2023 Reset Report v3.1.pdf

Lora Cecere
Founder of
Supply Chain Insights LLC
THE NEED FOR A
SUPPLY CHAIN RESET
Reflections on Three Years of
Supply Chain Disruption
MAY 2023

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2 THE NEED FOR A SUPPLY CHAIN RESET | 2023
2

TABLE OF CONTENTS
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Managing the Supply Chain in a Period of Unprecedented Disruption ��6
Shifts in Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Eliminating Organizational Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mounting Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Ineffective Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Redefining the Supply Chain Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Going Digital: Current and Future State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Managing Key Metrics in Uncertain Times . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
About Supply Chain Insights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
About Lora Cecere . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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THE NEED FOR A SUPPLY CHAIN RESET | 2023 3

March 2020 to March 2023 presented unprecedented volatility
for the supply chain leader. Supply chain leaders managed
supply chains in the face of thirty-six months of disruption. The
goal of this report is a reflection to highlight the learnings and
required changes needed in the global supply chain.
The report is based on a quantitative survey fielded in the
summer of 2022. To better understand the results, the data
were socialized with business leaders from September-April
2023. Here we share insights from both the quantitative
analysis and the qualitative discussions.
Overview
4

This report shares a meta-perspective on global supply chain
disruption that started in March 2020 and ended in March 2023.
The research aims to harvest learnings and share insights to
help companies improve reliability.
During this thirty-six-month period of uncertainty, global supply
chains struggled to deliver predictable results. Today, with
mounting inflationary pressures, the challenges continue. Cash
is king, and financial viability is the overarching goal.
Improving supply chain effectiveness is front and
center of boardroom discussions as companies
face lingering issues with order and supply
variability while improving cash flow. To
drive improvement, leaders need to drive a
rethink of planning and analytics. Current
supply chain practices are not equal to the
challenge.
In our research, organizational alignment
was the most significant factor to improve resilience (the
ability to drive reliability in the face of variability). While
consultants may wave their hands and tout new approaches
and technologists hawk their wares, the most crucial step that a
business leader can take today to improve future performance
is developing a shared vision for the organization on supply
chain excellence. For organizations layered in functional metrics
and driving a cost agenda, this is a tougher nut to crack than
most understand.
We find that only some companies are transparent and cross-
functionally aligned on the definition of supply chain excellence.
Organizational alignment issues grew three-fold over the past
decade, with gaps widening between financial and supply chain
teams.
In the definition of supply chain excellence, the traditional leader
values cost reduction but is blind in how to value time and align
cycles against cost-driven agenda. Over the past three years,
supply chain cycles shifted. Currently, the processes are out of
balance. Order cycles--the requested time from order to delivery-
-decreased while supply cycles –the time to procure materials--
increased. E-commerce models exacerbated this trend while
supply variability challenged order reliability. Organizations
focus on cost and do not know how to measure planning cycles
or how to value time. This needs to change.
Companies needed quicker answers with better insights, but
current organizational processes put the supply chain on the
back foot. Processes are too slow and are out of step with
market dynamics. During the pandemic, companies struggled
with planning systems, turning off the optimizers, and using the
technology as a system of record. Over 90% of decisions were
made using Excel spreadsheets. In this research, we find that
process latency, the time for an organization to decide
using a traditional S&OP process, is two-to-six
weeks. In the face of variability, this is two-
to-six weeks too long to make allocation or
procurement decisions.
The answer is not digital transformation.
In the survey, 48% of companies were driving
digital transformation, but descriptive analytics was the only
element that improved performance. For many, the digital
transformation processes focused on automating traditional
processes to make the processes faster or eliminate paper.
This is a mistake. As a result, companies operating digital
transformation strategies did not outperform their peer group.
Today, we find digital supply chain transformation is over-hyped
by technology providers with a need for more clarity on value.
The focus is on digital not on building transformational process
value. As discussed in this report, the issues are many, but a
central problem is the lack of a clear roadmap to define core
capabilities. While companies speak of reducing risk, doing the
same old process in the face of unprecedented variability, but
only faster, could be the most significant risk of all.
Now is a good time to reflect. The past thirty-six months of
disruption, signals a need for a fundamental change in how
organizations translate strategy to process definition and
market signals to action. Closing both gaps are essential to
improve resiliency and balance sheet performance.
Executive Summary
5

