The Supply Chains to Admire™ analysis is an annual study of supply chain excellence. Now in its fourth year of development, the focus of this research is to better understand supply chain performance and improvement of 494 publicly held companies in 31 peer groups for the period of 2010-2016. At the 2017 Supply Chain Insights Global Summit, winners from the analysis will share insights on driving supply chain excellence.
Supply Chain Metrics That Matter: A Focus on the Retail Industry - 16 FEB 2017Lora Cecere
Report Details: This report is based on analysis of financial balance sheet and income statement data within the Retail industry, for the period of 2006-2015. The data is collected from YCharts.
Objective: To use financial balance sheet and income statement data to better understand the state of Grocery Retailers' and Mass Merchants' supply chains and to determine which companies’ supply chains did the best on the delivery of a portfolio of metrics over the last decade.
Highlight: During the Great Recession retailers faced strong declines in spending. It was a critical time, but for many it was an opportunity to emerge stronger. Those who redefined their stores for the dollar-conscious customer or built new and innovative formats while driving supply chain innovation, drove strong balance sheet results. Others learned that doing traditional retail more efficiently was not enough.
How Do We Heal the Healthcare Value Chain? - 9 MAY 2013Lora Cecere
Over the last decade, as shown in figure 1, the hospital supply chain has been one of the few that has improved operating margin, reduced inventory and improved revenue/employee. In contrast, the manufacturing suppliers to the hospital organization have grown inventories and struggled to preserve margins. Across the value chain from the patient to the raw material suppliers, total inventories have grown and costs have escalated. With pending regulations, hospitals are being forced to rethink processes, redefine value and work more holistically to improve sourcing practices. The suppliers to the hospital systems are having to rethink their systems to rethink the customer (from selling to the physician to selling to a more formal buying organization based on patient outcomes) and adapt to the new processes within the hospital for value analysis.
Supply chain processes within the hospitals have matured. Hospitals have made more progress on improving cash-to-cash cycles than their upstream manufacturing trading partners. They have reduced inventories and attempted to work with suppliers. As shown in figure 2, it is notable to see that this industry is one of the few where downstream trading partners have actually improved payable terms for their suppliers.
The future lies before the healthcare provider. As the provider of patient care, they have the greatest potential to lead in the healthcare value chain’s redesign to improve value. They have come a long way, but the changes have been incremental. They have focused primarily on traditional sourcing techniques; not a redesign of the healthcare value chain from the outside in, and the redefinition of complex and antiquated processes.
Conquering the Supply Chain Effective Frontier - 27 NOV 2017 - ReportLora Cecere
Executive Overview
Over the course of the last decade, retailers made more progress on costs and inventory turns than manufacturers. In the rush for technology adoption, we commonly find companies overstating what is possible because they are not clear on the historical trends, and often mistakenly coached to overcommit by industry consultants to justify technology investments.
In studying supply chain metrics, we find that each industry has a definitive pattern. Few are linear. To set reasonable goals, the definitions need to be very industry specific. That is the goal of this report.
In developing supply chain strategy, one of the first objectives is defining what is possible. This involves delineating the metrics, establishing reasonable targets, and rates of improvement. In the review of strategy documents for clients, we find that most companies are not clear on any of these critical sets of assumptions. This report is designed to help. We start with the definition of metrics and then share industry progress for the period of 2006-2016. This report ends with recommendations and conclusions.
• Report Details: This report is based on the analysis of orbit chart charts showing year-over-year supply chain performance at the intersection of operating margin and inventory turns for twenty industries for the period of 2006-2016. The goal is to help supply chain leaders to understand what is possible.
• Objective: As supply chain leaders attempt to define supply chain excellence, they need guidance on industry supply chain performance and overall trends for benchmarking. The goal is to help supply chain leaders make better decisions.
• Hypothesis: Each industry is unique and a good supply chain has different characteristics based upon the specific industry it is in, the product it creates and the customers it serves. Our aim is to help supply chain leaders understand relative industry performance. As shown in this report, each individual industry is charting a unique path on supply chain performance.
Putting Together the Pieces: Supply Chain Analytics - 2 SEP 2017Lora Cecere
RESEARCH OVERVIEW:
Report Details: This report is the result of six months of studying the emerging supply chain analytics technology market. This report is based on qualitative research completed in the period of January-July 2016. In this research effort, we interviewed thirty-five technology analytics providers to understand their solutions. This was followed by interviews with thirty innovative supply chain leaders. To support this research and take it one step further, we augment these qualitative insights with quantitative survey analysis collected in preparation for the Supply Chain Insights Global Summit. In this research, we share insights on the importance of supply chain analytics in Supply Chain 2030 strategies. Here we share these findings.
Objective: To understand the changing role of supply chain analytics in supply chain strategy.
Highlight: With the changing face of supply chain analytics companies have greater opportunities to drive insights and gain competitive advantage. This report is designed to help companies bridge traditional thinking on supply chain analytics while embracing emerging technologies.
Executive Summary
Supply chains are drowning in data, but are low on insights. While the cost of computing memory was once a barrier to executing an analytics strategy, this is no longer the case. The largest barrier is the understanding of new forms of analytics.
Historically, the term supply chain analytics was used to describe reporting. This is no longer the case. Today there are more options and capabilities for supply chain analytics. There is a proliferation of new technologies flooding the market.
Ironically, despite the explosion of options as shown in Figure 1, the supply chain operating team is more conservative. It is a skewed distribution. When it comes to decision support, the number of late adopters outnumber the early adopters three to one. The lack of early adopters, the rapid rate of change, and the conventional architectural definitions (primarily focused on Enterprise Resource Planning or ERP-based architectures) are barriers to the adoption of new forms of supply chain analytics.
Imagine the Supply Chain of the Future - 21 OCT 2014Lora Cecere
Executive Overview
When we ask companies to imagine the supply chain of the future, they have to start with what they have today. Most companies today are stuck, and find it hard to conceive the supply chain of the future. To free their thinking they have to learn from the past, to unlearn what they believe is a world of best practices, and establish methodologies to imagine the supply chain of the future. Changing traditional paradigms is a starting point.
For most, the journey is not easy. As shown in Figure 1, the terms most commonly used to describe the supply chain today are traditional, tactical, and cautious. Today there is significant room for improvement, with only one in three supply chain leaders feeling that what they have now is working well. Most of the supply chain processes are inside-out which is a barrier to sensing demand and building demand-driven or market-driven processes.
The incentive to change lies in balance sheet performance. When we analyze financial balance sheet performance for the period of 2006-2013, we find that nine out of ten companies are stuck at the intersection of the two critical metrics of operating margin and inventory turns. Publicly-held companies are unable to power improvements in both metrics for more than two consecutive years. For most, improvement has become an OR condition with companies making improvements in one of the two metrics, but not both together. This is an area of frustration and disappointment for business leaders that want to leverage supply chain technologies and processes to deliver both cash and cost savings to the organization. As growth slows, this shift is more important. In this report, we share highlights on the research gathered for our recent conference, Supply Chain Insights Global Summit.
2016 Supply Chains to Admire - Report - 26 July 2016Lora Cecere
Executive Summary
Supply chain excellence is easier to say than define. To make progress, companies need to clearly define the journey and the goals. For many this is problematic. The goals are unclear and the financial metrics are not well-understood. We want to provide research to help supply chain leaders correct these issues.
Supply chain leaders want to improve results to drive shareholder value, but there is a problem. There is no industry standard definition of supply chain excellence or clarity on the how actions of the supply chain team drive shareholder value. In this report we try to help fill in the gaps by giving definitions to both.
The Supply Chains to Admire analysis is now in its third year. It is a deep analysis of performance, improvement, and Price to Tangible Book Value (PTBV) of 320 companies across 31 industries for the period of 2009-2015. The source data for the analysis is public reporting of balance sheets and income statements. (Our source of balance sheet and income statement data is YCharts .)
Supply Chain Metrics That Matter - A Focus on Chemical Companies - 28 May 2015Lora Cecere
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.
Inventory Optimization in a Market-Driven World - 27 APR 2015Lora Cecere
Executive Overview
Growth is slowing and the complexity in today’s supply chain is unprecedented. As a result, within a company, inventory management is often a hot issue. Shrinking inventory spins off a one-time, and highly desirable, cash windfall. In most industries there is a connection between market capitalization and inventory management. This drives pressure to reduce inventory and question existing practices. However, while companies are quick to ask questions, they often make the wrong judgements about inventory strategies. The goal of this report is to improve this dialogue.
Most companies have invested in many inventory optimization solutions over the last decade. Within the company, there is mounting frustration about the failure of these projects to actualize and maintain targets. What most companies fail to realize is that the technology strategy needs to be worked in concert with supply chain strategy. Often we find while companies improve inventory levels through the deployment of inventory technologies, operational decisions to widen the item master or lengthen the supply chain will undermine the project targets.
There are many drivers of inventory, and the management of inventory levels requires discipline and a cross-functional focus. It is a story of people, process, and technology. Let’s start with people. Today, fewer than 5% of companies have an end-to-end focus (as defined from the customer’s customer to the supplier’s supplier), and most companies lack alignment and balance. The largest gaps between are between operational and commercial groups. (Cecere L. , Three Techniques to Improve Organizational Alignment, 2013). As companies close the organizational gap, progress is made on inventory. Likewise, when it comes to balance, 68% of organizations surveyed lack balance in Sales and Operations Planning between the commercial groups (the “S”) and the operational groups (the “OP), When balance is achieved, the organization rates itself as more agile, and aligned, and there is an 11% improvement in inventory turns (Cecere L. , Research in Review, 2014).
Supply chain processes are now over 30-years old. While there is a generalized belief that maturity of supply chain processes has improved inventory turns, as can be seen in Figure 2, the improvements in cash-to-cash have primarily been driven by lengthening payables. In industries like beverage, pharmaceuticals, consumer packaged goods and medical device, the industry averages have gone backwards (inventory turns have decreased not increased). Only the food and apparel industries have posted double-digit improvements in inventory turns. Why? Food and apparel are largely regional supply chains which are maturing. They lag consumer packaged goods in supply chain maturity. While consumer packaged goods companies are more mature, they are more global. The rise of the global multinational has greatly impacted inventory requirements.
Supply Chain Metrics That Matter: A Focus on the Retail Industry - 16 FEB 2017Lora Cecere
Report Details: This report is based on analysis of financial balance sheet and income statement data within the Retail industry, for the period of 2006-2015. The data is collected from YCharts.
Objective: To use financial balance sheet and income statement data to better understand the state of Grocery Retailers' and Mass Merchants' supply chains and to determine which companies’ supply chains did the best on the delivery of a portfolio of metrics over the last decade.
Highlight: During the Great Recession retailers faced strong declines in spending. It was a critical time, but for many it was an opportunity to emerge stronger. Those who redefined their stores for the dollar-conscious customer or built new and innovative formats while driving supply chain innovation, drove strong balance sheet results. Others learned that doing traditional retail more efficiently was not enough.
How Do We Heal the Healthcare Value Chain? - 9 MAY 2013Lora Cecere
Over the last decade, as shown in figure 1, the hospital supply chain has been one of the few that has improved operating margin, reduced inventory and improved revenue/employee. In contrast, the manufacturing suppliers to the hospital organization have grown inventories and struggled to preserve margins. Across the value chain from the patient to the raw material suppliers, total inventories have grown and costs have escalated. With pending regulations, hospitals are being forced to rethink processes, redefine value and work more holistically to improve sourcing practices. The suppliers to the hospital systems are having to rethink their systems to rethink the customer (from selling to the physician to selling to a more formal buying organization based on patient outcomes) and adapt to the new processes within the hospital for value analysis.
Supply chain processes within the hospitals have matured. Hospitals have made more progress on improving cash-to-cash cycles than their upstream manufacturing trading partners. They have reduced inventories and attempted to work with suppliers. As shown in figure 2, it is notable to see that this industry is one of the few where downstream trading partners have actually improved payable terms for their suppliers.
The future lies before the healthcare provider. As the provider of patient care, they have the greatest potential to lead in the healthcare value chain’s redesign to improve value. They have come a long way, but the changes have been incremental. They have focused primarily on traditional sourcing techniques; not a redesign of the healthcare value chain from the outside in, and the redefinition of complex and antiquated processes.
Conquering the Supply Chain Effective Frontier - 27 NOV 2017 - ReportLora Cecere
Executive Overview
Over the course of the last decade, retailers made more progress on costs and inventory turns than manufacturers. In the rush for technology adoption, we commonly find companies overstating what is possible because they are not clear on the historical trends, and often mistakenly coached to overcommit by industry consultants to justify technology investments.
In studying supply chain metrics, we find that each industry has a definitive pattern. Few are linear. To set reasonable goals, the definitions need to be very industry specific. That is the goal of this report.
In developing supply chain strategy, one of the first objectives is defining what is possible. This involves delineating the metrics, establishing reasonable targets, and rates of improvement. In the review of strategy documents for clients, we find that most companies are not clear on any of these critical sets of assumptions. This report is designed to help. We start with the definition of metrics and then share industry progress for the period of 2006-2016. This report ends with recommendations and conclusions.
• Report Details: This report is based on the analysis of orbit chart charts showing year-over-year supply chain performance at the intersection of operating margin and inventory turns for twenty industries for the period of 2006-2016. The goal is to help supply chain leaders to understand what is possible.
• Objective: As supply chain leaders attempt to define supply chain excellence, they need guidance on industry supply chain performance and overall trends for benchmarking. The goal is to help supply chain leaders make better decisions.
• Hypothesis: Each industry is unique and a good supply chain has different characteristics based upon the specific industry it is in, the product it creates and the customers it serves. Our aim is to help supply chain leaders understand relative industry performance. As shown in this report, each individual industry is charting a unique path on supply chain performance.
Putting Together the Pieces: Supply Chain Analytics - 2 SEP 2017Lora Cecere
RESEARCH OVERVIEW:
Report Details: This report is the result of six months of studying the emerging supply chain analytics technology market. This report is based on qualitative research completed in the period of January-July 2016. In this research effort, we interviewed thirty-five technology analytics providers to understand their solutions. This was followed by interviews with thirty innovative supply chain leaders. To support this research and take it one step further, we augment these qualitative insights with quantitative survey analysis collected in preparation for the Supply Chain Insights Global Summit. In this research, we share insights on the importance of supply chain analytics in Supply Chain 2030 strategies. Here we share these findings.
Objective: To understand the changing role of supply chain analytics in supply chain strategy.
Highlight: With the changing face of supply chain analytics companies have greater opportunities to drive insights and gain competitive advantage. This report is designed to help companies bridge traditional thinking on supply chain analytics while embracing emerging technologies.
