Cscmp metrics that matter

Supply Chain Insights LLC Copyright © 2013, p. 2
This is the new bible for all supply chain
executives. It provides an insider’s perspective that
will prove incredibly valuable to even the most
grizzled supply chain veteran. This is the next
must-have business book.
--Bruce Richardson, Chief Enterprise Strategist,
Salesforce.com
Today, the worlds of social business and supply
chain management have many degrees of
separation. I enjoyed working with Lora to
understand what the future transformation of digital
marketing to digital business could look like.
--Jeremiah Owyang, Research Director, Altimeter
Bricks Matter
17 Five-Star Reviews on Amazon
http://tinyurl.com/bricksmatter

Metrics That Matter
• Lora Cecere’s 2nd book:
Metrics That Matter
• To publish in Fall 2014
http://tinyurl.com/metricsthatmatter
Pre-orders available on Amazon:

Today’s Supply Chains: Inside-out and Cautious

Growth has Slowed

The Efficient Supply Chain

The Long Tail of the Supply Chain:
Growing Complexity
Volume
Level of Predictability
Predictability based on forecast accuracy vs Actual Order Profiles

Increasing Commodity Volatility

Current State

Gap in What-if Architectures

Need for Agility

Outsourcing

Greatest Gaps in Visibility Importance vs. Performance:
Inter-enterprise Order Management, 1st Tier Suppliers
and 3rd Party Manufacturing

Building Visibility Solutions

Driving Progress on the
Effective Frontier

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

The Effective Frontier
Profitable Growth
Revenue Cost of Goods
Working Capital
Corporate Social Responsibility
R&D Strategy and Investment Asset Strategy and Investment
Forecast Accuracy Customer Service Inventory
Channel Strategy Product and
Service Portfolio
Supplier Strategy
Sales
Policies
Distribution
Policies
Manufacturing
Policies
Logistics
Policies
Procurement
Policies
Returns Backorders First Pass Yield Empty Miles Material Yield

The Supply Chain Effective Frontier

Mining 20 Years of Financial Data
Financial Metrics
Growth Profitability Cycle Complexity
Common Shares Cash Cash-to-Cash Cycle Altman Z
Employee Growth Cash Change in Period Days of Finished Goods Capital Turnover
Employees Cash on Hand Days of Inventory Current Ratio
Market Capitalization Cash Ratio TTM Days of Payables Outstanding Quick Ratio
R&D Margin Cash Ratio Quarter Days of Raw Materials Return on Assets
R&D Ratio Cash Ratio Year Days of Sales Outstanding Return on Equity
R&D to COGS Ratio Cost of Goods Sold Days of Work in Progress Return on Invested Capital
Revenue EBITDA DPO/DSO Return on Net Assets
Revenue Growth Free Cash Flow Ratio Finished Goods Inventory Revenue per Employee
Revenue Growth TTM Gross Margin Inventory Working Capital Ratio
Revenue TTM Gross Profit Inventory Turns
SG&A Margin Net Profit Margin Receivables Turns
SG&A Ratio Operating Cash Flow Ratio Raw Materials Inventory
SG&A to COGS Ratio Operating Margin Work in Progress Inventory
OPEX Ratio
Pretax Margin

What defines supply chain excellence? Equal
weighting of:
• Strength: Year-over-year improvement in operating margin,
inventory, and revenue/employee
• Balance: Ability to balance a portfolio to maximize market
capitalization
• Resiliency: Tight pattern and predictable pattern at the
intersection of operating margin and inventory turns
• Peer Input: Input of peers (Shaman’s Circle) on
performance
Company Rankings by Peer Group

Industry Progress

In a way that is:
 Resilient and predictable
 Balanced across the set of metrics to
maximize value
 Showing year-over-year improvement
against peer group
To Drive Corporate Performance

Most Interesting Patterns
• Cash-to-Cash Cycle vs. Inventory Turns
• Inventory Turns vs. Operating Margin
• Inventory Turns vs. Revenue per Employee

What Have We Learned?
• Each industry has a different pattern of
trade-offs of balancing growth, profitability,
cycles and complexity.
• Companies that are supply chain leaders
have very small movement with a balanced
portfolio of metrics.
• It is about MUCH more than Return on
Assets (ROA), growth and inventory.

