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Where are we on the Journey?
A Closer Look at Healthcare
Providers
Supply Chain Insights LLC Copyright © 2013, p. 3
Supply Chain Insights is focused on delivering
independent, actionable and objective
advice for supply chain leaders. A company
dedicated to research, turn to us when you
want the latest insights on supply chain trends,
technologies to know and metrics that matter.
About Us
Supply Chain Insights LLC Copyright © 2013, p. 4
Healthcare Value Chain
Financial Metrics
Supply Chain Insights LLC Copyright © 2013, p. 5
Components of Cash to Cash
Supply Chain Insights LLC Copyright © 2013, p. 6
Supply Chain Organization:
Three-Quarters Have a Formal Supply Chain Organization
Supply Chain Insights LLC Copyright © 2013, p. 7
Supply Chain Organization:
7 Functions Report Through It on Average;
Reports Primarily to Chief Financial Officer
Supply Chain Insights LLC Copyright © 2013, p. 8
Supply Chain Organization:
Purchasing is Primarily Done Corporate-Wide
Supply Chain Insights LLC Copyright © 2013, p. 9
Hospitals: Measuring Value
Supply Chain Insights LLC Copyright © 2013, p. 10
Hospitals: Value Analysis
Supply Chain Insights LLC Copyright © 2013, p. 11
Value Analysis Group:
Supply Chain is Primary Leader;
Changing/Adding Products are Most Common Decisions
Supply Chain Insights LLC Copyright © 2013, p. 12
Value Analysis Program
Supply Chain Insights LLC Copyright © 2013, p. 13
Focus: Negotiating Lower Prices
Supply Chain Insights LLC Copyright © 2013, p. 14
Current State
Supply Chain Insights LLC Copyright © 2013, p. 15
SHARED
VISION
+ SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE
SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION
SHARED
VISION
+ INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY
SHARED
VISION
+ SKILLS + INCENTIVE + RESOURCES + LEADERSHIP =
FALSE
STARTS
SHARED
VISION
+ SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION
SHARED
VISION
+ SKILLS + RESOURCES + PLAN + LEADERSHIP =
GRADUAL
CHANGE
Source: J.P. Kotter
Collaboration: The Right Stuff
Supply Chain Insights LLC Copyright © 2013, p. 16
Applying the
Supply Chain Index to Healthcare
A formulaic representation of
how companies are trading off
growth, profitability, cycle and
complexity performance on
selected supply chain financial
metrics against market
valuation.
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 17
Value Chain
Metrics That Matter by Industry
Medical Care Industry Medical Distribution Pharmaceutical Major
Free Cash Flow Ratio Operating Margin Free Cash Flow Ratio
Working Capital Ratio Return on Invested Capital Return on Invested Capital
Operating Margin Free Cash Flow Ratio Altman Z
SG&A to COGS Ratio Working Capital Ratio Current Ratio
YoY Revenue Growth Return on Net Assets
Days of Payables
Outstanding
Current Ratio DPO/DSO Ratio
Days of Sales Outstanding Current Ratio
Days of Inventory Days of Inventory
Days of Payables
Outstanding
Supply Chain Insights LLC Copyright © 2013, p. 18
• Redesign for value
• Focus on outcomes
• Management of end-to-end processes
Summary
Supply Chain Insights LLC Copyright © 2013, p. 19
Our Focus
2-DAY PUBLIC
TRAINING
Princeton – June 24-25
Minneapolis – August 8-9
$1500
GLOBAL
SUMMIT
PODCASTS
www.supplychaininsights.com
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 20
PAST SUPPLY CHAIN INDEX WEBINARS:
AVAILABLE ON DEMAND
• From September 24, 2012:
The Supply Chain Index, 20 Years in the Making:
A Focus on Process Industries
• From October 26, 2012:
The Supply Chain Index, 20 Years in the Making:
A Focus on Discrete Industries
Webinars
www.supplychaininsights.com/upcoming-webinars
#sciwebinar
UPCOMING WEBINARS
• May 23 rd: Supply Chain Index, Update, Part II
• June 13th: Sales and Operations Planning: State
of the Union
• July 11th: Big Data Supply Chains and the Future
of Analytics
• August 15th: State of Supply Chain Talent:
Missing Link in the Supply Chain
• August 29th: Digital Manufacturing
In Search of Supply Chain
Excellence
Lora Cecere of Supply Chain Insights
Supply Chain Insights LLC Copyright © 2013, p. 22
Supply Chain Insights is focused on delivering
independent, actionable and objective
advice for supply chain leaders. A company
dedicated to research, turn to us when you
want the latest insights on supply chain trends,
technologies to know and metrics that matter.
