The basis of this report is publicly available information from corporate annual reports from the period of 2006-2014 for publicly-owned companies in the chemical industry. The methodology to understand supply chain performance and improvement is based on three years of data mining of supply chain financial ratios. In Table 1, we share the supply chain ratios we analyzed to understand the trends in the Supply Chain Metrics That Matter report series
Table 1. Financial Ratios Considered in the Development of the Supply Chain Index
While there are other measurements which we believe are important in the determination of supply chain excellence—forecast accuracy, case fill rate, carbon footprint, and inventory write-offs—we cannot find a reliable and consistent source of data for these metrics that covers all industries and the years studied. While these metrics are valuable, we find that the industry data sources are spotty and largely inaccurate due to the self-reporting of data. Without a consistent data source across the industries, we cannot include these factors even though we believe that they are important.
The Supply Chain Index methodology was built on the belief that the supply chain is a complex system with increasing complexity. We believe it is the supply chain leader’s role to build and manage supply chain performance to drive year-over-year improvements which are balanced, strong and resilient. We find that most companies throw the system out of balance and are able to drive progress only on a single metric, not a metrics portfolio. To illustrate this point, in the development of the Supply Chains to Admire Report, we studied public manufacturing and retail companies for the period of 2006-2013, and we found that only 21 of the companies in the study group performed better than their peer group on the portfolio of metrics of operating margin, inventory turns and Return on Invested Capital (ROIC).
In our review of the data in this report with supply chain leaders, we found that most companies are not aware of how they rate relative to their peer group, and many have driven a singular metric as opposed to a balanced portfolio.
In the management of the supply chain, there are many metrics. In fact, we find that most supply chain leaders measure too many, which drives confusion. Our first goal in the research was to determine which metrics should be tracked in the portfolio analysis. To understand the relationship between supply chain performance and market capitalization, we calculated the correlation of seven years of financial ratios (based on quarterly reporting) to market capitalization (the number of outstanding shares multiplied by the share price) on a quarterly basis. The results of this study on the correlation to market capitalization are presented in Table 2. Our goal was to select a portfolio of metrics that could be meaningful to all industries.