SUPPLY CHAIN MANAGEMENT

CASE STUDY OF SUPPLY CHAIN DRIVERS

AND METRICS

Created by:
Enrico Jose Dianta Ginting (004201500009)
Rivi Sofia Ayu (004201500027)
Satrio Kartiko Nugroho (004201500029)
Siti Thauhiria Adlia (004201500032)
Tantyo Edo Wicaksana (004201500033)

Industrial Engineering Class 2

Batch 2015

President University
Jababeka Education Park, Jl. Ki Hajar Dewantara, Kota Jababeka, Cikarang Baru,
Bekasi 17550 – Indonesia
Phone (021) 8910 9762-6, Fax (021) 8910 9768
Email: enrollment@president.ac.id, http://www.president.ac.id
 CASE STUDY I

Seven-Eleven Japan Co.

1. A convinience store chain attempts to be responsive and provide customers with

what they need, when they need it, where they need it. What are some different
ways that a convinience store supply chain can be responsive ? what are some
risks in each case ?

In this era with a fierce competitiveness between companies, being responsive

towards the demand of their custumers is one of the key to compete and exist in the
global market. There are several methods that can be considered to increase one
company responsiveness, each with different strenght and weakness.

a) To Utilize Range Forecasting

Single demand forecasting result can be blurry and inaccurate , which leads
other companies to utilize other methods like range forecasting to see
potential outcomes as a way to prepare for changing market conditions and
increase supply chain flexibility and responsiveness. Range forecasts can be
used to give information about supply contracting terms and contingency
plans. By establishing a range of uncertain outcomes with potential , a
company gets a better view of how to respond when demand is on either the
high or low end of the range. With a better and accurate forecast, companies
can be confident that they will sell at least the low end of the range while
being as prepared as possible to sell at the high end of the forecast range.
However there is a risk in using this method, like using an inaccurate data
or data that has a low validity may result in an inaccurate forecasting and
reduce the company performance. (shenoi, 2016)
 Range forecasting is useful for more than just modeling the volumes of
future demands. A company can develop a range forecast for future supply
volumes and prices for its variety of products as well. Let’s suppose if Seven
Eleven compiles all the possible outcomes for a new product, then assigns
probabilities to each possible outcome that has more than 20% likelihood of
occurring. Seven Eleven can then develop contingency plans according to
these outcomes. By utilizing range forecasting as such, Seven Eleven’s
planning effectively covers nearly 80% of the possible outcomes, thereby
increasing its flexibility and responsiveness. (shenoi, 2016)

b) To Establish Flexible Supplier Contract

Companies can use a wide range of forecasting to create a flexible contracts

with their suppliers and manufacturers. By creating a flexible contract, it
can aid the integration process between the company and the
supplier.Flexible contracts spell out the range of acceptable supplier
performance and grant a company the flexibility to ramp production up or
down as the demand increase or decrease. However there is a risk in using
this method, the supplier company may have internal problems that halt
their progress such as broken machine or power outage which is
unpredictable and may result in the unfulfillment of the contract. (shenoi,
2016)

By doing a flexible contracting , it will allow companies to specify their

suppliers the amount of time it should take for the supplier to ramp up
production to meet the demands. For example,Seven Eleven can embed
flexibility in its contract by specifying that its suppliers should be able to
ramp up production by 25 percent within two weeks and by 50 percent
within a month’s notice. Contracts with this level of specificity encourage
the supplier to think in case of multiple demand scenarios. (shenoi, 2016)
 c) Implement Strategic Multi-Sourcing

Multi-sourcing is a strategy where a company chooses to order supplies

from multiple different suppliers. Its different from single-sourced or sole-
sourced scenarios which can lead to bottlenecks and decreasing flexibility
in responding to demand fluctuations, companies involved in multi-
sourcing can spread demand across numerous suppliers that together would
have more capacity collectively. Multi-sourcing increase the strengths and
competencies of supply chain network partners to achieve greater
responsiveness to the demands needed. However there is a risk in using this
method, a supplier company may have internal problems that halt their
progress, and to keep up the pace a different supplier may have to work extra
harder to fulfil the loss, resulting in waste of budget, energy, and time.
(shenoi, 2016)

With an appropriate multi-sourcing strategy, companies can set their

priority suppliers according to different types of the demand range forecast
and to activate those suppliers when needed. For example, Seven Eleven
order their supply from two different supplier, which is Supplier A and B.
While Supplier A is more flexible, faster, and closer to the market, Supplier
B has a lower manufacturing costs. Seven Eleven may assign its more
predictable, high-volume order to Supplier B and reserving Supplier A for
the uncertain segment of the demand range.

2. Seven-Elevens’s supply chain strategy in Japan can be described as attempting

to micro-match supply and demand using rapid replenishment. What are some
risk associated with this choice ?