About Us
Supply Chain Insights LLC Copyright © 2013, p. 23
18 Reports in 2012
Supply Chain Insights LLC Copyright © 2013, p. 24
Over 30 Reports Planned for 2013
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 25
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
Second Printing of Bricks Matter:
14 Five-Star Reviews on Amazon
Book can be ordered from Amazon.com in Hardcopy or Digital Format
Supply Chain Insights LLC Copyright © 2013, p. 26
Right Use
of Assets
Expansion into
BRIC Countries
(Brazil, Russia,
India and China)
Supply Chain
Process
Knowledge
In Search of Supply Chain
Excellence
Supply Chain Insights LLC Copyright © 2013, p. 28
Current State
Supply Chain Insights LLC Copyright 2013
Supply Chain Insights LLC Copyright © 2013, p. 29
The Supply Chain Pioneers
Supply Chain Insights LLC Copyright © 2013, p. 30
Source: Supply Chain Insights, Corporate Annual Reports 2000-2011
Inventory Performance
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Consumer Packaged Goods 59.0 57.0 62.0 64.0 67.0 67.0 68.0 70.0 70.0 64.0 64.0 67.0
Chemical 71.5 71.9 78.2 75.1 62.0 70.3 68.1 64.3 64.3 78.6 72.9 72.8
Pharma 122.2 133.7 190.1 171.0 184.3 175.6 167.8 149.8 154.9 198.7 154.3 131.8
High Tech 93.1 57.6 46.5 48.5 35.9 37.3 43.8 36.8 34.6 41.3 34.8 30.4
Average 86.5 80.0 94.2 89.6 87.3 87.5 86.9 80.2 81.0 95.6 81.5 75.5
0.0
50.0
100.0
150.0
200.0
250.0
DaysofInventory
Supply Chain Insights LLC Copyright © 2013, p. 31
 Perform better than peer group
 Improve year-over-year results
 Alignment in metrics
 Delivery of performance against the business
strategy
 Consistency in results
 Be a leader in managing trade-offs
What Is Supply Chain Excellence?
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 32
Supply Chain Insights LLC Copyright © 2013, p. 33
Evolving Practices
Supply Chain Insights LLC Copyright © 2013, p. 34
A Supply Chain
is a Complex System
with Complex Processes
with Increasing Complexity
Supply Chain Insights LLC Copyright © 2013, p. 35
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
Supply Chain Insights LLC Copyright © 2013, p. 36
Trying to Reach Balance
Supply Chain Insights LLC Copyright © 2013, p. 37
Useful Ratios
Supply Chain Insights LLC Copyright © 2013, p. 38
Industry Averages
Supply Chain Insights LLC Copyright © 2013, p. 39
Chemical Industry Performance
Supply Chain Insights LLC Copyright © 2013, p. 40
Consumer Packaged Goods Industry
Performance
Supply Chain Insights LLC Copyright © 2013, p. 41
Colgate-Palmolive Company vs Unilever N.V.