Executive Summary
Supply chains are drowning in data, but are low on insights. While the cost of computing memory was once a barrier to executing an analytics strategy, this is no longer the case. The largest barrier is the understanding of new forms of analytics.
Historically, the term supply chain analytics was used to describe reporting. This is no longer the case. Today there are more options and capabilities for supply chain analytics. There is a proliferation of new technologies flooding the market.
Ironically, despite the explosion of options as shown in Figure 1, the supply chain operating team is more conservative. It is a skewed distribution. When it comes to decision support, the number of late adopters outnumber the early adopters three to one. The lack of early adopters, the rapid rate of change, and the conventional architectural definitions (primarily focused on Enterprise Resource Planning or ERP-based architectures) are barriers to the adoption of new forms of supply chain analytics.
Imagine the Supply Chain of the Future - 21 OCT 2014Lora Cecere
Executive Overview
When we ask companies to imagine the supply chain of the future, they have to start with what they have today. Most companies today are stuck, and find it hard to conceive the supply chain of the future. To free their thinking they have to learn from the past, to unlearn what they believe is a world of best practices, and establish methodologies to imagine the supply chain of the future. Changing traditional paradigms is a starting point.
For most, the journey is not easy. As shown in Figure 1, the terms most commonly used to describe the supply chain today are traditional, tactical, and cautious. Today there is significant room for improvement, with only one in three supply chain leaders feeling that what they have now is working well. Most of the supply chain processes are inside-out which is a barrier to sensing demand and building demand-driven or market-driven processes.
The incentive to change lies in balance sheet performance. When we analyze financial balance sheet performance for the period of 2006-2013, we find that nine out of ten companies are stuck at the intersection of the two critical metrics of operating margin and inventory turns. Publicly-held companies are unable to power improvements in both metrics for more than two consecutive years. For most, improvement has become an OR condition with companies making improvements in one of the two metrics, but not both together. This is an area of frustration and disappointment for business leaders that want to leverage supply chain technologies and processes to deliver both cash and cost savings to the organization. As growth slows, this shift is more important. In this report, we share highlights on the research gathered for our recent conference, Supply Chain Insights Global Summit.
2016 Supply Chains to Admire - Report - 26 July 2016Lora Cecere
Executive Summary
Supply chain excellence is easier to say than define. To make progress, companies need to clearly define the journey and the goals. For many this is problematic. The goals are unclear and the financial metrics are not well-understood. We want to provide research to help supply chain leaders correct these issues.
Supply chain leaders want to improve results to drive shareholder value, but there is a problem. There is no industry standard definition of supply chain excellence or clarity on the how actions of the supply chain team drive shareholder value. In this report we try to help fill in the gaps by giving definitions to both.
The Supply Chains to Admire analysis is now in its third year. It is a deep analysis of performance, improvement, and Price to Tangible Book Value (PTBV) of 320 companies across 31 industries for the period of 2009-2015. The source data for the analysis is public reporting of balance sheets and income statements. (Our source of balance sheet and income statement data is YCharts .)
Supply Chain Metrics That Matter - A Focus on Chemical Companies - 28 May 2015Lora Cecere
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.
Inventory Optimization in a Market-Driven World - 27 APR 2015Lora Cecere
Executive Overview
Growth is slowing and the complexity in today’s supply chain is unprecedented. As a result, within a company, inventory management is often a hot issue. Shrinking inventory spins off a one-time, and highly desirable, cash windfall. In most industries there is a connection between market capitalization and inventory management. This drives pressure to reduce inventory and question existing practices. However, while companies are quick to ask questions, they often make the wrong judgements about inventory strategies. The goal of this report is to improve this dialogue.
Most companies have invested in many inventory optimization solutions over the last decade. Within the company, there is mounting frustration about the failure of these projects to actualize and maintain targets. What most companies fail to realize is that the technology strategy needs to be worked in concert with supply chain strategy. Often we find while companies improve inventory levels through the deployment of inventory technologies, operational decisions to widen the item master or lengthen the supply chain will undermine the project targets.
There are many drivers of inventory, and the management of inventory levels requires discipline and a cross-functional focus. It is a story of people, process, and technology. Let’s start with people. Today, fewer than 5% of companies have an end-to-end focus (as defined from the customer’s customer to the supplier’s supplier), and most companies lack alignment and balance. The largest gaps between are between operational and commercial groups. (Cecere L. , Three Techniques to Improve Organizational Alignment, 2013). As companies close the organizational gap, progress is made on inventory. Likewise, when it comes to balance, 68% of organizations surveyed lack balance in Sales and Operations Planning between the commercial groups (the “S”) and the operational groups (the “OP), When balance is achieved, the organization rates itself as more agile, and aligned, and there is an 11% improvement in inventory turns (Cecere L. , Research in Review, 2014).
Supply chain processes are now over 30-years old. While there is a generalized belief that maturity of supply chain processes has improved inventory turns, as can be seen in Figure 2, the improvements in cash-to-cash have primarily been driven by lengthening payables. In industries like beverage, pharmaceuticals, consumer packaged goods and medical device, the industry averages have gone backwards (inventory turns have decreased not increased). Only the food and apparel industries have posted double-digit improvements in inventory turns. Why? Food and apparel are largely regional supply chains which are maturing. They lag consumer packaged goods in supply chain maturity. While consumer packaged goods companies are more mature, they are more global. The rise of the global multinational has greatly impacted inventory requirements.
The Supply Chain Index: Evaluating the Healthcare Value NetworkLora Cecere
Executive Overview
Supply chain performance matters. It can make or break corporate performance. Now 30-years old, the practice of supply chain management is still evolving. While companies speak of best practices, and boast about improvements in operating margin, inventory levels and asset management in conference after conference, we do not see it in our analysis of balance sheet information.
By their nature, supply chain leaders are competitive. They want to drive performance improvements and increase corporate value. Their goal is to outpace competitors. The rate of business change is intense and the personal stakes are high. Day after day, leaders must answer questions like, “Which path should I to take? What are the best technologies to use? What is an acceptable rate of performance? How am I doing against my peer group? And, what can I learn from others that I can use to improve the performance of my own operation?” Until the development of the Supply Chain Index by Supply Chain Insights, there was no independent and objective data-driven methodology that could answer these questions. With the development of this methodology, there now is.
While it is easy to say the term supply chain excellence, it is difficult to define. Many people think that they know the definition, but there is no agreed-upon standard. The lack of a clear definition, and a methodology to gauge improvement, makes progress hard to quantify and track. The Supply Chain Index is designed to help. It is an objective measurement of supply chain improvement. It enables the comparison of companies’ progress within a peer group for a given time period. The Index is based upon financial performance of companies on four metrics integral to supply chain operations: inventory turns, operating margin, Return on Invested Capital and year-over-year revenue growth. There were three goals.
1. Quantify Levels of Supply Chain Improvement. The Index is a composite metric based on the calculation of balance, strength and resiliency factors for a given time period. In the analysis, there is an underlying assumption that the companies that can sustain the best improvement in these three areas are driving the highest rates of supply chain improvement. The input metrics of inventory turns, operating margin, ROIC and year-over-year revenue growth were selected in part due to their high correlation to market capitalization.
2. Bridge the Gap between Finance and Supply Chain. Our second goal is to bridge the gap between the supply chain organization and the financial team. While the financial team is often backwards-looking at transactions, the supply chain team is forward-looking based on flows. There is often a temptation to focus on a single financial ratio in isolation, like inventory turns, not realizing that the supply chain is a complex system with tightly interrelated relationships amongst metrics based on supply chain potential.
Executive Summary
Supply chain excellence makes a difference to corporate value. Resilient, predictable, and forward-looking supply chain processes drive sustained balance sheet improvement. This is especially true in times of declining growth. (In this research, only four industries—aerospace & defense, apparel, automotive, and packaging suppliers—experienced growth for 2009-2014.)
Leaders want to drive excellence. By their nature these leaders are competitive. They want to power performance improvements, increase corporate value, and outpace competitors. It is not easy. The rate of business change is intense and the personal stakes are high. Day after day, supply chain leaders must answer questions like, “Which path should I to take? What are the best technologies to use? What is an acceptable rate of performance? How am I doing against my peer group? And, what can I learn from others that I can use to improve the performance of my own operation?” Until the development of the Supply Chain Index there was no independent and objective data-driven methodology that could answer these questions. With the development of this methodology there is now a way to gauge improvement.
When we started this work we were fearful that the methodology would not be selective enough to reward leaders. Our fear was that the list would be too large. However, we should not have worried. For two consecutive years only 10% of the companies studied are performing above the average of their peer group on the Supply Chain Metrics That Matter—operating margin, inventory turns and Return on Invested Capital—while driving improvement to a greater degree than their peer group. It is a select group. Figure 5 shows the 26 winners of the 2015 Supply Chains to Admire analysis.
The 26 companies are: Anheuser-Busch InBev; Audi AG; Biogen Inc; CCL Industries Inc.; Cisco Systems, Inc.; Coloplast Corp.; CVS Pharmacy; Dollar General Corporation; Dollar Tree, Inc.; Eastman Chemical Company; EMC Corporation; The Estée Lauder Companies Inc.; General Mills, Inc.; Intel Corporation; Deere & Company; Lexmark International Inc.; L'Oréal Group; Nike, Inc.; PPG Industries; Qualcomm Inc.; Samsung Electronics Co. Ltd.; United Tractors; Wal-Mart Stores, Inc.; Western Digital Corporation; and Whole Foods Market Inc. (Note: Shorter corporate or trade names are used in the tables within this report.)
Seven companies have made the list for two consecutive years: Cisco Systems, Inc.; General Mills, Inc.; Eastman Chemical Company; EMC Corporation; Anheuser-Busch InBev; Intel Corporation; and Nike, Inc.
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies - 15...Lora Cecere
Executive Overview
Food and Beverage supply chains serve local markets. Regional taste buds drive localized assortment. While many are attempting to be global, they have strong regional governance drivers. As a result, growth agendas have driven an increase in items by 32% since 2010. Product complexity grew faster than growth. Average sales per item dropped 22% . This increase in complexity lengthened the long tail of the supply chain affecting both cost and inventory.
We hope this report can be a guide to help companies understand what is possible to determine more accurate set points, and understand the relationship between supply chain metric performance and value.
As will be seen, in the Food and Beverage industries we find most companies to be stuck on the critical metrics that drive value. They have either regressed in supply chain performance or they are at the same point they were a decade ago. For many supply chain leaders who attend conferences this may seem unfathomable. There is an industry belief that companies have implemented new technologies, and evolved processes, and driven improved balance sheet results. As will be shown in this report, this is not true.
The analysis also demonstrates the importance of outside-in supply chain excellence programs. Who does the best? Hershey outperforms within the Food group and makes the Supply Chains to Admire list for 2016; and while AB/InBev drives the strongest performance in the Beverage category, it is not sufficient to make the list. The goal of this report is to enable benchmarking and to spark a new conversation on value in the definition of supply chain excellence.
Building Business-To-Business Supply Chain Networks - Who Are the Players? 24...Lora Cecere
Executive Overview
Today, supply chains are networked. They are not linear. Instead, there are interdependencies with outsourced contract manufacturing companies, third-party logistics providers (3PLs), freight forwarders, and transportation providers. While our relationships are outsourced, our information technology systems are not. Companies have automated the enterprise; but the automation of the extended value chain remains an opportunity.
It is now possible. B2B network solutions are now in their second decade of maturity. Yet, only 7% of flows move through B2B networks0F0F0F . They are maturing and should be considered as a part of a supply chain IT architecture.
Today, most of the networks depend on ad hoc, manual processes. Despite a decade of technology evolution on B2B connectivity, the majority of the flows in the extended network move through spreadsheets, email, and Electronic Data Interchange (EDI). As a result, as things change in the network, it is hard for trading partners to keep the information synchronized. It may be integrated, but it is not synchronized. Why? There is no network system of record. The flows are point-to-point. Data latency is high. As a result, when the data is received, it is often out-of-sync and out-of-date. The links are fragile. As a result, multi-party process automation is not possible.
Most companies know the problem, but they are confused on where to start to solve it. They lack clarity on three basic questions:
1. Why a B2B Supply Chain Business Network Solution versus EDI?
2. Why a B2B Supply Chain Business Network Solution versus ERP?
3. Which B2B Supply Chain Business Network Solution to use?
Answering these questions is the goal of this report.
Executive Summary
No two supply chains are alike, but supply chain leaders across all industries face common challenges. The supply chain is becoming more strategic—an engine of growth and the driver of new business models—to drive new opportunities. For supply chain leaders, it is no longer just a discussion of cost and inventory management.
However, frustration abounds. Companies struggle to improve balance sheet results in the face of rising complexity and slowing growth. While all companies have improved revenue per employee, this efficiency improvement has not translated into operating margin improvements; and while cash-to-cash cycles have improved, it is not due to improvements in inventory positions. Most companies feel stuck, as if they are being held hostage by traditional supply chain practices.
Table 1. Industry Progress Across the Last Decade
In this report, we highlight the current state of supply chains—the supply chain organization, technologies, and process evolution—to enable supply chain leaders to take the next step in their strategy development. This report reflects the current state of supply chains, and is designed as a foundational document for supply chain leaders to build their 2015 strategies.
Understanding the Supply Chain Organization
Improving corporate performance is the driver of today’s supply chain organization. Increasingly, supply chain leaders are adopting new business models—ecommerce, digital business, and growth in new economies—to drive the top line.
Today, for the leader, it is about more than cost management. Instead, it is about the management of a portfolio of metrics to drive corporate performance. The supply chain is a complex system, with increasing complexity, and an increasing importance of driving balance sheet results. It is not easy. Improvement is hard work, and many are stuck. When we analyze financial balance sheet performance for the period of 2000-2013, we find that nine out of ten companies are stuck at the intersection of the two critical metrics of operating margin and inventory turns. Cash flow has been improved through elongating payables, and most companies are struggling to improve inventory in the face of complexity. This is an area of frustration and disappointment for business leaders who want to leverage supply chain technologies and processes to deliver both growth opportunities along with cash and cost savings to the organization.
The reason why? Today, the supply chain organization is traditional, tactical and cautious (see Figure 2). Most leaders would like to have a supply chain that is more agile and proactive. This is not possible with the current state of technologies and processes. To make the shift, companies need to reinvent the supply chain. The processes need to be redesigned outside-in with open sharing through business networks. These new forms of business networks, with many-to-many data models supported by canonical infrastructure, a
Supply Chain Centers of Excellence Study - Summary Charts - 2014 - 2015Lora Cecere
Executive Overview
Growth is slowing and the complexity in today’s supply chain is unprecedented. No two centers of excellence are the same, and no two supply chains are alike. There are different drivers and obstacles to building and running a Center of Excellence. However, if done right, the organization rates itself as more aligned, proactive and agile. The high-level results from our study are shown in Figure 2.