Balancing the demands from customers with an optimal stock levels while avoiding
excess inventory has been a constant challenge for companies throughout history.
 There are several risk in using rapid replenishment to match the supply and and
demand, such as :

a) Disruptions in Supplier Lead Time

Even the most reliable vendors or suppliers on the market might not able to
provide flawless deliveries all the time. Disruptions appear sooner or later,
and it is unpredictable. The consequences of stock unavailability as a result
of failed or delayed deliveries can range from deferred customer orders and
slower shipping times and lead to deep customer dissatisfaction.
(Minimizing risks for inventory replenishment variables, 2016)

b) Unpredictable Customer Demand

Predicting customer demand by using an inventory forecasting solution can
help a company to optimize stock levels. But the range of demands between
each customers are different and may be hard to predict. By using rapid
replenishment, a company may focus only to stock a certain brand of a
product, and may be unwary if a certain customer demands a product with
a different brand. (Minimizing risks for inventory replenishment variables,
2016)

c) Warehouse Incidents
Stock can go missing, get damaged, or be stolen from one day to the next
may it be in the company warehouse or even in the supplier warehouse
because of the rapid activity to replenish the company stock. Bad warehouse
staffing problems aside, this incident might not happen regularly, but when
it happens, it can be devastating, resulting in lack of stock to fulfil the
customers demand. (Minimizing risks for inventory replenishment
variables, 2016)

3. What has Seven- Eleven done in its choice of facility location, inventory
management, transportation, and information infrastructure to develop
capabilities that support its supply chain strategy in Japan?
Based on (Li, Seven-Elven Japan, 2003) There are several things that Seven- Eleven
has done to develop capabilities that support its supply chain strategy in Japan:

Inventory Management:
• Seven-eleven has a really fast replenishment cycle because the store
computer helps in tracking store inventory.
• The manager has access to analyze sales trend of new product and sales
analysis by day so it can help the manager in forecasting the demand.
• At Stores: All inventory, at all stores, at all times.
Facility Location:
• Seven-Eleven has a cluster of stores in a small geographical area that are
supported by a Distribution Centre (DC) which make it an efficient
distribution system.
• The delivery schedule can be altered according to the customer demand.
• Total 290 dedicated manufacturing plants throughout the country that
produced only fast food for Seven-Eleven.
Transportation:
• Trucks are used for distribution to stores.
• There is two level of transportation:
✓ From suppliers to distribution centers
✓ From distribution centers to stores.

• The delivery schedule can be altered according to the customer demand.

• Each truck made deliveries to multiple retail stores during off-peak hours
and there will be multiple truck goings to one store.
• Items were distributed through 293 dedicated Distribution Centers that
ensured rapid & reliable delivery
Information infrastructure:
• Using advanced information technology Seven-Eleven Japan attributed a
significant part of its success to the Total Information System installed in
every outlet and linked headquarters, suppliers, and Distribution Centers.
• The hardware system at a 1994 Seven- Eleven store included graphic
scanner terminal, order terminal, POS register & store computer.
 By doing and using all the things above, this enabled Seven- Eleven in Japan
to expand rapidly, as of may 2013, Seven- Eleven had a total of 171 daily
production facilities throughout the country that produced the item and were
distributed through 158 distribution center that ensured rapid, reliable
delivery.
4. Seven-Eleven does not allow direct store delivery in Japan but has all products
flow through its distribution center. What benefit does Seven-Eleven derive from
this policy? When is direct store delivery more appropriate?

The Seven Eleven store is the convenience store that responsive and focus of what
costumer wants and needs. They know the segmentation of the product and knows
which product that costumer wants and what time they want to buy the product.
Seven eleven has a very efficient system. That’s why they know costumer needs.
(Raiser, 2014)

Seven Eleven are not looking to open the outlet everywhere but the location of
Seven Eleven store is based on the demand of the costumer. For example, in the A
region, most of costumer buy snacks. So, in the A region they will sell more snacks.
They optimized the space where the product located. Each store has different stock.
It depends on local costumer demand.

Seven Eleven has many store locations. So, receiving product from a distribution
center is very beneficial. Transportation cost will be increase if Seven Eleven using
Direct Store Delivery. It increased because the store will receive multiple trucks
from various supplier and most of them will be deliver with not full trucks loads.
Seven Eleven using Distribution Center because it will receive the order from the
supplier with similar category products in the same truck and then it will be send to
the stores. It reduced the transportation cost.

Seven Eleven does not allow direct store delivery in Japan but has all product flow
through distribution center. Distribution Center does not have to keep in a huge
 amount of goods that they don’t want to sell. For some years they know what is
sold in which store, so it's easy for them to know which items each store needs.