Supply Chain Insights LLC Copyright © 2013, p. 42
Inventory Turns vs. Revenue per Employee
(2002-2011) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 43
Cash-to-Cash Cycle vs. Operating Margin
(2000-2011)
Supply Chain Insights LLC Copyright © 2013, p. 44
Cash-to-Cash Cycle vs. Gross Margin
(2000-2011) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 45
Pharmaceutical Industry Historical
Performance
Supply Chain Insights LLC Copyright © 2013, p. 46
Cash-to-Cash Cycle vs. Gross Margin
(2000-2011) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 47
Healthcare Value Chain:
Financial Metrics
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 48
Healthcare Value Chain
Cash-to-Cash Cycle
Supply Chain Insights LLC Copyright © 2013, p. 49
Food Industry Historical
Performance
Supply Chain Insights LLC Copyright © 2013, p. 50
Cash-to-Cash Cycle vs. Gross Margin (2000-2011)
SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 51
Five Year Comparison
Royal Dutch Shell
Supply Chain Insights LLC Copyright © 2013, p. 53
Corporate Summary
Supply Chain Insights LLC Copyright © 2013, p. 54
Metrics Included for Comparison
Supply Chain Insights LLC Copyright © 2013, p. 55
Metric Equations
Supply Chain Insights LLC Copyright © 2013, p. 56
Cash-to-Cash Cycle vs. Operating Margin
(2000-2003)
Supply Chain Insights LLC Copyright © 2013, p. 57
Cash-to-Cash Cycle vs. Operating Margin
(2004-2007)
Supply Chain Insights LLC Copyright © 2013, p. 58
Cash-to-Cash Cycle vs. Operating Margin (2008-
2011)
Supply Chain Insights LLC Copyright © 2013, p. 59
Cash-to-Cash Cycle vs. Operating Margin (2012)
Supply Chain Insights LLC Copyright © 2013, p. 60
Cash-to-Cash Cycle vs. Operating Margin (2000-
2012) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 61
Inventory Turns vs. Revenue per Employee (2002-
2003)
Supply Chain Insights LLC Copyright © 2013, p. 62
Inventory Turns vs. Revenue per Employee (2004-
2007)
Supply Chain Insights LLC Copyright © 2013, p. 63
Inventory Turns vs. Revenue per Employee (2008-
2011)
Supply Chain Insights LLC Copyright © 2013, p. 64
Inventory Turns vs. Revenue per Employee (2012)
Supply Chain Insights LLC Copyright © 2013, p. 65
Inventory Turns vs. Revenue per Employee (2002-
2012) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 66
Cash-to-Cash Cycle Components (2000-2003)
Supply Chain Insights LLC Copyright © 2013, p. 67
Cash-to-Cash Cycle Components (2004-2007)
Supply Chain Insights LLC Copyright © 2013, p. 68
Cash-to-Cash Cycle Components (2008-2011)
Supply Chain Insights LLC Copyright © 2013, p. 69
Cash-to-Cash Cycle Components (2012)
Supply Chain Insights LLC Copyright © 2013, p. 70
Cash-to-Cash Cycle (2000-2012)
Supply Chain Insights LLC Copyright © 2013, p. 71
Publishing Two eBooks in
2013 on Supply Chain
Metrics That Matter
– Consumer Value Networks
– Industrial Value Networks
2013 Publications
Supply Chain Insights LLC Copyright © 2013, p. 72
Introducing the
Supply Chain Index
A formulaic representation of
how companies are trading off
growth, profitability, cycle and
complexity performance on
selected supply chain financial
metrics against market
valuation.
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 73
1. To better understand which supply chain metrics
matter to corporate balance sheet performance in
public markets. We want to help leaders better align
supply chain and financial performance.
2. To create an objective system for evaluating and
ranking supply chains by industry peer group.
3. To connect financial performance with supply chain
excellence as measured through quantitative
surveys in an effort to better identify and define best
practices across industry groups.
Why Did We Do This?
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 74
• What it is: A way to understand the impact of
companies’ supply chain (relative to peers
within an industry sector) to market
capitalization based a set of preselected supply
chain ratio metrics.
• What it is NOT: A way to evaluate overall
company performance or compare the model
results to actual market capitalization.
What It Is. What It Is Not.
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 75
Step 1: Located data sources
Step 2: Selected core supply chain ratios from over 50 financial metrics
Step 3: Identified meaningful metrics per industry using regression analysis
among selected ratios
Step 4: Constructed industry equation based on correlation of industry
metrics to market capitalization values
Step 5: Determined company rankings within industry by applying 2012
company results to industry equation
Step 6: Analysis of peer group companies over the last decade
Step 7: Correlations to supply chain practices, technologies and
organizational design
Supply Chain Index Methodology
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 76
– Market capitalization data of public companies
(Ycharts.com)
– Industry peer groups defined by Morningstar Sector
(36)
– Financial ratios built from balance sheet and income
statement data collected from OneSource
– Analysis of quarterly data using R (frequency 2006Q1
to 2012Q4)
Step 1: Located Data Sources
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 77
Step 2: Selected 14 Core
Supply Chain Ratios to Study
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
Source: Supply Chain Insights LLC
#sciwebinar
Selected Ratios
Supply Chain Insights LLC Copyright © 2013, p. 78
Step 3: Identified Industry Metrics
#sciwebinar
Market Capitalization vs. Revenue Growth
Insight: For
example,
growth did
not correlate
for chemical
companies.
