Research in Review - 2015

Research in Review
Insights from 2015 Studies
01/10/2016
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC

Contents
Research Methodology
Disclosure
Executive Summary
Supply Chain Metrics That Matter: What Is Possible?
Investment in Technology: Current Focus
Building the Supply Chain Center of Excellence
Evolution of Supply Chain Design: A Maturity Model
Big Data and Emerging Analytics
Value of Advanced Inventory Optimization
Misconceptions
Value of Sales and Operations Planning
Risk Management
Recommendations
Conclusion
Terms to Know
2015 Supply Chain Insights Reports
About Supply Chain Insights LLC
About Lora Cecere
Endnotes
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Research Methodology
We are committed to delivering thought-leading content for the supply chain leader. Our goal is to be
the place where visionaries turn to gain an understanding of the future of supply chain management.
In 2015 we published 16 reports. During the year we spent 22% of revenue in producing independent
research. In this report we provide the highlights.
Disclosure
Your trust is important to us. In our business we are open and transparent about our financial
relationships and our research operations. In this research process we never share the names of
respondents and/or give attribution to the open comments collected in the research.
This report is written and shared using the principles of Open Content research. It is intended for you
to read and share freely with your colleagues and through social channels like LinkedIn, Facebook
and Twitter. When you use the report all we ask for in return is attribution. We publish under the
Creative Commons License Attribution-Noncommercial-Share Alike 3.0 United States and our citation
policy is outlined on the Supply Chain Insights Website.
In the development of research our philosophy is, “You give to us, and we give to you.” Participants of
our research always receive the final reports, and, if interested, we will share our insights with the
respondents of our quantitative surveys and qualitative interviews in a one-hour phone call with their
team.

Executive Summary
Supply chain management it is now three decades old. The processes are maturing. With the
increase in complexity in markets and new product launch, supply chain excellence matters more
than ever.
Manufacturing and distribution companies are looking for insights on how to parlay advances in
supply chain management into balance sheet results. This is the goal of this report.
This report is a summary of research conducted during 2015. It provides a short summary of the
major insights gathered from six quantitative and four qualitative studies. For more in-depth analysis
reference the full reports outlined in the appendix.

Supply Chain Metrics That Matter:
What Is Possible?
The goal of the supply chain leader is to improve supply chain performance and drive balance sheet
improvement. In setting goals for corporate strategy it is important to baseline those goals on what is
possible. Each industry is different. Most industries are treading water. As shown in Tables 1 and 2,
small gains are big wins.
Table 1. Growth, Operating Margin, Inventory Turn Comparison for Discrete Industries for 2006-2014
and 2011-2014

Table 2. Growth, Operating Margin, Inventory Turn Comparison for Process Industries for 2006-2014
and 2011-2014
While the goal of most companies is growth, only five industries are making progress: Aerospace,
Automotive, Apparel, Beverage, and Chemical. When it comes to inventory turns, the greatest
progress was made in Automotive, Retail and Pharmaceuticals. For the more mature industries of
Consumer Packaged Goods and Semiconductor, as growth declined and items proliferated the
industries lost ground in inventory turns. Cash-to-cash improved in eight industries primarily due to
the lengthening of payables.
In summary, the most mature industries are treading water, while the less mature are making small
improvements. To break the cycle companies need to adopt outside-in processes and align cross-
functionally to the supply chain metrics that matter.

Today nine out of ten companies are stuck. They are unable to power improvement in the two
important supply chain metrics of operating margins and inventory turns. In our research we find
most of the companies making improvement in one, but not both, of these important metrics.
To understand which companies were performing better than their peer group while powering
improvement we built the Supply Chains to Admire methodology. This is the second year of this
analysis. In the 2015 analysis, based on 2014 corporate performance, 26 companies averaged
performance better than their peer group on the critical metrics of operating margin, inventory turns,
and Return on Invested Capital (ROIC) while driving improvement at a faster rate than their peer
group.
When we compiled the Supply Chains to Admire group we found that it was a small and elite list, and
that the status was hard to maintain. Eight of these companies made the list for two consecutive
years: Audi, AB/InBev, Cisco, General Mills, Eastman Chemical, EMC, Intel, and Nike.
Figure 1. 2015 Supply Chains to Admire

