Supply Chain Metrics That Matter: A Focus on Consumer Products - 3 AUG 2015 - Report

Supply Chain Metrics That Matter:
A Focus on Consumer Products
Progress on Supply Chain Excellence
08/01/2015
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC
By Regina Denman
Client Services Director
Supply Chain Insights LLC

Contents
Research
Disclosure
Research Methodology
Improving Performance
Driving Profitability
Improving Cycles
Managing Complexity
Defining Improvement
Balance
Strength
Resiliency
Evaluating Supply Chain Excellence: Putting It All Together
Executive Summary: Current State of the Consumer Products Industry
Supply Chains To Admire
Closer Look at the Consumer Products Industry
Consumer Packaged Goods
Beauty/Cosmetics
OTC Drugs
Cash-To-Cash
Recommendations
Conclusion
Companies Studied
Definitions
Prior Reports in This Series
About Supply Chain Insights, LLC
About Lora Cecere
Endnotes
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Research
The Supply Chain Metrics That Matter report series is an analysis of supply chain excellence for
specific industries. In this report we take a closer look at the consumer products industry. Within the
industry, there are sectors: Over-the-Counter (OTC) Drugs, Beauty, and Consumer Packaged Goods
(CPG). Here we share insights on each of the sectors, analyzing supply chain performance and
improvement rates for the segments. The sectors perform very differently. The goal is to help supply
chain leaders understand what is possible in driving supply chain excellence programs.
These reports are based on data collected from financial balance sheets and income statements over
the period of 2000-2014. Our source of data is YCharts. In these Supply Chain Metrics That Matter
reports we analyze how companies made trade-offs in balancing growth, profitability, cycles, and
complexity during the last decade.
Within the world of Supply Chain Management (SCM), each industry is unique and sectors vary within
industries. As a result, it is dangerous to list all industries in a spreadsheet and declare a supply chain
leader. We believe a better methodology is to evaluate change over time with a focus on overall
performance and improvement within an industry peer group. In this series of reports—Supply Chain
Metrics That Matter—we analyze the potential of each supply chain peer group while sharing insights
and recommendations from industry leaders based on general market trends. In the appendix of this
report we share information and links for other reports in this series which are focused on progress in
other industries.
Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships
and our research process. This independent research is 100% funded by Supply Chain Insights.
These reports are intended for you to read, share and use. Please share this data freely within your
company and across your industry. All we ask for in return is proper attribution when you use the
materials in this report in public forums. 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.

Research Methodology
The methodology to understand supply chain performance and improvement is based on ten years of
data mining of supply chain financial ratios. In Table 1, we share the supply chain ratios we analyzed
to understand the trends in the Supply Chain Metrics That Matter report series.
Table 1. Financial Ratios Considered in the Development of the Supply Chain Index
While there are other measurements which we believe are important in the determination of supply
chain excellence—forecast accuracy, case fill rate, carbon footprint, and inventory write-offs—we
cannot find a reliable and consistent source of data for these metrics that covers all industries and the
years studied. We find the industry data sources for these additional measurements are spotty and
largely inaccurate due to the self-reporting of data. As a result, they are not included in this analysis.
Without a consistent data source across the industries, we cannot include these factors even though
we believe they are important.
The Supply Chain Index methodology was built on the belief that the supply chain is a complex
system with increasing complexity. We believe it is the supply chain leader’s role to build and manage
supply chain performance to drive year-over-year improvements which are balanced, strong, and
resilient. In our research we find that most companies throw the supply chain system out of balance;

and as a result, are able to drive progress only on a single metric, not a balanced metrics portfolio. To
illustrate this point, in the development of the Supply Chains to Admire Report, we studied public
manufacturing and retail companies for the period of 2006-2013, and we found that only 21 of the
companies in the study group performed better than their peer group on the portfolio of metrics of
operating margin, inventory turns and Return on Invested Capital (ROIC).
In the management of the supply chain there are many metrics. In fact, we find that most supply chain
leaders measure too many on their scorecards, which drives confusion. Our first goal in the research
was to determine which metrics should be tracked in the portfolio analysis. To understand the
relationship between supply chain performance and market capitalization, we calculated the
correlation of seven years of financial ratios (based on quarterly reporting) to market capitalization
(the number of outstanding shares multiplied by the share price on a quarterly basis). The results of
this study are presented in Table 2. Our goal was to select a portfolio of metrics that could be
meaningful to all industries.
Table 2. Correlation to Supply Chain Financial Ratios to Market Capitalization
For leaders, we find that progress is slow and deliberate. In our research we find it takes at least
three years to drive significant supply chain progress, and the best supply chain transformation
projects take at least five to six years.
We also find it is difficult for supply chain leaders to sustain progress. A bad project, a quality issue,
or a merger can result in deep balance sheet gyrations. As a result, most companies go through ups
and downs with distinct patterns.

