IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v9y2017i1p139-d88250.html
   My bibliography  Save this article

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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Suk Ho Jin & Suk Jae Jeong & Kyung Sup Kim, 2017. "A Linkage Model of Supply Chain Operation and Financial Performance for Economic Sustainability of Firm," Sustainability, MDPI, vol. 9(1), pages 1-23, January.
    • Handle: RePEc:gam:jsusta:v:9:y:2017:i:1:p:139-:d:88250
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/9/1/139/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/9/1/139/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Eskandarpour, Majid & Dejax, Pierre & Miemczyk, Joe & Péton, Olivier, 2015. "Sustainable supply chain network design: An optimization-oriented review," Omega, Elsevier, vol. 54(C), pages 11-32.
    2. Chen, Lujie & Olhager, Jan & Tang, Ou, 2014. "Manufacturing facility location and sustainability: A literature review and research agenda," International Journal of Production Economics, Elsevier, vol. 149(C), pages 154-163.
    3. Pengzhong Li (ed.), 2011. "Supply Chain Management," Books, IntechOpen, number 957.
    4. Guillen, Gonzalo & Badell, Mariana & Puigjaner, Luis, 2007. "A holistic framework for short-term supply chain management integrating production and corporate financial planning," International Journal of Production Economics, Elsevier, vol. 106(1), pages 288-306, March.
    5. Beamon, Benita M., 1998. "Supply chain design and analysis:: Models and methods," International Journal of Production Economics, Elsevier, vol. 55(3), pages 281-294, August.
    6. Kevin B. Hendricks & Vinod R. Singhal, 2005. "Association Between Supply Chain Glitches and Operating Performance," Management Science, INFORMS, vol. 51(5), pages 695-711, May.
    7. Tognetti, Alice & Grosse-Ruyken, Pan Theo & Wagner, Stephan M., 2015. "Green supply chain network optimization and the trade-off between environmental and economic objectives," International Journal of Production Economics, Elsevier, vol. 170(PB), pages 385-392.
    8. Longinidis, Pantelis & Georgiadis, Michael C., 2011. "Integration of financial statement analysis in the optimal design of supply chain networks under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 129(2), pages 262-276, February.
    9. Gaur, Jighyasu & Amini, Mehdi & Rao, A.K., 2017. "Closed-loop supply chain configuration for new and reconditioned products: An integrated optimization model," Omega, Elsevier, vol. 66(PB), pages 212-223.
    10. Hong Chen & Murray Z. Frank & Owen Q. Wu, 2005. "What Actually Happened to the Inventories of American Companies Between 1981 and 2000?," Management Science, INFORMS, vol. 51(7), pages 1015-1031, July.
    11. Chang, Woojung & Ellinger, Alexander E. & Kim, Kyoungmi (Kate) & Franke, George R., 2016. "Supply chain integration and firm financial performance: A meta-analysis of positional advantage mediation and moderating factors," European Management Journal, Elsevier, vol. 34(3), pages 282-295.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Edward Kassem & Oldrich Trenz, 2020. "Automated Sustainability Assessment System for Small and Medium Enterprises Reporting," Sustainability, MDPI, vol. 12(14), pages 1-23, July.
    2. Nader, Joelle & El-Khalil, Raed & Nassar, Elma & Hong, Paul, 2022. "Pandemic planning, sustainability practices, and organizational performance: An empirical investigation of global manufacturing firms," International Journal of Production Economics, Elsevier, vol. 246(C).
    3. Saswati Tripathi & Bijoy Talukder, 2023. "Supply Chain Performance and Profitability in Indian Automobile Industry: Evidence of Segmental Difference," Global Business Review, International Management Institute, vol. 24(2), pages 371-392, April.
    4. Carlos Lassala & Andreea Apetrei & Juan Sapena, 2017. "Sustainability Matter and Financial Performance of Companies," Sustainability, MDPI, vol. 9(9), pages 1-16, August.
    5. Seock-Jin Hong & Hossein Najmi, 2020. "The Relationships between Supply Chain Capability and Shareholder Value Using Financial Performance Indicators," Sustainability, MDPI, vol. 12(8), pages 1-16, April.
    6. Miloš Arsić & Zoran Jovanović & Radoljub Tomić & Nena Tomović & Siniša Arsić & Ištvan Bodolo, 2020. "Impact of Logistics Capacity on Economic Sustainability of SMEs," Sustainability, MDPI, vol. 12(5), pages 1-30, March.
    7. Antonio K. W. Lau & Stacy H. N. Lee & Sojin Jung, 2018. "The Role of the Institutional Environment in the Relationship between CSR and Operational Performance: An Empirical Study in Korean Manufacturing Industries," Sustainability, MDPI, vol. 10(3), pages 1-17, March.
    8. Orlando Durán & Paulo Sergio Afonso & Paulo Andrés Durán, 2019. "Spare Parts Cost Management for Long-Term Economic Sustainability: Using Fuzzy Activity Based LCC," Sustainability, MDPI, vol. 11(7), pages 1-14, March.
    9. Hong, Seock-Jin & Farris, Martin Theodore & Pohlen, Terrance L. & Idug, Yavuz, 2023. "Exploring the impact of working capital in the U.S. aviation industry for profitability and shareholder value," Transport Policy, Elsevier, vol. 144(C), pages 90-101.
