Redefining the Supply Chain Opportunity

Redefining the Supply
Chain Opportunity

Supply Chain Insights LLC Copyright © 2016, p. 2
Disclaimer: I am a Skeptic

A Social Scientist

A Fortune-teller of Sorts….

I Write for the Supply Chain Leader

Delivering Open Content To The Market

Since 2000, 52 percent of the companies in the
Fortune 500 have either gone bankrupt, been
acquired, ceased to exist, or dropped out of the
Fortune 500.
Activist campaigns against companies with a market
cap greater than $10 billion has more than doubled
since 2010. Activists won, partially won or settled
73% of proxy fights in 2014, up from 55% in 2010
Increasing Pressure on Operations

Descriptors Used by Leaders

Who Has a Supply Chain That Is Working Well?

A Closer Look at Value Networks

Annualized Growth Rates of Total Factor Productivity
0.46
1.89
0.57
1.03
0.4
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
1890-1920 1920-1970 1970-1994 1994-2004 2004-2014
PercentPerYear
Years 20 50 24 20 10
Second
Industrial
Revolution
Third
Industrial
Revolution

Technology
ERP
SRM
APS
PLM
CRM
Operational Investments Workforce ProductivityAnalytics

Understanding the
Organization

Right Stuff?

Middle Management Has Greatest
Shortage of Supply Chain Talent

Growing Talent Gap

Challenges

Fallacy#1: Functional Excellence Drives the Fastest
Results

Focus on Total Supply Chain Costs

Manage the Costs Like a Decathlete

Fallacy #2: A Project-based Focus

Fallacy #3: The Efficient Supply Chain is the Most
Effective

Bullwhip Effect

Fallacy #4: Integration is the Answer Beyond the
Firewall

Gaps in Supply Chain Visibility

Confidence in ERP to Build Business Networks

What We Expected

A Supply Chain
is a Complex System
with Complex
Processes
with Increasing
Complexity
What We Learned….

The Supply Chain Effective Frontier

Correlations to Market Capitalization

Orbit Chart: Wal-Mart
(Inventory Turns and Operating Margin)

Orbit Chart: Apple
(Inventory Turns and Operating Margin)

Measuring Supply Chain Improvement
Overall Ranking per Company
• Balance: Return on Invested Capital & Revenue Growth Vector Trajectory (30%)
• Strength: Inventory Turns & Operating Margin Vector Trajectory (30% of score)
• Resiliency: Inventory Turns & Operating Margin Mean Distance (30%)
𝑺𝒖𝒑𝒑𝒍𝒚 𝑪𝒉𝒂𝒊𝒏 𝑰𝒏𝒅𝒆𝒙 =
𝟏
𝟑
𝑩𝒂𝒍𝒂𝒏𝒄𝒆 𝑭𝒂𝒄𝒕𝒐𝒓 +
𝟏
𝟑
𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓 +
𝟏
𝟑
𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓

Supply Chains to Admire Methodology
Performance
Beats the industry
average for operating
margin, inventory turns
and ROIC for 2006-
2014 and 2009-2014
Improvement
Ranks above peer
group average on
The Supply Chain
Index for 2006-
2014 or 2009-2014
+

Chemical

Orbit Charts: Dow Chemical Company

Relative Performance

2006
2014
6
7
8
9
0.10 0.11 0.12 0.13 0.14 0.15
InventoryTurns
Operating Margin
Schneider Electric SE
Best Scenario
SBGSY
0.13, 7.37
Average (Operating Margin, Inventory Turns)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
2012
2013
2011
2010
2009
2008
2007
Ideally,
companies
are
increasing
inventory
turns and
operating
margin,
moving
towards the
upper right
corner of
the graph
over time.
The diamond shows the company’s
average over the period.
Here, we plot
inventory turns
(y-axis) vs.
operating margin
(x-axis).
Operating Margin vs. Inventory Turns
(2006 – 2014)
Trace the line from 2006 point
to 2014 point to follow the
performance over time.

2006
2014
2006
2014
6
7
8
9
10
11
12
13
0.09 0.10 0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19
InventoryTurns
Operating Margin
The Emerson Electric Company Schneider Electric SE
Best Scenario
SBGSY
0.13, 7.37
EMR
0.16, 10.95
Average (Operating Margin, Inventory Turns)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
Operating Margin vs. Inventory Turns
(2006 – 2014)

Supply Chains to Admire

• Which metrics matter?
– Growth, operating margin, inventory turns, ROIC, customer
service (in the eyes of the customer)
• How do we get unstuck?
– Focus cross-functionally on a balanced portfolio. Bonus
employees against the portfolio.
– Augment with functional metrics focused on improving
RELIABILITY.
• What are the functional reliability metrics?
– Examples include: Forecasting, first pass yield, OEE, on-time
delivery, orders shipped complete, hands-free orders, schedule
attainment, safety metrics, employee turnover
Insights

Realignment

• Continuity of leadership
• Supply chain talent development
• Focus on a multi-year supply chain strategy
• Clear governance to guide cross-functional decision-making
• Strength in horizontal processes
• Excellence in supply chain planning, network design and inventory
management
What Drives Top Performance?