Our work is a study of metric performance patterns. We believe the patterns matter. It is for this
reason that in this report we analyze companies’ progress in time periods—pre-recession, during the
recession, and post-recession—to analyze year-over-year trends. In our research, supply chain
excellence is defined as ‘performance better than a competitor on a portfolio of metrics’, and
‘improvement better than the peer group average’. While this sounds easy, what will be seen by the
reader of this report is that this is a tough standard which few can meet.
Improving Performance
To evaluate performance we analyzed a portfolio of metrics against industry averages and
improvement for three periods of time: 2006-2014, 2009-2014, and 2011-2014. This allowed us to
analyze the companies in this report for the longer view, and post-recession recovery.
The basis of the analysis in this report is the Effective Frontier model. As shown in Figure 1, the
Effective Frontier model is designed to illustrate the principle that a supply chain is a complex system,
with increasing complexity, which needs to be managed using a balanced metrics portfolio. We use
the model of the Effective Frontier to represent this complex system.
Figure 1. The Effective Frontier
In our writing it is deliberately not termed the ‘Efficient Frontier’—a term used in economic theory.
Why? Quite simply it is because the term ‘efficiency’ in supply chain processes is usually linked to the
lowest cost or the best revenue per employee. The concepts of the Effective Frontier are based on
the balance of growth agendas with cost, cycle metrics (a focus on inventory), and complexity. We
use Return on Invested Capital (ROIC) as a proxy for complexity.
In this report we analyze the progress of the consumer products industry on the Effective Frontier.
Across all industries we find that nine out of ten companies are stalled at the intersection of two
important metrics: inventory turns and operating margin. While some companies made no
improvement over time, most companies were able to either improve inventory turns or cost, but not
both together. The reason? We believe it is due to the rise of unchecked complexity. In the last five

years, 37% more items were added to the item master of the average consumer products company.
As will be seen in this report, unchecked complexity throws the supply chain out of balance.
Driving Profitability
There is often an inverse relationship between margin and supply chain excellence. Industries with
the thinnest margins are more serious about delivering on the promise of supply chain leadership.
With the historically low margins in the consumer products industry, supply chain has been an
important industry imperative. Progress was faster in the last decade than more recently.
In our analysis for this report, we use operating margin as the measure of profitability. The
methodology is equally applicable to EBITDA.
Improving Cycles
When it comes to managing cash-to-cash cycles, a small number is better. The question in the
boardroom is “How small can supply chain working capital cycles be managed to pump cash into the
organization?” There is seldom the question of “How low can we go in working capital cycles before
we put the supply chain at risk?” To understand the management of cycles in the consumer products
sectors we evaluated the cycles in three time periods: 2006-2014, 2009-2014, and 2011-2014. Here
we use inventory turns as the proxy metric for supply chain cycles.
Cash-to-cash is a composite metric of receivables, inventory, and payables. As can be seen through
the charts, the greatest improvement in supply chains in the last decade has been made in
payables—lengthening payment terms to suppliers. Inventory levels and receivables have been more
constant. In our analysis, we use inventory turns as our measure of supply chain cycles. The higher
the inventory turn value, the stronger the results.
Managing Complexity
By definition the consumer products industry is asset intensive. Factory smokestacks are iconic
representations of manufacturing excellence. Within the consumer products company supply chain,
there are many forms of complexity: increase in items, formulas, customer policies, geographic reach,
and markets. Over the last decade complexity has increased. A focus on cost-to-serve, supply chain
segmentation, and supply chain planning improves the potential of the supply chain to balance
complexity while managing asset utilization. Very few companies in the consumer products sectors
are good at translating volume planning into value-based policy decisions. L’Oreal is an example of a
company doing this welli
.

Return on Invested Capital is a less well-known metric compared to Return on Assets. Return on
Assets has a narrower focus. Our research indicates that ROIC has a better correlation with stock
market capitalization, and provides a broad perspective on cash flow generation and profitability
based on shareholder equity. The formula used for ROIC is:
ROIC is a measurement of the company’s use of capital. The goal is to drive higher returns than the
market rate of the cost of capital. As will be seen in this report, for many companies this is a struggle.
Defining Improvement
In judging improvement, the patterns matter. We built the Supply Chain Index to gauge supply chain
progress of supply chain leaders. The methodology starts with understanding the resulting pattern
when two supply chain metrics (generally ratios) are plotted over time on an orbit chart. As shown in
Figure 2, an orbit chart enables the visualization of performance patterns. In this case, it is the story
of Colgate balancing inventory turns and operating margin. Colgate, a top performer in cost and asset
utilization, has struggled with the balance of operating margin and inventory turns over the course of
the past three years.
Figure 2. Example Orbit Chart of Colgate-Palmolive’s Operating Margin vs. Inventory Turns During 2000-2014