    10. Changqing Luo & Siyuan Fan & Qi Zhang, 2017. "Investigating the Influence of Green Credit on Operational Efficiency and Financial Performance Based on Hybrid Econometric Models," IJFS, MDPI, vol. 5(4), pages 1-19, November.
    11. Sachin S. Kamble & Angappa Gunasekaran & Nachiappan Subramanian & Abhijeet Ghadge & Amine Belhadi & Mani Venkatesh, 2023. "Blockchain technology’s impact on supply chain integration and sustainable supply chain performance: evidence from the automotive industry," Annals of Operations Research, Springer, vol. 327(1), pages 575-600, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jahani, Hamed & Abbasi, Babak & Sheu, Jiuh-Biing & Klibi, Walid, 2024. "Supply chain network design with financial considerations: A comprehensive review," European Journal of Operational Research, Elsevier, vol. 312(3), pages 799-839.
    2. Saeedeh Anvari & Metin Turkay, 2017. "The facility location problem from the perspective of triple bottom line accounting of sustainability," International Journal of Production Research, Taylor & Francis Journals, vol. 55(21), pages 6266-6287, November.
    3. Bendig, David & Brettel, Malte & Downar, Benedikt, 2018. "Inventory component volatility and its relation to returns," International Journal of Production Economics, Elsevier, vol. 200(C), pages 37-49.
    4. Bichescu, Bogdan & Raturi, Amitabh, 2015. "The antecedents and consequences of plant closing announcements," International Journal of Production Economics, Elsevier, vol. 168(C), pages 197-210.
    5. Hong Chen & Murray Z. Frank & Owen Q. Wu, 2007. "U.S. Retail and Wholesale Inventory Performance from 1981 to 2004," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 430-456, April.
    6. Faranak Emtehani & Nasim Nahavandi & Farimah Mokhatab Rafiei, 2021. "A joint inventory–finance model for coordinating a capital-constrained supply chain with financing limitations," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-39, December.
    7. Martins, C. L. & Melo, Teresa & Pato, Margarida Vaz, 2016. "Redesigning a food bank supply chain network, Part I: Background and mathematical formulation," Technical Reports on Logistics of the Saarland Business School 10, Saarland University of Applied Sciences (htw saar), Saarland Business School.
    8. Youcef MECHOUAR & V Hovelaque & C Gaigné, 2021. "Effect of raw material substitution on the facility location decision under a carbon tax policy," Post-Print hal-04155066, HAL.
    9. Van Engeland, Jens & Beliën, Jeroen & De Boeck, Liesje & De Jaeger, Simon, 2020. "Literature review: Strategic network optimization models in waste reverse supply chains," Omega, Elsevier, vol. 91(C).
    10. Demeter, Krisztina & Golini, Ruggero, 2014. "Inventory configurations and drivers: An international study of assembling industries," International Journal of Production Economics, Elsevier, vol. 157(C), pages 62-73.
    11. Gaigné, C. & Hovelaque, V. & Mechouar, Y., 2020. "Carbon tax and sustainable facility location: The role of production technology," International Journal of Production Economics, Elsevier, vol. 224(C).
    12. Aleksander Banasik & Jacqueline M. Bloemhof-Ruwaard & Argyris Kanellopoulos & G. D. H. Claassen & Jack G. A. J. Vorst, 2018. "Multi-criteria decision making approaches for green supply chains: a review," Flexible Services and Manufacturing Journal, Springer, vol. 30(3), pages 366-396, September.
    13. Jahani, Hamed & Abbasi, Babak & Alavifard, Farzad & Talluri, Srinivas, 2018. "Supply chain network redesign with demand and price uncertainty," International Journal of Production Economics, Elsevier, vol. 205(C), pages 287-312.
    14. Tang, Christopher S. & Davarzani, Hoda & Sarkis, Joseph, 2015. "Quantitative models for managing supply chain risks: A reviewAuthor-Name: Fahimnia, Behnam," European Journal of Operational Research, Elsevier, vol. 247(1), pages 1-15.
    15. Guo, Yuhan & Yu, Junyu & Allaoui, Hamid & Choudhary, Alok, 2022. "Lateral collaboration with cost-sharing in sustainable supply chain optimisation: A combinatorial framework," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 157(C).
    16. Sebastian Steinker & Mario Pesch & Kai Hoberg, 2016. "Inventory management under financial distress: an empirical analysis," International Journal of Production Research, Taylor & Francis Journals, vol. 54(17), pages 5182-5207, September.
    17. Weihua Liu & Enze Bai & Liwei Liu & Wanying Wei, 2017. "A Framework of Sustainable Service Supply Chain Management: A Literature Review and Research Agenda," Sustainability, MDPI, vol. 9(3), pages 1-25, March.
    18. Gérard P. Cachon & Marcelo Olivares, 2010. "Drivers of Finished-Goods Inventory in the U.S. Automobile Industry," Management Science, INFORMS, vol. 56(1), pages 202-216, January.
    19. Sergey Rumyantsev & Serguei Netessine, 2007. "What Can Be Learned from Classical Inventory Models? A Cross-Industry Exploratory Investigation," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 409-429, April.
    20. Konur, Dinçer, 2017. "Non-collaborative emission targets joining and quantity flow decisions in a Stackelberg setting," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 105(C), pages 60-82.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:9:y:2017:i:1:p:139-:d:88250. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.