4.10 Discussion and Practice

Go to a financial website that has information on industry or company financial performance, such as yahoo finance, msnmoney.com, money.usatoday.com or whatever your favorite might be. Pick two different publicly held companies from two different industries, and find their income statements.

1. Look up each company's operating profit before taxes (also referred to as EBIT) as a percentage of net sales. If this is not available, calculate company's operating profit as a percentage of net sales by dividing operating profit/net sales. For example, this figure is 7517/49797 for Unilever in 2013, or 15.1%. A company's operating profit is its profit before fixed costs, investments, and so on, thus it is a better reflection of the contribution of sales to profit. What is the profit leverage affect for each of these companies? For Unilever, it is 1/.151 or 6.6. Explain in complete sentences what this means.

2. Do the companies you selected have a big difference in their operating profit percentage? In which organization do you think logistics savings would be more important based on profit leverage alone?

3. For which company do you think logistics operations are more important based on the nature of its operations, and why?

Think of both a measure and a metric in your life.

1. Describe each one.

2. How does each meet the criteria for a SMART metric? Relate this for both the measure and the metric for each of the elements of SMART.

3. Which one is more effective and why?

4. What could be done to make the less effective one more effective in motivating the right behavior?

In our personal lives, we make trade-offs among decisions that have a primary effect on ourselves, and those with whom we have personal relationships, like friends and family. In business, decisions are made considering the desires of the customer and shareholders (public companies) or other key stakeholders.

1. How does our approach to measuring the outcomes of such decisions vary?

2. What kind of metrics might be appropriate in each of the situations?

Imagine that you are given five minutes to "pitch" the importance of logistics to the CEO of the company that you dream of working at upon graduation. This is not about you, but about logistics. Using the material from the chapter, what message would you try to communicate to him or her, and what real or hypothetical examples could you give that relate to his or her industry?

Recall the concept of scenario analysis. Describe three possible scenarios that you might be presented with (or confronted with) when you graduate in terms of your choices. How would you attempt to measure the value of each one? What qualitative and quantitative factors might you use to determine the attractiveness of alternatives if you had a choice among them?