Direct Store Delivery will be more appropriate if the stores want the product really
quickly. Because the costumer doesn’t need to wait too much when they really want
to buy something. It also will be more appropriate when the store sell the product
in the short period of Time. Seven Eleven is known as the store that sell and have
almost everything that costumer need. So, it will be better not to let the shelves
empty. The trade reputation of the store will be bad if people can see empty space
in the store.

5. What do you think about the 7dream concept for Seven-Eleven in Japan? From
a supply chain perspective, is it likely to be more successful in Japan or the United
States? Why?

Implementation of Seven Eleven Japan's supply chain structure to Seven eleven

America can be done but will not exactly match its supply chain structure. There
will be many obstacles faced when implementing the system of Seven Eleven Japan
supply chain in America. One of them is due to differences in organizational culture
in both regions and most likely supply chain will not run normally Seven Elven is
not just a company that dominates in the region of America like Seven Eleven in
Japan but there are still another companies like Seven Eleven which also dominate
in the American region. This is what affects the level of supply chain success
depends on many factors

The 7dream concept was conceptualized by Seven Eleven Japan to exploit the
existing distribution and high store density capabilities of Seven Eleven Japan. A
recent survey by Yahoo Japan said that 92% of the costumers preferred to pick up
their online purchases at the local convenience store (Wolfraat, 2005).
From a supply chain perspective, it is more likely successful in Japan. Below is the
following reasons:
 1. High density store location in particular geography. The costumer will
be enable having their items and delivered to their home at an easily
accessible store.
2. The location of Seven Eleven Japan is in Urban area which are have a
high population density. The costumer would be more enthusiastic about
online purchase hence the concept more likely to the work in case of
Japan. In America, it can be seen that Walmart is mostly located in
suburbs. There store will be generally have larger format compared to
the Japanese store.
3. Most of Seven Eleven Store in United State is using Direct Distribution
Center. therefor a single costumer order fulfillment will have to be
ensured and packed by the store retailer. On the other hand, the material
for Seven Eleven Japan is coming through the Distribution Center
therefor the retailer is not involved in the packing and only has to
handover the materials.
4. Integration with IT enable the Seven Eleven Japan to easily track the
order.
So, from the supply chain perspective, is it likely ore successful the Seven Eleven
in Japan compared to the Seven Eleven in America. Because Seven Eleven is not
the one and only company that dominates in America Regions but there is also
another company like Walmart.

6. Seven-Eleven is attempting to duplicate the supply chain structure that has

succeeded in Japan in the United States with the introduction of CDCs. What are
the pros and cons of this approach? Keep in mind that stores are also replenished
by wholesalers and DSD by manufacturers.

Seven Eleven has introduced the Combined Distribution Center for the fresh food
items. Fresh food items have to be delivered frequently to the store at least once a
day but the volume do not justify Direct Selling Delivery by the manufacturers.
Therefore, Seven Eleven Japan has introduced the concept of Combined
Distribution Center (Wolfraat, 2005).
 The pros of Combined Distribution Center:
1. Combined Distribution Center (CDC) provides Seven Eleven Japan to
deliver fresh food every day, the volume of the Fresh food delivery might
justify Direct Selling Distribution (DSD).
The cons of Combined Distribution Center:
1. There are only 23 Combined Distribution supporting around 5000 stores in
the entire North America. This might be increased the transportation cost.
2. Seven Eleven Japan have to make huge investment in the CDC for the fresh
food than forms less than 5% of the total sales.
3. Seven Eleven have to make huge investment in Combine Distribution
Center Infrastructure for the fresh food segment.

7. The United States has food service distributors that also replenish convenience
stores. What are the pros and cons to having a distributor replenish convenience
stores versus a company like Seven- Eleven managing its own distribution
function?

The benefit is the cost itself. The cost for material and product transportation for
the distribution will be reduced. And by having own distribution center, it makes
the flow production, operational and fund become faster, so there won’t have any
third partys influence. For the loss, the responsive will be less comparing to own
distribution, and by no own distribution center, it means the control over
replenishment cycle.
 CASE STUDY II
Financial Statements for WalMart Stores Inc. And
Macy’s Inc.

In this case study, there will be some analysis to evaluate the financial performance
of WalMart Inc. and Macy’s Inc. in 2012 by defining several financial measures
such as Return on Equity (ROE), Return on Assets (ROA), profit margin, assets
turns, Accounts Payable Turnover (APT), Accounts Receivable Turnover (ART),
Inventory Turnover (INVT), Property, Plant, and Equipment Turnover (PPET), and
Cash-to-Cash (C2C). Through these measures, both companies performance in
2012 can be determined in order to know which metrics that each company
performed better on, and also to know how far the differences of both companies
performance.