Figure 2. Centers of Excellence Infographic
Based on our qualitative interviews with clients, we find that these seven drivers to build a Center of Excellence:
• Increase in the Importance of Supply Chain Management. As growth slows, and the global multinational organization matures, more and more companies are interested in driving supply chain excellence. The reasons are many; but, at the top of the list is improving reliability in the face of volatility. How so? Demand volatility is increasing and supplier viability is growing more fragile. Driving reliability in global operations in the face of these challenges is fundamental to defining and executing supply chain excellence.
• Building of Global Teams and the Development of Supply Chain Talent. With the shortage of students from academia, and the retirement of the first- and second-generation supply chain pioneers, more and more companies are developing and executing programs to build supply chain talent. There is a shortage of mid-management talent with pressure on planning job retention. There is a limited supply of supply chain knowledge workers: leaders that are technologically savvy, analytical problem solvers, and astute in business processes.
• Continuation of Work on Enterprise Resource Planning (ERP). When companies complete a large ERP project, there is a strong impetus to get the value from the investment and ensure technology usage. The focus of the Center of Excellence often becomes an extension of the global implementation team.
• Metrics and Implementation of Analytics. While the management of supply chain excellence sounds easy, it is not. The management of order-to-cash and procure-to-pay processes and the supply chain execution processes are easier because they are well-defined. Most companies struggle with the definition of planning and the use of new forms of analytics.
• Network Design and the Orchestration of Flows. Most companies start on their supply chain design journey to save costs in logistics. With the increasing cost of transportation, and the fragility of freight networks, network design for transportation and logistics networks is paramount. One client likened it to “minting money.”
• Testing of New Technologies. Cloud technologies. Supply chain operating networks. The Internet of Things. 3D Printing. New forms of analytics. The list of technology and process disruptors could go on and on. While most companies feel stuck in their existing, and more traditional, processes they want to understand and explore technology
Three Techniques to Improve Organizational Alignment-9 July 2013Lora Cecere
When organizations are aligned, things happen quicker. It takes less effort. People know what to do, and there is a greater bias for action. As a result, the organization can achieve higher levels of results and better withstand the pressures of demand and supply volatility.
Line of business leaders lack alignment. While many consultants claim that business results happen through better IT and business alignment, in this study, we find that the gaps in functional alignment within the business functions of sales, marketing, finance, and supply chain are far greater than the gaps between IT and line of business.
As shown in figure 2, within the organization, demand and supply volatility reigns. It is growing worse. This pain is felt across the line of business functions. To weather the storm, functions attempt to align, but doing this is easier said than done. It requires work and leadership.
This misalignment is not equal by business function. Of the three groups in this survey—supply chain, finance and information technology (IT)—the supply chain organization feels the alignment issue to a greater degree than the other two business functions. As shown in figure 2, it is one of their top three business pains.
So, what can an organizational leader do to improve alignment? In this study, we find that when companies do three things, and focus on doing them well, they can substantially improve organizational alignment:
• Have a Clear Definition of Supply Chain Strategy. While many companies state that they want to be “agile,” it requires definition. Companies need to design a supply chain with this goal in mind. When the organization has a carefully crafted definition of agility, it is able to improve organizational alignment. The definition of “shorter cycles” is not sufficient.
• Sales and Operations Planning. Organizations with a mature S&OP process are more aligned. In this study, 61% of supply chain respondents report having an S&OP process, but 48% of that group rate their process as effective. For a more detailed analysis of S&OP, please refer to our report Sales and Operations Planning: Current State of the Union.
• Supply Chain Center of Excellence. Organizations with a supply chain center of excellence are more aligned. The greatest impacts are between marketing and finance, as well as operations and Corporate Social Responsibility.
The study shows that there is significant opportunity for organizations to improve on all three of these critical factors. The good news for supply chain leaders is that this study provides three clear actions that can deliver improved alignment.
Driving Digital Supply Chain Transformation - A Handbook - 23 MAY 2017Lora Cecere
Insights on driving a digital transformation based on research on new technologies, advisory work with clients, and quantitative research projects. This is a short handbook to help companies get started on their journey to define the digital supply chain.
What Is the Value Proposition of Sales and Operations Planning?Lora Cecere
Survey Details: The research for this report was conducted online from January 6 - September 14, 2015 by Supply Chain Insights. Surveys were conducted among Manufacturers and Wholesalers/Distributors/Co-operatives with $250M+ in revenue and who have at least one S&OP process (n=73). For the purpose of analysis, respondents were split between those with a self-reported "effective" S&OP (n=31) and those without (n=42).
Objective: To understand the value proposition of an effective S&OP (Sales and Operations Planning) process. NOTE: An S&OP process was defined as a "tactical planning process to forecast sales and plan operations."
Highlight: Companies with a more effective S&OP process are more aligned, agile and balanced, which leads to greater control and improved response.
The Supply Chain Index: Evaluating the Industrial Value Network - 18 AUG 2014Lora Cecere
Executive Overview
Supply chain performance matters. It can make or break corporate performance. Now 30-years old, the practice of supply chain management is still evolving. While companies speak of best practices, and boast about improvements in operating margin, inventory levels and asset management in conference after conference, we do not see it in our analysis of balance sheet information for any industry.
By their nature, supply chain leaders are competitive. They want to drive performance improvements and increase corporate value. Their goal is to outpace competitors. The rate of business change is intense and the personal stakes are high. Day after day, leaders must answer questions like, “Which path should I to take? What are the best technologies to use? What is an acceptable rate of performance? How am I doing against my peer group? And, what can I learn from others that I can use to improve the performance of my own operation?” Until the development of the Supply Chain Index by Supply Chain Insights, there was no independent and objective data-driven methodology that could answer these questions. With the development of this methodology, there now is a way to gauge improvement.
While it is easy to say the term supply chain excellence, it is difficult to define. Many people think that they know the definition, but there is no agreed-upon standard. The lack of a clear definition, and a methodology to measure improvement, makes progress hard to quantify and track.
The Supply Chain Index is designed to help. It is an objective measurement of supply chain improvement. It enables the comparison of companies’ progress within a peer group for a given time period. The Index is based upon financial performance of companies on four metrics integral to supply chain operations: Year-over-Year Revenue Growth, Return on Invested Capital, Inventory Turns, and Operating Margin. In building the Supply Chain Index, we had three goals:
1. Quantify Levels of Supply Chain Improvement. The Index is a composite metric based on the calculation of balance, strength and resiliency factors for a given time period. Each factor is measuring the pattern of performance over time. In the analysis, there is an underlying assumption that the companies that can sustain the best improvement in these three areas are driving the highest rates of supply chain improvement. The input metrics of Year-over-Year Revenue Growth, Return on Invested Capital, Inventory Turns, and Operating Margin were selected in part due to their high correlation to market capitalization.
2. Bridge the Gap between Finance and Supply Chain. Our second goal is to bridge the gap between the supply chain organization and the financial team...
For the supply chain leader, Big Data is a new concept. It is not one that is currently well understood. It will be overhyped and overpromised before the concepts reach mainstream adoption. However, it is here to stay. The goal of this report is to better educate and prepare the supply chain leader for this change. In this report, we define the concepts and share insights to help leaders better understand how Big Data concepts can help solve problems in today’s supply chain.
Big Data and Analytics: The New Underpinning for Supply Chain Success? - 17 F...Lora Cecere
Executive Overview
Today data is everywhere: but, nowhere. The world’s per capita capacity to store information has doubled every 40 months since the 1980s; and as of 2012, every day globally, 2.5 exabytes of data are created . As a result, social and customer data piles on the doorstep of the corporation, and operational data sits in the creases and cracks between functions. While many companies invested in data warehouse technologies and advanced applications for optimization, a common complaint in qualitative interviews with business leaders is “I cannot get to my data.” One business leader likened it to a Hotel California where, “The data checks into the system, but does not check out.” In most companies with heterogeneous information technology landscapes, simple reporting is still a major problem.
In the face of growing data, companies struggle with the basics. The question is, “Why pursue a big data and analytics strategy if the company cannot do basis reporting?” No doubt about it, the current state of analytics is a barrier to building supply chain excellence. It is hard to have a data-driven discussion if you can’t get access to data.
Supply Chain Metrics That Matter: A Focus on the High-Tech Industry - 2016Lora Cecere
Executive Overview
High-Tech supply chains serve global markets with regional preferences. They include some of the most advanced processes and strongest supply chain leadership across all industries. As a result, the value chain made more progress than others in the course of the last decade.
Unlike other value chains, all four segments of this value chain improved inventory turns. It was through hard work, network design, and a focus on planning. While other industries implemented supply chain planning and then turned to spreadsheets, this industry got good at managing inventories. The stakes were higher. As inventories sit in the channel for the High-Tech industry, prices fall. As a result, this industry has developed some of the best inventory practices across all industries.
On the flip-side, the lack of growth and the declining margins of the Contract Manufacturing industry is a risk for this value chain. Within the High-Tech value chain, Contract Manufacturing is the weak link.
The industry will drive the autonomous supply chain. These leaders will make the digital pivot first. With some of the earliest technology adopters, and with more to gain from the adoption of technology, look for companies like Apple, Cisco, Dell, EMC, Emerson, Intel, and Samsung to drive cloud-based computing, cognitive computing, the Internet of Things (IoT), sensor development, and prescriptive analytics. The industry is also driving a shift through wide adoption and use of Open Source code from the Apache Software Foundation. These manufacturing leaders will pave the way for others. Their ability to lead will drive cross-industry demand and growth agendas.
We hope that this report is a useful guide for companies in other industries to understand the impact of technology adoption on supply chain excellence.
Sales & Operations Planning - The State of the Union - 10 June 2013Lora Cecere
Sales and Operations Planning processes are now in their fourth decade of maturity. The processes are growing more complex. Progress is slow. The infographic below shows the current state of the union of sales and operations into S&OP processes. In this world of uncertainty, good planning matters. Complexity and volatility are escalating. Improving S&OP in a systematic approach, focused on goal evolution and systemic process governance, makes a difference; but, it requires education. A barrier to improvement is the executive team not understanding the supply chain as a complex system. It is the goal of this report to help alleviate this problem.
Supply Chain Metrics That Matter: A Focus on Hospitals - 6 JAN 2013Lora Cecere
Executive Overview
Growth is slowing. Profitability is tougher. Compliance mandates are growing. How do companies balance the goals for value-based outcomes for health and wellness with costs? In this environment, supply chain matters more than ever.
In this report, we share insights on healthcare supply chains. Grown out of the offices of procurement, the supply chain function of the hospital is still in its infancy; but based on increasing business requirements and complexity, it is only beginning to show its true potential.
Growth: Futures are Uncertain.
The hospital administrator is facing many challenges. Growth is slowing and pressures are growing. The question is how to balance patient outcomes with better cost management. How does a hospital move forward with an uncertain future? And, what will be the impact of healthcare reform?
In table 1, we list top line growth over the past decade for four companies operating within the hospital industry. While there are ups and downs, the general trend is downward.
Supply Chain Metrics That Matter: A Focus on Chemical, and Oil & Gas Companie...Lora Cecere
Executive Overview
Chemical supply chains serve global markets and multiple industries at varying levels of maturity. Over the last decade, no company stands out as a leader. The industry is stuck unable to make significant improvement on margin, inventory and asset utilization. The facts run counter to traditional beliefs. In most companies, there is a pervasive belief that Chemical and Oil and Gas companies implemented new technologies, and evolved processes to drive improved balance sheet results. As will be shown in this report, this is not true.
Why did this happen? The focus of the chemical companies remains functional and inside-out. The industry is slow to build adaptive networks and even slower to adopt demand-driven processes. This is in sharp contrast to an industry like consumer electronics where the thrusts and changes were swift and direct. To survive, these companies adopted new processes and technologies at a quicker rate than those in the Chemical, and Oil and Gas industries.
BASF wins the Supply Chains to Admire award while Statoil becomes a finalist. To help the industry to understand the current state and benchmark current processes, here we share insights.
The Race for Growth
The chemical industry experienced a post-recessionary boom with growth rates of 11% in the period of 2010-2012. In the recent three years, the growth rate has slowed to -1%. These recent growth rates were greatly affected by the boon and slowing of the Chinese markets and by the ups and down in crude. Over the period, AgroSciences and Specialty chemicals experienced the highest growth rates of the sector.
With the dramatic impact of the economy of growth and industry sector performance, one would think that the supply chain leaders of this sector would be aggressively pursuing market-driven supply chain practices to forecast based on market indicators and translate channel demand to supply. This is not the case. These processes remain very supply-centered with no chemical company driving market-driven programs.
Supply Chain Metrics That Matter: A Focus on Medical Device Companies – 2016Lora Cecere
Executive Overview
Globalization. Compliance. Risk Management. Corporate Social Responsibility (CSR). Patient outcomes. Over the last decade the number and variety of supply chain initiatives exploded for the medical device leader. As a result, the supply chain group, and the related business imperatives, grew in importance.
Overall the medical device supply chain fared better through the decade than other industries, despite the fact that they are smaller, more focused companies trying to become global. (see Table C in the appendix for company size). On average the industry performance on operating margin and inventory turns was better in 2006 than 2015. The reason? The medical device supply chain entered the decade as a supply chain laggard. Through focused supply chain programs they were able to catch up to the level of other industries.
Table 6. Industry Snapshot of Performance
We hope this report can be a guide to help companies understand what is possible, and how supply chain metrics drive value. In the medical device industry we find most companies to be stuck. They have either regressed in supply chain performance or they are at the same point they were a decade ago. For many supply chain leaders that attend conferences, this may seem unfathomable. There is an industry belief that companies have implemented new technologies, and evolved processes, and driven improved balance sheet results. The goal of this report is to enable benchmarking and to spark a new conversation on the definition of supply chain excellence.
Supply Chain Metrics That Matter: A Focus on RetailLora Cecere
■Survey Details: The basis of this report is publically available information from corporate annual reports from the period of 2000-2012. In this report, we use this data to understand the past trends and future projections of retail industry supply chains. To drive insights, we augment this financial data with information that we have obtained through interactions with retail clients and recent insights from our quantitative research studies.
■Objective: To use financial balance sheet data coupled with recent research to better understand the state of retail supply chains.