Investment in Technology: Current Focus
Every supply chain organization is slightly different. The role and function within the organization
varies. Today 58% of companies have a chief supply chain officer and 8% have an individual
responsible for end-to-end supply chain design.
Figure 2. Supply Chain Organization Definition
In this research 45% of companies have a Supply Chain Center of Excellence, but only 25% of
companies feel that they had successfully created and executed a Supply Chain Center of
Excellence. Just having a center of excellence does not automatically mean success. The focus and
charter of the Supply Chain Center of Excellence needs to be carefully designed and implemented.
One of the missing elements for the Supply Chain Center of Excellence is clearly defining a supply
chain strategy and communicating the definition of supply chain excellence. While many leaders
assume that this is clear, it is not. Supply chain excellence needs to be carefully defined.
One of the barriers to an effective Supply Chain Center of Excellence is user satisfaction with current
technologies. Companies are more satisfied with transactional versus planning systems. One of the
biggest gaps is in production planning.
In the evolution of Supply Chain Centers of Excellence, a critical goal is developing and implementing
effective planning systems. For most companies this is a major gap. To make this transition
companies need to invest development and testing funds into the Centers of Excellence.

Figure 3. Supply Chain Center of Excellence
Figure 4. Importance and Performance of Current Technologies

With the evolution of Software as a Service (SAAS) and Business Process Outsourcing (BPO)
technologies there are now more options. As shown in Figure 5, while the adoption of SAAS was 5%
in 2004, it is currently the deployment preference for the Line of Business Leader.
(Source of 2004 data research completed at AMR Research.)
Figure 5. Adoption of Alternate Technology Deployments
We find 45% of companies plan to increase technology spending, 30% have the same budget, and
only 5% of companies are planning to decrease spending. As shown in Figure 6, the focus is on
improving planning and execution. Line of Business power in decision making is increasing with 33%
of Line of Business leaders making the sole decisions, and 18% of IT leaders making their own
decisions, while 40% of the decisions are made jointly. The purchase of supply chain solutions
remains a complex sale with increased power by Line of Business leaders.
In Figure 6 we share insights on the focus of spending increases. Note the focus on supply chain
planning and supply chain execution. Warehouse management and supply chain execution is driven
largely by ecommerce and the need to handle the “each” while supply chain planning is focused on
improving the signal for the extended supply chain.

Figure 6. Focus of Spending Increases

Building the Supply Chain Center of
Excellence
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 Supply Chain Center of Excellence. However, as
shown in Figure 7, if done right, the organization rates itself as more aligned, proactive and agile.
Figure 7. Centers of Excellence Infographic

Based on our qualitative interviews with clients we find that there are seven drivers to building a
Supply Chain 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 who 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 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 possibilities to define a digital supply chain transformation road
map. The Supply Chain Center of Excellence is a natural starting point.
• Mergers and Acquisitions. Mergers and acquisitions drive change for the supply chain, requiring the
design and orchestration of the value network to gain synergy. With heightened politics, and the need to
rationalize the processes in the time of M&A, the Supply Chain Center of Excellence is essential to
rationalize process definition and technology adoption.

While it is easy to define “What Good Looks Like” for transactional systems, defining the end-to-end
vision for the supply chain value network is more difficult. The typical steps for the end-to-end journey
are outlined in Figure 8. High-tech companies are more mature on this model than process-based
companies.
Figure 8. Journey for End-To-End Supply Chain Processes
As new forms of analytics evolve, new capabilities are being defined in the Center of Excellence, and
the processes of supply chain planning, inventory management, and network design are evolving. For
the successful Center of Excellence this is at the heart of the mission.
When companies were asked to self-assess the performance and importance of Supply Chain Center
of Excellence responsibilities, we find that companies rate their capabilities on network design,
metrics modeling, and supply chain planning as both important and highly performing. Talent
management, new technology evaluations, and inventory management are lower performing, but still
important. The group in this study reported low importance and performance on the management of
horizontal processes, i.e. revenue management, Sales and Operations Planning, and Supplier
Development. These findings are shown in Figure 9.