Organizations muscled through the three years of a disruption
using brute force. Our qualitative interviews found that 91% of
manufacturing companies turned off the optimizers in their
planning systems and turned to spreadsheet modeling. As
shown in Figure 1, the most significant issues were supply
and demand variability, leading to inventory issues. Current
supply chain planning
deployments were not
equal to the challenge.
While only 30% of
companies had what-if
analysis, for those that did,
the systems were inflexible
due to the tight integration
to backoffice systems.
Demand variability was
the largest business issue,
but companies are the
most reluctant to change
demand processes. Most
thinking is hard-wired
for supply. Solving the
problem requires rethinking
the processes between
commercial and operations
teams. Marketing-driven
organizations are not
market-driven. Likewise, a sales-driven organization is not
market driven. Rethinking demand processes requires a step-
change in thinking.
Shifts Over Time
To understand the severity of issues, in 2022, the Federal
Exchange Group (FED) launched the Global Supply Chain
Pressure Index1
to help companies and economists predict
outcomes. The Index uses a composite of market data sources
to plot disruption every month.
In Figure 2, we show the level of disruption plotted over
the timeframe of 1998 to 2023. The peak disruption was
in December 2021. In March 2023, the level of disruption
measured in the index fell
to a level seen in November
1998. Note that the level of
disruption from 2010 to 2020
was low and that the level of
disruption from the recent
period was 3-4X higher than
that of the recessionary
period of 2007-2009.
The global supply chain is
built on three assumptions:
rational international
government policy,
available and reasonably
priced transportation,
and low variability. During
this period, all three of
these assumptions were
challenged. This index tracks
logistics impacts well but
could be more effective in projecting the issues of global unrest
and variability.
This three-year period we had four distinct phases. Each
presented a different set of challenges for supply chain teams.
Companies more advanced in the design of supply chain flows
were able to navigate the multiplicity of challenges better than
their peer group.
Managing the Supply
Chain in a Period of
Unprecedented Disruption
Demand Variability 45%
Supply Variability 43%
Labor Availability 35%
Ocean Freight Costs 30%
Inadequacies of Planning Systems 25%
Having the Right Inventory 18%
China Lockdowns 18%
Availability of Air 10%
Support by the Executive Team 8%
Figure 1. Severity of Issues During the Disruption
Source: Supply Chain Insights LLC, Redefining The Supply Chain Response Study
Q12. What were your greatest issues?
1
About the Global Supply Chain Pressure Index (GSCPI): The GSCPI integrates a number of commonly used metrics to provide a comprehensive
summary of potential supply chain disruptions.
6

Phase 1. Lockdowns and Travel Disruption. The period
of March 2020 until the vaccinations in the spring of 2021
shifted consumer demand and pushed healthcare into a crisis.
Consumers moved spending from the purchase of services to
products. In this process, Government subsidies overheated the
economy. In healthcare, the shift from preventive to pandemic
care put stress on all healthcare supply chains. Food service
shifted to at home eating and beauty services from shops to
home. The impacts rippled across all industries. As a result, the
value of history that traditional supply chain processes relied on
became worthless. Supply chain demand planning processes
lost their rudder. Global growth during the pandemic increases
2-3X. (The US GDP was 5.7 %, up from 3.4% in 2020.)
Phase 2. Wrangling Transportation Capacity Issues. The height
of this disruption period was December 2021. In this period,
ocean freight challenges increased. Port constraints in Europe
and North America rendered 12.4 percent of global ocean vessel
capacity unavailable. The top eight ocean carriers controlled
over 80% of the ocean freight market in 2021 and made over
$150B in profits, up nine times from the prior year. The rate of
Asia-US West-Coast Ocean inbound reached levels that were
170% higher than at the same time in 2021. Asia-US East Coast
prices are 200% higher than rates for this week last year. Few
companies used indexes, like the Baltic Index or warehouse
capacity, to manage their networks. Labor issues spiked due
to the demand increases. Companies were surprised, but the
issues were predictable.
Phase 3. Wartime and Untangling Knots. In February 2022,
Russia invaded Ukraine, increasing the global pressure to
build a responsive wartime machine. The redefinition of
trade with Russia impacts the nickel, palladium, wheat, and
inert gas markets. In December 2022, the transportation
capacity issues eased, but Korean delivery times increased,
and Asian growth slowed with rising Chinese COVID issues.
Asian to US container trade falls 30% as ocean freight rates
fall precipitously. Oil companies maximized profits with a
ripple effect in the chemical and plastic industries. Chemical
inventories plummeted to low levels posing a risk for supply to
all industries.
Phase 4. Inflation. Current levels of inflation and volatility were
the highest in forty years. The Consumer Price Index (CPI) rose
5.3% yearly in March 2023. The thirty-six months of inflation,
starting in April 2020 and peaking in July 2022, are declining,
but the supply chain’s price pressure is residual. Traditional
supply chain decision processes focus on volume or price, not
price/volume/mix trade-offs. The pain level is high, and most
companies have the wrong inventory. With higher demand
variability, traditional historical order patterns forecasting
techniques become less relevant.
Across all four time periods, companies were reactive not
proactive. Planning systems were unequal to using available
market signals, and organizations moved through each
period by brute force. This occurred even though over 90% of
companies have deployed Enterprise Resource Planning (ERP)
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Figure 2. Supply Chain Global Pressure Index
7

