Creating Greater Shareholder Value from Supply Chain Initiatives

It is critical for managers to identify the supply chain initiatives that create the most shareholder value. This paper presents a practical, five-step, framework to help managers address this need, as well as link supply chain strategies and investments to shareholder value by utilizing the Economic Value Added (EVA) concept. EVA can be affected by four major value drivers: revenue growth, cost efficiency, fixed asset utilization, and cash-to- cash cycle time. We conducted a large-scale empirical study in Europe that used the cash-to-cash cycle time as the key metric. The results indicate that although certain companies and industries were able to reduce their cash- to-cash cycle times, the overall improvements were only marginal. Our results show this may be because the most influential party in the supply chain optimizes its cash-to-cash cycle time performance at the expense of other supply chain partners, not fulfilling the full financial potential of supply chain management.