The patterns of orbit charts tell stories. Often they are gnarly and turbulent. As a result, our first
challenge in the creation of a methodology was to define ‘Supply Chain Improvement’. This was our
goal in the building of the Supply Chain Index methodology. We wanted to develop a means to
analyze improvement across a variety of industries with applicability to companies with different levels
of revenue and at different levels of supply chain maturity.
As we shared our findings, and educated supply chain leaders about financial ratios, the interviews
with companies helped us to better understand the data. “What caused this downswing in inventory in
2007?” we would ask. The company would then share that it was a six-month laser-focus brought on
by a new manager. When we asked, “What caused these cash-to-cash cycle gyrations in the period
of 2002-2004?” they told us the story of a difficult merger. We found that this was a new way of
looking at data; and while it took adjustment and training, it provided a new and fresh perspective at
most organizations.
Our insight? Supply chain progress happens over time; not in months or quarters, but in years. It
usually takes at least three years to see impactful change. The interrelationships between the metrics
are real. The supply chain is a complex system with nonlinear relationships between the metrics of
growth, cost, inventory turns, and ROIC. The effective management of the supply chain requires
embracing it as a system. The data cannot properly be assessed in a spreadsheet. Our approach
was to plot the shifts over time using orbit charts. In this report, we share the orbit charts of consumer
products manufacturing leaders.
In 2013 we partnered with Arizona State University’s School of Computing, Informatics and Decision
Systems Engineering. After two years of work, we believe that we now have a methodology which
enables the comparison of supply chain progress in the delivery of the Supply Chain Index. We
defined the Index as a whole, and applied the methodology across industries to measure supply
chain improvement. To help the reader understand the Supply Chain Index calculations in this report,
we first define the separate pieces—balance, strength, and resiliency—and then evaluate the input of
the pieces to the total Index.

Balance
Balance in the supply chain is a constant struggle. Growth requires an increase
in inventory. Forecasting and managing a new product launch is difficult.
Excessively long Days of Payables leads to weakened supplier health. The
examples are endless. The two metrics which comprise our balance measure
are Revenue Growth and Return on Invested Capital.
The balance measure in the Supply Chain Index is a mathematical calculation
of the vector trajectory of the pattern between growth and ROIC for the periods of 2006-2014 and
2009-2014.To understand this measurement, imagine a four quadrant grid with growth and ROIC on
the two axes. In our calculation, the overall trajectory of this vector from Year 0 (2006) to Year 8
(2014) is simplified into a single value which represents the company’s ability to balance growth while
improving ROIC.
Companies that were able to drive improvement in both metrics scored the best, while companies
that deteriorated in both metrics scored the worst. The companies are then stack-ranked based on
factor ratings.
Figure 3. P&G’s Growth vs. Return on Invested Capital (ROIC) for 2000-2014

With a 6% average growth rate, and a 14% average ROIC performance for the period of 2000-2014,
the marketing engine of P&G built more billion-dollar brands than any other consumer products
company. The company also acquired and divested many companies within this period, the most
notable being the acquisition of Gillette in 2005 for $57 billion (in stock).
Note the shift in Figure 3 through these acquisitions. Currently P&G is streamlining the company to
reduce complexity. On August 1, 2014, the company announced it was dropping around 100 brands
to concentrate on 80 remaining brands which produce 95% of the company's profits. A.G. Lafley, the
company's Chairman, President and CEO, said the future P&G would be "a much simpler, much less
complex company of leading brands that's easier to manage and operate.ii
"
The balance factor comprises 1/3 of the total Supply Chain Index calculation. Sustained improvement
on both year-over-year growth and ROIC indicates a balanced supply chain and is reflected in a high
balance score.
Strength
A successful supply chain is strong and reliable. Supply chain leaders strive to
deliver year-over-year improvements in both cost and inventory management.
Our research on pattern recognition has uncovered a rich relationship between
operating margin and inventory turns. For most supply chain leaders, these are
some of the most important measures of their performance. Not only are they
important, they are more directly influenced by day-to-day supply chain
decisions than other, and more broadly used, corporate metrics. It is for this reason they are the two
components of our strength factor in the Supply Chain Index.
The strength measure in the Supply Chain Index is a mathematical calculation of the vector trajectory
of the pattern between inventory turns and operating margin for the periods of 2006-2014 and 2009-
2014. Like the balance factor calculation, the work starts with understanding the orbit chart pattern.
To understand the calculation, imagine a plot—an orbit chart—of inventory turns and operating
margin. In this report, performance is graphed on an annual basis from an origination point
representing performance on the two metrics at Year 0 (2006). The overall trajectory of this vector
from Year 0 (2006) to Year 8 (2014) is simplified into a single value which represents strength.
Improvement on both metrics simultaneously is graphically shown as movement to the upper-right
quadrant with increasing values for both inventory turns and operating margin over the period.
The companies are then stacked-ranked based on performance and assigned a strength factor.

