The Ledger

Creating Value with Nonfinancials

It is so important in any organization that management accountants understand their intangibles and their relationship to value creation. In today’s business climate, it is also imperative that management accountants understand the supposed dichotomy between non-financial metrics and financial value. The adoption of integrated reporting and sustainability metrics has generally lagged in the United States, and it can be difficult to see beyond financial accounting to the real value being created in organizations. A Japanese pharmaceuticals company, Eisai Co., Ltd., has been successful in showing a clear link between intangibles and value, leading them to long-term value creation.

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Applying Zero-Based Budgeting To Your Supply Chain

Companies across industries are stuck in a downward spiral with their supply chain cost reduction initiatives. Even with all of their efforts, they see minimal or no changes in their COGS-to-revenue ratios over time. At least half of many companies’ costs typically reside in the cost of goods sold (COGS), yet most are seeing little sustainable impact on their bottom lines. Companies can find a way to break this costly cycle by applying zero-based principles across their supply chain (“zero-based supply chain” or ZBSC) and integrating this approach with their continuous improvement programs. ZBSC approaches can trigger COGS savings of up to 10% and a COGS-to-revenue ratio of up to 800 basis points, Accenture says.

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Discovering Value in Your Supply Chain: Costs vs. Customers

Cost cutting initiatives are top of mind for any CFO, but when it comes to the supply chain, focusing on customer experience delivers bigger bottom-line results. Of course, it all depends on how you proceed. If, as your primary objective, you search for ways to spend as little as possible while satisfying your customer, it’s likely you’ll fail on both counts. On the other hand, if you devise a strategy to create win-win plans with your customer in mind and/or in conjunction with your customer you might just find opportunities for dramatic supply chain improvement and increased profits for each member of the supply chain.

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Cash-to-Cash Cycle Time Matters

The faster you can turn inventory into cash, the healthier your company will be.

“The primary goal of pretty much any organization that sells goods or services is to make money, and the way to do that is to turn inventory into cash. Building up inventory or delivering a service requires a company to invest in the raw materials or people first, assuming they will earn that money back – and then some – later. The faster your company recovers its investment, the more cash it will have on hand to make and deliver more product and make more money.”

Read More at CFO Magazine >