and supply chain planning technologies. The reason? The
answer lies in the lack of a shared strategy and understanding
of supply chain excellence stemming from organizational
alignment.
Over the past years, when supply chain volatility and price
changes were low, companies implemented Integrated Business
Planning (IBP), with many multi-step meetings and tight
integration of the supply chain to the financial budget. These
steps increase process latency (the time to make a decision)
and increase the bullwhip effect. The learning? The deployment
of tight integration to the budget with multiple step meetings
needed to be more consistent and faster for this period of
unprecedented variability. The answer is agile planning with
robust scenario modeling. Less than 25% of companies have
this type of deployment, but most struggle with the redesign of
work to introduce scenarios into decision processes and drive
executive alignment at the speed of business.
Significant employee turnover occurred in the supply chain
organization during the last decade. As the first and second-
generation supply chain employees retired (many with tribal
knowledge), the organization’s understanding of planning
systems and processes significantly declined. We find a sea-
change in the team’s understanding of planning. Companies
were less capable of using their technologies.
The skill level was low to manage the heightened levels of
inflation shown in Figure 3. In our research, we find very few
organizations had planners that had managed through the
2007-2009 recession or the inflationary periods of the 1980s.
Planning technologies forecast volume but could be more
effective in managing shifts in product mix or changes in
revenue structures that accompany inflation management. The
evolution of procurement commodity decision processes is a
black hole in the technology stack. Inflationary periods require
tighter organizational alignment, which, as we can see in this
report, was an issue.
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v
Definition of Supply
Chain Management
IBP
Figure 3. United States Inflation Rates From 1931 to 2023
8

9

The issues of supplier reliability and political unrest drive supply
chain uncertainty. Over the last decade, variability was relatively
low. This rise in variability, coupled with political unrest, is
driving greater insourcing and the redesign of the supply chain
for in-region sourcing.
Making this shift requires more profound skills in supply chain
planning and network design. The implications for shifts
in trading blocs will impact growth and decrease reliability.
Organizations have the opportunity to be more responsive
and proactively design the supply chain for in-market sourcing
and better managing market signals across the organization.
Companies need shift their processes to be equal to the
challenge.
Shifts in Trade
______________________________
“We are witnessing a fragmentation of the global economy
into competing blocs, with each bloc trying to pull as much
of the rest of the world closer to its respective strategic
interests and shared values. And this fragmentation may
coalesce around two blocs led respectively by the two
largest economies in the world.
Today the United States completely depends on imports for
at least 14 critical minerals. And Europe depends on China
for 98% of its rare earth supply. Supply disruptions on these
fronts could affect essential sectors of the economy, such
as the automobile industry and its transition to electric
vehicle production.”
Christine Lagarde
EUROPEAN CENTRAL BANK PRESIDENT
MARCH 2023
______________________________
The global supply chain is built on three assumptions: rational international government policy,
available and reasonably priced transportation, and low variability.
10

Table 1. Conflicting Objectives
Executive Board Focus Financial Team Supply Chain Team
Response
Fear. Stabilize the organization
in an uncertain market: focus
on nominal growth.
Control. Budget development
based on historic revenue with
assumptions.
Reliability. Review of historical
demand levels and capabilities while
attempting to rationalize markets.
Variability
Financial Viability. Let's make it
through a tough market.
Cash. Implement cost controls
with a focus on managing cash
efficiency.
Cost. Manage supply constraints
and inflation cost impacts with wild
swings in mix and demand.
Customer Service
Frustration. Why can we not fill
orders? Alarm at write-offs.
Inventory as Waste. Manage
inventory as a liability.
Inventory as a Buffer. Improve
resilience and considerations for
forward-buying and hedging.
Time
Strategic View of Time:
M&A, market analysis, and
positioning.
Short-term View. Budget-driven
discussions and analysis for
quarter-to-quarter and year-to-
year considerations.
Multi-year View. with a focus on
and outside of lead time. Groups are
attempting to align product mix and
define capacity requirements.
Organizations that outperformed in the pandemic were aligned
and focused outside-in. (Using channel and supplier market
signals with a lower dependency on enterprise transactional
data.) Companies that under-performed, needed to be more
aligned. Groups with the most significant gaps had a focus on
driving a tight integration to enterprise systems.
In disruption, alignment is important to deliver resilience
(consistent balance sheet results despite variability). The
organization has conflicting points of view between the
executive board, financial team, and supply chain teams. The
supply chain is a complex, non-linear system. Within the system,
there are trade-offs and constraints. For example, there are
consequences as the product mix changes, demand volatility
shifts, or lead times grow. Managing the supply chain requires
a constant rethinking of options and variability. As variability
increases, the need for modeling increases: fewer good
decisions can be made on spreadsheets. Successful companies
measure “when did they know” and “how quickly did they make
a good decision.”
During the disruption period, 94% of the decisions were made
through spreadsheets. The multiplicity of scenarios, options,
and outcomes is not visible on a spreadsheet. The inter-
relationships are complex and far-reaching. In Table 1, we share
a perspective on the tension across teams.
When comparing the current organizational alignment gaps
of 2022 to research fielded in 2012, we find the holes doubled
between manufacturing and procurement teams (increasing
to 39%) and operations and finance teams (rising to 40%)
while growing slightly between sales and operations teams
(increasing to 48%). (The gaps between commercial groups and
supply chain organizations have always been significant.) These
gaps are statistically significant at an 80% confidence level.
Alignment gaps are a risk issue. Few organizations measure
organizational alignment and work to close these gaps. As a
result, these increasing gaps in alignment and clarity of the
definition of supply chain excellence were an unspoken risk
entering the pandemic. The issues are more significant for the
Eliminating Organizational
Barriers
11