■Hypothesis: With the shifts in the channel, the role of the store has changed, and there is a need to redefine value in the value chain.
The Global Supply Chain Ups the Ante for Risk ManagementLora Cecere
Executive Summary
Unfortunately, supply chain disruptions are a fact of life for today’s global multinational company. The reasons are many. A risk management event can be triggered by natural events, geopolitical shifts, economic uncertainty and demand/supply volatility.
Historically, the roots and genesis of risk management programs were based on attempts to reduce insurance costs. Today it is much, much more. The focus is on prevention, early sensing, and the execution of well-orchestrated plans to mitigate the impact of a disruption. Global supply chain leaders understand that designing and implementing a robust risk management practice is essential and fundamental to running a global business. The size of the bubble in Figure 2 indicates the relative level of risk today, and the colors correspond to the level of risk.
Figure 2. Comparison of Risk Drivers for the Past Five Years and Future Five Years
While product quality and supply chain visibility are declining but still important, the areas of operations complexity and the definition of globalization infrastructure is increasing. The areas of economic uncertainty, supplier reliability, along with demand volatility, are continued risk factors.
Over time, as supply chains morphed from regional to global multinational organizations, globalization and regulatory compliance increased. As a result, procurement has shifted from traditional programs focused solely on contract management, price and term negotiations, and supplier scorecards to include the evolution of supplier development, to manage product quality and multi-tier supplier relationships, in and across value chain relationships.
Today is a less certain world than a decade ago. Geopolitical shifts, economic uncertainty and demand/supply volatility are rising. In addition, to spur growth companies are quick to add products to the item master, but slow to rationalize the portfolio. The rising complexity of items sold decreases the organization’s ability to forecast, and the longer lead times across multiple tiers of sourcing and supply increases the Bullwhip Effect’s impact (distortion of the demand signal across multiple tiers of the value network). As a result, there is a greater need for supplier development and supplier sensing to reduce supply risk. Inventory management and supplier financial sensing grow in importance with the increase in uncertainty.
Risk management is no longer narrowly focused: a technology, a response to a natural disaster, or improving supply chain visibility. Instead, it is more holistic with a focus on managing demand and supply variability cross-functionally and improving outcomes in an uncertain world.
In this report, we share insights on the current state of risk management programs while providing recommendations on what defines excellence.
The Supply Chains to Admire™ analysis is an annual study of supply chain excellence. Now in its fifth year of development, the focus of this research is to better understand supply chain performance and improvement of 655 publicly held companies in 28 peer groups for the period of 2010-2017. This year there are 31 winners! At the 2018 Supply Chain Insights Global Summit, winners from the analysis will share insights on driving supply chain excellence.
Supply Chains to Admire - An Analysis of Supply Chain Excellence for 2006-2013Lora Cecere
Executive Overview
Supply chain excellence matters. It can make or break corporate performance. To drive improvements, companies need a clear definition of supply chain competency. It is easier to state than to define, and the market is full of beliefs that are not grounded by hard, cold facts.
Now 30-years old, the practice of supply chain management is still evolving. While companies speak of ‘best practices’, and boast about improvements in operating margin, inventory levels and asset management in conference after conference, we do not see it in our analysis of balance sheet information for any industry. The reason? The supply chain is not well-understood by executive teams, and many companies have pursued a project-based approach (implementing multiple projects with ROI above a threshold) or a focus on vertical excellence (where functional charters create very strong functional excellence); however, this is misguided. We do not find that these two approaches make a difference. Instead, we find that it is supply chain leadership driving resilient, predictable, and forward-looking processes that drives sustained balance sheet improvement. We find that for top performers that it happens in a slow and steady pattern versus the big-bang approach.
Supply chain leaders want to drive excellence. By their nature, these leaders are competitive. They want to drive performance improvements, increase corporate value and outpace competitors. It is not easy. The rate of business change is intense and the personal stakes are high. Day after day, leaders must answer questions like, “Which path should I to take? What are the best technologies to use? What is an acceptable rate of performance? How am I doing against my peer group? And, what can I learn from others that I can use to improve the performance of my own operation?” Until the development of the Supply Chain Index there was no independent and objective data-driven methodology that could answer these questions. With the development of this methodology, there now is a way to gauge improvement.
Collecting the data and doing the analysis in this report is the result of a 24-month effort. We were fearful at the end of the process that it would be difficult to pick the top performers, but we should not have worried. When we applied the methodology, the top companies hopped off the page. They were easy to spot. Listed by industry, the Companies to Admire are listed in Table 4. Within a peer group, we place them within alpha order. Due to the complexity of the analysis it is hard to rate them more granularly.
No companies made the list from the contract manufacturing, medical device, paper, pharmaceutical or retail peer groups. Likewise, there were more companies that made the list in the industrial than the consumer value networks.
The Supply Chain Index: Evaluating the Healthcare Value NetworkLora Cecere
Executive Overview
Supply chain performance matters. It can make or break corporate performance. Now 30-years old, the practice of supply chain management is still evolving. While companies speak of best practices, and boast about improvements in operating margin, inventory levels and asset management in conference after conference, we do not see it in our analysis of balance sheet information.
By their nature, supply chain leaders are competitive. They want to drive performance improvements and increase corporate value. Their goal is to outpace competitors. The rate of business change is intense and the personal stakes are high. Day after day, leaders must answer questions like, “Which path should I to take? What are the best technologies to use? What is an acceptable rate of performance? How am I doing against my peer group? And, what can I learn from others that I can use to improve the performance of my own operation?” Until the development of the Supply Chain Index by Supply Chain Insights, there was no independent and objective data-driven methodology that could answer these questions. With the development of this methodology, there now is.
While it is easy to say the term supply chain excellence, it is difficult to define. Many people think that they know the definition, but there is no agreed-upon standard. The lack of a clear definition, and a methodology to gauge improvement, makes progress hard to quantify and track. The Supply Chain Index is designed to help. It is an objective measurement of supply chain improvement. It enables the comparison of companies’ progress within a peer group for a given time period. The Index is based upon financial performance of companies on four metrics integral to supply chain operations: inventory turns, operating margin, Return on Invested Capital and year-over-year revenue growth. There were three goals.
1. Quantify Levels of Supply Chain Improvement. The Index is a composite metric based on the calculation of balance, strength and resiliency factors for a given time period. In the analysis, there is an underlying assumption that the companies that can sustain the best improvement in these three areas are driving the highest rates of supply chain improvement. The input metrics of inventory turns, operating margin, ROIC and year-over-year revenue growth were selected in part due to their high correlation to market capitalization.
2. Bridge the Gap between Finance and Supply Chain. Our second goal is to bridge the gap between the supply chain organization and the financial team. While the financial team is often backwards-looking at transactions, the supply chain team is forward-looking based on flows. There is often a temptation to focus on a single financial ratio in isolation, like inventory turns, not realizing that the supply chain is a complex system with tightly interrelated relationships amongst metrics based on supply chain potential.
Executive Summary
Supply chain excellence makes a difference to corporate value. Resilient, predictable, and forward-looking supply chain processes drive sustained balance sheet improvement. This is especially true in times of declining growth. (In this research, only four industries—aerospace & defense, apparel, automotive, and packaging suppliers—experienced growth for 2009-2014.)
Leaders want to drive excellence. By their nature these leaders are competitive. They want to power performance improvements, increase corporate value, and outpace competitors. It is not easy. The rate of business change is intense and the personal stakes are high. Day after day, supply chain leaders must answer questions like, “Which path should I to take? What are the best technologies to use? What is an acceptable rate of performance? How am I doing against my peer group? And, what can I learn from others that I can use to improve the performance of my own operation?” Until the development of the Supply Chain Index there was no independent and objective data-driven methodology that could answer these questions. With the development of this methodology there is now a way to gauge improvement.
When we started this work we were fearful that the methodology would not be selective enough to reward leaders. Our fear was that the list would be too large. However, we should not have worried. For two consecutive years only 10% of the companies studied are performing above the average of their peer group on the Supply Chain Metrics That Matter—operating margin, inventory turns and Return on Invested Capital—while driving improvement to a greater degree than their peer group. It is a select group. Figure 5 shows the 26 winners of the 2015 Supply Chains to Admire analysis.
The 26 companies are: Anheuser-Busch InBev; Audi AG; Biogen Inc; CCL Industries Inc.; Cisco Systems, Inc.; Coloplast Corp.; CVS Pharmacy; Dollar General Corporation; Dollar Tree, Inc.; Eastman Chemical Company; EMC Corporation; The Estée Lauder Companies Inc.; General Mills, Inc.; Intel Corporation; Deere & Company; Lexmark International Inc.; L'Oréal Group; Nike, Inc.; PPG Industries; Qualcomm Inc.; Samsung Electronics Co. Ltd.; United Tractors; Wal-Mart Stores, Inc.; Western Digital Corporation; and Whole Foods Market Inc. (Note: Shorter corporate or trade names are used in the tables within this report.)
Seven companies have made the list for two consecutive years: Cisco Systems, Inc.; General Mills, Inc.; Eastman Chemical Company; EMC Corporation; Anheuser-Busch InBev; Intel Corporation; and Nike, Inc.
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies - 15...Lora Cecere
Executive Overview
Food and Beverage supply chains serve local markets. Regional taste buds drive localized assortment. While many are attempting to be global, they have strong regional governance drivers. As a result, growth agendas have driven an increase in items by 32% since 2010. Product complexity grew faster than growth. Average sales per item dropped 22% . This increase in complexity lengthened the long tail of the supply chain affecting both cost and inventory.
We hope this report can be a guide to help companies understand what is possible to determine more accurate set points, and understand the relationship between supply chain metric performance and value.
As will be seen, in the Food and Beverage industries we find most companies to be stuck on the critical metrics that drive value. They have either regressed in supply chain performance or they are at the same point they were a decade ago. For many supply chain leaders who attend conferences this may seem unfathomable. There is an industry belief that companies have implemented new technologies, and evolved processes, and driven improved balance sheet results. As will be shown in this report, this is not true.
The analysis also demonstrates the importance of outside-in supply chain excellence programs. Who does the best? Hershey outperforms within the Food group and makes the Supply Chains to Admire list for 2016; and while AB/InBev drives the strongest performance in the Beverage category, it is not sufficient to make the list. The goal of this report is to enable benchmarking and to spark a new conversation on value in the definition of supply chain excellence.
Building Business-To-Business Supply Chain Networks - Who Are the Players? 24...Lora Cecere
Executive Overview
Today, supply chains are networked. They are not linear. Instead, there are interdependencies with outsourced contract manufacturing companies, third-party logistics providers (3PLs), freight forwarders, and transportation providers. While our relationships are outsourced, our information technology systems are not. Companies have automated the enterprise; but the automation of the extended value chain remains an opportunity.
It is now possible. B2B network solutions are now in their second decade of maturity. Yet, only 7% of flows move through B2B networks0F0F0F . They are maturing and should be considered as a part of a supply chain IT architecture.
Today, most of the networks depend on ad hoc, manual processes. Despite a decade of technology evolution on B2B connectivity, the majority of the flows in the extended network move through spreadsheets, email, and Electronic Data Interchange (EDI). As a result, as things change in the network, it is hard for trading partners to keep the information synchronized. It may be integrated, but it is not synchronized. Why? There is no network system of record. The flows are point-to-point. Data latency is high. As a result, when the data is received, it is often out-of-sync and out-of-date. The links are fragile. As a result, multi-party process automation is not possible.
Most companies know the problem, but they are confused on where to start to solve it. They lack clarity on three basic questions:
1. Why a B2B Supply Chain Business Network Solution versus EDI?
2. Why a B2B Supply Chain Business Network Solution versus ERP?
3. Which B2B Supply Chain Business Network Solution to use?
Answering these questions is the goal of this report.
Executive Summary
No two supply chains are alike, but supply chain leaders across all industries face common challenges. The supply chain is becoming more strategic—an engine of growth and the driver of new business models—to drive new opportunities. For supply chain leaders, it is no longer just a discussion of cost and inventory management.
However, frustration abounds. Companies struggle to improve balance sheet results in the face of rising complexity and slowing growth. While all companies have improved revenue per employee, this efficiency improvement has not translated into operating margin improvements; and while cash-to-cash cycles have improved, it is not due to improvements in inventory positions. Most companies feel stuck, as if they are being held hostage by traditional supply chain practices.
Table 1. Industry Progress Across the Last Decade
In this report, we highlight the current state of supply chains—the supply chain organization, technologies, and process evolution—to enable supply chain leaders to take the next step in their strategy development. This report reflects the current state of supply chains, and is designed as a foundational document for supply chain leaders to build their 2015 strategies.
Understanding the Supply Chain Organization
Improving corporate performance is the driver of today’s supply chain organization. Increasingly, supply chain leaders are adopting new business models—ecommerce, digital business, and growth in new economies—to drive the top line.
Today, for the leader, it is about more than cost management. Instead, it is about the management of a portfolio of metrics to drive corporate performance. The supply chain is a complex system, with increasing complexity, and an increasing importance of driving balance sheet results. It is not easy. Improvement is hard work, and many are stuck. When we analyze financial balance sheet performance for the period of 2000-2013, we find that nine out of ten companies are stuck at the intersection of the two critical metrics of operating margin and inventory turns. Cash flow has been improved through elongating payables, and most companies are struggling to improve inventory in the face of complexity. This is an area of frustration and disappointment for business leaders who want to leverage supply chain technologies and processes to deliver both growth opportunities along with cash and cost savings to the organization.
The reason why? Today, the supply chain organization is traditional, tactical and cautious (see Figure 2). Most leaders would like to have a supply chain that is more agile and proactive. This is not possible with the current state of technologies and processes. To make the shift, companies need to reinvent the supply chain. The processes need to be redesigned outside-in with open sharing through business networks. These new forms of business networks, with many-to-many data models supported by canonical infrastructure, a
Supply Chain Centers of Excellence Study - Summary Charts - 2014 - 2015Lora Cecere
Executive Overview
Growth is slowing and the complexity in today’s supply chain is unprecedented. No two centers of excellence are the same, and no two supply chains are alike. There are different drivers and obstacles to building and running a Center of Excellence. However, if done right, the organization rates itself as more aligned, proactive and agile. The high-level results from our study are shown in Figure 2.
Figure 2. Centers of Excellence Infographic
Based on our qualitative interviews with clients, we find that these seven drivers to build a Center of Excellence:
• Increase in the Importance of Supply Chain Management. As growth slows, and the global multinational organization matures, more and more companies are interested in driving supply chain excellence. The reasons are many; but, at the top of the list is improving reliability in the face of volatility. How so? Demand volatility is increasing and supplier viability is growing more fragile. Driving reliability in global operations in the face of these challenges is fundamental to defining and executing supply chain excellence.
