Presentation for Consumer Goods Technology

BRICKS Book
Publishes

Matter
December
2012

The Role of Supply Chains
in Building Market-Driven
Differentiation

LORA M. CECERE
CHARLES W. CHASE JR.

Right Use Expansion into Supply Chain
of Assets BRIC Countries Process
(Brazil, Russia, Knowledge
India and China)

Three Lies and a Truth

• Supply chain technology implementations have
reduced inventory.
• Companies should implement supply chain best
practices.
• Companies that have focused on collaboration
in the supply chain have built competitive
advantage.
• Supply chain excellence matters.

Supply Chain Insights LLC Copyright © 2012, p. 4

Average Days of Inventory by Year

250.0

200.0
Days of Inventory

150.0

100.0

50.0

0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Consumer Packaged Goods 59.0 57.0 62.0 64.0 67.0 67.0 68.0 70.0 70.0 64.0 64.0 67.0
Chemical 71.5 71.9 78.2 75.1 62.0 70.3 68.1 64.3 64.3 78.6 72.9 72.8
Pharma 122.2 133.7 190.1 171.0 184.3 175.6 167.8 149.8 154.9 198.7 154.3 131.8
High Tech 93.1 57.6 46.5 48.5 35.9 37.3 43.8 36.8 34.6 41.3 34.8 30.4
Average 86.5 80.0 94.2 89.6 87.3 87.5 86.9 80.2 81.0 95.6 81.5 75.5

Source: Supply Chain Insights 2012


Building End-to-End Value Networks

True collaboration only happens when there is a
sustaining win/win value proposition.


Cash-to-Cash Cycle vs. Gross Margin (2000-2011)
SUMMARY SLIDE


Collaboration: The Right Stuff

SHARED
VISION
+ SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE

SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION

SHARED
VISION
+ INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY

SHARED FALSE
+ SKILLS + INCENTIVE + RESOURCES + LEADERSHIP =
VISION STARTS

SHARED
VISION
+ SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION

SHARED GRADUAL
+ SKILLS + RESOURCES + PLAN + LEADERSHIP =
VISION CHANGE
Source: J.P. Kotter


Agenda


Year-over-Year Growth

Years 1990-1994 1995-1999 2000-2004 2005-2009 2010-2012
RETAIL
17.05% 42.46% 12.89% 8.76% 5.15%
AVERAGE

CPG AVERAGE 2.12% 0.84% 3.91% 7.26% 2.32%

FOOD CPG
3.68% 2.97% 8.13% 2.59% 4.27%
AVERAGE

BEVERAGE CPG
12.87% 2.00% 9.59% 11.53% 4.92%
AVERAGE


Retail: Revenue Per Employee
Revenue per Employee
1200
Revenue per Employee (K$)

1000

800

600

400

200

0
1990- 1995- 2000-
2005 2006 2007 2008 2009 2010 2011 2012
1994 1999 2004
eCommerce 343 456 549 758 848 1016 998 1073
Grocery 198 182 425 479 475 520 612 611 572 518 504
Mass 112 144 253 348 379 617 487 474 533 464 348
Specialty 296 384
Source: Supply Chain Index Analysis from Annual Reports 1990-2012 414 458 479 527 534 282 312
Mean values utilized excluding outlier data


Revenue Per Store


Bar codes were first used at Marsh Supermarket in 1968


Suppliers Still Do Not Know How to Use
the Data

Weather Data Market-survey Data Contract Data
Retail Warehouse Withdrawal Data
Loyalty Data

Syndicated Data POS Data Panel Data

Enrichment Data
Social Data Distributor Data
T-Log Data
Ratings and Reviews
Coupon Redemption Web Click-through Data

Orders Shipments Returns


Mobile & Social Presence Growing


“Where’s My Bud” Viral Campaign

Campaign
Objectives:
Reduce Out of Stocks at
targeted retailers by 5%
Increase Shopper
satisfaction and brand
loyalty
Validation:
Identify a key leader or
market that wants to pilot.
50/50 shared risk in effort
and resources to pursue.
Keep costs to a minimum for
Concept: pilot, under $75K
Execute a viral campaign
focused on leveraging
shoppers to identify out of
stocks and potentially
pricing compliance issues
Leverage a combination of
consumer, internet, and in-
store technical capabilities


Retailer Experience

New text message to
612-961-7802:

A customer at Denny
and Doug’s Liquor
Emporium has just
snapped a tag. You’re
out of stock on Bud
Light.

Please contact your
wholesaler.


Here are some locations near you where you can
find Bud Light. Be sure to use this promotion code
to get your discount:
ABBL12456


Agenda


A Look at History


Price Volatility

In your best estimate, how much has commodity price volatility affected your EBIT
over the past 12 months? What do you expect over the next 12 months?