organization with annual revenues over $5B.
These gaps cannot be closed by a simple focus on S&OP or
implementing a technology. Gap closure requires leadership and
strategy clarity: both are missing in today’s organization.
New Product
Dev’t &
Distribution
Sales &
Operations
Manufact’g &
Procuremt.
Operations
& IT
Finance &
Operations
Sales &
Finance
Marketing &
Finance
Sales &
Marketing
Marketing
& IT
Finance & IT Sales & IT CSR &
Operations
64%
92%
87%
65%
79%
74%
82%
51%
30% 28%
18%
13%
44%
38%
45%
23%
49%
25%
36%
39%
28%
49%
44%
25%
Greatest Gaps
Figure 4. Organizational Alignment in 2019
Importance
Performance
Gap
79+30+0+91+45+0+64+18+0+76+30+0+67+24+0+64+24+0+73+33+0+58+24+0+52+21+0+73+42+0+21+9
Figure 5. Organizational Alignment in 2022
Logistics and
Supply Chain
Planning
Supply Chain
Planning &
Manufacturing
Logistics &
Procurement
Sales &
Supply Chain
Planning
Finance and
Supply Chain
Planning
Finance and
Manufacturing
Finance and
Procurement
Customer
Service and
Distribution
Corporate Social
Responsibility &
Manufacturing
Procurement &
Manufacturing
Supply Chain
Planning &
Customer Service
79%
73%
30%
91%
45%
42%
21%
9%
64%
76%
73%
58%
52%
30%
67% 64%
24% 24%
21%
24%
33%
18%
Greatest Gaps
Source: Supply Chain Insights LLC, Analytics Digital Transformation Study
Q9. In your opinion, how important is it for each of the following pairs of teams to be aligned within your supply chain?
Q10. How aligned do you believe that these same pairs of teams actually are with your company?
12

The World Economic Forum publishes an annual report on
Supply Chain Risk. The analysis is survey-based, representing
the views of 1,200 experts. The results shown in Figure 6,
collected from September to October 2022, reflect the collective
opinion of the respondents in 2022.
The problem is that risk is viewed from a traditional lens in this
analysis. Employee turnover and organizational alignment are
not measured and managed as a risk. The view is a supply-
centric view of the world deeply wedded-to traditional thinking.
As we reflect on the thirty-six months of disruption, perhaps the
most significant risk is supply chain leaders’ inability to adapt
to question supply chain practices. Organizations struggle from
Group Think. To drive the needed change, businesses need
to unlearn what are believed to be “best practices” –these are
traditional processes honed from over the past two decades
when disruption was lower.
Rethinking convention to embrace the Art of the Possible in
technological advancements is an issue. For example, in work
on building outside-in processes to use market signals better
and minimize waste, the most significant obstacle was the
inability of the group of twenty-eight business leaders to unlearn
and rethink convention.
Mounting Risk.
Ineffective Response

€

€

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‚ ƒ

„€

‚
† ‡

€
Figure 6. World Economic Forum Risks
13

Real-time data? Real-time processes? In the
5G-enabled era, time is measured in seconds
and milliseconds. In the world of data, a real-
time event is any action that triggers data
transfer or initiates a process change within
fifteen minutes. While business leaders speak
of real-time processes, today’s supply chain
moves slowly, encumbered by process latency
and disconnects—issues with batch processes
and interfaces bog-down decisions.
Most supply chain technology is legacy:
implemented in the scramble for Y2K
remediation. In addition, outsourcing
manufacturing and logistics increases the
number of supply chain nodes and parties.
Today, the average company in this research
outsourced 34% of manufacturing and 42% of logistics. Data
latency of conventional interfaces increases latency and
introduces supply chain black holes where getting answers to
questions at the speed of business is near impossible. Over the
last decade, the supply chain has become more complex and
incapable of adapting to variability.
Unstructured data abounds, yet company technology
investments are on the better use of structured data. As a
result, 80% of available data is not used. Variability analysis
is highly dependent on the management of
unstructured data. Learning how to use image
analysis, pattern recognition, streaming data,
and text mining is an opportunity for all. In the
industry, there is no safe space for business
leaders to test and learn with technology
innovators to advance knowledge and process
understanding.
Supply chain leaders love shiny objects.
Organizations quickly follow fads: investments
in the digital supply chain are the current
trend. This research shows that 45% of
manufacturers greater than $1B in annual
revenue deploy a digital strategy. If legacy
systems are an issue, the question is, “Will this
improve outcomes?” This research casts doubt
on the current strategies deployed. Less than 7% of companies
deploying a digital supply chain strategy saw a balance sheet
improvement in 2022.
So, the enlightened reader might ask, “Why can a digital supply
chain strategy not help? Couldn’t the deployment of machine
learning and artificial intelligence to better sense and shape
demand and align the supply chain improve outcomes?” The
answer is no. Testing shows that better optimization engines
using historic data sources (examples are order and shipment
Redefining the Supply Chain
Response
______________________________
Most digital strategies focus only
on data feeds of transactional
data. A human brain thinks
based on sensing and feedback
loops and is both analog and
digital. Today’s supply chains do
not sense, and the response is
based on history. Most processes
operate without a closed
feedback loop. Unfortunately,
history, in today’s variable times,
is insufficient.
______________________________
______________________________
“An idiot with a plan can beat a genius without a plan.”
Warren Buffet
INVESTOR
______________________________
______________________________
“If you don’t know history, then you don’t know anything.
You are a leaf that doesn’t know it is part of a tree.”
Michael Crichton
AMERICAN AUTHOR AND FILM MAKER
______________________________
14