• Building of Global Teams and the Development of Supply Chain Talent. With the shortage of students from academia, and the retirement of the first- and second-generation supply chain pioneers, more and more companies are developing and executing programs to build supply chain talent. There is a shortage of mid-management talent with pressure on planning job retention. There is a limited supply of supply chain knowledge workers: leaders that are technologically savvy, analytical problem solvers, and astute in business processes.
• Continuation of Work on Enterprise Resource Planning (ERP). When companies complete a large ERP project, there is a strong impetus to get the value from the investment and ensure technology usage. The focus of the Center of Excellence often becomes an extension of the global implementation team.
• Metrics and Implementation of Analytics. While the management of supply chain excellence sounds easy, it is not. The management of order-to-cash and procure-to-pay processes and the supply chain execution processes are easier because they are well-defined. Most companies struggle with the definition of planning and the use of new forms of analytics.
• Network Design and the Orchestration of Flows. Most companies start on their supply chain design journey to save costs in logistics. With the increasing cost of transportation, and the fragility of freight networks, network design for transportation and logistics networks is paramount. One client likened it to “minting money.”
• Testing of New Technologies. Cloud technologies. Supply chain operating networks. The Internet of Things. 3D Printing. New forms of analytics. The list of technology and process disruptors could go on and on. While most companies feel stuck in their existing, and more traditional, processes they want to understand and explore technology
Three Techniques to Improve Organizational Alignment-9 July 2013Lora Cecere
When organizations are aligned, things happen quicker. It takes less effort. People know what to do, and there is a greater bias for action. As a result, the organization can achieve higher levels of results and better withstand the pressures of demand and supply volatility.
Line of business leaders lack alignment. While many consultants claim that business results happen through better IT and business alignment, in this study, we find that the gaps in functional alignment within the business functions of sales, marketing, finance, and supply chain are far greater than the gaps between IT and line of business.
As shown in figure 2, within the organization, demand and supply volatility reigns. It is growing worse. This pain is felt across the line of business functions. To weather the storm, functions attempt to align, but doing this is easier said than done. It requires work and leadership.
This misalignment is not equal by business function. Of the three groups in this survey—supply chain, finance and information technology (IT)—the supply chain organization feels the alignment issue to a greater degree than the other two business functions. As shown in figure 2, it is one of their top three business pains.
So, what can an organizational leader do to improve alignment? In this study, we find that when companies do three things, and focus on doing them well, they can substantially improve organizational alignment:
• Have a Clear Definition of Supply Chain Strategy. While many companies state that they want to be “agile,” it requires definition. Companies need to design a supply chain with this goal in mind. When the organization has a carefully crafted definition of agility, it is able to improve organizational alignment. The definition of “shorter cycles” is not sufficient.
• Sales and Operations Planning. Organizations with a mature S&OP process are more aligned. In this study, 61% of supply chain respondents report having an S&OP process, but 48% of that group rate their process as effective. For a more detailed analysis of S&OP, please refer to our report Sales and Operations Planning: Current State of the Union.
• Supply Chain Center of Excellence. Organizations with a supply chain center of excellence are more aligned. The greatest impacts are between marketing and finance, as well as operations and Corporate Social Responsibility.
The study shows that there is significant opportunity for organizations to improve on all three of these critical factors. The good news for supply chain leaders is that this study provides three clear actions that can deliver improved alignment.
Driving Digital Supply Chain Transformation - A Handbook - 23 MAY 2017Lora Cecere
Insights on driving a digital transformation based on research on new technologies, advisory work with clients, and quantitative research projects. This is a short handbook to help companies get started on their journey to define the digital supply chain.
What Is the Value Proposition of Sales and Operations Planning?Lora Cecere
Survey Details: The research for this report was conducted online from January 6 - September 14, 2015 by Supply Chain Insights. Surveys were conducted among Manufacturers and Wholesalers/Distributors/Co-operatives with $250M+ in revenue and who have at least one S&OP process (n=73). For the purpose of analysis, respondents were split between those with a self-reported "effective" S&OP (n=31) and those without (n=42).
Objective: To understand the value proposition of an effective S&OP (Sales and Operations Planning) process. NOTE: An S&OP process was defined as a "tactical planning process to forecast sales and plan operations."
Highlight: Companies with a more effective S&OP process are more aligned, agile and balanced, which leads to greater control and improved response.
The Supply Chain Index: Evaluating the Industrial Value Network - 18 AUG 2014Lora Cecere
Executive Overview
Supply chain performance matters. It can make or break corporate performance. Now 30-years old, the practice of supply chain management is still evolving. While companies speak of best practices, and boast about improvements in operating margin, inventory levels and asset management in conference after conference, we do not see it in our analysis of balance sheet information for any industry.
By their nature, supply chain leaders are competitive. They want to drive performance improvements and increase corporate value. Their goal is to outpace competitors. The rate of business change is intense and the personal stakes are high. Day after day, leaders must answer questions like, “Which path should I to take? What are the best technologies to use? What is an acceptable rate of performance? How am I doing against my peer group? And, what can I learn from others that I can use to improve the performance of my own operation?” Until the development of the Supply Chain Index by Supply Chain Insights, there was no independent and objective data-driven methodology that could answer these questions. With the development of this methodology, there now is a way to gauge improvement.
While it is easy to say the term supply chain excellence, it is difficult to define. Many people think that they know the definition, but there is no agreed-upon standard. The lack of a clear definition, and a methodology to measure improvement, makes progress hard to quantify and track.
The Supply Chain Index is designed to help. It is an objective measurement of supply chain improvement. It enables the comparison of companies’ progress within a peer group for a given time period. The Index is based upon financial performance of companies on four metrics integral to supply chain operations: Year-over-Year Revenue Growth, Return on Invested Capital, Inventory Turns, and Operating Margin. In building the Supply Chain Index, we had three goals:
1. Quantify Levels of Supply Chain Improvement. The Index is a composite metric based on the calculation of balance, strength and resiliency factors for a given time period. Each factor is measuring the pattern of performance over time. In the analysis, there is an underlying assumption that the companies that can sustain the best improvement in these three areas are driving the highest rates of supply chain improvement. The input metrics of Year-over-Year Revenue Growth, Return on Invested Capital, Inventory Turns, and Operating Margin were selected in part due to their high correlation to market capitalization.
2. Bridge the Gap between Finance and Supply Chain. Our second goal is to bridge the gap between the supply chain organization and the financial team...
For the supply chain leader, Big Data is a new concept. It is not one that is currently well understood. It will be overhyped and overpromised before the concepts reach mainstream adoption. However, it is here to stay. The goal of this report is to better educate and prepare the supply chain leader for this change. In this report, we define the concepts and share insights to help leaders better understand how Big Data concepts can help solve problems in today’s supply chain.
Big Data and Analytics: The New Underpinning for Supply Chain Success? - 17 F...Lora Cecere
Executive Overview
Today data is everywhere: but, nowhere. The world’s per capita capacity to store information has doubled every 40 months since the 1980s; and as of 2012, every day globally, 2.5 exabytes of data are created . As a result, social and customer data piles on the doorstep of the corporation, and operational data sits in the creases and cracks between functions. While many companies invested in data warehouse technologies and advanced applications for optimization, a common complaint in qualitative interviews with business leaders is “I cannot get to my data.” One business leader likened it to a Hotel California where, “The data checks into the system, but does not check out.” In most companies with heterogeneous information technology landscapes, simple reporting is still a major problem.
In the face of growing data, companies struggle with the basics. The question is, “Why pursue a big data and analytics strategy if the company cannot do basis reporting?” No doubt about it, the current state of analytics is a barrier to building supply chain excellence. It is hard to have a data-driven discussion if you can’t get access to data.
Supply Chain Metrics That Matter: A Focus on the High-Tech Industry - 2016Lora Cecere
Executive Overview
High-Tech supply chains serve global markets with regional preferences. They include some of the most advanced processes and strongest supply chain leadership across all industries. As a result, the value chain made more progress than others in the course of the last decade.
Unlike other value chains, all four segments of this value chain improved inventory turns. It was through hard work, network design, and a focus on planning. While other industries implemented supply chain planning and then turned to spreadsheets, this industry got good at managing inventories. The stakes were higher. As inventories sit in the channel for the High-Tech industry, prices fall. As a result, this industry has developed some of the best inventory practices across all industries.
On the flip-side, the lack of growth and the declining margins of the Contract Manufacturing industry is a risk for this value chain. Within the High-Tech value chain, Contract Manufacturing is the weak link.
The industry will drive the autonomous supply chain. These leaders will make the digital pivot first. With some of the earliest technology adopters, and with more to gain from the adoption of technology, look for companies like Apple, Cisco, Dell, EMC, Emerson, Intel, and Samsung to drive cloud-based computing, cognitive computing, the Internet of Things (IoT), sensor development, and prescriptive analytics. The industry is also driving a shift through wide adoption and use of Open Source code from the Apache Software Foundation. These manufacturing leaders will pave the way for others. Their ability to lead will drive cross-industry demand and growth agendas.
We hope that this report is a useful guide for companies in other industries to understand the impact of technology adoption on supply chain excellence.
Sales & Operations Planning - The State of the Union - 10 June 2013Lora Cecere
Sales and Operations Planning processes are now in their fourth decade of maturity. The processes are growing more complex. Progress is slow. The infographic below shows the current state of the union of sales and operations into S&OP processes. In this world of uncertainty, good planning matters. Complexity and volatility are escalating. Improving S&OP in a systematic approach, focused on goal evolution and systemic process governance, makes a difference; but, it requires education. A barrier to improvement is the executive team not understanding the supply chain as a complex system. It is the goal of this report to help alleviate this problem.
Supply Chain Metrics That Matter: A Focus on Hospitals - 6 JAN 2013Lora Cecere
Executive Overview
Growth is slowing. Profitability is tougher. Compliance mandates are growing. How do companies balance the goals for value-based outcomes for health and wellness with costs? In this environment, supply chain matters more than ever.
In this report, we share insights on healthcare supply chains. Grown out of the offices of procurement, the supply chain function of the hospital is still in its infancy; but based on increasing business requirements and complexity, it is only beginning to show its true potential.
Growth: Futures are Uncertain.
The hospital administrator is facing many challenges. Growth is slowing and pressures are growing. The question is how to balance patient outcomes with better cost management. How does a hospital move forward with an uncertain future? And, what will be the impact of healthcare reform?
In table 1, we list top line growth over the past decade for four companies operating within the hospital industry. While there are ups and downs, the general trend is downward.
Supply Chain Metrics That Matter: A Focus on Chemical, and Oil & Gas Companie...Lora Cecere
Executive Overview
Chemical supply chains serve global markets and multiple industries at varying levels of maturity. Over the last decade, no company stands out as a leader. The industry is stuck unable to make significant improvement on margin, inventory and asset utilization. The facts run counter to traditional beliefs. In most companies, there is a pervasive belief that Chemical and Oil and Gas companies implemented new technologies, and evolved processes to drive improved balance sheet results. As will be shown in this report, this is not true.
Why did this happen? The focus of the chemical companies remains functional and inside-out. The industry is slow to build adaptive networks and even slower to adopt demand-driven processes. This is in sharp contrast to an industry like consumer electronics where the thrusts and changes were swift and direct. To survive, these companies adopted new processes and technologies at a quicker rate than those in the Chemical, and Oil and Gas industries.
BASF wins the Supply Chains to Admire award while Statoil becomes a finalist. To help the industry to understand the current state and benchmark current processes, here we share insights.
The Race for Growth
The chemical industry experienced a post-recessionary boom with growth rates of 11% in the period of 2010-2012. In the recent three years, the growth rate has slowed to -1%. These recent growth rates were greatly affected by the boon and slowing of the Chinese markets and by the ups and down in crude. Over the period, AgroSciences and Specialty chemicals experienced the highest growth rates of the sector.
With the dramatic impact of the economy of growth and industry sector performance, one would think that the supply chain leaders of this sector would be aggressively pursuing market-driven supply chain practices to forecast based on market indicators and translate channel demand to supply. This is not the case. These processes remain very supply-centered with no chemical company driving market-driven programs.
Supply Chain Metrics That Matter: A Focus on Medical Device Companies – 2016Lora Cecere
Executive Overview
Globalization. Compliance. Risk Management. Corporate Social Responsibility (CSR). Patient outcomes. Over the last decade the number and variety of supply chain initiatives exploded for the medical device leader. As a result, the supply chain group, and the related business imperatives, grew in importance.
Overall the medical device supply chain fared better through the decade than other industries, despite the fact that they are smaller, more focused companies trying to become global. (see Table C in the appendix for company size). On average the industry performance on operating margin and inventory turns was better in 2006 than 2015. The reason? The medical device supply chain entered the decade as a supply chain laggard. Through focused supply chain programs they were able to catch up to the level of other industries.
Table 6. Industry Snapshot of Performance
We hope this report can be a guide to help companies understand what is possible, and how supply chain metrics drive value. In the medical device industry we find most companies to be stuck. They have either regressed in supply chain performance or they are at the same point they were a decade ago. For many supply chain leaders that attend conferences, this may seem unfathomable. There is an industry belief that companies have implemented new technologies, and evolved processes, and driven improved balance sheet results. The goal of this report is to enable benchmarking and to spark a new conversation on the definition of supply chain excellence.
Supply Chain Metrics That Matter: A Focus on RetailLora Cecere
■Survey Details: The basis of this report is publically available information from corporate annual reports from the period of 2000-2012. In this report, we use this data to understand the past trends and future projections of retail industry supply chains. To drive insights, we augment this financial data with information that we have obtained through interactions with retail clients and recent insights from our quantitative research studies.
■Objective: To use financial balance sheet data coupled with recent research to better understand the state of retail supply chains.
■Hypothesis: With the shifts in the channel, the role of the store has changed, and there is a need to redefine value in the value chain.
The Global Supply Chain Ups the Ante for Risk ManagementLora Cecere
Executive Summary
Unfortunately, supply chain disruptions are a fact of life for today’s global multinational company. The reasons are many. A risk management event can be triggered by natural events, geopolitical shifts, economic uncertainty and demand/supply volatility.
Historically, the roots and genesis of risk management programs were based on attempts to reduce insurance costs. Today it is much, much more. The focus is on prevention, early sensing, and the execution of well-orchestrated plans to mitigate the impact of a disruption. Global supply chain leaders understand that designing and implementing a robust risk management practice is essential and fundamental to running a global business. The size of the bubble in Figure 2 indicates the relative level of risk today, and the colors correspond to the level of risk.