Figure 9. Performance versus Importance of Center of Excellence Roles and Responsibilities
In this study, 48% of the work focus was push and 45% was pull. When the Center of Excellence is
focused on push-based processes it is usually a focus on process auditing. The auditing can include
demand and supply plan auditing, the use of a new technology, and S&OP maturity. Alignment on the
governance is essential for success. In Figure 10 we share insights on the governance structures of
the Supply Chain Centers of Excellence.

Figure 10. Definition of Regional/Global Governance
Evolution of Supply Chain Design:
A Maturity Model
Supply chain design also looks very different by company. The differences are marked with varying
levels of maturity. Based on our research we know that, today, three out of four companies with a
network design group have $10 billion or greater revenue (vs. 30% for those without a network design
group). The network design groups within the Center of Excellence average seven people. There is
very little outsourcing: the work is done in-house within the organization. The efforts are coordinated
by internal teams. So, how do companies get good at supply chain design? Where are the supply
chain architects of the future?
In the research, the process of network design was defined as the use of analytic tools to model and
optimize the supply chain. The work can use multiple technologies and combine cognitive learning,
simulation, and optimization. Based on interviews with manufacturing clients we find that companies
move through a five-stage maturity cycle. There is an opportunity to design our supply chains, and
our value networks. As the work of network design matures within the Supply Chain Center of
Excellence, the capabilities rapidly progress. The design maturity model is outlined in Figure 11.

Figure 11. Maturity Model of Network Design Processes
To understand the stages, here we share the definitions:
• Stage 1: What Are the Right Bricks and Mortar? The earliest form of network design is a focus on
the bricks and mortar. The focus is on the right locations for factories and distribution centers. It is on
the physical flows of the supply chain. This analysis is ad hoc and is usually stimulated by the launch of
a new product or a shift in capacity. The design efforts are usually coordinated by a central group like a
Center of Excellence.
• Stage 2: All about Logistics. In this phase of network design the focus is functional. It is usually driven
by the logistics and transportation functions. The focus is to rationalize the flows from the distribution
center to the customer. The flows are typically linear and the analysis is on alternate modes and best
shipping lanes. This work is typically periodic to accompany a freight bid or an end-to-end project.
• Stage 3: Effective B2B Networks. At this level of maturity, companies are looking at the complexities
of supply networks, customer shipment alternatives, distributors, and free trade zones. The focus is on
the definition of business policy. It is often stimulated by failure. The projects explore the alternatives for
risk management, tax efficiency, social responsibility, and the complexities of outsourcing. The growth

of e-commerce puts pressure on networks for a quicker and more accurate response. Companies need
multi-tier Available-to-Promise (ATP) and real-time inventory management. Network complexity grows
quickly which rules out many of the available technologies. In this work the use of linear optimization
(which usually is about averages) is augmented with simulation to test network feasibility (the ability of
the network design to manage demand and supply volatility). However, the work is still periodic. It is not
an embedded systemic enterprise approach.
• Stage 4: A Focus on Flows. In the next phase and evolution of design maturity companies realize that
product flows are only a piece of the puzzle. There are more flows than materials to make products. In
this evolution, cash, information, and inventory flows grow in importance. Network design efforts
become an enterprise-class process with a monthly analysis of the network. This is often coupled with
Sales and Operations Planning (S&OP) processes. Terms like “push/pull decoupling points,” “form and
function of inventory,” and “buffer analysis” become a part of the lexicon. (For more on this level of
sophistication on inventory management check out our recent inventory management report.)
Companies like Cisco Systems, Intel, Hewlett-Packard, SanDisk and Seagate are at this level of
sophistication.
• Stage 5: What Should the Network Be? In the last and final stage of network design maturity the
focus is on a clean sheet of paper. The idea is "not to optimize what exists, but to develop a roadmap
of what should exist." This work is useful to baseline the current state of the business and brainstorm
higher levels of performance. In this analysis the evaluation of partnerships and design partners is
holistic, optimized from the customer's customer to the supplier's supplier. The focus is on value and
understanding supply chain potential. While this may seem academic it is very useful for an executive
team to see the difference between: a) an “efficient network that operates at the lowest cost per case,”
b) a “responsive network that can shift with the quickest cycle time to market demands,” and c) an
“agile network that can deliver the same cost, quality and customer service levels given the levels of
demand and supply volatility.” These are three different designs. While executive leadership teams will
often use these terms interchangeably, seeing the impact on a geographical map for a global network
stimulates a different level of dialogue. It is an awakening. Why? Executive teams are guilty of using
these terms frequently without realizing the difference. Seeing the difference in a tangible network
design stimulates a new discussion.