Supply Chain Insights LLC Copyright © 2013, p. 79
Step 3: Identified Industry Metrics
Metrics That Matter by Industry
Mass Retail Industry
Consumer Packaged
Goods Industry
Chemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSO
Days of Payables
Outstanding
Days of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 80
Step 4: Mass Retail Equation
#sciwebinar
Ln(market cap) = 10.41 + 52.67(OM) -34.72(WC) - 16.02(ROIC)
– 0.09(DPODSO) + 0.02(DOI)
Mass Retail Industry Equation
Supply Chain Insights LLC Copyright © 2013, p. 81
Step 5: Determined Rankings by Industry
Mass Retail Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 82
Top Ranked Mass Retail Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 83
Step 3: Identified Industry Metrics
#sciwebinar
Metrics That Matter by Industry
Mass Retail Industry
Consumer Packaged
Goods Industry
Chemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSO
Days of Payables
Outstanding
Days of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
Supply Chain Insights LLC Copyright © 2013, p. 84
Step 4: Consumer Packaged Goods
(CPG) Equation
#sciwebinar
Ln(market cap) = 3.37 + 2.11(OM) + 1.62(FCF) – 1.29(ROIC) –
1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI)
CPG Industry Equation
Supply Chain Insights LLC Copyright © 2013, p. 85
Step 5: Determined Rankings by Industry
CPG Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 86
Top Ranked CPG Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 87
Step 3: Identified Industry Metrics
#sciwebinar
Metrics That Matter by Industry
Mass Retail Industry
Consumer Packaged
Goods Industry
Chemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSO
Days of Payables
Outstanding
Days of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
Supply Chain Insights LLC Copyright © 2013, p. 88
Step 4: Chemical Industry Equation
#sciwebinar
Ln(market cap) = 7.85(OM) – 4.84(ROA) + 1.81ln(DPO) +
0.01(DOI)
Chemical Industry Equation
Supply Chain Insights LLC Copyright © 2013, p. 89
Step 5: Determined Rankings by Industry
Chemical Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 90
Top Ranked Chemical Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 91
In Progress
Food Industry
#sciwebinar
Ln(market cap) = 5.57 +15.56(OM) – 7.50(ROIC) – 4.13(ROA) +
2.74(RONA) + 0.61(Z) + 0.04(DPO) – 0.04(DSO)
Food Industry Equation
Supply Chain Insights LLC Copyright © 2013, p. 92
Value Chain Relationships
Retail
(Mass
Merchant)
CPG Chemical
Equations:
Ln(market cap) =
10.41
+ 52.67(OM)
-34.72(WC)
- 16.02(ROIC)
-0.09(DPODSO)
+ 0.02(DOI)
3.37
+ 2.11(OM)
+ 1.62(FCF)
- 1.29(ROIC)
- 1.17ln(CR)
+ 0.25(SGAC)
+ 0.02(DPO)
– 0.01(DOI)
7.85(OM)
- 4.84(ROA)
+ 1.81ln(DPO)
+ 0.01(DOI)
True collaboration only happens when there is
a sustaining win-win value proposition.
Supply Chain Insights LLC Copyright © 2013, p. 93
Future Evolution
Align:
Market
Driven
Building Horizontal
Process Connectors
Continuous
Testing
Learning
Improving
In Market
Orchestrate
Demand and Supply
Resilient
Reliable
Adapt:
Demand
Driven
Efficient
Sense
Demand
and Supply
Shape
Demand and
Supply based
on Market
Absorb
Demand
Volatility
Absorb Supply
Volatility
Right Product
Right Place
Right Time
Right Cost
Cost
Procure to
pay/order to
cash
Supply Chain Insights LLC Copyright © 2013, p. 94
A network that senses demand with minimal
latency to drive a near-real time response for
demand shaping and demand translation.
What Is a Demand-driven
Value Network?
Supply Chain Insights LLC Copyright © 2013, p. 95
Rising Price of a Barrel of West Texas
Intermediate (WTI)
Supply Chain Insights LLC Copyright © 2013, p. 96
Commodity Price Increases and Volatility
Supply Chain Insights LLC Copyright © 2013, p. 97
An adaptive network focused on a value-
based outcome that senses and translates
market changes (buy and sell-side markets)
bi-directionally with near-real time data
latency to align sell, deliver, make and
sourcing operations.
What Is a Market-driven Value Network?
Supply Chain Insights LLC Copyright © 2013, p. 98
E2E Order  Delivery kaizen team was able to
quantify the current order processing
inefficiencies
5/21/201
3
12
32
174
Process Steps Valued by the
Customer
Necessary process steps but not
value-producing for our business
Manual intervention steps now
part of "normal"
Zero (0) orders flow through the e2e process without being manually handled!
