Your thoughts needed

[Ctash]

In one of my classes, my teacher suggested that one dollar saved through logistics/supply chain management is worth more than one dollar in revenue. Do you agree with that?

[KyleXY]

Varies. It can be argued both ways. This is too simplified of a question to really extract value from it. To explain what I mean, look at the example given below as a counter argument to what your teacher said:

Let's assume you can save $1 million for the company in improvements in logistics. Assuming no other factors other than money is beneficial in this scenario, you're net profit is the $1M you saved (by technical definition). On the other hand, let's assume you made $1M in revenue. If we were to assume it's gross revenue and net and gross revenue not being equal, the savings would be more. If it is equal, then both are equal. However there are two ways to look at this.

1. There is a saying that cash today is more valuable than cash tomorrow. The metaphor is to dictate the leverage of cash flow to increase value. So let's assume that you only net $500k, half of what you would save if you were to improve logistics. However the increase in cashflow that you have immediate access to can produce more wealth in return immediately in some cases. A savings of $1m Is often projected savings and does not directly correlate to immediate cashflow. Therefore if the $500k revenue you are able to collect is capable of producing immediate results, the revenue scenario is a better case.

2. On the other side of the argument, if the savings are immediate results of free cashflow you can reallocate, then unless the gross revenue provides any additional benefit, if it is not equal than the savings would be a better bet.

All else being equal, if the net revenue and the saving are the same, then none is better than the other.

You should optimize for both. But I put greater emphasis on improving revenue, net profit, and cashflow. They are much harder to work on than savings in most cases.

[Will]

In one of my classes, my teacher suggested that one dollar saved through logistics/supply chain management is worth more than one dollar in revenue. Do you agree with that?

Definitely agree. If you save $1 that is $1 more of PROFIT that you keep.

Your revenue is your whole turnover. So you might have to turn over $3 million to make $1 million actual profit.

You could then say $1 million extra profit = $3 million revenue (obviously it does not literally mean the business could say there was $3 million more revenue)

[Ctash]

Another component I wanted to add was taxes. One dollar saved through logistics/SCM reduces expenses leading to a greater net income whether through improving machine efficiency or developing a simpler inventory, however one dollar in revenue taxed at 30% is only worth seventy cents. I agree Cash flow is highly important, however there are too many variables to consider while considering projections ranging from WACC to cannibalization of existing product lines.