The strength factor comprises 1/3 of the total Supply Chain Index calculation. Sustained improvement
on both inventory turns and operating margin indicates a strong supply chain and is reflected in a high
strength score.
In Figure 4, using an orbit chart, we show the pattern of Procter & Gamble versus Colgate. Note that
while Colgate is performing, over the period, at a higher level than P&G in both operating margin and
inventory turns, the patterns are very different. In the period of 2010-2014, Colgate is losing ground
and P&G is making progress. The orbit chart helps to tell the story. These trends cannot be easily
detected in a spreadsheet.
Figure 4. Orbit Chart: Operating Margin vs. Inventory Turn Comparison of Unilever and P&G for the Period of
2006-2010

Resiliency
Resiliency is an adjective easily tossed around as one of the important qualities
of a successful supply chain in today’s volatile world. However, the concept of
resiliency is difficult to define, and there is rarely clarity among stakeholders as
to what resiliency is or should be.
As we plotted orbit chart after orbit chart, we could see that some supply chains
had very tight patterns at the intersection of operating margin and inventory
turns, and that other companies had wild swings. We wanted to find a way to measure the variation.
So, we turned to the experts at ASU. After evaluating several methods to determine the pattern in the
orbit chart, we settled upon the Euclidean Mean Distance between the points.
These results were published in our March 2014 report, Supply Chain Metrics That Matter: Improving
Supply Chain Resiliency, where we define resiliency as the tightness of the pattern at the intersection
of inventory turns and operating margin. These metrics, both critical for any supply chain, are
components of both the strength and resiliency metrics in our Supply Chain Index model.
Table 3. Supply Chain Resiliency by Industry

The tightness of the pattern (mathematically speaking, the Euclidean Mean Distance) indicates the
ability of a supply chain to maintain a tight, consistent pattern across these two metrics as the
business environment shifts and changes over a nine year period (2006-2014). As shown in Table 3,
supply chain resiliency varies considerably by industry. The consumer products industry is more
stable, and less volatile, than the chemical or food industries.
The resiliency metric is similar to the cash-to-cash cycle in that a smaller number is better. A lower
number for resiliency is an indicator of a tighter pattern and greater reliability in results over the time
period.
Evaluating Supply Chain Excellence:
Putting It All Together
In the analysis, each company is judged by their own potential to make progress. While the average
values of a company’s performance may be higher, in the
Supply Chain Index we are evaluating companies on their
ability to drive year-over-year improvement and reliable
progress on the metrics that we believe matter.
The Supply Chain Index is a measurement of supply chain improvement. Each of the factors—
balance, strength and resiliency—as defined above, comprises 1/3 of the total score.
Companies that are underperforming their peer group can drive supply chain improvement faster than
higher-performing companies. As a result, when evaluating supply chain excellence, it is important to
look at improvement and performance together. We use this analysis to determine the best
performing supply chains through our Supply Chains to Admire methodology.

Executive Summary: Current State of the
Consumer Products Industry
Over the last decade, the iconic brands of consumer products were under attack. The rise of
e-commerce shifted channel dynamics making it easier for smaller companies to compete. The shift
in marketing and advertising dramatically changed demand-shaping programs while, in parallel, the
proliferation of house brands by retailers introduced new, and often stiff, competition. Retail brand
loyalty grew while many consumer brands struggled.
While these three sectors have similarities, there are different underlying dynamics and business
drivers which need to be discussed separately. The Beauty category is different than CPG, and OTC
Drugs has its own nuances.
The last decade was a tough market. Despite attempts to stimulate demand through trade programs,
new product launch, and expansion into new continents, growth declined. In the period of 2003-2006,
growth in the consumer products industry was 7% while in 2011-2014, year-over growth was just 4%.
As growth declined, supply chain maturity mattered more than ever. Most companies were not equal
to the challenge. They were unable to redesign their supply chains to maintain performance levels
with the decline in growth and the rise in item complexity. The overarching trend was a decline in
performance in both cost and inventory.
Traditional marketing tactics are not as effective in building brands as they were a decade ago. To try
to stimulate growth, 37% new items were introduced into the consumer value chain. This rise in
complexity reduced the effectiveness of the supply chain at a time of declining volumes. Demand
became lumpier, traditional forecasting techniques were not up to the challenge, and managing the
global supply chain was an issue. As a result, as shown in Table 4, the CPG industry performed
worse than other industries in inventory management for the period of 2006-2013. The average
inventory turns were eight and the average operating margin was 14%.
Despite multiple waves of investment in supply chain planning technologies, inventory turns declined
in the consumer products industry. Companies were unable to balance metrics during times of
declining volumes. The reason? It was a new challenge that happened gradually drip by drip. The
supply chains were not redesigned to accommodate changing product portfolios and rising
commodity costs; and, the slow development of supply chain skills exacerbated the problem.

