Optimising a value-based performance indicator in mid-term sales and operations planning

Abstract

Economic Value Added (EVA^®) and corresponding value driver trees are prevalent frameworks of value-based management to measure and analyse shareholder value creation. However, they are explanatory models from an operations research perspective and do not provide decision support for performance optimisation. In this paper, we develop a comprehensive value-based decision framework for mid-term sales and operations planning (S&OP) in the supply chain implementing EVA as the objective function. The pivotal element of our framework is a decision-oriented extension of EVA-based value driver trees bridging the gap to the decision variables of S&OP as the operational performance levers. We utilise a numerical example to highlight the significant improvement potential due to the value-based optimisation approach. Working capital management emerges as the major mid- to short-term value driver in the supply chain.

Keywords:

• value-based management
• supply chain optimisation
• sales and operations planning

Acknowledgements

We thank the two anonymous referees for their valuable feedback that helped to improve the paper significantly.