Decrease EBIT Increase

Over past
24% 34% 18% 15% 9% 12 months

Over next
17% 36% 23% 19% 5% 12 months

Decrease Decrease Increase Increase
No effect
>50 basis pts <50 basis pts <50 basis pts >50 basis pts

Percentage of Respondents


Rising Price of a Barrel of West Texas Intermediate (WTI)


Ease of Getting Total Supply Chain Costs:
Manufacturers, Retailers & Distributors

USERS: Ease of Getting Total Supply Chain Costs

Extremely/very easy 5 Neutral 3 Extremely/very difficult

Users 12% 12% 24% 24% 29%

24% EASY 53% DIFFICULT

___________________________________________________________
Source: Supply Chain Insights LLC, Transportation (Aug-Oct 2012)
Base: Transportation Users (Manufacturers, Retailers and Distributors) (n=34)
Q18. How easy is it for your company to get total supply chain costs for your operations?


Data Latency and Distortion

Retailer DC Manufacturer DC Suppliers
Store

Demand
Signal

Accurate
Almost Weekly
Trivial Easy Difficult Impossible Forecasting
is ...

Instant 3-10 Days 10-20 Days Delay from
20-50 Days
20-45 Days Purchase to
Variable 7-20 Days 45-80 Days Signal

Red Represents Emerging Economies with
Distributor Trade

Agenda


Supply Chain Management:
Top 3 Elements of Pain for Respondent


Evolution of Supply Chain Process
Excellence
Align:
Market
Driven
Adapt:
Demand Resilient
Reliable
Driven
Right Product Efficient
Absorb
Demand
Volatility Right Place Cost

Right Time
Procure to
Absorb Supply pay/order to
Volatility cash
Right Cost


SUMMARY SLIDE


Evolution of Supply Chain Process
Excellence
Align: Continuous
Building Horizontal Testing Orchestrate
Market Process Connectors Learning
Improving Demand and Supply
Driven In Market

Adapt:
Demand Resilient
Reliable
Driven
Right Product Efficient
Absorb
Sense Demand
Demand Volatility Right Place Cost
and Supply

Right Time
Procure to
Shape Absorb Supply pay/order to
Demand and Volatility cash
Supply based Right Cost
on Market


What is a Market-driven Value Network?

An adaptive network focused on a value-
based outcome that senses and translates
market changes (buy and sell-side markets)
bi-directionally with near-real time data
latency to align sell, deliver, make and
sourcing operations.


Definitions

Supply Network: When the supply chain is extended to a
network of trading partners, it is termed a supply network.

Value Chain: When the emphasis of this extended supply
chain shifts from cost to value, it is called a value chain.

Value Network: When it becomes more strategic to the
company, focused outside-in to drive value-based outcomes, it
is termed a value network.


A Supply Chain
is a Complex System
with Complex Processes
with Increasing Complexity

Looking at the Supply Chain
as a Complex System

Profitable Growth

Revenue Cost of Goods
Corporate
Trade-offs Working Capital

Corporate Social Responsibility
Investment
Trade-offs R&D Strategy and Investment Asset Strategy and Investment

Forecast Accuracy Customer Service Inventory
Supply Chain
Trade-offs Channel Strategy Product and Supplier Strategy
Service Portfolio
Sales Distribution Manufacturing Logistics Procurement
Supply Chain Policies Policies Policies Policies Policies
Waste
Returns Backorders First Pass Yield Empty Miles Material Yield

Useful Ratios

Growth Profitability Cycle Complexity
R&D Margin Cash on Hand C2C Cycle Altman Z
Days of Finished
R&D to COGS Ratio Free Cash Flow Ratio Capital Turnover
Goods
SGA Margin Gross Margin Days of Inventory Current Ratio
Days of Payables
SGA/COGS Net Profit Quick Ratio
Outstanding
COGS as Percent of Days of Raw
Operating Margin Return on Assets
Net Sales Materials
Days of Sales
Pretax Margin (EBIT) Return on Equity
Outstanding
Days of Work in Return on Invested
YoY Sales Growth
Progress Capital
Operating Margin DPO/DSO Return on Net Assets
Inventory Turns Revenue/Employee
Receivables Turns Cost of Sales


What is Best in Class?

• Performance better than peer group
• Year-over-year improvements
• Consistency in results
• Leadership in managing trade-offs


Corporate Summary


Metrics Included for Comparison


SUMMARY SLIDE


Inventory Turns vs. Revenue per Employee (2002-2011)
SUMMARY SLIDE


Value Network Strategy

Business Strategy
What are the right things to do to increase company value?