Table 4. Comparison of Industries for the Period of 2006-2013
When it comes to understanding the Supply Chain Metrics That Matter, the performance of each
industry is different. The study needs to be industry specific. For the period of 2006-2013, the CPG
industry had the greatest improvement in operating margin. Retail grew faster than CPG, and while
employee productivity improved, it was slower in the CPG industry than in other industry groups.
Supply Chains To Admire
To understand supply chain excellence, we developed the Supply Chains to Admire methodology in
2014. Companies that did the best in driving improvement in key metrics in times of declining
volumes have seven characteristics: core competency in network design; strong capabilities in
transportation management; a focus on inventory management; the use of more advanced forms of
supply chain planning; balance and an understanding of the metrics trade-offs of volume, price and
mix; the use of channel data; and continuity of leadership.
When we compiled the Supply Chains to Admire Report in August 2014, one consumer product
company—Colgate-Palmolive—made the list. To make the list, a company had to deliver
performance (posting above-average results for the period of 2009-2013 when compared to their peer
group on a portfolio of metrics including operating margin, inventory turns and ROIC). They also had

to drive supply chain improvement (based on the Supply Chain Index as defined in the Research
Methodology section) faster than their peer group. We believe both performance and improvement
matter in the definition of supply chain excellence. The entire list of companies that made the Supply
Chains to Admire criteria for 2014 is shown in Figure 5.
Figure 5. Supply Chain Insights 2014 Results of the Supply Chains to Admire
With an additional year of results, in this report, we revisit the Supply Chains to Admire analysis to
understand which companies have outperformed their peer group.
The consumer products category is a story of strong performance. While Colgate-Palmolive’s
average performance slips against its peer group, the company is still the best performer on the
Supply Chain Metrics That Matter for the second year in a row. Clorox meets the 2015 test for both
performance and improvement for the first time.
Unilever is a story of great improvement, but the performance is not yet at peer group levels. In
contrast, P&G, while making dramatic improvements in operating margin and inventory for the past
two years, does not meet the ROIC targets. The worst performer in the analysis is Kimberly-Clark.

In the beauty category L’Oreal stands out, closely followed by Estée Lauder. In the CPG category,
Unilever makes the greatest improvement, but does not deliver above-average performance on the
key metrics.
In the OTC Drug sector, no company meets the criteria for the Supply Chains to Admire. In this
report, we analyze the industry while sharing industry trends.
A Closer Look at the Consumer Products
Industry
Due to the differences in the rhythms and cycles of the three industry sectors of consumer products,
in this report we take a separate look at the CPG, Beauty/Cosmetic, and OTC Drug industries through
individual analysis.
Consumer Packaged Goods
The CPG industry focuses on the manufacture and distribution of iconic brands for cleaning, and
body care. When asked “Who does supply chain best?” the most common response is P&G. In the
period of 2000-2005, prior to the Gillette acquisition, P&G’s supply chain results spoke of a clear
leader. As shown by our analysis, in the recent years this status is being challenged.
Table 5. Comparison of Consumer Packaged Goods Companies for the Period of 2006-2014

For the period of 2006-2014, Unilever made the greatest performance improvement in operating
margin, and Kimberly-Clark lost the most ground against competitors. However, despite great strides
in improvement, Unilever still does not equal the performance of the top-performing CPG brands.
In Table 5, the above-average results are highlighted. Colgate and Reckitt Benckiser Group are the
highest performing across the metrics, i.e. posting higher levels of growth and supply chain metric
performance. However, improvement cannot be judged by a study of averages.
To understand supply chain excellence, performance and improvement need to be studied together.
In this analysis, it is clear that Colgate’s performance, while high, is starting to decline, and Clorox is
gaining ground. Procter & Gamble made improvements in the past three years, but does not meet the
standard of performance for ROIC. These relationships become clear when studying the data in
Table 6.
Table 6. Comparison of CPG Companies for the Period of 2006-2014 on the Supply Chain Metrics That Matter and
Improvement as Measured by the Supply Chain Index
The orbit charts help to clarify the patterns. Tracking year-over-year trends helps to explain the table.
Note that while Colgate is higher performing on average, the company is losing ground. However,
while Unilever is lower performing than Colgate, the Unilever team is making improvement. Balancing
performance and improvement in supply chain excellence defines supply chain leaders. It is hard for
a top-performing supply chain to continue to improve. Improvement happens in slow and calculated

programs and the development of operating models based on market drivers. Decline, as shown in
Kimberly-Clark’s performance in Figure 6, can happen quickly. Kimberly-Clark, with a strong legacy in
manufacturing and lean processes, was slow to adapt to be more responsive to market demand.
Leadership is central to the Kimberly-Clark story. With the decision to outsource functional support in
Information Technology (IT) and procurement, and a move of their corporate offices, the company
struggled to recover post-recession. Kimberly-Clark did more outsourcing than their competition.
While outsourcing, and the creation of functional groups with profit center relationships, yields short-
term benefits, over time it is detrimental to long-term supply chain improvement. The companies with
the best performance have lower levels of outsourcing and fewer barriers between functions.
Kimberly-Clark’s brands were hit hard by the introduction of competitive retail house brands; and with
declining growth, the supply chain faltered.
Figure 6. Orbit Chart: Kimberly-Clark’s Performance During 2000-2014 on Inventory Turns and Operating Margin
Colgate is one of the best companies in this industry for managing costs while driving global growth.
Culturally, the Colgate team builds global talent. As part of the culture, the supply chain organization
built a supply chain finance overlay team to assist decision making for the regional supply chain
groups. The company has a keen focus on ROIC as a guide to make decisions. It defines the culture.
This structure was created in the early 1990s.

