Summary

The amount of working capital, which normally increases and decreases with the level of sales, is something that financial managers pay close attention to. A corporation that has insufficient working capital may find itself in a difficult situation where it is unable to pay its debts or seize valuable possibilities. Yet, excessive working capital lowers profitability because it must be financed in some way, typically through interest-bearing loans.

Many people who use financial statements to learn more about businesses have noticed that the traditional balance sheet is unable to accurately reflect the value and potential profitability of intangible assets like human capital and goodwill (the figure only includes intangibles that were owned by the acquiree at the time of the acquisition). The fact that intangibles aren’t on the balance sheet is especially important for knowledge-intensive businesses, whose most valuable assets may be their knowledge, intellectual property, brand value, and connections with clients. In order to figure out how much a company is really worth, managers and investors need to look beyond the physical assets listed on the balance sheet, such as buildings, machinery, and cash.

Companies seeking to increase return on invested capital (ROIC) should use supply chain economics to respond to three crucial customer-related concerns.

1. How do we sell things? Is it possible to simplify stock-keeping units (SKUs) and get rid of complexity, expenses, and assets?
2. Who do we sell to, second? Do we have the appropriate market focus? Are our supply chain management strategies focused on areas where the business may profit from them? There may be some sectors that are relatively unproductive when profitability is broken down by client, region, and channel.
3. How can we deliver our offerings in the best way? Are our service policies and infrastructure performing their tasks effectively?

Customer segmentation should be a top priority for supply chain leaders. Knowing what customers desire can help us determine which items will best meet their needs. Then, supply chain managers can set various service standards for various clients and goods.