history) yields marginal improvement. The answer lies in
redefining work to use market signals to
redesign supply chain processes to sense
and adapt in the face of variability.
To improve resiliency, we must admit
mistakes and be open to relearning and
questioning existing practices. For example,
over the last decade, supply chain planning
processes focused on tight integration of
enterprise data to be precise on inaccurate
data. The tight integration of planning into
Enterprise Resource Planning (ERP) was
a mistake. In 2020-2023, market data was essential, and
enterprise data was secondary. However, organizations could
not use market data.
Companies have multiple systems that are not aligned and
synchronized to work together. When deployed, each system
operates on planning assumptions that are typically not updated
based on market data. To remedy this
situation, companies must invest in a unified
data model across planning systems tied to
a supply chain planning master data layer.
Implementing a planning master data layer
takes market signals and tracks the trends to
inform the optimization engines.
In this research, we find that most digital
supply chain strategies for planning are
an extension of the goal of improving
transactional data. These deployments will
not improve business outcomes. The danger is many projects
will only make business outcomes worse.
______________________________
“Plans are worthless, but planning is
essential.”
Dwight Eisenhower
34TH PRESIDENT OF THE UNITED STATES,
SUPREME COMMANDER OF THE ALLIED
FORCES IN WORLD WAR II
_____________________________
15

Digital means different things to each company; no industry
standard definition exists. In this research, the most successful
investments with the highest satisfaction are in manufacturing
automation. Unfortunately, this is only 3% of current projects
deployed.
We find that planning and visibility initiatives have a low
probability of success. Unfortunately, these projects represent
over 50% of the digital focus. These are the most needed
and the most likely to fail. The reason for failure? Companies
need more clarity on definition and the challenge to rethink
architectures based on newer forms of analytics. In Figure 7, we
share the current focus of digital transformation programs.
To drive forward, cultures need to change, and supply chain
leaders need to retool. Digital transformation is not a project to
be implemented. Instead, it is a set of concepts to be tested.
On the journey, leaders need to embrace failure as success–
the value of learning needs to equal the drive for Return on
Investment (ROI).
As shown in Figure 8, the current state shows that only
three-five percent of supply chain leaders are familiar with
new approaches/terms like cognitive computing, sentiment
analysis, or NoSQL. These are promising techniques, but 97% of
companies need the culture to test and learn to drive process
innovation. The gaps between IT and business leaders are a
significant roadblock to driving change. Supply chain leaders are
slow to adopt the concepts of Web 2.0 and even slower to test
the advancements of Web 3.0. As a result, the most significant
value of digital transformation projects came from deploying
descriptive analytics.
We observe an endless cycle. Companies want proven solutions
and ask for a well-defined Return on Investment (ROI), but chase
shiny objects. For those not involved in the business, the cycle
defies logic. In the journey, leaders use many terms needing
more well-grounded objectives.
As shown in Figure 9, only 3% feel that they are innovators
driving early adoption.
Going Digital: Current and
Future State
Figure 7. The Focus of Digital Transformation Programs
Driving better supply chain
visibility
Improvements in supply chain
planning
Sensing market conditions to
improve the demand signal
Improving order-to-cash
processes
Improving procure-to-pay
processes
Automation of transportation
decisions
Automation of factories
25%
25%
19%
15%
12%
4%
3%
Q17. If the company has a digital transformation initiative, what was the focus?
16

Figure 8. Familiarity with New Analytic Approaches
Cloud-based technologies
Data visualization
Data lakes for data mining
Internet of Things (IoT)
(streaming analytics)
Software robots
Machine learning
Unstructured data mining
Pattern recognition
Open-source analytics
Graph databases
Cognitive computing
Blockchain
Drones
Sentiment analysis
Q34. What is your company’s current level of investment in the following analytics strategies?
18%
13%
8%
23%
20%
13%
3%
8%
23%
3%
3%
3%
3% 20% 33% 45%
13% 60% 25%
3% 3% 20% 43% 30%
8% 23% 40% 30%
3% 23% 25% 40%
8%
28% 15% 35%
10% 18% 38% 28%
5% 20% 18% 30% 25%
18% 28% 28% 15%
25% 13% 18% 25%
3% 43% 15% 18%
23% 8% 28% 18% 18%
40% 20% 10% 10% 8%
40% 20% 10% 5% 8%
Don’t Know 0 No Interest 1 Evaluating 2 Live Deployment 4 Mainstream Adoption 5
Experimentation / Pilot Program 3
17