It is also an organization with low turnover and a keen focus on organizational talent development.
One of the reasons for their success is continuity of leadership. In the past 30 years there have been
two supply chain leaders. We share some of these insights in the Colgate case study written for the
Supply Chain Shaman blogiii
.
Colgate has been slower to build network design and inventory management capabilities and
processes. They are less effective at supply chain planning than their peer group. While the company
bought inventory technologies, they did not actively deploy them and define inventory planning roles.
As a result, as shown in Figure 7’s orbit chart, over the last three years the company lost ground on
inventory management.
Figure 7. Unilever vs. Colgate - Performance During 2006-2014 on Inventory Turns and Operating Margin
In contrast, Unilever aggressively deployed demand sensing and inventory technologies and rolled
out a global organization in 2010 with a central supply chain leader. The organizational shift with the
building of a global supply chain organization there is a major factor in Unilever’s improvement.
The discussion of CPG cannot be complete without an analysis of two giants: Unilever and P&G. The
orbit chart of year-over-year performance is shown in Figure 8. Both P&G and Colgate outperform in
inventory turns and operating margin when compared against Unilever. This is a story of supply chain
leadership continuity and of talent development. Unilever’s history is full of many stops and starts in
supply chain strategy and organizational design while P&G’s and Colgate’s histories are stories of

leadership continuity and culture building. While they are both different cultures, with pluses and
minuses, the functions align under a common leader for source, make and deliver, with only two
leadership changes in the past 35 years.
In 2010, with a change in leadership, P&G lost ground on operating margin. In the last three years,
through a number of concerted programs, P&G is starting to regain ground on margin and inventory.
Much of the P&G story is based on complexity rationalization and the fit of business units. In the last
three years P&G has made a deliberate move to divest businesses and rationalize complexity.
Figure 8. Unilever vs. P&G - Performance During 2006-2014 on Inventory Turns and Operating Margin
The Unilever story is about the elevation of SCM at a leadership level and a concerted focus to
improve performance. Prior to 2009 there was no central supply chain leader. The organizational
structure made it hard to gain traction across regions, businesses and functions.
These two companies have very different cultures. While P&G is deliberate and corporate controlled
with multi-year projects, Unilever encourages regional innovation. The P&G organization is more
stable with fewer leadership moves than Unilever.
As seen in Figure 8, both P&G and Unilever are driving improvement. P&G’s improvement from 2012-
2014 is based on shedding assets and reducing complexity, while Unilever’s is a story of building
supply chain capabilities. Each has a different definition of regional/global governance. Unilever’s
culture is more regional and entrepreneurial with a focus on regional brand building. It is worth noting

that both companies were early adopters of demand sensing and multi-tier inventory optimization.
P&G completed their global rollout of demand sensing in 2012, and Unilever in 2011. (In contrast,
Colgate started the journey to build these capabilities in 2013.)
While the larger CPG companies have reached a plateau and are struggling to make improvement,
the smaller, more regional players are driving significant advances in metrics performance. To tell this
story, let’s focus on the numbers posted by Clorox and Church & Dwight. No longer just a provider of
baking soda, Church & Dwight has significantly increased the product portfolio over the course of the
last decade. In parallel, Clorox is no longer just a manufacturer of bleach or charcoal, adding the Glad
and Burt’s Bees business units. Both companies are regional players attempting to grow global
product portfolios and brand presence. Their supply chain journey is shown in an orbit chart in Figure
9.
While both companies are making significant improvement, the Clorox journey lacks resiliency.
Clorox’s most significant improvement has been in the last three years. Again, this improvement is
based on leadership, adoption of supply chain strategy, and the focus on technology adoption.
Figure 9. Clorox vs. Church & Dwight - Performance During 2006-2014 on Inventory Turns and Operating Margin

Beauty/Cosmetics
The volumes and demand patterns are very different in the Beauty/Cosmetics industry than that of
CPG. The margins are smaller and the inventory turns are slower than what is seen in CPG. The
products are also more regional with significant changes in the product portfolio from region to region.
Table 7. Comparison of Beauty/Cosmetics Companies for the Period of 2006-2014
Table 8. Comparison of Beauty Companies for the Period of 2006-2014 on the Supply Chain Metrics That Matter
and Improvement as Measured by the Supply Chain Index