Correlation to Market Capitalization

Nine out of Ten Companies are Stuck

Impact of A Recession

2002 2012
0
3
6
9
12
15
0 250 500 750 1,000 1,250
InventoryTurns
Revenue per Employee (K$)
The Dow Chemical Company
Visualizing the Patterns
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from One Source
Best Scenario
DOW
999, 6.7
Trace the line from
2002 point to 2012
point to follow the
performance over
time.
The diamond shows the company’s average over the period.
Ex: The Dow Chemical Company (DOW) has an average of 999
K$ for revenue per employee and 6.7 for inventory turns.
Ideally, companies are increasing
inventory turns and revenue per
employee, moving towards the upper
right corner of the graph over time.
Here, we plot inventory turns (y-axis)
vs. revenue per employee (x-axis).
Average (Revenue per Employee, Inventory Turns)

Let me Give you an Example

Cash-to-Cash Cycle vs. Inventory Turns
(2000-2012)

Inventory Turns vs. Operating Margin
(2000-2012)

Inventory Turns vs. Revenue per
Employee (2002-2012)

Company (2000-2003) Days of Inventory Days of Payables Days of Receivables
BASF SE 82 50 72
E. I. du Pont de Nemours and Co. 95 51 44
BASF SE 66 38 61
BASF SE 64 30 54
Company (2012) Days of Inventory Days of Payables Days of Receivables
BASF SE 64 30 50
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012
Cash-to-Cash Cycle Components

(2000-2012)

Danaher Corporation 65 45 61
Delphi Automotive PLC N/A N/A N/A
Johnson Controls, Inc. 15 60 55
Delphi Automotive PLC 30 65 57

Corporate Summary
Company
Stock
Exchange:
Ticker
Symbol
2012
Revenue
(billions
USD)
2012 Global
Employees
(thousands)
Country
Where
Based
Colgate-Palmolive
Company
NYSE: CL 17.1 37.7
USA
(New York)
Kimberly-Clark
Corporation
NYSE: KMB 21.1 58.0
USA
(Texas)
The Procter & Gamble
Company
NYSE: PG 83.7 126.0
USA
(Ohio)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2012

(2000-2012)
2000
2012
2000
2012
2000
2012
0
10
20
30
40
50
60
70
80
90
4 5 6 7
Cash-to-CashCycle
Inventory Turns
Colgate-Palmolive Company Kimberly-Clark Corporation
The Procter & Gamble Company
Best Scenario
CL
5.7, 43
KMB
5.9, 67
Average (Inventory Turns, Cash-to-Cash Cycle)
PG
5.6, 39

(2000-2012)
2000
2012
2000
2012
2000
2012
4
5
6
7
0.10 0.15 0.20 0.25
InventoryTurns
Operating Margin
CL
0.21, 5.7
KMB
0.15, 5.7
Average (Operating Margin, Inventory Turns)
PG
0.18, 5.6
Best Scenario

2002
2012
2002
2012 2012
2002
2
4
6
8
200 300 400 500 600 700
InventoryTurns
Revenue per Employee (K$)
Best Scenario
CL
361, 5.5
KMB
309, 5.9
Average (Revenue per Employee, Inventory Turns)
PG
536, 5.6

Colgate-Palmolive Company 59 62 46
Kimberly-Clark Corporation 61 35 51
The Procter & Gamble Company 61 40 27

Corporate Summary

(2000-2012)

LG Electronics 62 61 49
Samsung Electronics Co., Ltd. 48 47 38
General Mills, Inc.Company (2008-2011) Days of Inventory Days of Payables Days of Receivables

The Change Management Journey

Resilience: Mean Distance Analysis of
Orbit Charts

Why it Matters
Company Average Operating
Margin
Average Inventory
Turns
Resiliency Ranking
BASF .10 5.3 .55
DuPont .10 4.0 .67
Margin
Average Inventory
Turns
Resiliency Ranking
Samsung .11 8.3 .59
LG Electronics .04 6.7 3.47
Margin
Average Inventory
Turns
Resiliency Ranking
Procter & Gamble .18 5.7 .52
Unilever .13 5.6 .74

Metrics Matter. Align for
Strength, Balance and Resiliency
Future is Bright: But, we have to
learn from the past, to unlearn to
be open to the future.
Summary

Questions?

Public Training
www.supplychaininsights.com/services/training
• Chicago, IL – June 18-19, 2014
• Philadelphia, PA – August 6-7, 2014
• Dallas, TX – November 5-6, 2014

Complimentary Webinars
www.supplychaininsights.com/upcoming-webinars
UPCOMING WEBINARS
April 10, 2014: Risk Management
April 24, 2014: Supply Chain Resiliency
May 8, 2014: Our Research Difference
May 15, 2014: Metrics That Matter Book
June 12, 2014: Digital Supply Chain
PAST WEBINARS: ON DEMAND
From Mar. 6, 2014: Voice of the Supply Chain
From Nov. 14, 2013: Healthcare Value Chain
From Nov. 13, 2013: The Shaman’s Circle
From Oct. 10, 2013: Metrics That Matter
From Aug. 30, 2013: Supply Chain Matters

Annual Event September 2014

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

Where Do You Find Lora?
Contact Information:
lora.cecere@supplychaininsights.com
Blog: 100 Posts/Year
www.supplychainshaman.com
(10000 pageviews/month)
Forbes: Write 2X/Month
http://www.forbes.com/search/?q=lora+cecere
Twitter: lcecere 4800 followers.
LinkedIn: linkedin.com/pub/lora-
cecere/0/196/573 (Linkedin Influencer over 6000
followers in the network)

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