Q33. Which of the following best describes your company’s approach to investing in new
analytics strategies, in general?
We are usually the last to try a
new technology
We are usually among the last to
try a new technology
We are usually in the middle when it
comes to trying a new technology
We are usually among the first to
try a new technology
We are usually the first to try a
new technology
Figure 9. Appetite for Innovation in Supply Chain Technology
10%
30%
0%
3%
58%
If someone in your organization is touting the deployment of a digital
supply chain strategy, stop the discussion and ask three questions:
1. How do you define digital? Why does it matter in the face of
heightened variability? How can we use it to improve insights in the
increasing world of gray?
2. How do we redefine work to improve answers with unprecedented
variability to make decisions at the speed of business? (The speed
of business is increasing while process latency using traditional
approaches is growing.)
3. What is the value of time in our supply chain?
Push for answers. Then and only then can you make the right decisions
to keep your supply chain from going over a cliff in a time of continued
disruption.
18

Two critical metrics for the supply chain leader are cost and
inventory management. Comparing the metric shifts over time
is valuable to understand the current state.
Cost of Goods Sold
Managing cost is the number
one day-to-day imperative for the
traditional supply chain leader. The
task is not easy because of a world
of dysfunctional metrics and growing
gaps in the organizational alignment.
This was especially true over the last
period of disruption.
Only one manufacturing industry—
the food industry-- successfully reduce costs over the past
decade. The industry’s cost reduction driver was the evolution
of agriculture, improving the cost structure of significant
ingredients like wheat and corn. Global food production
increased 30 percent over the last decade .
Costs in the Automotive, Automotive Parts, and Aerospace
Defense (AD) sectors grew faster in the period before the
pandemic than during the pandemic.
In contrast, the costs of Beverage,
Chemical, and Household Products
Industries during the pandemic spiked.
The opportunity is the redesign of flows
and trading relationships within supply
networks.
What Can We Learn?
The Automotive, AD, and Automotive
Parts rose with the escalating costs
of the Semiconductor Industry. At the same time, the rising
costs of Beverages, Chemicals, Household Products, and
Pharmaceuticals spiked with the increase in oil prices.
Managing sourcing strategies and relationships within supplier
The formula for Cost of Goods Sold
(COGS) is:
(Beginning Inventory + Inventory Costs)
- Ending inventory
_______________
Cost of Goods Sold
Managing Key Metrics in
Uncertain Times
Figure 9. Days of Inventory by Industry Over the Period of 2004-2022
Industry
Segment
Year Segment (M$) % Difference Difference
2004-2006 2007-2008 2009-2013 2014-2019 2020-2022 2009-13 vs
2014-19
2009-13 vs
2020-22
2014-19 vs
2020-22
2004-06 vs
2020-22
Automotive 35,500 46,667 53,675 61,364 65,138 13% 18% 6% 29,638
Aerospace Defense 9,273 11,125 12,634 13,710 14,220 8% 11% 4% 4,947
Chemical 3,482 6,339 6,855 6,977 8,419 2% 19% 17% 4,937
Semiconductor 2,274 2,770 3,170 4,709 7,043 33% 55% 33% 4,769
Pharmaceuticals 3,758 4,894 6,111 6,467 8,435 6% 28% 23% 4,677
Automotive Parts 4,687 6,194 7,023 8,002 8,561 12% 18% 7% 3,874
Food 5,721 7,575 9,404 10,682 9,558 12% 2% -12% 3,837
Medical Device 746 1,158 1,336 2,066 3,966 35% 66% 48% 3,220
Household Products 5,123 6,502 6,925 6,813 7,632 -2% 9% 11% 2,509
Beverage 2,264 3,083 3,993 4,146 4,702 4% 15% 12% 2,438
Beauty 1,282 2,034 2,322 2,620 3,011 11% 23% 13% 1,729
Average Inflation 3.96% 5.32% 3.84% 3.10% 5.99% -0.74% 2.15% 2.89%
19