Figure 2. Comparison of Risk Drivers for the Past Five Years and Future Five Years
While product quality and supply chain visibility are declining but still important, the areas of operations complexity and the definition of globalization infrastructure is increasing. The areas of economic uncertainty, supplier reliability, along with demand volatility, are continued risk factors.
Over time, as supply chains morphed from regional to global multinational organizations, globalization and regulatory compliance increased. As a result, procurement has shifted from traditional programs focused solely on contract management, price and term negotiations, and supplier scorecards to include the evolution of supplier development, to manage product quality and multi-tier supplier relationships, in and across value chain relationships.
Today is a less certain world than a decade ago. Geopolitical shifts, economic uncertainty and demand/supply volatility are rising. In addition, to spur growth companies are quick to add products to the item master, but slow to rationalize the portfolio. The rising complexity of items sold decreases the organization’s ability to forecast, and the longer lead times across multiple tiers of sourcing and supply increases the Bullwhip Effect’s impact (distortion of the demand signal across multiple tiers of the value network). As a result, there is a greater need for supplier development and supplier sensing to reduce supply risk. Inventory management and supplier financial sensing grow in importance with the increase in uncertainty.
Risk management is no longer narrowly focused: a technology, a response to a natural disaster, or improving supply chain visibility. Instead, it is more holistic with a focus on managing demand and supply variability cross-functionally and improving outcomes in an uncertain world.
In this report, we share insights on the current state of risk management programs while providing recommendations on what defines excellence.
The Supply Chains to Admire™ analysis is an annual study of supply chain excellence. Now in its fifth year of development, the focus of this research is to better understand supply chain performance and improvement of 655 publicly held companies in 28 peer groups for the period of 2010-2017. This year there are 31 winners! At the 2018 Supply Chain Insights Global Summit, winners from the analysis will share insights on driving supply chain excellence.
Supply Chains to Admire - An Analysis of Supply Chain Excellence for 2006-2013Lora Cecere
Executive Overview
Supply chain excellence matters. It can make or break corporate performance. To drive improvements, companies need a clear definition of supply chain competency. It is easier to state than to define, and the market is full of beliefs that are not grounded by hard, cold facts.
Now 30-years old, the practice of supply chain management is still evolving. While companies speak of ‘best practices’, and boast about improvements in operating margin, inventory levels and asset management in conference after conference, we do not see it in our analysis of balance sheet information for any industry. The reason? The supply chain is not well-understood by executive teams, and many companies have pursued a project-based approach (implementing multiple projects with ROI above a threshold) or a focus on vertical excellence (where functional charters create very strong functional excellence); however, this is misguided. We do not find that these two approaches make a difference. Instead, we find that it is supply chain leadership driving resilient, predictable, and forward-looking processes that drives sustained balance sheet improvement. We find that for top performers that it happens in a slow and steady pattern versus the big-bang approach.
Supply chain leaders want to drive excellence. By their nature, these leaders are competitive. They want to drive performance improvements, increase corporate value and outpace competitors. It is not easy. The rate of business change is intense and the personal stakes are high. Day after day, leaders must answer questions like, “Which path should I to take? What are the best technologies to use? What is an acceptable rate of performance? How am I doing against my peer group? And, what can I learn from others that I can use to improve the performance of my own operation?” Until the development of the Supply Chain Index there was no independent and objective data-driven methodology that could answer these questions. With the development of this methodology, there now is a way to gauge improvement.
Collecting the data and doing the analysis in this report is the result of a 24-month effort. We were fearful at the end of the process that it would be difficult to pick the top performers, but we should not have worried. When we applied the methodology, the top companies hopped off the page. They were easy to spot. Listed by industry, the Companies to Admire are listed in Table 4. Within a peer group, we place them within alpha order. Due to the complexity of the analysis it is hard to rate them more granularly.
No companies made the list from the contract manufacturing, medical device, paper, pharmaceutical or retail peer groups. Likewise, there were more companies that made the list in the industrial than the consumer value networks.
Supply Chain Metrics That Matter: A Focus on the High-Tech Industry - 2015Lora Cecere
Executive Summary: Current State of the High-Tech Industry
Globalization. Commodity inflation. Margin squeeze. Economic uncertainty. Warranty issues. Shortening product life cycles. Recalls. Labor arbitrage and outsourcing. The list of market pressures could go on and on, but one thing is clear: the high-tech industry was redefined over the course of the last decade. In Table 4 we show the progress of discrete industries for the periods of 2006-2014 and 2011- 2014. Notice there is more red (lack of progress) than green (progress) in the industry trends.
Table 4. Supply Chain Performance by Industry within the Discrete Industries
High-tech companies have the most advanced practices for inventory management, planning and analytics. They are just treading water (keeping slightly ahead of the market dynamics). The rate of change drives innovation. Within this industry there are more supply chain innovators taking a hard look and driving the adoption of prescriptive analytics and canonical value network infrastructures.
Taking a closer view at the value chain of the sub-industries within high-tech, i.e. consumer electronics, B2B Electronics, and semiconductor industries, the impact of the industry drivers and the importance of supply chain performance becomes clearer.
Table 5. Supply Chain Performance by Industry within the High-Tech Sector
The entire value chain is struggling to maintain margins and improve inventory turns. For consumer electronics and B2B electronics, growth is down, operating margins are degrading and inventory turns worsening. Supply chain matters more than ever.
Supply Chain Metrics That Matter: A Focus on the Automotive Industry – 2015 Lora Cecere
RESEARCH OVERVIEW:
Report Details: This report is based on analysis of financial balance sheet and income statement data for the period of 2006-2014 and interactions with clients in the automotive industry in supply chain strategy engagements. The report applies the Supply Chain Index and the Supply Chains To Admire methodology to the automotive industry. In the analysis there are clear distinctions between automotive companies with European, Asian and North American heritages. The European-based companies are top performing with Audi making the Supply Chains to Admire listing for two consecutive years.
Objective: To use financial balance sheet and income statement data coupled with recent research to better understand the state of automotive industry supply chains.
Hypothesis: The automotive industry struggled during the Great Recession and continues the bumpy ride of an ongoing boom-and-bust cycle. With current high growth levels, now is the time to reflect on the lessons of the 2007 recession and build a resilient and agile supply chain for the future.
Supply Chain Metrics That Matter: A Focus on Pharmaceutical Companies - 2016Lora Cecere
Supply Chain Metrics That Matter: A Focus on Pharmaceutical Companies – 2016
2006-2015
This report is based on analysis of financial balance sheet data and income statements for the pharmaceutical industry over the period of 2006-2015. (Data is sourced from YCharts). The report reflects insights from the pre- and post-recession periods and compares the progress of companies within the peer group(s).
RESEARCH OVERVIEW:
Report Details: This report is based on analysis of financial balance sheet and income statement data within the pharmaceutical industry, for the period of 2006-2015. The data is collected from YCharts.
Objective: To use financial balance sheet and income statement data to better understand the state of pharmaceutical supply chains and to determine which Pharmaceutical company’s supply chain did the best on the delivery of a portfolio of metrics over the last decade.
Hypothesis: The supply chain within the pharmaceutical industry is increasing in importance to deliver on the objectives of quality, drug efficacy and reliability. Risk mitigation, and counterfeiting are important cornerstones for the end-to-end supply chain vision.
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies - 2015Lora Cecere
Executive Summary: Current State of Food and Beverage Industries
Over the last decade, consumer confidence in the food and beverage industry supply chains has waned. Shopper distrust is high; and as a result, growth in many categories like carbonated beverages and cereals declined.
While these two industries have similarities, there are different underlying dynamics in business drivers. The potential of the food supply chain is different than that of beverage. As a result, in this report, we share information on the two industries separately.
For both industries, the last decade was a tough market. Despite attempts to stimulate demand through trade programs, new product launch, and product expansion into new continents, growth declined. In 2003-2006, growth in the food industry was 7% while in 2011-2014, year-over growth was 4%. In parallel, in 2003-2006, growth in the beverage industry was 22%; yet, in 2011-2014, it was 7%. As growth declined, supply chain maturity mattered more than ever. Most companies were not equal to the challenge.
Traditional marketing tactics are not as effective in these two industries as they were a decade ago. To try to stimulate growth, 33% new items were introduced into the retail chain from these two industries. This rise in complexity reduced the effectiveness of the supply chain at a time of declining volumes. In Table 4, we profile the results in the food industry, while in Table 5 we portray the trends in the beverage industry.
In both industries, operating margin declined despite improved productivity in revenue per employee. In parallel, despite multiple investments in technologies, inventory turns declined in the food industry. Companies were unable to balance metrics in times of declining volumes. The reason? Rising commodity costs and the slow development of supply chain skills.
Companies that did the best in driving improvement in key metrics in times of declining volumes have seven characteristics: core competency in network design; strong capabilities in transportation management; a focus on inventory management; use of more advanced forms of supply chain planning; balance and understanding of the trade-offs of volume, price and mix; use of channel data; and continuity of leadership.
Table 4. Progress on the Effective Frontier for Food Companies
Table 5. Progress on the Effective Frontier for Beverage Companies
When we compiled the Supply Chains to Admire Report in August 2014, two food and beverage companies—General Mills and ABInBev—made the list. To make the list, a company had to deliver performance (posting above-average results for the period of 2009-2013 when compared to their peer group on a portfolio of metrics including operating margin, inventory turns and Return on Invested Capital). They also had to drive supply chain improvement (based on the Supply Chain Index as defined in the Research Methodology section) faster than their peer group. We believe b
Supply Chain Metrics That Matter - A Focus on Pharmaceutical Companies - 27 A...Lora Cecere
Executive Overview
When we compiled the Supply Chains to Admire Report in August 2014, no pharmaceutical company made the list. To make the list, a company had to deliver performance (above average results for the period of 2009-2013 than their peer group on a portfolio of metrics including operating margin, inventory turns and Return on Invested Capital) and drive supply chain improvement (based on the Supply Chain Index) faster than their peer group. We believe both performance and improvement matter.
In the pharmaceutical industry, we find most companies to be stuck. They have either regressed in supply chain performance or they are at the same point as they were a decade ago. For many supply chain leaders that attend conferences, this may seem unfathomable. There is an industry belief that companies have implemented new technologies, and evolved processes, and driven improved balance sheet results.
As we will show in this report, as seen in Figure 4, this is not necessarily the case. On average, AstraZeneca has outperformed Bristol-Myers Squibb, and the industry as a whole, but they are not resilient. They have gone backwards in margin and not sustained inventory turn improvements. In contrast, Bristol-Meyers Squibb has not made progress in either performance or improvement and has remained at the same level of performance, without improvement, throughout the period.
The Supply Chain Index - Improving Strength, Balance and Resiliency - 13 MAY ...Lora Cecere
Supply Chain Metrics That Matter is a series of monthly reports published by Supply Chain Insights LLC. These reports are a deep focus on a specific industry. This was preparatory work to understand the patterns of supply chain ratios for supply chain leaders.
As shown in Figure 1, the Supply Chain Insights team analyzed 15 different industries with deep dives on their progress on the cash-to-cash cycle.
Figure 1. Supply Chain Metrics That Matter Reports Published in 2012-2014
Here we take a next step, and launch the Supply Chain Index. The Supply Chain Index is a mathematical formula that a supply chain leader can use to measure their relative performance to an industry peer group. It was built in cooperation with the Operations Research team at Arizona State University (ASU).
This methodology was designed to measure the balance, strength and resiliency of a company’s supply chain from an objective financial perspective. It is a measurement of supply chain improvement during the period of 2006-2012. In April 2014, we published an in-depth look at the resiliency metric: Supply Chain Metrics That Matter: Improving Supply Chain Resiliency. In this report, adding strength and balance, we examine the calculation of these three values in tandem.
The supply chain is a complex system with increasing complexity. Here we analyze how companies made trade-offs over a period of several years in balancing growth, profitability, cycles, and complexity. Many of the trade-offs were unconscious. As complexity rose, it became more difficult for companies to manage the intersection of growth and inventory turns. For leaders, as you will see in this report, the trade-offs were conscious.
Within the world of Supply Chain Management (SCM), each industry is unique. We believe that it is dangerous to list all industries in a spreadsheet and declare a supply chain leader. Instead, we believe that change needs to be measured over a number of years with a focus on an industry peer group. Here we define, and demonstrate, how the Supply Chain Index can be used to measure supply chain performance. To help the reader, we share insights on three industries—chemical, consumer packaged goods and pharmaceutical—using the methodology.
Supply Chain Metrics That Matter: Driving Reliability in Margins - 6 JAN 2013Lora Cecere
Supply chain management practices are thirty years old. Over the last decade, companies have invested in technology projects to improve financial outcomes (Technology investments over this period have averaged 1.7% of revenue). The ultimate goal was to reduce costs and improve inventory management. While many supply chain leaders believe that they delivered on these metrics, we find a less persuasive story. Through analysis of publically available balance sheet and income statement data, we find that 75% of companies in process industries lost ground on margins and only 5% of companies improved their positions on the number of days of inventory. The goal of this report is to answer the question “Why?” (For more on inventory and the Cash-to-Cash Cycle, see Supply Chain Metrics That Matter: The Cash-to-Cash Cycle.)
To begin our analysis, we wanted to understand the general trends. In table 1, we share the differences in average values for the companies profiled in this report by industry for the period of 2000-2011. In general, we see a decline in operating margins (OM). There is an increase in selling, general & administrative Costs (SG&A) and revenue per employee performance. The industries have mixed results on return on assets (ROA).
Supply Chain Index: Evaluating the Consumer Value Network -24 JUN 2014Lora Cecere
Executive Overview
Supply chain management is a balancing act. It requires alignment. This is easier said than done. The terms lack definition. What is balance? How can companies judge alignment? What defines improvement? In this series of reports, we want to help.
Day by day leaders are forced to make decisions on priorities and trade-offs like growth, profitability, cycle, and complexity. The supply chain leader is charged with improving the potential of an organization at the intersection of operating margins, inventory turns and case-fill rate1. But are the choices that are made conscious or unconscious? This is a strong factor in determining supply chain excellence. It is our hope that through this series of reports the choices can be made consciously, based on an improved knowledge of what is possible.
In our research, we find that laggards are held hostage and struggle to balance disparate demands with the threat of throwing the supply chain out of alignment. Success requires a nuanced approach using a portfolio of carefully selected metrics to ensure success.
