财务管理外文文献.docx
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财务管理外文文献.docx
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财务管理外文文献
ProjectSchedulingintheFinancialManagementofSupplyChains(excerpts)
Author:
DurukanKalyoncu,Guldane
AcceptanceDate:
June2012
Inliterature,numerouspublicationsonmanagingsupplychainsexistmostofwhichhasfocusedonthephysicalaspectsofthesupplychains.Althoughthebottomlineisveryimportantformanagers,therearealimitednumberofpublicationsthatcombinethefinancialmanagementofsupplychainswiththephysicalmanagement。
Thosestudiesaddressthesupplychainfinancialperformancemeasurementwithdifferentapproachesandmeasures;oneofwhichhasbeenCashConversionCycle(CCC)。
CashConversionCycleisametricthatmeasuresthetimeelapsedfromthepaymenttothesupplierstillthereceiptofmoneyfromthecustomers。
Thusitisatwodimensionalconceptthatincorporatestimeandfinancialconsiderationssimultaneously.Inthatrespectitenablescompaniestointegratetheoperationalschedulingwiththefinancialscheduling.
WhenthecomponentsoftheCCCareexaminedseparately;theAveragePayableandAverageReceivableTermsarerelatedtothecompanyfinancialpolicyandcontracttermsbetweensupplychainpartners。
Ontheotherhand,InventoryConversionPerioddependsonthefirm’sinventorypolicy。
Figure1assumesthattheinventoryisinretailer’swarehouseonthesamedaywithorderplacementtothemanufacturer.Alsoitassumesthatthereisnooutboundtransportationtimesoonthedaythatinventoryleavestheretailer'swarehouseitisreceivedbythecustomerandAccountsReceivableisissued.AccordingtothoseassumptionsInventoryConversionPerioddependsontheoptimalorderingquantity。
Inthesensethat,CCCisembracingAccountPayable,AccountReceivableandInventoryConversionPeriod;firsttwoarerelatedtotimingofcashinflowsandoutflowsandthethirdisrelatedtofirm’soperationspolicy,itisabridgingmeasurementbetweenoperationalandfinancialplanning。
Also,sinceCCCisthetimepassedfromcashoutflowtocashinflow,itmeasureshowlongthefirmneedsoutsidefinancing.Thusmanyscholars(FarrisandHutchison(2002),Soenen(1993),BintiMohamadandBintiMohdSaad(2010))statedthattheshorterCCCthebetterthecompanyfinancesare.However,therearesomecomplicationsregardingtheCashConversionCyclemetricapproachinfinancialmanagementofsupplychains.Eventhoughsupplychainpartnersputconsiderableeffortstohavecontroloverthestreamofcashinflowbymanagingpaymentterms,thesecashinflowsaremostlyprobabilisticduetounpredictableconditionsofthedownstreamplayers.Ontheotherhandcashoutflowstotheupperlayersofthechainisdeterministic;howeverthisdependsonthecashavailableatthetime。
Figure2depictsthe“downstream"and“upstream”supplychainpartners.
UpstreamPartnersDownstreamPartnersVendorManufacturerDistributorRetailerCustomer.SupplyChainLevelsAsseenfromtheGuptaandDutta'sstudy(2011),theearlypaymentofthedebtsresultinthelowestcashoutflowatthecurrentperiod,yetitdoesnotnecessarilyresultinthelowestpresentvalueofthecashoutflow。
Thusmanagingcashflowsinanefficientwayisnotaneasytasktakingintoaccounttheprobabilisticinflowsinadditiontothetradeoffsbetweenpromptpaymentofthedebt,whichreducestheamounttobepaid,andlatepayment,whichincreasestheinterestearnedoncashdeposits.ThosefinancialconsiderationsbecomeevenmorecomplicatedforsupplychainswithlongLeadTimes.SoLeadTimereductionhasahugestrategicimportanceforsuccessfuloperationofthosechains。
Nevertheless,managingLeadTime,whichismostlydeterministic,isnotaneasytaskeitherbecauseitaffectsthecashflowstreamindirectorindirectways。
Indirectly,LeadTimereductionaffectsthecashflowsbyimprovingcustomerserviceandresponsivenesstodemandshifts。
Firstofall,LeadTimecompressionisacostlyprocessincludinglaborcostandadditionaltransportationcost.Second,inventoryholdingcostcanbereducedduetolowerrequirementforsafetystock。
Third,reducingLeadTimereducestheCashConversionCycle.AstheCashConversionCyclemeasureshowlongthecompany’scashistiedtoaccountspayablesandinventoriestillfulfillinganorder;shorteningtheLeadTimedecreasescostofborrowing,andalsoitenablesthecompanytodelivertheproductsorservicessooner;thusthereceivablecollection
periodstartsearlier.AlthoughmanyscholarsworkedonLeadTimecompressioninsupplychainssuchasBeesley(1996)andTowill(1996)theybothignoretheinvestmentcostsneededtoachieveareductioninLeadTime.AlsoneitherBeesleynorTowilltouchthecostofborrowingissue,butrathertheyemphasizetheindirectfinancialeffectsoftimereduction,suchasfastresponsetomarketandenablingamoreaccuratedemandforecast.Whatismore,mostofthesupplychainfinancialmodelingarticlesarenottakingintoaccountthetimeflexibilityfactor。