As shown in Tables 7 and 8, the winner of supply chain excellence for both performance and
improvement in this category is L’Oreal. Estée Lauder is a close follower. L’Oreal is one of the few
examples we can find where cost-to-serve and product rationalization programs are institutionalized
in the culture. While many talk about these programs, L’Oreal is a case study where the programs are
a way of life. A very regional business, the company has focused on building strong horizontal ties
between sales and operations within each regioniv
.
In contrast to L’Oreal, Estée Lauder’s journey from 2009-2014 is a story of strong improvement. While
L’Oreal has stronger capabilities and practices, Estée Lauder has driven significant improvement
under the leadership of a new management team and a focused supply chain strategy.
Figure 10. Estée Lauder vs. L’Oreal - Performance During 2006-2014 on Inventory Turns and Operating Margin

OTC Drugs
There are few standalone OTC Drug companies. Most OTC products are sold through divisions in
larger pharmaceutical or CPG companies. We include this section to show how the methodology can
be applied to smaller companies with emerging capabilities.
Table 9. Comparison of OTC Drug Companies for the Period of 2006-2014
Table 10. Comparison of Over-the-Counter Drug Companies for the Period of 2006-2014 on the Supply Chain
Metrics That Matter and Improvement as Measured by the Supply Chain Index

In this industry, while growth is higher, supply chain performance is lower and improvement is slower.
As shown in Tables 9 and 10, no company is outperforming.
The lack of resiliency in metrics performance, as shown in Figure 11, is very characteristic of the
industry. Nutraceutical and Ocean Bio-Chem are still developing supply chain capabilities.
Figure 11. Nutraceutical vs. Ocean Bio-Chem - Performance During 2006-2014 on Inventory Turns and Operating
Margin
Supply chain improvement happens slowly over many years. It is usually at least three, and often five.
However, when a strong performance is established, it is difficult to maintain. While the CPG sector is
more mature than the Beauty/Cosmetics sector, and both are more mature than OTC, this research
shows that improvement is possible.

Cash-To-Cash
Cash-to-Cash (C2C) analysis is a study of a compound metric. It is the combination of Days of
Receivables plus Days of Inventory minus Days of Payables. While CPG companies struggled to
reduce inventory in the face of growing complexity, most of the C2C gains were made in elongating
Days of Payables. The lengthening of Days of Payables pushes the cost of capital backwards on
suppliers.
In general, consumer products manufacturers have not been as aggressive in reducing cash-to-cash
as other industries. As can be seen in Figures 12 and 13, Reckitt Benckiser started the decade with
an aggressive C2C position and then reversed it, moving Days of Payables from 119 to 18. In
contrast, Unilever became more aggressive on C2C post-recession, moving the number of Days of
Payables from 22 to 87. Colgate is more aggressive on Days of Payables than P&G, largely to offset
the lack of progress in inventory management. In Figures 12 and 13, we contrast two time periods:
2006-2009 and 2010-2014, and then show the year-over-year trends in Figure 14.
Figure 12. Comparison of CPG Companies’ Cash-To-Cash Cycles for 2006-2009

Figure 13. Comparison of CPG Companies’ Cash-To-Cash Cycles for 2010-2014
Figure 14. Cash-To-Cash Shifts Over the Period of 2006-2013

Recommendations
In supply chain benchmarking, it is important to look at performance and improvement of peer
companies over time. The orbit charts are useful to see these patterns. As companies do this work,
we recommend that they:
1) Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data.
Organizations should benchmark companies within an industry. Each industry has unique rhythms and
cycles. As a result, supply chain excellence analysis needs to be within an industry.
2) Understand the Potential of Your Supply Chain and Orchestrate Trade-offs on the Effective
Frontier. Supply chain leadership teams should analyze the total portfolio of metrics and study
progress at the intersections of the Effective Frontier. Companies with higher performance are using
more advanced analytics to plan outcomes and design the supply chain.
3) Apply Systems Theory. Teams should evaluate performance over time to understand improvement
while realizing that they are managing a complex system. The functions should be aligned to a
balanced portfolio of metrics representing the Effective Frontier while functional metrics should be
focused on improving reliability (first-pass yield, OEE, hands-free orders, etc.).
4) Focus on Building Value Networks. The consumer products industry, more successfully built
global supply chain capabilities when compared to the food giants of Kraft and Nestle. Traditional
supply chain planning techniques have not been sufficient with supply chain leaders adopting new
techniques for forecasting, inventory management and demand sensing. With the rise of commodity
prices, the principles of market-driven value networks matter more than ever for these industries.
Companies need to be able to orchestrate volume/mix/cost implications bi-directionally from channel to
supplier strategies.
5) Learn from Other Industries and Use a Steady Hand to Drive Improvement. Companies within
the Consumer Products Industry are supply chain leaders. They have forged supply chain processes
and practices. Much can be learned from this industry to apply to other value networks.