2.1 Financial Statements Analysis

The financial statements are basically the result of replication of the many money
transactions that occur within a company. Financial Statements are part of the
financial reporting process. Complete financial statements usually include a balance
sheet, an income statement, a statement of changes in financial position (which may
be presented in various ways, for example, as a cash flow statement, or fund flows
report), other records and reports and explanatory materials that are an integral part
of financial statements (Taani & BanyKhaled, 2011).

In this case study, there will be some analysis of financial statements based on the
financial results for WalMart Stores Inc. and Macy’s Inc in 2012. The performance
of each company will be evaluated based on the various metrics. Here is the
financial data for both companies in 2012:
 Table 2.1 Financial Data of WalMart Stores Inc. and Macy’s Inc. in 2012
Year ended January 31, 2013 ($ millions) WalMart Stores Inc. Macy’s Inc.
Net operating revenues 469,162 27,686
Cost of goods sold 352,488 16,538
Gross profit 116,674 11,148
Selling, general, and administrative expense 88,873 8,482
Operating income 27,801 2,661
Interest income 2,251 425
Other income (loss)—net 187 -134
Income before income taxes 25,737 2,102
Income taxes 7,981 767
Net income 17,756 1,198
Assets
Cash and cash equivalents 7,781 1,836
Net receivables Inventories 6,768 371
Inventories 43,803 5,308
Total current assets 59,940 7,876
Property, plant, and equipment 116,681 8,196
Goodwill 20,497 3,743
Other assets 5,987 615
Total assets 203,105 20,991
Liabilities and Stockholder Equity
Accounts payable 59,099 4,951
Short-term debt 12,719 124
Total current liability 71,818 5,075
Long-term debt 41,417 6,806
Total liabilities 126,243 14,940
Stockholder equity 76,343 6,051

2.1.1 Return on Equity

Return on equity shows whether the company ables to give a good return on the
capital given by the company’s shareholders. This metric is the accounting rate of
return earned on the common stockholders’ investment (Leisz & Maranville ,
2008). According to Chopra, S., & Meindl, P. (2016), a company’s performance
can be summarized as it is measured by Return on Equity (ROE) with formula:

Based on the financial data of WalMart Stores Inc. and Macy’s Inc. for 2012, the
Return on Equity for both companies are:

Table 2.2 Return on Equity of WalMart Stores Inc. and Macy’s Inc.
WalMart Stores
Macy's Inc.
Inc.
Net Income $17,756,000,000 $1,198,000,000
Stockholder Equity $76,343,000,000 $6,051,000,000
Return on Equity (ROE) 0.23 0.20

Return on Equity (ROE) measures how much the company's ability to earn the
profits belonging to the shareholders. This ratio is affected by how much the
company’s debt. If the proportion of company’s debt is bigger, so this ratio will be
higher as the stockholder equity become smaller. It means the company’s assets is
not generate the satisfied profits for the company, and otherwise. It is also often
used to measure the effectiveness of the management to generate profit and loss of
stockholders. So, the Return on Equity can be said as the main summary to measure
the company’s performance (Saleem & Rehman, 2012). As the table above shown,
it can be seen that the Return on Equity for WalMart Stores Inc. and Macy’s Inc.
are 23% and 20%. It means that WalMart Stores Inc. has profits 0.23 dollar of each
dollar made by the WalMart’s Shareholders to give to the shareholders as the return
on investment in 2012. In other side, Macy’s Inc. has profits only 0.20 dollar of
each dollar from the shareholders to be given to the Macy’s shareholders in the
same year. Based on the comparison ROE value between both companies, the
WalMart Stores Inc. management can be said more effective to organize the
shareholders equity to generate profits rather than Macy’s Inc. But, in the same time
the WalMart Stores has more proportion of the company’s debt rather than Macy’s
Inc. After all, the WalMart Stores Inc. has better performance of ROE than Macy’s
Inc.

2.1.2 Return on Assets (ROA)

Return on Assets (ROA) measures the return generated on total assets in the
company. It is same like ROE where it determines how effective the management
manages its investment to gain the net profit. The bigger ROA, the bigger
possibilities for the company to get more investors (Taani & BanyKhaled, 2011).
The formula of ROA defined as :

Where the Earning Before Interest and Taxes (EBIT) are calculated from the
operating income plus other income. Based on the financial data of WalMart Stores
Inc. and Macy’s Inc. for 2012, the Return on Assets for both companies are:

Table 2.3 Return on Assets of WalMart Stores Inc. and Macy’s Inc.
Walmart Stores Inc. Macy's Inc.