Value-network Supply Chain Strategy
What are the right ways to support the business strategy?
What are the right trade-offs between value drivers for each value network?

Align demand Right product Design the Build Align supply
Supply chain strategy
relationships platforms supply organizational relationships
response systems and
manage talent
Effective Supply
Demand Networks Design Networks Continuous Networks
Improvement
Joint Value Creation Innovation Supply Chain Execution of buy-
Strategies Methodologies Network Design Capabilities Required side strategies

Business Process
How do I do the right things right?
Source: Supply Chain Insights, LLC


Agenda


The Supply Chain of the Future

World
Population

North America Europe Asia
2007 2020 2007 2020 2007 2020
339M 342M 731M 722M 4.0B 4.6B

L America
2007 2020 Africa Oceania
572M 660M 2007 2020
2007 2020
965M 1.3B 34M 40M
Source: “The World at Six Billion” United Nations, 2004; The World UN Population Assessment 2006; “Unsustainable World,” 04/15/08, BBC

MARCO TRENDS

Supply Chain Tipping Points

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

JIT Supply Chain Internet/Email
RFID
Organization
Evolution of eProcurement
the PC

Re-Engineering the Total Quality
S&OP Organization Management
Theory of
Constraints (Michael Hammer)

Supply Chain Excellence = Supply Chain Excellence =
Islands of Manufacturing Vertical Silo Efficient Order to
+ +
Excellence Excellence Excellence Cash Processes

Inside-Out Inside-Out


Supply Chain Tipping Points

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

.com Social
Responsibility
Y2K
Demand Driven
Concepts CSCO
Lean Six Sigma
Market-Driven
Value Networks

Supply Chain Excellence = Supply Chain Excellence =
Vertical Silo Outsourcing Value-Based Outcomes
+
Excellence Effectiveness Delivered by Horizontal Processes

Inside-Out Outside-In


Supply Chain 2020 Tipping Points

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Orchestration Internet of Things
Talent
Shortage Big Data Learning
Supply Chains Supply Chains
Compliance on
Safe & Secure
Digital Manufacturing

Supply Chain Excellence =

Value-Based Outcomes
Delivered by Value Networks

Outside-In


Current State of Planning


Future State of Planning


Scenario Planning


IT Trends Excited About (Top 3)


Definition
Structured • Transactional
Challenges:
Data • Time phased data

• Social Volume
Unstructured • Channel
Data • Customer Service
• Warranty

• Temperature Velocity
Sensor • RFID
Data • QR codes
• GPS

Variability
New • Mapping and GPS
• Video
Data • Voice
Types • Digital Images

57

Connecting the Extended Supply Chain

58

Connecting the Extended Supply Chain


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


More than Just “Like”


Newell Rubbermaid Gets IT!

• Newell Rubbermaid

#Future15SB @bwdumars


Newell Rubbermaid Gets IT!

#Future15SB @bwdumars


Kellogg 2010

“Kellogg’s cereal primarily in the U.S. due to an
odor from waxy resins found in the package
liner. Total charges were $46 million with a
$.09 impact on earnings per diluted share.”

Kellogg Annual Report


EDUCATE

SCI Research Supply Chain Index Ask a Supply Chain Wizard Supply Chain Wiki

Blogs Videos, Webinars, and Share Your Own
Podcasts


ENRICH

Consulting Technology

NEW


EVOLVE

Job Postings Events

Salary Information Help Board

NEW


Agenda


Historically, We Have…

• Tried to get precise on inaccurate data.
• Been sales-driven or marketing-driven not market-
driven
• Believed that the most efficient supply chain is the
most effective supply chain.
• Built efficient chains, but not effective networks.
• Focused inside-out, not outside-in.
• Rewarded the urgent, not the important.

70

Where is Your Opportunity?


Who is Lora?

• Founder of Supply Chain Insights
• Partner at Altimeter Group (leader in open
research)
• 7 years of Management Experience leading
Analyst Teams at Gartner and AMR Research
• 8 years Experience in Marketing and Selling
Supply Chain Software at Descartes Systems
Group and Manugistics (now JDA)
• 15 Years Leading teams in Manufacturing and
Distribution operations for Clorox, Kraft/General
Foods, Nestle/Dreyers Grand Ice Cream and
Procter & Gamble.


Where Do You Find Lora?

Contact Information:
lora.cecere@supplychaininsights.com
Blog: www.supplychainshaman.com
(4000 pageviews/month)
Twitter: lcecere 3350 followers. Rated as the
top rated supply chain social network user.
LinkedIn: linkedin.com/pub/lora-
cecere/0/196/573 (2300 in the network)


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