Conclusion
The consumer products industry paved the road for today’s make-to-stock supply chain practices.
Today, these global leaders are paving the way for the future. The story in this report is of supply
chain leadership. While companies improve supply chain processes through process improvement
and technologies, the year-over-year journey is based on leadership continuity.
The Supply Chain to Admire Analysis methodology is a litmus test. As a yardstick of supply chain
excellence, the analysis helps clarify what is the right stuff to drive performance and improvement.
Overall, the consumer products industry meets the test with strong performances by Colgate, Clorox
and L’Oreal, and improvement by Church & Dwight, Estée Lauder, and Unilever.

Companies Studied
Table A. Corporate Overview of Companies Studied in the OTC Drug Industry
Table B. Corporate Overview of Companies Studied in the Beauty/Cosmetics Industry

Table C. Corporate Overview of Companies Studied in this Report from the Consumer Products Industry
Definitions
The definitions of additional financial metrics used in this report are outlined in Table A.
Table D. Metrics Definitions

Prior Reports in This Series
Over the course of the last three years, our methodology has changed and matured. You can track
our progress, and find industry-specific information here:
Supply Chain Metrics That Matter: A Focus on Retail
Published by Supply Chain Insights in August 2012.
Supply Chain Metrics That Matter: A Focus on Consumer Products
Published by Supply Chain Insights in September 2012.
Supply Chain Metrics That Matter: The Cash-to-Cash Cycle
Published by Supply Chain Insights in November 2012.
Supply Chain Metrics That Matter: A Focus on the Food and Beverage Industry
Published by Supply Chain Insights in December 2012.
Supply Chain Metrics That Matter: Driving Reliability in Margins
Published by Supply Chain Insights in January 2013.
Supply Chain Metrics That Matter: A Focus on Hospitals
Published by Supply Chain Insights in January 2013.
Supply Chain Metrics That Matter: A Focus on Brick & Mortar Retail
Published by Supply Chain Insights in February 2013.
Supply Chain Metrics That Matter: A Focus on Medical Device Manufacturers
Published by Supply Chain Insights in February 2013.
Supply Chain Metrics That Matter: A Focus on Consumer Electronics
Published by Supply Chain Insights in April 2013.
Supply Chain Metrics That Matter: A Focus on Apparel
Published by Supply Chain Insights in May 2013
Supply Chain Metrics That Matter: A Focus on Contract Manufacturing
Published by Supply Chain Insights in August 2013
Supply Chain Metrics That Matter: A Focus on the Automotive Industry
Published by Supply Chain Insights in October 2013
Supply Chain Metrics That Matter: A Closer Look at the Cash-To-Cash Cycle (2000-2012)
Published by Supply Chain Insights in November 2013

Supply Chain Metrics That Matter: Third Party Logistics Providers
Published by Supply Chain Insights in December 2013
Supply Chain Metrics That Matter: A Critical Look at Operating Margin
Published by Supply Chain Insights in December 2013
Supply Chain Metrics That Matter: A Closer Look at Pharmaceutical Companies
Published by Supply Chain Insights in April 2014
Supply Chain Metrics That Matter: A Closer Look at Chemical Companies
Supply Chain Metrics That Matter: A Closer Look at Food and Beverage Companies
Published by Supply Chain Insights in June 2014
Supply Chain Metrics That Matter – A Focus on Pharmaceutical Companies
Published by Supply Chain Insights in April 2015
Supply Chain Metrics That Matter – A Focus on Chemical Companies – 2015
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies-2015
Published by Supply Chain Insights in June 2015

About Supply Chain Insights, LLC
Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is focused on delivering
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, turn to us.
We are a company dedicated to this research. Our goal is to help you 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 three books. The first book, Bricks
Matter (co-authored with Charlie Chase). published in 2012. The second book, The
Shaman’s Journal, published in September 2014, and the third book, Supply Chain
Metrics Metrics That Matter, published in December 2014.
With over twelve years as a research analyst with AMR Research, Gartner Group, and Altimeter
Group, and now as a 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
L’Oreal a Beautiful Supply Chain, March 2015, Supply Chain Shaman, http://www.supplychainshaman.com/supply-chain-2/supply-
chain-excellence/loreal-a-beautiful-supply-chain-2/
ii
Around 100 Brands to be Dropped by Procter and Gamble to Boost Sales, August 14, 2014, Cincinnati News,
http://www.cincinnatinews.net/index.php/sid/224358103
iii
Colgate, A Closer Look at Supply Chain Excellence, April 26, 2013, Supply Chain Shaman Blog,
http://www.supplychainshaman.com/uncategorized/colgate-a-closer-look-at-supply-chain-excellence/
iv
L’Oreal: A Beautiful Supply Chain, March 6, 2015, Supply Chain Shaman, http://www.supplychainshaman.com/supply-chain-
2/supply-chain-excellence/loreal-a-beautiful-supply-chain-2/

Supply Chain Metrics That Matter: A Focus on Consumer Products - 3 AUG 2015 - Report

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