Does Supply Chain Excellence Pay? - New Evidence

Abstract

Current theory promotes the view that embracing supply chain management (SCM) has led to lower costs, and increased financial performance and shareholder value. Consistent with this view, Hendricks and Singhal (2003) report empirical evidence that demonstrates that supply chain glitches lead to destruction of shareholder value. However, no evidence exists demonstrating that attaining SCM excellence leads to increased value. Our study examines this prediction by examining the stock market reaction to a publicly released report that ranks companies using a SCM performance rating. We find that inclusion as a top 25 SCM firm is associated with a positive stock price reaction on the order of around 2.85%, on average. Further, this reaction is differentially higher for firms that score higher in the excellence rankings. Combined with the results of Hendricks and Singhal, our results suggest that SCM performance is not only important at the threshold of avoiding supply chain glitches, but also encompasses achieving SCM excellence.

Keywords: Supply chain management, event study

JEL Classification: G31, L14, O33