Asknown,companiescanreduceLeadTimesinexchangeforacost。
Sowhilestudyingthefinancialaspectsofthesupplychainthisflexibilityshouldbetakenintoaccount。
WhereasBen-DayaandRaouf’s(1994)studyfocusesontheLeadTimeflexibilityissuebystudyingthecostsofLeadTimereductionalongwiththeeffectsontheinventorypolicysuchasreorderpointandoptimalorderquantitywhichaffectsorderingandinventoryholdingcosts,theirstudydoesn'tmodelawholesupplychainwherethetransactionswithupstreamplayersaretakenintoaccount。
Tosumup,inliteraturethereislackofacomprehensiveapproachforthefinancialmanagementofthesupplychains。
Alsotoday’sincreasinglydynamiccompaniescannotbemanagedwithstaticmodels。
Thus,predictiveintegratedmodelsthattakeintoaccountinstablefinancialmarketsandalsocapableofensuringrequiredliquiditywhileprovidingtimelyandefficientresponsetoordersiscrucial.So,withthepurposeofbuildingacomprehensiveapproachthatembracestimeandmoneyconsiderationssimultaneously,ourstudyusesCashConversionCycleasthedecisionvariablewithrespecttowhichweassesstheFinancialPerformance.Byusingproject-schedulingmethodsintimingoftheoperationsandpayments,ourstudyaimstofindtheoptimalCashConversionCyclethatgeneratesthehighestaccumulatedcashattheendoftheone-yearperiod.
However,inourmodelcashinflowisprobabilisticthuswedon’thavecontroloveritseffectontheoptimalCCC.AsaresultsomeofthevaluesthatarechangedinordertofindtheoptimalCCCareorderquantity,reorderpointandtheLeadTimeandPayableterm.Soourstudystartswithanalyzingtheissuesaffectingfinancialmanagementofsupplychainsandthencoverstherelatedpreviousworkthatthemodelisbuiltupon.InthenextissuesaffectingthefinancialmanagementinSCarediscussed.InsectionIIIreviewoftheliteratureispresentedandinSectionIVthemathematicalmodelispresentedwiththeobjectiveofmaximizingtheaccumulatednetcashattheendofaone—yearperiod。
ThemodelconsiderstimingofthecashinflowandoutflowsandLeadTimecrashingcostssimultaneously.Finallyillustrativeexampleandsensitivityanalysisarepresentedfollowedbytheconclusionpartsummarizingfindingsofthestudy。
Bullwhipeffect:
Itisoneofmostsignificantreasonsofsupplychaininefficiency.Itistheamplificationofdemandvarianceasthedemandinformationpassesfromthelowerlevels(customers)ofthesupplychaintotheupperlevels(manufacturerslevel).Itmaybeseverelydestructiveforthefinancialmanagementofthesupplychainasawhole,particularlytheupperlevelsaretheonesmostaffected.Eachpartner,knowingthattheforecaststheyretrievefromthelowerpartnersarenotonehundredpercentaccurate,buildssafetystock。
Thustheorderstotheupperlevelsincreaseasmoreandmoresafetystockisbuiltinthesystem,whichleadstheuppertierstohaveanimpressionthatthedemandismorethanitsactuallevel。
SolongerLeadTimesresultinhighersafetystocklevelswhichinturnleadsbiggeramplificationsintheupperlevelsasknownastheBullwhipEffect。
Demandforecast:
Formaketostockinventorysystemsdemandforecastisthemostimportantaspectofproductionmanagement。
Ascycletimeincreases,forecastshavetobemadeforfartherperiods,whichinturnincreasestheforecasterrors。
Andwhentheaccuracyoftheforecastdecreases,firmsareforcedtokeepmoresafetyinventoryandthusincurhigherinventoryholdingcost.Ontheflipsideofthecoin,evenifafirmdecidestokeeplowinventorylevels,insuchablurryenvironmentthereishighprobabilitythatitfallsshortinrespondingtocustomerorderswhichhurtstheprofitsasmuchastheinventoryholdingcosts。
Thus,byshorteningthesupplychaincycletimetheentirechainbenefitsfromaccuratedemandforecast.
Costofborrowing/investing:
Costofborrowingisanotherkeyaspectofthefinancialmanagementofthesupplychain.Sincemoreinterestischargedwiththetimeelapsedovertheissuedateofthedebt,firmsshouldensurecollectionofmoneyfromthecustomersasearlyaspossibleinordertopaythedebts.Apparently,collectionperiod'sprimarydeterminantisthecycletimesincethecustomersusuallyarenotwillingtopaybeforetheyreceivetheproductunlesssomeincentivessuchasdiscountsareofferedinadvance.
Inventoryholdingcost:
AccordingtoBen-DayaandRaouf’s(1994)economicorderquantity(EOQ)model,asLeadTimeincreases,optimalorderquantityQ*increases;thereforetheaverageinventoryheldbythefirmovertheyear,andcorrespondingholdingcostincrease.Apartfromthephysicalcostofinventoryholding,higherobsolescencecostrelatedtohigherlevelsofinventorys
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