Figure 12 is a good overview of the current state of network design in the industry.
Figure 12. Focus of Network Design Efforts
Big Data and Emerging Analytics
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 createdi
. 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.
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 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.
With the need for real-time decision making amid growing complexity, the business pain for the
supply chain leaders is higher.
While the term big data is overhyped and overused in the press, we find the concepts and the
potential opportunities are not well-understood by supply chain teams. We define big data as data
volume greater than a petabyte, and systems and solutions that utilize a variety of data types with

increasing velocity. It is about volume, data variety and velocity. While we will show in the data for this
report that most supply chain leaders do not have the challenges with data volume, they do have a
multitude of opportunities to harness value with data variety and drive better decisions through
increasing data velocity.
It is a study of contrasts, and the change is happening slowly. In Table 3 we contrast the current state
and the evolving opportunities with technologies for supply chain management.
Table 3. Current State versus Evolving Technologies
Where should people start? The big data analytics journey should be built with the goal in mind. The
focus should be on some large area of business opportunity. The challenge is to rewire the brain of
the organization to imagine how these new technologies and approaches can transform business
processes.
Companies that see investing in Big Data projects as an opportunity are usually larger (greater than
$500 million in revenue) and have started a big data initiative. These groups are frequently seen in
discrete manufacturing environments with more mature analytics teams like the high-tech and
electronics, and semiconductor industries. The teams are cross-functional and multi-disciplinary in
approach. Today 18% of companies have a group focused on understanding the big data opportunity.
This research is summarized in Figure 13.

Figure 13. Presence of Big Data and Analytics Teams
Figure 14. Focus of Big Data Teams

For those with a big data initiative the greatest opportunity is in improving product traceability and
supply chain visibility. The use of unstructured data and streaming data from the Internet of Things is
lower performing.
Value of Advanced Inventory Optimization
The average company has invested in many inventory optimization solutions, but few companies feel
they have driven results. There are many drivers of inventory, and the management of inventory
levels requires both discipline and a cross-functional focus. This is especially true for the global
multinational. The definition of the global supply chain greatly impacts inventory requirements.
While there is a generalized belief that the maturity of supply chain processes has improved inventory
turns, the improvements in cash-to-cash have been primarily driven by lengthening payables, not
inventory improvements.
In an ideal world the supply chain drives growth, improves operating margins, reduces inventories,
and accelerates inventory turns. It is a continual balancing act between metrics that have nonlinear
relationships.
Each industry has a different potential with unique rhythms and cycles; and as a result, the inventory
targets from one industry cannot be ascribed to another. Improvement in inventory is accomplished
through the use of technologies and focused process discipline. The available technologies come in
many forms and variations. As a result, the market is very confusing.
The supply chain is volatile in both demand and supply. As shown in Figure 15, demand and supply
volatility, along with cross-functional horizontal alignment, are major areas of business pain. When
organizations are aligned horizontally there is greater improvement in inventory. Executive team
understanding of inventory principles, clarity of supply chain strategy, and the impact of product
quality are less of an issue.
To dampen demand-supply volatility there are two primary buffers: inventory and manufacturing
capacity. With the outsourcing of manufacturing, inventory has grown in importance and is now the
primary buffer for supply chain volatility in the extending economy.

Figure 15. Elements of Business Pain in Past vs. Future
Traditional supply chain technologies and processes focus on inventory levels with a laser-focus on
minimizing safety stock levels. As companies become more market-driven there is a need to right-
size buffers and focus on both form and function of inventory. The focus is more holistic. It becomes
more outside-in with a focus on multi-tier value networks and the determination of inventory strategies
at multiple tiers, or nodes, within the supply chain.
The concepts fundamental to defining form and function of inventory are explained in Table 4.
Within the organization there are many supply chains. As companies become more customer centric,
there is a focus on customer segmentation and the translation of business policies into inventory
strategies. For the greatest success, the definition of inventory strategies needs to be closely
interwoven into this work. Companies with the best results use both network design and inventory
management technologies to design and define inventory buffer strategies based on the operating
strategy.