Operating Income $27,801,000,000 $2,661,000,000

Other Income $187,000,000 -$134,000,000

Earning Before Interest and Taxes $27,988,000,000 $2,527,000,000

Total Assets $203,105,000,000 $20,991,000,000

Return on Assets (ROA) 0.14 0.12

The high value of Return on Assets (ROA) means the company ables to yield profits
greater than its value assets. Investors will always want to invest in companies that
always have a high ROA which means the company can guarantee profits to
investors. Not only for the return of investment, but its analysis can be shown as the
ability of the company to generate profits in the future besides Return on Equity
(ROE) (Heikal, Khaddafi, & Ummah, 2014). As the table above shown, the Return
on Assets (ROA) for WalMart Stores Inc. and Macy’s Inc. are 0.14 and 0.12. It
means that the return earned only 0.14 (for WalMart) and 0.12 (for Macy’s) of each
dollar invested on each company. Based on the expert’s definition of Return on
Assets above, both companies management still not effective to organize the
company’s assets to get more profit as both companies have low ROA. This
condition can raise doubts on the investors to increase their investment for both
companies, and also there will be more possibilities for the number of assets to be
decreased. Even though both companies have slightly differences of ROA. But, it
can be seen that WalMart Stores Inc. has better performance of ROA than Macy’s
Inc. in 2012.

2.1.3 Net Profit Margin (Return on Sales)

Profit Margin is an indicator of a company's ability to generate net profits. The

results can be compared between sales and net income. Profit margin calculation is
very important because it determines the way forward for a company, especially in
applying sales strategy with pricing (Taani & BanyKhaled, 2011). Profit margin is
calculated as net income divided by sales like the formula below:

Based on the financial data of WalMart Stores Inc. and Macy’s Inc. for 2012, the
Profit Margin for both companies are:

Table 2.4 Profit Margin of WalMart Stores Inc. and Macy’s Inc.
WalMart Stores Inc. Macy's Inc.
Net Operating Revenues $469,162,000,000 $27,686,000,000
Net Income $17,756,000,000 $1,198,000,000
Profit Margin 0.038 0.043

This ratio is to compare between net income after and during sales. If the higher net
profit margin in a company then the expense of operational costs will be better.
Why? Because profit margin shows how much money that the company makes for
each dollar of sales. The higher net profit margins means that the higher of net
income because of the company can pressed its expenses during the period (Heikal,
Khaddafi, & Ummah, 2014). As the table above shown, it can be seen that the Net
Profit Margin for WalMart Stores Inc. and Macy’s Inc. are 3.8% and 4.3%. It means
that WalMart Stores Inc. has net profits 0.038 dollar for each dollar of sales. In
other side, Macy’s Inc. has net profits bigger than WalMart Stores Inc. which is
0.043 dollar for each dollar of sales in the same year. Based on the comparison Net
Profit Margin value between both companies, the Macy’s Inc. is more profitable
rather than WalMart Stores Inc. Even though WalMart has higher sales revenue,
but due to the proportion of net income that gained from the sales still Macy’s has
higher proportion on it. That is why in the Net Profit Margin, Macy’s Inc. is better
than WalMart Stores Inc.

2.1.4 Total Asset Turnover

Assets turnover is a ratio that measures the level of efficiency and effectiveness of
the rotation and utilization of total assets in generating sales. This ratio shows the
number of sales that a company can earn for each dollar that has been invested in
the company's assets. The higher this ratio the better for the company (Taani &
BanyKhaled, 2011).

Revenue
Total Assets Turnover =
Average Total Assets

Based on the financial data of WalMart Stores Inc. and Macy’s Inc. for 2012, the
Total Assets Turnover for both companies are:

Table 2.5 Total Asset Turnover of WalMart Stores Inc. and Macy’s Inc.
WalMart Stores Inc. Macy's Inc.
Net Operating Revenues $469,162,000,000 $27,686,000,000
Total Assets $203,105,000,000 $20,991,000,000
 Total Assets Turnover 2.31 1.32

This ratio can explain how successful a company is in utilizing its assets to generate
profits. If a company can make a sale by using assets at a minimum it will result in
a higher asset turnover ratio. With this it can be concluded that the company can
run the operation properly because it is able to utilize its assets efficiently. The low
asset turnover ratio shows that the company utilizes its assets inefficiently and
optimally. As the table above shown, it can be seen that the Total Assets Turnover
for WalMart Stores Inc. and Macy’s Inc. are 2.31 and 1.32. It means that WalMart
Stores Inc. earns the sales revenue 2.31 dollar for each dollar that has been invested
in the company's assets in 2012. In other side, Macy’s Inc. can earned 1.32 dollar
for each dollar that has been invested in the same year. Based on the comparison
Total Assets Turnover value between both companies, the WalMart Stores Inc. has
higher ratio rather than Macy’s Inc. It means WalMart Stores Inc. is more efficient
in utilizing its assets rather than Macy’s Inc. Thus, WalMart Stores Inc. has better
performance in the Total Assets Turnover rather than Macy’s Inc.