networks has the most significant promise for the supply chain
leader to manage costs.
The journey of managing costs starts by changing what we
measure and control. Most companies manage functional
costs, not total costs or margins. The lowest functional cost
in manufacturing or transportation does not translate to the
lowest supply chain costs.
The answer lies in redesigning the fundamentals of the supplier
networks. Traditionally brand leaders push costs into the
network and outsource. Sticks are used more frequently than
carrots.
No brand owner owns the impact of their forecast data. Few
manage complexity. All accept the traditional definitions of
trading partners in the network. There is an opportunity for
business leaders to redesign network relationships. Here are
two examples:
Reduce Semiconductor Complexity. Could the
downstream brand owners reduce the semiconductor
industry’s cost by reducing complexity? Fabs are expensive,
and the semiconductor industry sits four to five levels back
in the supply chain. Today, the industry is at the whim of its
downstream partners: forced to manufacture items with
high demand variability and low volumes. The bullwhip
impact has significant cost implications for downstream
industries. Reducing network complexity could improve
efficiency by enabling longer manufacturing runs and lower
change-over times. Today, there are no cross-company
initiatives to consider the impact of current demand
patterns on this critical, but fragile industry.
Redesign Transportation Optimization. How about the
impact of oil prices on transportation-centric industries?
Again, a cross-industry redesign to use network data
and reduce dead-head miles could help. Transportation
optimization needs to be designed from the outside in. The
processes of route guides based on historic lane usage and
tenders drive up costs. The low acceptance of first-pass
tenders is an issue. Major shippers could declare current
transportation optimization technology legacy and partner
with new forms of transportation tech to drive a redesign
from using inside-out (historical enterprise data) to moving
goods based on dynamic deployment using market data.
This type of collaborative market play could improve the
resiliency of the industry.
The traditional approach of a myopic focus on controlling
enterprise costs has not reduced the Cost of Goods Sold. The
opportunity is for brand owners to be better trading partners
and redefine relationships based on shifting markets. For most,
Figure 10. Days of Inventory by Industry: Comparison across Years
Industries Years % Difference
2009-13 vs 2014-19
2004-2006 2007-2008 2009-2013 2014-2019 2020-2022
Medical Device 110 113 131 143 163 53
Beverage 115 119 138 191 164 49
Pharmaceuticals 155 144 170 195 197 42
Beauty 89 108 116 125 124 35
Automotive Parts 49 55 64 69 81 32
Household Products 50 51 57 74 82 32
Aerospace Defense 94 89 97 103 123 29
Chemicals 62 58 64 80 88 26
Automotive 35 39 41 45 49 14
Food 50 51 56 58 59 9
Semiconductor 61 68 80 91 68 7
Inventory levels by industry. Source Y Charts.
20

this reduces demand variability and complexity while better
using market signals.
Inventory
The average manufacturing company carries thirty days more
inventory than at the beginning of the 2007 recession. As
inflation takes its toll on cash cycles and the levels of inventory
increase, the Cost of Goods Sold (COGS) is increasing.
Inventory is the most significant source of waste and the most
important buffer for the supply chain. As variability increases,
organizations experience tension in managing
inventory trade-offs. The rise in inflation
puts added pressure on decisions. Few
companies are equal to the challenge.
Caught in a system of dysfunctional metrics,
inventory piles grow as teams push for
manufacturing efficiency. The management
of inventory is typically the responsibility of
everyone, and as a result, it becomes no one’s
responsibility. During the last decade, with a lower inflationary
level, companies offset the increase in inventory by elongating
payables to improve cash-to-cash. (Cash-to-cash= Days
Receivable + Days of Inventory-Days Payable.) There was little
impact on the Cost of Goods Sold. With the rise in inflation, this
is no longer the case.
Rise In Inventory Levels
From 2004 to 2022, average global manufacturing inventories
grew by thirty days. This is despite the increase in supply chain
planning and Enterprise Resource Planning (ERP) investment.
There are three primary reasons for the increase:
1. Rise in Product Complexity. Increasing product complexity
increases manufacturing cycle stock requirements
(the time to cycle through a product line in
manufacturing).
2. Shifts in Sourcing Cycles. The lead
time cycle increases due to global sourcing,
manufacturing, and distribution outsourcing
increasing in-transit inventories. (Inventory
on trucks, barges, containers, and third-party
locations.) Leadtime variability over the last
thirty-seven months acerbated the issues.
3. Increases in Demand Variability.
As product complexity increased, product
forecastability decreased, growing the need for safety
stock. A company with a product portfolio with a long tail
(low-volume products with high demand variability) requires
more significant safety stock inventory levels. (Traditional
approaches for demand planning as less effective as it
becomes more difficult to forecast an item.)
21

Steps to Take to Manage Inventory
Educate the organization on the basics of inventory and
stop using spreadsheets to make supply chain decisions.
(Companies using only spreadsheet analysis on cost miss
the impacts on the inventory of shifts like tax efficiency,
outsourcing, or sourcing strategies.) Use scenario planning in
network design optimization and what-if analysis in discrete-
event simulation to set inventory levels for each form and
function of inventory.
Analyze the current health of inventories. As companies recover
from the past months of disruption, warehouses worldwide
are bloated with incorrect inventories. High levels of inventory
decrease customer service reliability. (A full warehouse is
inefficient, requiring more labor and sophisticated approaches
for inventory management. As a result, order reliability drops as
inventory levels rise.) Take the hit—write off slow and obsolete
inventories. As you manage the write-offs, analyze the root
cause of the inventory write-off as a learning exercise for the
organization.
Figure 11. Definition of Form and Function of Inventory
Form Function
Supplier owned inventory: raw
materials
In-transit inventories: Inventory that is on trucks, barges, and
containers. The longer the trade-lanes and the slower the mode,
the larger the requirements for in-transit inventory.
Company owned inventory: raw
materials
Cycle Stock: In the planning of production, finished good
production is cycled to ensure that the production lines are fully
utilized. The average rotation between products on production
lines in consumer packaged goods is three weeks.
Work in process inventory
Safety Stock: Inventory requirements to buffer demand and
supply volatility.
Finished goods at the company
warehouse
Seasonal Inventories: Inventories required to support seasonal
builds.
Finished goods in the channel
Promoted Items: Inventories to support the promotional lift to
support a promotion.
22