Building the End-to-End
Supply Chain

Outsourcing

Maturity of End-to-End Thinking

• How do you define Global?
– Business
– Region
– Corporate
• Where do you make the Right Pivots?
– Maximize asset utilization
– Drive value
• How do you define the Journey?
– Definition
– How do you best make decisions
– Communication
Key Questions

What is Your Governance Model?

Role of the Center of Excellence

Business Continuity

Top Disruptions

Shifts in Ocean Cargo

What Drives Success?

Gaps

Network Design Maturity Model

Confluence of Technologies

Evolution of Analytics

Data Strategy for….
Clouds?
Streams?
Lakes?

Big Data Supply Chains are Evolving
65
Challenges:
• Transactional
• Time phased data
Structured
Data
• Social
• Channel
• Customer Service
• Warranty
• Temperature
• RFID
• QR codes
• GPS
• Mapping and GPS
• Video
• Voice
• Digital Images
Unstructured
Data
Sensor
Data
New
Data
Types
Volume
Velocity
Variability

Analytics Maturity

Data Types

Supply Chains Don’t Play by the Rules
68
But,
what if
they
could?

Evolution Based on Cultural Preferences

Internet of Things

Micro Demographic Analysis of Flavor Preference by
Demographics

Have You Ever Thought?

Opportunity
at the Intersection
of the Social and Interest Graph(s)

• Newell Rubbermaid
Listening: Newell Rubbermaid
#Future15SB @bwdumars

#Future15SB @bwdumars
Newell Rubbermaid

Listening: Lenovo

0
0
0
0
0
0
0
Canada
-Customer A calls about a blue screen on a Yoga
-Customer B posts on Facebook about his X220’s AC/DC adapter issues
Large Enterprise Client experiences 5 keyboard malfunctions in their latest
shipment. Complaints received through account executive
[Critical Situation]
Brazil
-Customer F submits a service from on
esupport.lenovo.com regarding
their W530 hard drive
Morocco
-Customers G & H comment on their
X220’s electrical issues on Twitter.com
-Customer I called about Yoga screen
issues
Australia
-Customer J write a review on
NewEgg.com about AC/DC adapter
issues on X220
-Customer K had an eChat with Lenovo
about Yoga screen issues
China
-Customer L wrote on Weibo about
Yoga screen issues
-Customer M calls about a Tablet 8
battery issues
Voice of Customer Comes in Many Forms
USA
-Customers C & D write X220 product
reviews on amazon.com and mention
issues with AC/DC adapters
-Customer E posts on
forums.lenovo.com that they are
experiencing blue screens on their Yoga

0
0
0
0
0
0
0
Lenovo
- 6 recorded issues about X220’s
AC/DC adapter
- 5 recorded issues about
keyboard issues on X1 Carbon
- 5 recoded issues about Yoga
screen
- 1 recorded issue about W530
hard-drive
- 1 recorded issue about Tablet 8
battery
One Voice – A Single View of Perceptual Quality

Recommendations
• We must learn from the
past to unlearn, and then
rethink supply chain
processes.
• The starting point is
rewiring our brains.
• Value network automation
has great promise.

About Supply Chain Insights

About Lora Cecere
• Founder of Supply Chain Insights
• “LinkedIn Influencer”
• Guest blog for Forbes
• Author of 4 books: Bricks Matter (2012), Shaman’s Journal (2014),
Supply Chain Metrics That Matter (2014), Shaman’s Journal (2015)
• Partner at Altimeter Group (leader in open research)
• 7 years of Management Experience leading Analyst Teams at Gartner
and AMR Research
• 8 years Experience in Marketing and Selling Supply Chain Software at
Descartes Systems Group and Manugistics (now JDA)
• 15 Years Leading teams in Manufacturing and Distribution operations for
Clorox, Kraft/General Foods, Nestle/Dreyers Grand Ice Cream and
Procter & Gamble.
Contact Information:
• Email: lora.cecere@supplychaininsights.com
• Blog: www.supplychainshaman.com (15,000 pageviews/month)
• Forbes: www.forbes.com/sites/loracecere
• Twitter: twitter.com/lcecere (6,800 followers)
• LinkedIn: www.linkedin.com/in/loracecere (66,724 followers)
• LinkedIn Influencer: www.linkedin.com/today/author/446631

Definition:
Metric Equations
Source: Supply Chain Insights LLC, Corporate Annual Reports (2000-2014)
Metric Equations
Cash-to-Cash Cycles = (Avg. Inventory/COGS + Avg. Accounts Receivable/Sales - Avg. Accounts
Payable/Purchases)*91.5
Days of Inventory = (Average Inventory/COGS)*91.5
Days of Payables = (Average Accounts Payables/Purchases)*91.5
Days of Receivables = (Average Accounts Receivable/Sales)*91.5
Inventory Turns = (Cost of Sales/Average Inventory)
Operating Margin = (Operating Income/Revenue)
Return on Invested Capital = (Net Income/Invested Capital)
Return on Net Assets = (Trailing 12 Month Net Income/Total Assets from the most recent quarter)
Revenue Growth = (Quarterly Revenuei/Quarterly Revenuei-4 -1)
Revenue per Employees = (Revenue/Average Annual Employee)

Redefining the Supply Chain Opportunity

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Editor's Notes