2.1.5 Accounts Payable Turnover (APT)

Accounts payable turnover is a ratio that measures how fast a company pays its
supplier bill. If the APT ratio goes down over time, then it indicates that the
company is paying the suppliers more slowly than before, which may indicate a
deteriorating corporate financial condition. To calculate the ratio of APT is to
summarize all purchases of goods from suppliers during the calculation period and
divided by the average number of accounts payable during the calculation period.
The formula of APT defined as:

Cost of Goods Sold

Accounts Payable Turnover (APT) =
Accounts Payable

Based on the financial data of WalMart Stores Inc. and Macy’s Inc. for 2012, the
Accounts Payable Turnover (APT) for both companies are:
 Table 2.6 Accounts Payable Turnover of WalMart Stores Inc. and Macy’s Inc.
WalMart Stores Inc. Macy's Inc.
Cost of Goods Sold $352,488,000,000 $16,538,000,000
Account Payable $59,099,000,000 $4,951,000,000
Accounts Payable Turnover (APT) 5.96 3.34

When a company has higher Accounts Payable Turnover, it means that the company
has shorter period to pay the bill of purchasement. As the table above shown, it can
be seen that the Account Payable Turnover (APT) for WalMart Stores Inc. and
Macy’s Inc. are 5.96 and 3.34. It means that WalMart Stores Inc. pay its
purchasement faster than Macy’s Inc. As its trade payables turnover during 2012 is
almost 6 times, Macy’s Inc. only around 3 times of trade payables turnover during
a year. Based on the comparison Accounts Payable Turnover value between both
companies, the WalMart Stores Inc. has higher ratio rather than Macy’s Inc. It
means WalMart Stores Inc. is more efficient in organizing its cash rather than
Macy’s Inc. Thus, WalMart Stores Inc. has better performance in the Accounts
Payable Turnover rather than Macy’s Inc.

2.1.6 Accounts Receivable Turnover (ART)

Account Receivable Turnover is a number that shows how many times a company
to bill on receivables at a certain period. It shows how long a company collecting
the cash from the sales. In addition to the Account Receivable Turnover it will be
known how the performance of marketing in the search for potential customers who
buy but also potential to pay receivables. Receivable Turnover is often used by
companies that make sales on credit, such as companies engaged in drug
distributors.
The formula of Accounts Receivable Turnover can be seen on the below:

Sales Revenue
Accounts Receivable Turnover (ART) =
Accounts Receivable
Based on the financial data of WalMart Stores Inc. and Macy’s Inc. for 2012, the
Accounts Receivable Turnover (ART) for both companies are:

Table 2.7 Accounts Receivable Turnover of WalMart Stores Inc. and Macy’s Inc.
WalMart Stores Inc. Macy's Inc.
Net Operating Revenues $469,162,000,000 $27,686,000,000
Net Receivables $6,768,000,000 $371,000,000
Accounts Receivable Turnover (ART) 69.32 74.63

Account Receivable Turnover for the company is very important to know because
the higher the turnover of accounts receivable, the receivables that can be billed by
the company more and more. So that will minimize the existence of bad debts and
accelerate cash flow. Based on the table above, it can be seen that the Accounts
Receivable Turnover for WalMart Stores Inc. and Macy’s Inc. are 69.32 and 74.63.
It means Macy’s Inc. more faster to collect its cash since the sales revenue gained
rather than WalMart Stores Inc. It can be said that the inflow cash of Macy’s Inc. is
more smooth than the WalMart Stores Inc. had. Thus, Macy’s Inc. has better
performance in the Accounts Receivable Turnover rather than WalMart Stores Inc..

2.1.7 Inventory Turnover (INVT)

Inventory Turn Over is one of the ratios of activity. Inventory Turn Over calculation
for a company is very important, among others:
• It can be seen whether the inventory management has been done well
or not.
• Can be known the speed of inventory turnover, where the higher the
turnover of inventory, the higher the cost can be saved so that the
company's earnings rise.
Inventory Turnover can be obtained by dividing the cost of goods sold by the
average inventory as the formula below:

Cost of Goods Sold

Inventory Turnover (INVT) =
Inventories
Based on the financial data of WalMart Stores Inc. and Macy’s Inc. for 2012, the
Inventory Turnover (INVT) for both companies are:

Table 2.8 InventoryTurnover of WalMart Stores Inc. and Macy’s Inc.

WalMart Stores Inc. Macy's Inc.
Cost of Goods Sold $352,488,000,000 $16,538,000,000
Inventories $43,803,000,000 $5,308,000,000
Inventory Turnover (INVT) 8.05 3.12

Basically a good company is if the inventory of goods sold / manufactured quickly

changed so that the cost of storage and the level of damage to the goods is more
lower that can cause increase in the company profits. Based on the table above, it
can be seen that the Inventory Turnover for WalMart Stores Inc. and Macy’s Inc.
are 8.05 and 3.12. It means WalMart Stores Inc. has more shorter period of the
finished goods become sold rather than Macy’s Inc. It can be seen that WalMart
Stores Inc. has lower probability than Macy’ Inc. to have inventory shortage caused
by the long period of storing the finished goods This ratio also shows about how
great the company marketing to sell the fresh finished goods after stored in the
inventory. Thus, WalMart Stores Inc. has better performance in Inventory Turnover
rather than Macy’s Inc., and the inventory management of WalMart can be said
better than Macy’s Inc..

