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? Obsolescence/Markdown ? Administrative/Transaction ? Manufacturing ? Distribution Centers ? Inventory 6 169。 1999 Andersen Consulting VALUE THEORY holds that to increase the value of a pany, you must increase cash earnings in excess of its full cost of capital in a sustainable fashion The supply chain must continue to drive shareholder value. 4 169。 1999 Andersen Consulting Logistics expense includes: ? Finished Goods Transportation ? Warehousing ? Order Entry/ Customer Service ? Administration ? Inventory Carrying Cost 18% — North American Annual Total Logistics Cost Change in Percentage — Source: Council of Logistics Management 1997 Annual Conference Proceedings, Logistics Costs and Customer Service Levels (Herbert W. Davis William H. Drumm) The past efforts have not been without considerable rewards. 50% 30% 10% 10% 30% 50% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 %of Sales $/CWT $/CWT = Dollars per hundred weight. 2 169。The Value Proposition of Supply Chain Management 0 169。 1999 Andersen Consulting Manu facturer Tier 2 Suppliers Tier 1 Suppliers Wholesaler or Distributor Retailer or Dealer Consumers – “ The Power of Business to Business Integration” Benchmarking Partners, December 1998 Cost is one of the major drivers to extend the traditional enterprise. 60% of variable costs of an anization are driven by decisions that are external to the anization. 1 169。 1999 Andersen Consulting %%%%%%%%%%%%%%%%TeleSemiconductorPharmaceuticalPackaged GoodsComputerChemicalAppliancesAutomotive Best in Class Average 1 2 Source: Logistics Management, April 1997 Yet, supply chain cost reduction still represents a significant business opportunity …... Supply Chain Spend as a Percentage of Revenues $ 34 $ 37 $ 34 $ 20 $ 15 $ 8 $ 4 $ 10 $ 162 Size of Gap in Billions 3 169。 1999 Andersen Consulting Revenue Costs Working Capital Fixed Capital — Impact of SCM — ? Greater customer service (., higher market share, greater gross margins) ? Lower raw materials and finished goods inventory ? Shorter “ordertocash” cycles Shareholder Value Profitability Invested Capital SCM has contributed to increased shareholder value by impacting traditional value levers. ? Fewer physical assets (., trucks, warehouses, material handling equipment, etc.) ? Lower cost of goods sold, transportation, warehousing, material handling and distribution management costs