operational performance. In our research we elaborate on the benefits of equally considering both operational and financial aspects in decision-making for the physical and financial supply chain. We develop a mathematical model that determines the optimal purchasing order quantity under working capital restrictions and payment delays. We analyze the trade-offs between the most commonly used financial and operational measurements, such as service level, return on investment, profit margin and inventory level. Our results demonstrate the significance of payment delays: Increases/decreases in the upstream/downstream payment delays favor the system's operations by decreasing operational costs. Moreover increases in the working capital employed in the system decrease the total operational cost, increase the total financial cost and lower the return on working capital investment.

Keywords: Supply; chain; management; Financial; supply; chain; Working; capital; Payment; delays (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377-2217(09)00825-X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:204:y:2010:i:3:p:439-448

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().