2.1.8 Property, Plant, and Equipment Turnover (PPET)

Property-Plant-Equipment Turnover is the comparison between sales with the

assets of a company, in this case is Land and building, factory and equipment owned
by the company. This ratio tells how many dollars of sales the company gets for
each dollar invested in property, plant, and equipment (PPE). The formula of PPET
can be seen on below:

Sales Revenue
Property, Plant, and Equipment Turnover (PPET) =
PP&E
Based on the financial data of WalMart Stores Inc. and Macy’s Inc. for 2012, the
Property, Plant, and Equipment Turnover (PPET) for both companies are:

Table 2.9 Property, Plant, and Equipment Turnover of WalMart Stores Inc. and
Macy’s Inc.
WalMart Stores
Macy's Inc.
Inc.
Net Operating Revenues $469,162,000,000 $27,686,000,000
Property, Plant, and Equipment (PPET) $116,681,000,000 $8,196,000,000
Property, Plant, and Equipment Turnover
(PPET) 4.02 3.38

This ratio measures how efficient the company is at generating revenue from fixed
assets such as buildings, vehicles, and machinery. The higher PPE Turnover, the
more efficient capital investments. Thus, based on the table above, it can be seen
that the PPE Turnover for WalMart Stores Inc. and Macy’s Inc. are 4.02 and 3.38.
It means that WalMart gained 4.02 dollars of sales for each dollar of Property, Plant,
and Equipment investments. While Macy’s Inc. gained 3.38 dollars of sales for each
dollar of PPE investments. Based on this ratio, WalMart Stores Inc. has better
performance rather than Macy’s Inc..

2.1.9 Cash-to-Cash (C2C)

The cash to cash is a period of time it takes when a company gives its money to pay
suppliers for inventory and companies earn money from users. The concept of cash
to cash is used to determine how much money is needed for the company's
operations, so the value of cash to cash is an important factor of a company in
determining the financial needs of the company. The calculation formula used to
calculate cash to cash is as follows based on weekly performance:

1
Cash − to − Cash (C2C) = −Weeks Payable ( )+
APT
 1
Weeks in Inventory ( ) +
INVT
1
Weeks Receivable ( )
ART

Based on the financial data of WalMart Stores Inc. and Macy’s Inc. for 2012, the
Cash-to-Cash (C2C) for both companies are:

Table 2.10 Cash-to-Cash of WalMart Stores Inc. and Macy’s Inc.

WalMart Stores Inc. Macy's Inc.
Accounts Payable Turnover (APT) 5.96 3.34
Inventory Turnover (INVT) 8.05 3.12
Accounts Receivable Turnover (ART) 69.32 74.63
Accounts Payable Turnover (APT) in Weeks 8.72 15.57
Inventory Turnover (INVT) in Weeks 6.46 16.69
Accounts Receivable Turnover (ART) in Weeks 0.75 0.70
Cash-to-Cash (C2C) -1.51 1.82

Based on the table above, it can be seen that WalMart Stores Inc. has negative Cash-
to-Cash (-1.51) while Macy’s Inc. has positive ratio (1.82). It means WalMart
Stores Inc. collected its money of sales more than 1 week before it had to pay its
supplier. When Macy’s Inc. collected its money of sales almost 2 weeks after it had
to pay its supplier. The ability of a company to change its money to become the
products and also back to be its money can be seen based on this ratio. Based on
the Cash-to-Cash ratio, WalMart Stores Inc. has better performance in rotating its
money rather than Macy’s Inc.

2.2 Comparison of Metrics Between WalMart Stores Inc. and Macy’s Inc.

After each metric measure the financial performance of WalMart Stores Inc. and
Macy’s Inc., so here the comparison of each metric for both companies in order to
know which metrics that each company performed better than another. The results
of each metric are summarized into one table of comparison as it can be seen on the
below.
 Table 2.11 Metrics Result of WalMart Stores Inc. and Macy’s Inc.
Metrics Walmart Stores Inc. Macy's Inc.
Return on Equity (ROE) 0.23 0.20
Return on Assets (ROA) 0.14 0.12
Net Profit Margin 0.038 0.043
Total Assets Turnover 2.31 1.32
Accounts Payable Turnover (APT) 5.96 3.34
Accounts Receivable Turnover (ART) 69.32 74.63
Inventory Turnover (INVT) 8.05 3.12
Property, Plant, and Equipment Turnover
(PPET) 4.02 3.38
Cash-to-Cash (C2C) -1.51 1.82

