An Optimal Design of Supply Chain Network Considering Financial Ratios

Abstract

The more common approaches used in supply chain management consider only the physical logistic operations and ignore the financial aspects of the chain. This study presents a supply chain network design model focusing on the interactions between logistic and financial considerations. The model tries to integrate both areas of operations and financial aspects to maximize the value created for shareholders. From the logistic point of view, the main contribution of this paper is to provide the possibility of opening or closing facilities in order to deal with market fluctuations during the planning horizon. It specifies the location of each facility and determines the quantities of the products to be produced and stored to satisfy customers’ demands. From the financial point of view, unlike previous models, it considers the amount of loan, bank repayment and new capital from shareholders as decision variables, therefore, it provides managers with an accounts payable policy. The model also imposes lower limit and/or upper limit values for financial ratios in order to support the financial health of the corporation. Moreover, instead of traditional approaches such as maximizing profits or minimizing costs, shareholder value analysis (SVA) is used as a new objective function. To show the advantages of the presented approach, the model was solved by Branch-And-Reduce Optimization Navigator (BARON) solver in GAMS software with data provided from the literature and sensitivity analyses on financial parameters were performed to evaluate the results. The results show that with appropriate financial decisions, creating more value for the company and its shareholders is achievable. The developed model with a new financial approach is able to improve the total created shareholder value by as much as 0.7% larger than the SVA obtained without financial aspects and 0.93% larger than the value created by the basic model.

Keywords

• Supply Chain Network Design (SCND), Financial Decisions, Financial Ratios, Shareholder Value Analysis (SVA)