Table 4. Definition of Form and Function of Inventory
Today we find that most companies have implemented ERP or APS, but the implementation of multi-
tier inventory optimization with deeper optimization logic is a smaller subset of companies. So much
so that it was hard to get a comparison group for this report. (We used our informal networks and
inside information to drive a response rate on more advanced software to compare the types of
inventory technology and make a comparison.)
Older technologies, i.e. ERP and APS, optimize supply chains node by node. Few technologies
optimize concurrently across make, source, and deliver. The movement to a multi-tier strategy
requires the use of deeper analytics to design the form and function of inventory while optimizing
inventory levels across the network. For many supply chain leaders, the design of inventory strategies
to manage form and function of inventory within value networks is understood conceptually, but is
slowly being adopted. For laggards it is a set of new concepts.
When supply chains were simpler, it was sufficient to calculate inventory levels: the right amount of
safety stock to hold at each node in the supply chain. This is no longer the case. Companies that use
advanced software are more likely to be satisfied with the use of the software and drive a return on
investment.

The adoption of more advanced capabilities takes time (16 months on average versus nine months).
As a result, companies using advanced software have managers that better understand the use of
these deeper solutions. The value proposition of these more advanced inventory techniques is
outlined in Figure 16.
Figure 16. Value Proposition of Advanced Inventory Software
To move forward companies need to work process factors and technologies together. Some of the
shifts are subtle; but the impact of many factors can be exponential. In Figure 17 we share the factors
that impact inventory. Before tackling an inventory project review this list and the technology
implementation to understand the drivers and possibilities.

Figure 17. Supply Chain Design Factors Increasing Inventory
Misconceptions
When it comes to inventory management there are also many misconceptions. These include:
• Misconception #1: Inventory Management Is the Same as Replenishment. Inventory management
and replenishment are separate, but interrelated, processes. Inventory management includes the
design of inventory strategies to set inventory targets, including the execution of supply chain
processes to design and manage the form and function of inventory. In contrast, replenishment is about
flow. It is usually push-based logic, based on a series of rules, using dependent demand. Traditional
replenishment logic adds to amplification and distortion of the demand signal. The greater the demand
error, and the greater the supplier volatility, the greater the need for multi-tier inventory management.
• Misconception #2: The Market Leaders in Inventory Management Technology Have the Best
Solution. While many companies believe that the company which sells the most technology, and is the
market-share leader, is the best at managing inventory, this is not the case in multi-tier inventory
planning. The companies with the greatest market share—Oracle and SAP—have the weakest
references. While both Oracle and SAP will hotly debate this fact, we find a strong gap between the
vendors’ perception of the market and those of their clients.
• Misconception #3: Inventory Is a Cost to Be Managed. A frequent mistake made in the management
of inventory in the extended supply chain is a blanket reduction—a corporate mandate to reduce

inventory— without rationalizing the requirements for inventory in the value chain. Inventory should
never be managed to a financial target. Instead, it needs to be based on the requirements of customer
policy and the supply chain strategy. For many, this understanding is one of the first to tackle.
• Misconception #4: All of the Solutions Have the Same Functionality. There are major differences in
the technologies to manage inventories in the extended supply chain. As a result, companies should
buy inventory management technologies based on process requirements, IT standardization and
cultural fit. While many think that solutions with a common name—technologies purchased from a
common vendor—are integrated, often the situation in the market is vastly different. Most of the
inventory technologies have been sold and resold multiple times in the market, with many existing in an
unintegrated state within a parent company.
• Misconception #5: Larger Vendors May Not Have the Functionality Now, But It Will Come. The
market for multi-tier inventory management was overhyped and has largely under-delivered in the
period of 2005-2007. Due to market size, and the highly competitive and fragmented market, the levels
of R&D investment have slowed. As a result, buyers should buy based on today’s functionality, while
not betting on future promises by technology providers.
• Misconception #6: The Management of Inventory Does Not Need Technology. To get good at the
management of inventory, companies need technologies. The supply chain is a complex system that
cannot be adequately managed through calculations on a spreadsheet. Blow up your spreadsheet
ghettos within your organization and challenge your company to think more holistically about the role of
inventory in the market-driven value network.
• Misconception #7: I Can Use New Technologies without Changing My Planning Organization.
The use of new technologies requires time for planners to use them, and when implemented correctly,
leads to a new set of business processes. Do not make the mistake of buying and installing the
technologies, but not getting the benefit because either the planners did not have adequate time to
plan, or you did not take the time to rethink the processes to use the new technologies.

