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TECHNIQUES AND TOOLS USED IN SUPPLY CHAIN (INVENTORY (JUST IN TIME (JIT)…
TECHNIQUES AND TOOLS USED IN SUPPLY CHAIN
ANALYZING FINANCIAL STATEMENT
These statements include;
i)income statement
ii)balance sheet
iii)statement of cash flow
iv)statement of changes in equity
Financial statement is a method or process involving specific techniques for evaluating risks, performance, financial health and future prospects of an organization.
Common methods of financial statement analysis include fundamental analysis, DuPont analysis, horizontal and vertical and also use financial ratios.
INTERPRETATION OF FINANCIAL STATEMENT
OBJECTIVE
Assessment of past performance
Assessment of current position
Prediction of profitability and growth prospects
Prediction of bankruptcy and failure
Assessment of the operational efficiency
A. INCOME STATEMENT
Types of ratio calculated from:
Gross Profit Margin: ( Sale-Cost of goods sold)
Operating income ( gross profit-operating expenses-depreciation)-also called EBIT(earning before interest and taxes
Operating profit margin: ( gross profit-operating expenses-depreciation)/total sale - effective way to measure operational efficiency
4.Net profit margin (Net earnings/total revenue)
ROA (return on assets) (Revenue/ Assets) - measures how much profit a company is generating for each dollar of assets
ROE (return on equity) (Revenue/ Equity)
Accounts receivable collection - to measure how many days it takes to collect all accounts receivable
B. CASH FLOW STATEMENT
discloses how a company raised money and how it spent those funds during a given period
a cash flow statement is divided into three parts:
operations, investing and financing
a) Cash From Operations - this may serve as a better indicator than earnings since non cash earnings can"t be used to pay off bills
b) Cash From Investing - cash used to make new investments, as well as proceeds gained from previous investments
c) Cash From Financing - refers to the movement of cash from financing activities
C. BALANCE SHEET
the information provided here allow to calculate several financial ratios to measure company performance
types of ratio :
Quick ratio (current assets-inventories)/current liabilities - ability to meet its obligations without selling off inventory; the higher the result, the better
Current ratio (current assets/current liabilities) - this is another test of short-term liquidity
Debt-to-equity ratio (total debt/total equity) - long-term creditors will view this number as a measure of how aggressive the firm
Working capital (current liabilities-current assets) - cash available for daily operations
INVENTORY
ABC ANALYSIS
classify the inventory into three categories, such as A,B and C
these categories are based upon the inventory value and cost significance
the numbers of items and values of each category are expressed as a percentage of the total
JUST IN TIME (JIT)
a cost-cutting inventory management strategy though it can lead to stockouts
the process of ordering and receiving inventory for production and customer sales only as it is needed and not before
helps companies lower their inventory carrying costs by increasing efficiency and decreasing waste
goal of JIT is to improve return on investment by reducing non-essential costs
Last In Last Out (LIFO)
the most recent stock to come into your warehouse should be sent out first
the new stuff is used up first, taking priority over old stock
First In First Out (FIFO)
the first lot of stock that comes into your warehouse should be the first that goes out - that is sent into stores of sent directly to customers
STOCK REVIEW
defining your minimum stock level will allow you to set up regular inspections and reorders of supplies
a regular analysis of stock versus projected future needs
can be done through a manual review of stock or by using inventory software