The relationships between supply chain and firm performance

Abstract

PurposeSupply chains directly influence the differentiation and cost of a firm's products and services and its exposure to risk. The purpose of this paper is to use secondary financial data to explore the relationship between supply chain and firm performance by developing a unified proxy for supply chain performance.Design/methodology/approachEstablished econometric techniques were used to validate the proxy using a sample frame comprising the annual reports of 117 publicly traded UK manufacturing firms from the period 1995 to 2004.FindingsIncreases in change in the proxy lead to an increase in change in the rate of return on capital employed and a change in the rate of cash‐to‐cash cycle length, both of which are traditional measures of improved supply chain management. Moreover, as the rate of change of the proxy increases, so does enterprise value at a level that is statistically significant, indicating that improving supply chain management practices has a positive impact upon improved firm performance.Research limitations/implicationsAs annual financial results were used the analysis is at a high level so there is a lack of resolution in identifying discrete causes. The use of annual financial results also means that the research can only take yearly snapshots of firm performance.Practical implicationsThe paper indicates that the supply chain is an enabler, not an impediment, to superior organisational performance.Originality/valueThe originality and value of this paper is that it develops a proxy to explain the relationships between supply chain and an organisation's financial performance taking into account the three imperatives of profitability, liquidity, and productivity.