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,inventoryholdingcostcanbereducedduetolowerrequirementforsafety,reducingLeadTimereducestheCashConversionCycle.AstheCashConversionCyclemeasureshowlongthecompany’scashistiedtoaccountspayablesandinventoriestillfulfillinganorder;shorteningtheLeadTimedecreasescostofborrowing,andalsoitenablesthecompanytodelivertheproductsorservicessooner;thusthereceivablecollection
periodstartsmanyscholarsworkedonLeadTimecompressioninsupplychainssuchasBeesley(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,higherobsolescencecostrelatedtohigherlevelsofinventoryshouldbetakeninto