While supply chain excellence does not make a company, it is hard for a company to succeed without it. While the discrete industries are more focused on cycles, the consumer value network is more focused on the optimization of flows.
Progress on the Supply Chain Index
The Supply Chain Index is a new methodology to measure corporate performance on the Supply Chain Effective Frontier. It was defined by the Supply Chain Insights team based on 30 months of research.
We find that supply chain practitioners struggle to manage conflicting priorities. To visualize this, we built the Effective Frontier Model. As shown in Figure 2, the Effective Frontier visualizes the competing priorities of every supply chain leader. Growth and profitability should be maximized, cycle time should be reduced, and complexity should be managed. However, an overweighed focus on any one of the four categories can wreak havoc on the operations of a supply chain. A focus on a singular metric can throw the supply chain out of balance.
The Supply Chain Index is designed to measure progress on balance, and metrics alignment. To build the Index, we chose the metrics of year-over-year growth, return on invested capital (ROIC), operating margin and inventory turns.
Conquering the Supply Chain Effective FrontierLora Cecere
Conquering the Supply Chain Effective Frontier - A Handbook for the Value Chain Leader to Manage Trade-offs in Defining Supply Chain Excellence
Supply chain practices are nearing their third decade of maturation. The term supply chain excellence is bandied about by leaders, consultants and technology providers, but there is no alignment on what it means.
Conventional systems of measurement for supply chain excellence are problematic. In this report, we share insights gained during interviews with 75 supply chain pioneers. Based on their feedback we created a new framework, that we define here as the Supply Chain Effective Frontier, for supply chain leaders to use to determine supply chain excellence. This methodology is based on publicly available financial balance sheet data grouped into four sets of supply chain ratios: growth, profitability, cycle, and complexity.
We believe that supply chain excellence is best defined as the alignment of the supply chain team to deliver results to meet and exceed the requirements of the business strategy. This requires a clear vision and cross-functional coordination and alignment over a multi-year road map. It needs to be holistic. A supply chain is a complex system with increasing business complexity. The analysis needs to facilitate a clear understanding of trade-offs embedded in day-to-day decision making. It is this clarity that we find missing in many teams that we work with, and it is for this reason we wrote this report.
Executive Summary
The term ‘supply chain finance’ has different definitions on each continent. In Europe, it is often used to describe ‘tax efficiency’, or the design of the supply chain to reduce the burden of taxation of cross-border shipments. In many procurement organizations the term is often used to describe the use of favorable capital rates to finance downstream trade. In this study the focus is on the management of costs by either effectiveness of a Supply Chain Finance team or Supply Chain Center of Excellence, Sales and Operations Planning (S&OP) processes, Cost-to-Serve Analysis and Supplier Development efforts.
For the supply chain leader, managing costs is job one. It is easier said than done. The supply chain is a complex system with interrelationships between growth, inventory, cost and complexity. Cross-functional processes, organizational focus, and access to data are critical to align and maintain cost effectiveness in this complex system called supply chain. We term this model the Supply Chain Effective Frontier. This is shown in Figure 2. When companies operate on the Supply Chain Effective Frontier they maximize the value of the firm . We measure value by either Price to Tangible Book Value or Market Capitalization.
Figure 2. Supply Chain Effective Frontier
As will be shown in this report, managing costs is a struggle for most companies. While 88% of companies have implemented Enterprise Resource Planning (ERP), the hard work of process evolution and maturity continues. In this report we share the current state of supply chains in managing costs, and then take a look at the processes and organizational design factors to evaluate the impact on cost management.
In Search of Supply Chain Excellence - Report - 17 MAR 2016Lora Cecere
Executive Summary
No two supply chains are alike. While business is changing quickly, the supply chain processes are evolving slowly. The average supply chain organization is 14-years old, and as is shown in Figure 2, one out of three companies state that there is room for improvement in their supply chain.
Figure 2. Descriptors Used by Supply Chain Leaders to Describe Their Supply Chains
While companies desire a supply chain that is more aligned, fast, agile, and proactive, today the supply chain is controlled and becoming more global. In the building of today’s supply chain, as will be seen in this report, the tightly integrated IT infrastructure defined in the last two decades is an impediment to building an agile, proactive and aligned supply chain. In Figure 3 we contrast the current state of the supply chain with the desired state of supply chain leaders.
Figure 3. Supply Chain Descriptors: Current State versus Desired Operation
As shown in Figure 3, while supply chain leaders desire a more proactive, aligned and faster supply chain, these are areas for improvement. The current supply chain is controlled and global, but with significant opportunity for improvement. Ironically, despite the gaps in overall performance, many supply chain leaders term current practices as “best practices.” In this report we challenge the status quo. We do this by teasing out the data to understand business drivers. For example, in Table 1 we can see that a company which rates itself as “having a supply chain working well” is more likely to be in the process industry, and have a supply chain organization where manufacturing reports to the overall supply chain leader. In addition, within the organization there is a greater understanding of the supply chain by the executive leadership team, stronger alignment of metrics cross-functionally, stronger capabilities in supply chain visibility, and the organization is better at managing change. The companies that outperform are also better at accessing and using data.
It is also significant to note that we do not find a correlation between “working well” and the presence of a Supply Chain Center of Excellence, fewer ERP instances, or maturity in Sales and Operations planning. The reason? These processes and practices are evolving.
Today only one in three business leaders are satisfied with their supply chain. One of the issues is the lack of agility. In this report, we share case studies on how to improve supply chain agility. This report first defines supply chain agility and then shares case studies of agility techniques that work to improve the ability to deliver the same cost, quality and customer service given the rising levels of demand and supply volatility. Each case study is supported by the Supply Chains to Admire financial analysis.
While agility is bandied about in supply chain discussions, it is often meaningless because companies do not define and execute agility strategies. In this report, we share case studies of companies successfully implementing agility strategies.
Supply Chain Metrics That Matter-A Focus on Semiconductor CompaniesLora Cecere
In this report, we share insights on 31 companies in the Semiconductor industry. This industry is the primary raw material provider and driver of innovation in the technology value network. Within the industry, there are three primary shifts defining the market:
1) Advanced analytics are pushing advancement in semiconductor manufacturing
2) New mobility trends are diversifying demand for automotive semiconductors
3) Security issues represent the greatest obstacle to growth of the Internet of Things, and semiconductor companies are helping address the issue
Within the technology value network, the story is survival. Price compression, technology advancement, and short product life cycles transformed supply chains. Most scrambled to keep up.
Due to the degree of change, some of the most advanced supply chain practices within any industry are in the technology value network. Despite the scramble to drive change and improve value, year-over-year change in this maturing value chain is a sea of red. In Table 1, the top number within each cell represents the average during the 2010 through 2016 time period, and the bottom number represents the percentage change in 2016 as compared to the value in 2010. So, the average growth in the Semiconductor industry was 14%, but the net change comparing the growth of 2010 to 2016 was a sharp decline of 23%.
Launch of the Supply Chain Index - 11 JUNE 2013Lora Cecere
Launch of the Supply Chain Index
This research represents eighteen months of work to understand the relationship between supply chain financial ratios and a company’s performance in the financial markets. To complete this research, we constructed a database of specific supply chain financial ratios (from a database of over 50 total financial metrics) and began to run correlations to understand the relationship between financial supply chain ratios and market capitalization for the past seven years. (The market capitalization data and the supply chain financial data used in the analysis was quarterly data from 2006Q1 to 2012Q4.) We use this data to understand which metrics matter to financial markets for twelve Morningstar sectors.
Here we share insights on the Morningstar sectors that make up Consumer and Healthcare Value Networks. In August, we will publish a parallel report that will cover the Automotive, Electronics and Industrial Value Networks. The sectors evaluated in this report include: Apparel Manufacturing, Apparel Stores, Chemical, Drug Manufacturers for Branded and Generic Products, Household and Personal Products (Consumer Packaged Goods), Discount Stores, Medical Care, Medical Devices, Medical Distribution, Medical Instruments & Supplies, and Packaged Food.
Supply Chain Metrics That Matter: A Focus on Household, and Beauty, Products...Lora Cecere
Executive Overview
Household and Beauty Products brands dominate our daily lives. For the Household Products industry, this includes items like diapers, laundry detergent, paper towels, while Personal Products brands include Beauty (cosmetic) items, vitamins, shampoo, toothpaste and over-the-counter drugs. These two segments have similar manufacturing processes, but very different supply chain metrics considerations. As will be seen in this report, the flows of cash and inventory are significantly slower in the Beauty Products companies than Household Products.
Progress is tough. Companies in both industries are stuck. Traditional supply chain thinking is not equal to the challenge of driving a step change in performance. Companies struggle to drive improvement in the face of growing complexity. Digital disruption offers promise to move these industries to the next level of supply chain excellence, but few are ready to drive the step change in thinking. Most operate in functional silos. The building of outside-in processes to sense and adapt is new. Organizations are busy on traditional software deployments, and the adoption of new technologies like cognitive computing and the Internet of Things (IOT) lacks sponsorship.
Figure 1. Commodity Volatility
There are three primary shifts:
1) Rising Commodity Costs. In the 1990s, supply chain leaders experienced the shift from regional to global supply chains. In the last decade, the key to driving a competitive advantage was aligning and synchronizing the supply chain to manage material spend, and the network response in the face of ever-changing demand. Few do this well. Most companies are stuck in functional metrics and inside-out processes. They are unable to manage the rising commodity costs and volatility shown in Figure 1. To combat volatile commodity prices, supply chain flows need to be built market-to-market (from consumer to supplier). This capability is beyond the traditional ERP-centric view of an integrated supply chain. The flows are outside-in, while traditional processes are inside-out.
2) Shift in Consumer Expectations. In parallel, the rules of engagement with the consumer are changing. Consumers want brands they can trust. This includes eco-friendly products, safe for their family, with minimal environmental impact. The evolution of brands like “Honest” is changing the landscape of competition. The new shopper wants to scan the shelf and see the source of origin. This level of visibility is not possible in today’s supply chains.
3) Rise in Complexity. The variance of products offered in this industry has been a real problem for companies. This complexity adds cost, increases demand volatility, and creates uncertainty. The average Household Products company added 38% more items to the item master over the past five years .
As a result, it was difficult to maintain performance in either industry segment.
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2017 Supply Chains to Admire - 13 JUN 2017 report
1. A Seven-Year View of Progress on
Supply Chain Excellence
6/13/2017
Lora Cecere
Founder and CEO
Supply Chain Insights LLC
Heather Hart
Research Director
Supply Chain Insights LLC
Regina Denman
Client Services Director
Supply Chain Insights LLC
Samuel Borthwick
Research Associate
Supply Chain Insights LLC
2017 Supply Chains to Admire
2. Page 2
Contents
Research
The Steps
The Criteria
Disclosure
Executive Summary
Supply Chains to Admire Results
Trends and Insights
What Drives Value?
Recommendations
Conclusion
Appendix (Industry Peer Groups)
Prior Reports in This Series
About Supply Chain Insights LLC
About Lora Cecere
3
3
4
7
8
10
10
11
13
14
15
39
40
40
3. Page 3
Research
The 2017 Supply Chains to Admire™ report is based on the Supply Chain Metrics That Matter™
research built over the past five years by Supply Chain Insights LLC. The goal is threefold: 1) help
supply chain leaders set realistic supply chain goals, 2) provide benchmarks by industry peer groups
and 3) reward companies achieving higher levels of supply chain excellence.
Defining supply chain excellence is easier to say than to do. The Supply Chains to AdmireTM
methodology is an attempt by Supply Chain Insights to identify companies within industry peer groups
that drove higher levels of improvement, greater value, and better performance during the 2010-2016
time period. In this report, we share data on these three criteria for 495 public companies within 31
peer groups.
Now in its fourth year, the Supply Chains to Admire methodology continues to evolve. Each year we
review and refine the methodology based on feedback from supply chain business leaders.
The methodology used to define the 2017 winners outlined in this report is as follows:
The Steps
1) Determine Industry Peer Groups. We started by placing companies into industry peer groups
based on the Industry Classification Benchmark Nomenclature (ICB), used by financial analysts1
.
(Based on prior work, we have found NAICS and SIC codes to be inadequate.) After much debate,
we defined 31 peer groups and started the analysis for 495 companies.
2) Define Timeframe. The next step was to determine the appropriate time period. Since it takes at
least three years for supply chain leaders to show balance sheet results, and project outputs are
often hard to sustain, we selected the 2010-2016 time period. Our goal was to understand post-
recessionary trends.
3) Clarify Metrics for Comparison. The third step was to identify the metrics to be collected and
analyzed. In this analysis, we selected two value metrics (Market Capitalization and Price to
Tangible Book Value (PTBV)) and four performance metrics (Growth, Operating Margin, Inventory
Turns and Return on Invested Capital (ROIC)). Due to our goal of attempting to move supply chain
leaders from a cost to value focus, the performance metrics selected are the portfolio which has the
highest correlation to market capitalization.
1
Industry Classification Benchmark, https://en.wikipedia.org/wiki/Industry_Classification_Benchmark, 06/11/2017
4. Page 4
4) Start the Analysis. To complete the analysis, we collected publicly available data from balance
sheets and income statements. For this analysis we used YCharts, a syndicated data provider of
balance sheet and income statement data.
5) Defining Improvement. The base principle of the analysis is that supply chain winners drive
improvement while also outperforming their peer group. As will be seen, this is hard to do. Our first
calculation is defining improvement on balance sheet performance as compared to the peer group.
To accomplish this goal, we calculate each company’s Supply Chain Index Ranking, a
measurement of supply chain improvement based on balance, strength and resiliency.2
Companies
are then stack ranked within a peer group and assigned a ranking based on the relative level of
improvement. The lower the score, the higher the level of improvement. When companies tie, each
company will receive the same ranking.
6) Analyzing Performance. For each metric chosen, we calculated the mean for each company, and
each industry peer group, and analyzed the pattern over the time period. We then compared each
company’s mean to that of the industry peer group, and determined the allowable percentage from
the mean to be considered close to the industry peer group average.
7) Define Winners. Our final step was to determine winners based on the criteria of improvement,
value and performance.
To understand the methodology completely, it is important to note what it does not include:
• This analysis does not include private companies or some companies operating on Chinese and
Korean stock exchanges.
• Companies with issues on reporting for the period (M&A), or public offerings, are excluded from the
analysis.
• The research is a focused look at retail, distribution, and manufacturing companies and is not a full
analysis of service-based industries.
• Within each industry there are metrics we consider to be important, but there is no good source of
data. This is the case for customer service metrics. While we strongly believe that the analysis
should include customer service in the performance metrics, we cannot find a reliable data source.