Value of Sales and Operations Planning
When supply chain leaders ask, "What is the value proposition for Sales and Operations Planning
(S&OP)?" our first answer is “growth.” We know from past interviews and research that mature Sales
and Operations Planning (S&OP) processes are instrumental in executing growth programs including
new product launch, price, and promotions (termed “demand shaping.”) (Cecere, Martin, & Preslan,
Handbook of Becoming Demand Driven, 2005)
While we believe that S&OP is fundamental to a growth strategy, we wanted to know more. Using
quantitative and qualitative research, we tested to understand the behaviors and characteristics of
effective Sales and Operations Planning. In this research we found that companies with a more
mature S&OP process believe that their processes are more controlled, aligned, agile, proactive and
strategic.
Figure 18. Value Proposition of Sales and Operations Planning

Why? When we ask companies to describe their supply chains, as can be seen in Figure 19, they
describe their current processes as tactical, reactive, cautious, and with room for improvement.
Supply chain leaders want a supply chain that is more agile, proactive, controlled, and aligned. S&OP
is a way forward to close these gaps.
Figure 19. Supply Chain Current State
While S&OP has large payoffs and value for the corporation, the change management issues are
tough. Many leaders wonder why the implementation of S&OP is so hard. These challenges are
detailed in Figure 20.

Figure 20. Change Management Issues with Sales and Operations Planning
Risk Management
Unfortunately, supply chain disruptions are a fact of life for today’s global multinational company. The
reasons are many. A risk management situation 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 21 indicates the
relative level of risk today, and the colors correspond to the expected change in risk (5 years ago vs.
5 years in the future).

Figure 21. Comparison of Risk Drivers for the Past Five Years and Future Five Years
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 chain risk. Inventory management and supplier financial sensing grow in importance
with the increase in uncertainty.
Risk management is no longer narrowly focused on 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.

The reliability in the flows of product, cash, and information across borders and continents is
paramount. Today the trade lanes are longer. In-transit inventory is greater. When things go wrong
the impacts are greater. The impacts are greater than in the times of a simpler, more regionally
controlled supply chain.
In Figure 22, we share the impacts of supply chain events for the period of 2010-2015.
Figure 22. Event Impact on Supply Chain
Note that supply chains recover better and more quickly from a major disaster like a hurricane,
tsunami, flood or a volcano, than they can from infrastructure issues like major port disruptions.
Supply can usually be sourced from multiple points and the supply chain, if properly designed, can
pivot quickly—alternate supply, redeployment of inventory, and new shipping lanes—in the face of a
natural disaster. The key is strong supplier development programs. In the last decade Intel’s supplier
development efforts in Japan, and Seagate’s in Thailand, spawned best practices in supplier sensing

and supplier development, proving that when sensed early, and processes are well-developed, the
impact of a natural disaster on the supply chain can be mitigated.
The ports are a different story. When there is a problem there are few alternatives. Resolution is slow
and deeply enmeshed in government bureaucracy. When there is a port slowdown, lead-time
variability increases ten-fold.ii
The supply chain can respond better to longer lead times than supply
variability. In a port slowdown, containers sit on the water with little to no predictability for unloading.
The node of the supply chain becomes unreliable, putting pressure on other nodes. The time for
resolution is longer and less manageable.
Globalization is, and continues to be, a major impetus to program development for risk management.
The building of the global multinational company is a journey. It happens over many, many years. The
systematic risk management programs are typically managed at a leadership level (reporting to a
Chief Operating Officer or Chief Executive Officer 35% of the time) or by the supply chain
organization (43% of the time). It is seldom a reporting relationship managed by the finance team (8%
of respondents). Leadership is a major factor for success.
A standalone group—managing cross-functional and interrelated business issues as a risk
management program—is directionally more common in discrete organizations than a process-based
industry. Why? Discrete organizations are more dependent on contract manufacturers and
intertwined value-chain relationships between first, second, and third tier manufacturers. With
complex Bill of Materials (BOM) relationships, and large quality of conformance issues with global
suppliers, these brand owners learned the importance of risk management early. Only 6% of
respondents are just getting started and 22% believe that their programs are much better today than
five years ago.
The value of risk management is rooted in business continuity. In 2014 companies experienced an
average of three business discontinuity events, with at least one resulting in a material impact to the
balance sheet included in financial reporting. This is significant. In the survey, 28% of the supply
chain disruptions led to reporting balance sheet impacts (see Figure 23).
As risks increase, many companies feel that they are treading water.