As companies reflect on organizational learning from this period
of unprecedented challenges, reflect on the following:
Implement a Balanced Scorecard. Redefine metric and reward
systems to improve organizational alignment.
Use Channel and Supplier Data. The direct use of channel
and supplier data reduces latency and minimizes the bullwhip
impact. Redefine systems to work outside-in and measure the
bullwhip impact of the shifts in approach.
Redefine Work. As companies moved from regional to multi-
national, to global supply chains, the processes of a regional
supply chain were adopted. As a result, many companies have
teams of hundreds of planners that are not very effective. Use
new forms of analytics to redefine planners as orchestrators.
Use proactive optimization and cognitive learning to drive
insights to business users based on market data.
Define Governance. In our work, we find that successful
companies are clear on governance. In this evolution,
companies define how to use technology to make better
decisions. This includes:
• Who should make what decision at what time period.
• What is a good decision?
• How do divisional, corporate and regional teams best work
together to improve decisions processes.
• After- action review to analyze effectiveness.
Improve Alignment. Use scenario planning—network design,
what-if optimization, and discrete-event simulation—to test and
discover alternatives while producing a feasible plan. Alignment
is more straightforward when teams can visualize options.
Test and Learn Through Innovation. Build an innovation
budget and work with leaders to test and learn through new
forms of analytics. To maximize the value of innovation, create
a test-and-learn culture. A significant factor in the test and learn
culture is falling forward and learning through failure. Relax the
fixed Return on Investment (ROI) requirement to accomplish
this goal and invest in training teams.
Challenge Existing Paradigms. Assess the performance of
the organization through this period of disruption. Ask these
questions:
• What happened?
• When did we know it?
• What should we have known when?
• Was there data available in the organization that should
have been used?
• Use this insight to challenge existing paradigms.
Reduce Process Latency. Analyze how long it takes the
organization to make a decision and the effectiveness of the
process. Streamline processes based on market data and
clearly define what a good decision looks like. Implement after-
action review analysis for key processes like SOP, allocation,
and new product launch.
Recommendations
23

No company was ready for the level of supply chain disruption
experienced during the past thirty-six months. It is an
opportunity to redefine the “seat” at the table in the boardroom
on supply chain performance. The supply chain reset’s starting
point clearly defines supply chain excellence and driving
alignment. Sidestep shiny objects and vague programs on
digital transformation and focus on value.
Summary
24

This study was tendered in the summer/fall of 2022 to understand the current state of the supply chain at the end of the pandemic
disruption phase. Respondents were sourced from LinkedIn connections and collaboration with the University of Wisconsin E-Business
Forum.
The study closed with sixty-seven responses (40% from process-based and 50% from discrete industries). For insight, reference Figure A.
Appendix
PROCESS (NET)
DISCRETE (NET)
Food and Beverage
Industrial Manufacturing
Consumer Packaged Goods
Automotive
Pharmaceuticals / Bio Technology
Medical Devices
Chemical - Industrial
Heavy Equipment
Chemical - Specialty
High-tech and Electronics
Consumer Durables
Footwear and Accessories
Furniture
Other (please specify)
52%
33%
24%
9%
12%
6%
12%
3%
3%
3%
3%
3%
3%
3%
15%
3%
Base: Users (n=67)
Q3. Which industry grouping best defines your company?
Figure A. Respondents by Industry
26

About Supply Chain Insights
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC, and is the author of the
popular enterprise software blog Supply Chain Shaman. She also writes as a LinkedIn Influencer and a
contributor to Forbes. She has written twelve books.
Writing for the early technology adopter, Lora’s goal is to help business leaders. With over twenty years as a
business leader managing supply chain teams for large Consumer Goods companies, fifteen years building
planning software, and twenty years as a research analyst (AMR Research, Altimeter Group, and Gartner
Group) and now as the Founder of Supply Chain Insights, Lora is an unquestioned thought leader working
hard to unveil new trends and insights.
Founded in February 2012 by Lora Cecere, Supply Chain Insights LLC’s goal is to deliver independent, actionable, and objective advice for
supply chain leaders. With ongoing research using the over 330,000 followers on LinkedIn, the goal is to publish actionable insights to help
leaders understand supply chain trends, evolving technologies, and which metrics matter.
27

2023 Reset Report v3.1.pdf

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