The Criteria
Connecting supply chain performance to balance sheet information can be gnarly and confusing. We
detail the steps in Tables 1 and 2 to help the reader better understand the process.
2
Supply Chain Index, published by Supply Chain Insights, http://supplychaininsights.com/research, July 12, 2017
5. Page 5
Table 1. The Supply Chains to Admire Analysis Criteria
An example of the analysis is shown in Table 2.
Table 2. Calculation Example
6. Page 6
We share our data openly to help all supply chain leaders. Here we detail the calculations in the
analysis:
• Winner Analysis: The methodology is not limited to the best company in the peer group. Within a
peer group, there can be multiple winners. There is also a possibility of no winners within a peer
group.
• Peer Group Analysis: The analysis is within single industry peer groups only. There is no stacked
ranking across multiple peer groups. We consider them to be equal winners.
• Supply Chain Index: The Supply Chain Index determines the mean ranks within an industry peer
group across three measurements:
1) Balance (vector analysis of the rate of change at the intersection of Return on Invested Capital &
Revenue Growth for the period),
2) Strength (vector analysis of the rate of change at the intersection of Inventory Turns & Operating
Margin) and
3) Resiliency (tightness of the pattern at the intersection of Inventory Turns & Operating Margin as
measured by mean distance of years on an orbit chart).
• Industry Peer Group Means: In calculating the industry peer group mean for the value metrics
(Market Capitalization and Price to Tangible Book Value), we removed outliers.3
• Margin of Error: In order to determine the allowable distances from the industry peer group mean
for the value and performance metrics (Market Capitalization, Price to Tangible Book Value, Growth,
Inventory Turns, Operating Margin and Return on Invested Capital), we calculated the margin of
error (at a 95% level of confidence, excluding outliers) for each metric among all companies in the
analysis. We then allowed “winners” to be within the equivalent of one margin of error of the mean.4
Within the world of Supply Chain Management each industry is unique. It is for this reason we believe
it is dangerous to list all companies across many different industries in a spreadsheet, compare the
results, and declare a supply chain leader. Instead, we think it is more prudent to evaluate change
over time, with a focus on business results within an industry peer group. That is the goal of this
report.
Consistent with our principles to share research freely and openly, we are transparent about the
calculations and methodologies used in our analysis. While our published research is based upon
public domain data, we also use this methodology, under NDAs with major companies, to evaluate
3
Major outliers were calculated according to this formula: http://www.wikihow.com/Calculate-Outliers
4
Margin of error formula: http://www.dummies.com/education/math/statistics/how-to-calculate-the-margin-of-
error-for-a-sample-mean/
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businesses within a corporation to determine effectiveness. Through this analysis, we are constantly
learning and improving the methodology. We also welcome questions, feedback and challenges to
our research. We feel that an open discussion in the public domain will benefit the industry.
Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships
and our research processes. This independent research is 100% funded by Supply Chain Insights.
Our reports are intended for you to read, share and use to improve your supply chain decisions.
Please share this data freely within your company and across your industry. All we ask for in return is
attribution when you use the materials. We publish under the Creative Commons License Attribution-
Noncommercial-Share Alike 3.0 United States and you will find our citation policy here.
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Executive Summary
Supply chain leaders want to know what defines supply chain excellence. Traditionally, the focus has
been on building efficient organizational silos for make, source or deliver. However, we know from our
research that efficient silos do not deliver the highest levels of balance sheet performance. The
supply chain is a complex non-linear system requiring a focus on a balanced portfolio. For most
companies, the goals are unclear and the financial metrics are not well-understood.
There is no industry-standard definition of supply chain excellence, or clarity on how the actions of the
supply chain team drive shareholder value. Through this analysis we try to help fill in these gaps by
giving definitions to both supply chain excellence and the connection of process improvement to
value.
The Supply Chains to Admire analysis is now in its fourth year of development. In the 2017 analysis,
there are 24 winners from 16 industries. They are shown in Figure 1.
Figure 1. Supply Chains to Admire Winners for 2017
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The 2017 winners include: Apple Inc. (Apple); Autoliv Inc. (Autoliv); Becton, Dickinson and Company
(BD or Becton Dickinson); Bridgestone Corporation (Bridgestone); Broadcom Limited (Broadcom);
Cisco Systems, Inc. (Cisco); Cummins, Inc. (Cummins); Dollar General Corporation (Dollar General);
Dollar Tree, Inc. (Dollar Tree or Dollar Tree Stores); Fuji Heavy Industries, Ltd. (now Subaru
Corporation); Herman Miller, Inc. (Herman Miller); Honeywell International Inc. (Honeywell); Leggett &
Platt®, Incorporated (L&P or Leggett & Platt®); L'Oréal S.A. (L'Oréal); Packaging Corporation of
America (PCA); Qualcomm®; Sundrug Co., Ltd. (Sundrug); Taiwan Semiconductor Manufacturing
Company, Limited (TSMC or Taiwan Semiconductor); Tempur Sealy International, Inc.
(Tempur+Sealy); The TJX Companies, Inc. (TJX); The Boston Beer Company; The Hershey
Company (Hershey’s); Ubiquiti Networks, Inc. (Ubiquiti) and United Tractors (UT).
A test of a true leader is the ability to not only drive higher levels of performance, but to sustain
competitive advantage over time. Using the Supply Chains to Admire analysis, three companies—
Apple, Cummins and TSMC—are winners for two consecutive years. Dollar Tree and L’Oréal are
winners for the past three years. And Cisco, a consistent top performer, has made the winners list for
the past four years.
Each year of the analysis, we see fewer and fewer companies from the process industries of oil &
gas, chemical, pharmaceutical, and consumer non-durables making the list. While prior years’
analyses included companies like BASF, Colgate, Clorox, Eastman Chemical, and Statoil, none of
these companies could sustain their competitive balance sheet advantage. We continue to analyze
the root issues of this market dynamic. It is our current belief that with the rise in global complexity,
the focus on traditional inside-out processes, focused on efficient silos, cannot yield sustainable
balance sheet performance.
In this report we define and celebrate supply chain success.
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Supply Chains to Admire Results
In the Appendix we share industry-specific peer group results. The winners pass tough criteria. For
the second year in a row, there are no winners in the industries of aerospace & defense, household
products - durables, or pharmaceuticals. Many companies in the process industries are regressing.
Discrete industries are making faster progress than those in process.
Trends and Insights
In our prior interviews with companies making the Supply Chains to Admire list, we find
commonalities and similar patterns. Leaders have five characteristics. These are shown in Table 3.
Table 3. Characteristics of Supply Chains to Admire Leaders
These companies have longer tenure of their leadership teams, with a focus on long-term outcomes.
In addition, there is consistency in direction. There is an avoidance of supply chain fads, and multiple
consulting-based projects, with a dogged focus on supply chain excellence.
Complexity throws the supply chain out of balance. In our analysis, we also find that these companies
are more focused on the management of complexity through the adoption of customer segmentation,
cost-to-serve analysis and item rationalization, horizontal processes, and network design of form and
function of inventory. Inventory is the performance metric that is the toughest to maintain.
In our research, we often find companies defining processes first without thinking about the tie of the
processes to business strategies. Supply chain challenges have grown in the last decade, and the
evolution of supply chain processes are new and evolving.
Likewise, we find that leaders in supply chain management have strong horizontal processes: a focus
on revenue management, Sales and Operations Planning (S&OP), new product launch/innovation
(NPI), Corporate Social Responsibility, and Supplier Development. As shown in Figure 2, these
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horizontal processes are interlinked and stretch from the customer’s customer to the supplier’s
supplier. A functional or project-based orientation does not drive value.
Figure 2. Definition of Horizontal Processes
We find that the strongest S&OP, NPI and supplier development processes are in the discrete
industries. The gap here between process-based and discrete industries has widened in the period of
2006-2015. We feel this is one of the reasons many process-based companies are regressing on the
Supply Chain Metrics That Matter.
What Drives Value?
As a part of this analysis, we are continually asked, “What drives value?” In 2016 we mined our
quantitative data to answer the question, “What steps should companies take to improve Price to
Tangible Book Value?”
The definition of PTBV is:
Price to Tangible Book Value = Market Share Price / Tangible Book Value/Share Outstanding
We found that companies who have a successful Supply Chain Center of Excellence, an S&OP
process that is considered to be effective, and have less business pain with supplier reliability, are
more likely to be driving PTBV performance. In the spirit of transparency, the correlations of these
factors are included in Figure 3. We are currently redoing this analysis using a broader quantitative
sample set with big data analytic techniques. We will be sharing this analysis at the 2017 Supply
Chain Insights Global Summit.
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Recommendations
When benchmarking a supply chain, it is important to look at performance and improvement
(together) within a peer group of companies over time. There are trade-offs. Companies operating
with higher levels of performance will struggle with improvement, while companies with a low level of
performance will drive faster rates of improvement.
The award winners of the 2017 Supply Chains to Admire research study are an elite group,
representing 5% of public companies included in the analysis. As supply chain leaders develop
strategies and focus on driving balance sheet improvement, we recommend that supply chain teams
consider these seven recommendations:
1) Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data. To
maximize potential and to set goals, organizations should benchmark companies within their
industry sector. Each industry has unique rhythms and cycles. As a result, supply chain excellence
analysis needs to be an industry-specific comparison.
2) Understand Supply Chain Potential and Orchestrate Trade-offs. Balanced metrics portfolios
drive higher levels of value for the company. The metrics are non-linear and tightly coupled.
Managing them as a group in a balanced portfolio requires system thinking. Companies with higher
performance use advanced analytics to plan outcomes and design the supply chain.
3) Drive Horizontal Alignment. We find that those who have the best performance on the Effective
Frontier align teams to focus on supply chain finance, and the translation of supply chain processes
and strategies into balance sheet results. This requires holistic organizational thinking which is
quite different than the traditional functional thinking. This can result in a shift in analytics and
reporting. For example: today, while most organizations can easily access functional costs, only
24% of companies can easily access total costs across source, make and deliver together. As a
result, it is tough for operational teams to make trade-offs.
4) Make the Supply Chain an Engine for Growth. When we present this data to many supply chain
teams there is a push-back. Many do not understand how their work can drive growth.
Unfortunately, many organizations are stuck in a cost-focused paradigm with significant gaps in
horizontal organizational alignment between operations and commercial teams. Shine a light on the
opportunity and take the steps to drive growth. Each industry has different ideas of how to drive
growth through the successful implementation of supply chain strategies. This includes
test/learn/adapt strategies in consumer value networks (using channel data and aligning the supply
chain response to maximize value), clinical trials in pharmaceutical industries, the successful
manufacturing of samples and execution of new product launch strategies, agility in responding to
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customer requests, and flawless execution of order management to maximize on-time and in-full
orders at the time of shipment.
5) Effectively Manage Complexity. When we interviewed the leaders in past reports, we heard a
consistent theme. Each company has managed product and customer complexity. This includes
customer segmentation, cost-to-serve analysis, item rationalization and ongoing network design
efforts. In an organization, there is good complexity and bad complexity. Good complexity drives
growth with minimal impact on the performance factors on the Effective Frontier, while bad
complexity degrades performance. Maximize the growth opportunity with good complexity and
eliminate bad complexity.
6) Focus on Building Value Networks. While many of the companies in this report could leverage
power in the network to be a powerbroker in the industry to redefine outside-in processes, and build
effective value chains, 95% of companies accept the limitations of the inside-out supply chain. Over
the last decade, only Walmart and TSMC successfully executed value network strategies.
7) Learn from Other Industries. Use a Steady Hand, and Focused Leadership, to Drive
Improvement. Over the years when we have interviewed the Supply Chain to Admire winners, and
asked, “What do you think drove improvement?” they responded, “The avoidance of fads and a
steady focus on supply chain strategy.” This is not a story of consultants driving change
transformation. Instead, it is a story of supply chain leadership, driven by a focused internal team
over many years. Companies that did the best in the analysis have consistency in leadership (same
leadership team over the period), a clear definition of supply chain excellence, disciplined
processes, and cross-functional alignment. Post-recession, retail processes improved, and process
industry performance regressed. As shown in the Appendix, the greatest improvement in
performance is in the high-tech and discrete industry sectors. These companies are the strongest in
horizontal process alignment, network design and the use of supply chain planning.
Conclusion
Supply chain excellence does not just “happen.” It is the result of hard work by organizational teams
with a clear definition of supply chain strategy. The goal of this report is to provide feedback to
leadership teams to help them better align supply chain programs with corporate finance efforts to
drive improved value for shareholders. This report recognizes the 5% of companies creating value
while improving and outperforming on the Supply Chain Metrics That Matter against their industry
peer group. Please join us in celebrating these achievements.
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Appendix
Here we share the individual analyses by industry to help the reader understand the data behind this
report. The industries are listed in alpha order.
Table A. Aerospace and Defense: No Winners
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Table AC. Tires: One Winner
Table AD. Trucks and Heavy Equipment: One Winner
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Prior Reports in This Series
Over the course of the last four years our methodology has changed and matured. You can track our
progress and find industry-specific information published by Supply Chain Insights here:
Supply Chain Metrics That Matter: The Cash-to-Cash Cycle November 2012
Supply Chain Metrics That Matter: Driving Reliability in Margins January 2013
Supply Chain Index May 2014
Supply Chains to Admire 2014 September 2014
Supply Chains to Admire 2015 September 2015
Supply Chains to Admire 2016 July 2016
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About Supply Chain Insights LLC
Founded in February 2012 by Lora Cecere, Supply Chain Insights LLC is in its sixth year of
operation. The Company’s mission is to deliver independent, actionable, and objective advice for
supply chain leaders. If you need to know which practices and technologies make the biggest
difference to corporate performance, we want you to turn to us. We are a company dedicated to this
research. Our goal is to help leaders understand supply chain trends, evolving technologies and
which metrics matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 5,000 supply chain professionals. She also writes as a Linkedin Influencer and
is a a contributor for Forbes. She has written five books. The first book, Bricks
Matter, (co-authored with Charlie Chase) published in 2012. The second book, The
Shaman’s Journal 2014, published in September 2014; the third book, Supply
Chain Metrics That Matter, published in December 2014; the fourth book, The
Shaman’s Journal 2015, published in September 2015 while the fifth book, The Shaman’s Journal
2016, published in June 2016.
With over 13 years as a research analyst with AMR Research, Altimeter Group, and Gartner Group
and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has worked
with over 600 companies on their supply chain strategy and speaks at over 50 conferences a year on
the evolution of supply chain processes and technologies. Her research is designed for the early
adopter seeking first mover advantage.