Supply chain professionals must show how their solutions provide answers to these questions if they are to move SCM from the backroom to the boardroom. The good news is that many SCM solutions do provide answers to these questions because of their effect on the key performance drivers. The impact on the other components of profitability and on the growth and capital utilization drivers often is not quantified. Exhibit 1 illustrates SCM's potential impact on the three drivers of financial performance and, in doing so, provides answers to the CFO's key questions. SCM's Impact on Overall Financial Performance Economic profit is a useful metric for measuring the impact of SCM solutions on overall financial performance.
Economic profit goes by many different names.
The benefit of using economic profit is that it readily shows the dollar impact of SCM solutions on the key drivers of growth, profitability, and capital utilization. An easy way to think about economic profit is to calculate the change in your personal net worth for a given level of salary and bonuses, as illustrated in Exhibit 2. Salary and bonuses are like revenues. Nonfinancial living expenses such as food, clothing, and utilities are like operating expenses, and, unfortunately, taxes are like taxes. If the long-term trend in the change is positive, you are getting ahead.