Based on the table above, it can be seen that WalMart Stores Inc. has better
performance on most of metrics rather than Macy’s Inc (The yellow cell means the
better metrics). Macy’s Inc. has better performance on Net Profit Margin and
Accounts Receivable Turnover than WalMart Stores Inc. It means Macy’s Inc. is
more profitable than WalMart based on the proportion of net income due to the
sales revenue. Not only more profitable, Macy’s Inc. has faster period to collect its
cash from the sales. So, it can be concluded that Macy’s Inc. is better than WalMart
in order to produce better profits in the faster period. But, WalMart Stores Inc. has
better performance in 7 out of 9 metrics that already calculated. It means that in
other perspectives, the WalMart Stores has better effectiveness in its management
rather than Macy’s Inc. based on others metrics which are ROE, ROA, Total Assets
Turnover, APT, INVT, PPET, and C2C.

2.3 The Supply Chain Drivers and Metrics in The Differences Performances
of Both Companies

Based on the comparison table in the previous, Macy’s Inc. excels in the Net Profit
Margin and Accounts Receivable Turnover. It can be said that it has faster period
from the sales into collecting the cash with higher profits. No doubt that Macy’s
Inc. is better in these performance than WalMart since Macy’s always want to
achieve responsiveness. It has superior marketing to sell its products quickly with
the power of digital marketing and some great business strategies as well as the
company known well what customers need recently. While WalMart is more
focused on its distribution system to provide the high quality product with low
price. The driver that suitable to explain this differences is information. Where as
the omnichannel retailer, it is very important for Macy’s Inc. to make the products
become most wanted by the customers and always updated with what customer
wants and needs based on the research of My Macy organization. When a product
is not attractive yet to be bought by the customers, then it is one of failures that
Macy’s Inc. wants to prevent because it is same as waste. So, the information is
very important driver for Macy to keep updated. Different with WalMart as the
retail company that sold daily needs, it is important for the company to sell the high
quality products to increase the customers mindset about how healthy it is to be
consumed. In order to make the customers become loyal and always buy their daily
needs in WalMart, its is very important too for the company to put lower price than
the competitors. So, WalMart uses their information resource to compare its price
with others and also keep updated for what kind of foods that is trending to be
consumed based on the seasons.

As WalMart Stores Inc. has better performance than Macy’s Inc. for ROE, ROA,
Total Assets Turnover, APT, INVT, PPET, and C2C. It means that WalMart has
better efficiency to generate their profits based on the assets that the company had.
WalMart always success to sell its products without leaving any inventories or
stockouts. When the inventory become almost stockout, then the distribution center
of WalMart will ready to deliver the product with enough number (to minimize the
inventory cost and keep the products fresh). So, it can be said that WalMart always
do some efficiency to use its assets to become products. The drivers that exlain this
differences of performance are inventory, transportation, and also pricing.

For Inventory and Transportation, as WalMart has better performance in Inventory

Turnover, and Accounts Payable Turnover. It is usually minimized its number of
inventory to prevent the product become not fresh in the warehouse. Since Wal-
Mart has 6,100 truck trailers and 6700 drivers, WalMart communications satellite
network system facilitates relationships with suppliers so that when trucks come to
take the goods have been provided trucklood without having to store in inventory
suppliers. With a computerized system and via satellite, Wal-Mart can control their
warehouses and inventories. So Wal-Mart will respond quickly to order supplies
via the Internet to suppliers. Therefore, Wal-Mart will never run out of stock but
there is no stock to accumulate. This is an advantage for Wal-Mart compared to its
competitors. Different with Macy’s Inc. that has small problems to keep the
products in the big number in the inventory as it is an omnichannel retail business,
and also its products don’t have any limitation usage.

For Pricing, WalMart has better performance in others metrics. Where its
management is more effective to manage its assets to generate profit (as it is better
for ROA, ROE, and Total Assets Turnover). Even though WalMart always sold the
products in the lower price, it still get more profits rather than the other competitors
that have higher prices. Wal-Mart is superior and prominent about low prices and
large selection of goods and is a brand of a well-known company. With Wal-Mart's
frequent discounts and the ability to select products at the lowest prices suppliers
can offer, Wal-Mart has survived despite the global crisis that hit America in several
years ago. In other side, Macy is known for some of the first experiences that
changed the retail industry. Macy pioneered revolutionary business practices such
as a one-price system, in which the same item was sold to each customer at one
price, and quoted a special price for the items in a newspaper advertisement. With
smaller ratio on other metrics, it indicates that Macy’s Inc. still below of the
WalMart to generate its profits based on its assets even though it is more profitable
than WalMart Stores Inc.
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