Essentials of Supply Chain Management by Michael H. Hugos

Author:Michael H. Hugos
Language: eng
Format: epub
ISBN: 9781119464464
Publisher: John Wiley & Sons, Inc.
Published: 2018-03-05T00:00:00+00:00

Internal Efficiency Metrics

Internal efficiency refers to the ability of a company or a supply chain to use its assets as profitably as possible. Assets include anything of tangible value such as plant, equipment, inventory, and cash. Some popular measures of internal efficiency are:

Inventory value

Inventory turns

Return on sales

Cash‐to‐cash cycle time

Inventory Value

This should be measured both at a point in time and also as an average over time. The major asset involved in a supply chain is the inventory contained throughout the length of the chain. Supply chains and the companies that make them up are always looking for ways to reduce inventory while still delivering high levels of customer service. This means trying to match inventory availability (supply) with sales (demand) and not have excess inventory left over. The only time a company would want to let inventory exceed sales is in a growth market where the value of the inventory will increase. However, markets change and as a rule it is best to avoid excess inventory.

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