Figure 23. Impact of Disruption
Recommendations
As you read this report, and think on the consequences, consider these recommendations:
• Focus on the Supply Chain Metrics That Matter Cross-functionally. Identify reasonable targets and
manage a set of cross-functional metrics that represent growth, cost, inventory and Return on Invested
Capital.
• Clearly Define the Supply Chain Strategy and Operating Charter for the Supply Chain Center of
Excellence. Spend time understanding the organizational goals and define how to deliver the business
strategy through supply chain excellence. In the building of your charter, avoid buzzword bingo. Define
all terms and focus on delivery. Measure the impact and market the successes.
• Define a Multi-Tier Inventory Management and Buffer Strategy. The management of the forms and
function of inventory, and the design of the network, is paramount to buffer risk. Inventory is the most
important buffer and companies with strong risk management programs define an inventory planning
position and are active and knowledgeable about the use of multi-tier inventory management
technologies.

• Give Planners Time to Plan. One of the distinguishing characteristics of an effective S&OP plan is the
time for planners to plan. This is not trivial. Many companies struggle with how to evaluate planning
effectiveness and productivity. It is complicated because no two companies are the same, and there are
many technologies used. In Figure 24 we share insights from our Planning Benchmarking data.
Figure 24. Number of Items per Supply Chain Planner per $1Billion in Revenue
• Get the Right People to the Data. When we shared data from our studies with the roundtables of
supply chain leaders who had completed a quantitative study, a number of attendees shared stories of
how they had met the challenge of helping employees/planners to get to data. When it comes to data
storage every organization is different. One of the suggestions which resonated with the participants
was teaching new employees tips and tricks for data storage and document sharing. Several
commented they had developed this training as part of onboarding. As shown in Figure 25, one of the
obstacles in S&OP is getting to data. Make it a priority to train employees on data storage and retrieval.

Figure 25. S&OP Implementation Challenges
• Educate the Financial Team. One of the barriers in driving supply chain excellence is the role of the
financial budget. While many companies believe that the role of the supply chain team is to deliver on
budget processes, as companies mature they realize the supply chain plans should be an input into the
budget process, but that the budget process should never constrain the company’s ability to seize
opportunities. The goal is to keep the supply chain organization and relevant processes aligned to the
market.
• Recognize That Risk Management Is About Much, Much More Than Technology. While technology
vendors espouse risk management as a technology, it is much more than the deployment of a
technology. While visibility technologies are an important part of the solution, they are not the answer.
Visibility of suppliers—locations of facilities and their suppliers—is the first step. The second is supplier
financial sensing. Companies with advanced risk management programs redesign the role of
procurement to build, not just audit, value chain relationships.
• Test Current Paradigms. Moving forward requires companies to learn a new language (reference the
terms at the back of this report) and start to build new processes using new techniques. Companies
need to start with the end in mind, and not be confined by traditional thinking. Could cognitive learning
redefine master data? Could Hadoop on non-relational databases be used to drive new insights and
discovery for distributor data? Could sentiment data, along with rating-and-review data, help to better

