Valuing supply chain performance within and across manufacturing industries: A DEA-based approach

Abstract

Managers often use financial metrics based on internal accounting data to gauge firm performance. In this paper, we analyze firm value and related levers of operational supply chain (SC) performance from a financial market perspective. This allows us to study the contributions of profitability (earns) and asset utilization (turns) as the two major drivers of firm value. For this purpose, we apply data envelopment analysis to a large-scale longitudinal dataset of listed US companies (2007–2015) that covers 13 manufacturing industries. In so doing, we shed light on the implications of the 2008/2009 financial crisis for operational SC performance. Our findings can be summarized as follows: First, earns and turns are negatively correlated from an internal accounting-based viewpoint that distinguishes ‘high earns/low turns’ from ‘low earns/high turns’ industries. Second, manufacturing companies mostly tend to be less efficient in translating earns as opposed to turns into firm value. Finally, we observe declining efficacy of approaches to value-based supply chain management in manufacturing industries since 2007 (the last year before the financial crisis). General firm value appreciation in the stock markets overcompensated for this decline until 2015.