understand consumer insights on new products? These are all possibilities that are feasible today.
However, it requires the rethinking of existing paradigms.
• Re-Think Technology/Funding. Current IT spending is tied up in system upgrades and maintenance
support of license systems. Testing big data and analytics concepts with the tight budgets in IT
departments requires funding by the business department. Work cooperatively with the IT department
to test new concepts using funding from continuous improvement programs. The providers of big data
and analytics are in an ecosystem of technology providers that are not well-known to the supply chain
leader. It requires investing time to get to know a new group of technology providers and build
relationships and knowledge bases to use a new set of tools.
• Combat the Shortage of Talent. The United States needs 140,000 to 190,000 more workers with
''deep analytical'' expertise and 1.5 million more data-literate managers. iii
The lack of science,
technology and engineering expertise is at the root of the issue. At the Supply Chain Insights Global
Summit, Intel reported hiring a co-op student two years prior to matriculation.
• Implement with Knowledgeable Resources. At first when you read this recommendation you might
say, “DUH!?” Let’s face facts. There are too few people in the world who are really knowledgeable
about supply chain software tools. While many consultants will talk about supply chain planning, we find
only a small group to be knowledgeable in the technologies. Companies have better success with
boutique consultancies around the world who have built strong teams around inventory optimization
and planning.
Conclusion
Supply chain excellence is easier to say that achieve. Driving progress takes work and ongoing
process refinement. With nine out of ten companies stalled on supply chain performance
improvement there is a need for a step change. While many companies blindly implement what they
believe are “best practices,” progress can no longer be about evolution of functional processes.
Instead, it needs to be about the definition of cross-functional, outside-in processes many of which
require the testing and deployment of new forms of technology and the refinement of processes as
outlined in this report.

Terms to Know
Getting clear on terms is often the first step to driving a supply chain transformation. To help teams,
here we provide the definitions of the terms used in this report:
• Concurrent Optimization. The use of technologies to solve optimization problems across source,
make, and deliver, in-memory together to rationalize cross-functional trade-offs.
• Demand Latency. The time it takes for order take-away at the point of consumption to translate into an
order for a manufacturer. The slower the velocity at the point of consumption, the longer the demand
latency.
• Inventory Configuration. A focus on form and function of inventory, along with techniques like
postponement and risk pooling, to improve inventory buffers.
• Multi-Tier Inventory Optimization. The use of inventory optimization to determine optimization levels
at multiple nodes simultaneously.
• Operational Planning. The planning process that stretches over the horizon of the slush period to the
freeze duration in manufacturing planning.
• Postponement. An inventory strategy to delay steps of the conversion process until the demand for the
final product is known.
• Tactical Planning. The period of planning that stretches from the freeze duration in manufacturing
planning to 12-18 months in the future. (While it varies by industry, with pharmaceutical companies
planning for three years, and high-tech companies planning for six to eight months, 12-18 months is the
average planning duration for tactical planning.)
• Sales and Operations Planning. The cross-functional process of matching demand and supply plans
to balance demand and orchestrate the market response.

2015 Supply Chain Insights Reports
In 2015 we published 16 reports. Five reports were a focused study on industry progress on the
Supply Chain Metrics That Matter and eight of the reports are based on insights from a research
study. To get more details on this research follow the links below:
What Is the Value Proposition of Sales and Operations Planning?
Why Is S&OP So Hard?
What Drives Inventory Effectiveness in a Market-Driven World?
Supply Chains to Admire – 2015
Putting Together the Pieces: The S&OP Technology Landscape in 2015
Driving Supply Chain Excellence through Supply Chain Centers of Excellence
Inventory Optimization in a Market-Driven World
Imports & Exports Made Easier with Global Trade Management Software
Building Effective Business Networks in Process Industries
Big Data and Analytics: The New Underpinning for Supply Chain Success?
The Global Supply Chain Ups the Ante for Risk Management
Supply Chain Metrics That Matter: A Focus on Consumer Products – 2015
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies-2015
Supply Chain Metrics That Matter – A Focus on Chemical Companies – 2015
Supply Chain Metrics That Matter: A Focus on the Automotive Industry – 2015
Supply Chain Metrics That Matter – A Focus on Pharmaceutical Companies

About Supply Chain Insights LLC
Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is beginning its fifth 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 four 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; and the fourth book, The
Shaman’s Journal 2015, published in September 2015.
With over 12 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.

Endnotes
i
IBM, “What Is Big Data? Bringing the Data to the Enterprise”, http://www.ibm.com/big-data/us/en/, 02/16/2015
ii
Lora Cecere, Forbes, January 10, 2015, http://www.forbes.com/sites/loracecere/2015/01/08/the-chassis-is-the-missing-link/
iii
Lohr, S. (2012, Febuary 12). New York Times. New York Times, p. 1.

Research in Review - 2015

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