Massive value creation potential for eliminating waste, inefficiency and re-
focusing resources on activities that actually deliver value
0%
20%
40%
60%
80%
100%
Breakdown of E2E Order to Delivery
Process
% of time actually spent completing process steps
Time spent in Queues and "Do Loops"
Vast majority of time is spent on
activities that do not produce
enterprise value
>60% of order processing is spent waiting
or in inefficient manual intervention
Supply Chain Insights LLC Copyright © 2013, p. 99
26%
19% 21%
30%
26%
12% 13%
17%
26% 19%
20%
18%
11%
24%
17% 14%
13%
16%
18%
14%
18%
17%
9%
13%
12%
9%
12%
17%
10%
8%
17%
5%
13%
14%
11%
10%
15%
11% 9% 12%
18%
9%
10%
5% 4%
11%
8%
6% 7%
CPG Food+bev Electronics Semi-
conductor
Durables Process Discrete
Other
Fax
Phone
Internet orders
Customer portal
VMI/collab.
B2b (w/manual)
B2b (no manual)
Order Entry Process
CONSUMER PRODS HIGH-TECH INDUSTRIAL
Supply Chain Insights LLC Copyright © 2013, p. 100
Market-Driven Value Networks
Characteristics
Supply Chain Insights LLC Copyright © 2013, p. 101
Demand-shaping Levers
New Product Launch
Marketing
Sales Incentives
Trade Promotions
Distributor Incentives
Assortment
Price
Run-out of obsolescence or mark-
down strategies
Orchestration Levers
Market-driven Orchestration Levers
Price to Price Orchestration
Alternate Bill of Materials
Alternate Sourcing
Change in Assortment
Orchestration of Product Mix (Incent
products with less commodity
variability)
Changes in Demand Shaping
Strategies
Commodity Hedging
Corporate Sustainability
Supply Chain Insights LLC Copyright © 2013, p. 103
Current State
Supply Chain Insights LLC Copyright © 2013, p. 104
Corporate Sustainability Alignment
Supply Chain Insights LLC Copyright © 2013, p. 105
Corporate Sustainability Alignment
Supply Chain Insights LLC Copyright © 2013, p. 106
Who Does it Best?
Building Value Networks
Supply Chain Insights LLC Copyright © 2013, p. 108
Years 1990-1994 1995-1999 2000-2004 2005-2009 2010-2012
RETAIL
AVERAGE
17.05% 42.46% 12.89% 8.76% 5.15%
CPG AVERAGE 2.12% 0.84% 3.91% 7.26% 2.32%
FOOD CPG
AVERAGE
3.68% 2.97% 8.13% 2.59% 4.27%
BEVERAGE CPG
AVERAGE
12.87% 2.00% 9.59% 11.53% 4.92%
Year-over-Year Growth
Supply Chain Insights LLC Copyright © 2013, p. 109
1990-
1994
1995-
1999
2000-
2004
2005 2006 2007 2008 2009 2010 2011 2012
eCommerce 343 456 549 758 848 1016 998 1073
Grocery 198 182 425 479 475 520 612 611 572 518 504
Mass 112 144 253 348 379 617 487 474 533 464 348
Specialty 296 384 414 458 479 527 534 282 312
0
200
400
600
800
1000
1200
RevenueperEmployee(K$)
Revenue per Employee
Retail: Revenue Per Employee
Source: Supply Chain Index Analysis from Annual Reports 1990-2012
Mean values utilized excluding outlier data
Supply Chain Insights LLC Copyright © 2013, p. 110
Revenue Per Store
Supply Chain Insights LLC Copyright © 2013, p. 111
A Look at History
Supply Chain Insights LLC Copyright © 2013, p. 112
Supply Chain Insights LLC Copyright © 2013, p. 113
Cash-to-Cash Cycle vs. Gross Margin (2000-2011)
SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 114
Value Chain Relationships
Retail
(Mass
Merchant)
CPG Chemical
Equations:
Ln(market cap) =
10.41
+ 52.67(OM)
-34.72(WC)
- 16.02(ROIC)
-0.09(DPODSO)
+ 0.02(DOI)
3.37
+ 2.11(OM)
+ 1.62(FCF)
- 1.29(ROIC)
- 1.17ln(CR)
+ 0.25(SGAC)
+ 0.02(DPO)
– 0.01(DOI)
7.85(OM)
- 4.84(ROA)
+ 1.81ln(DPO)
+ 0.01(DOI)
True collaboration only happens when there is
a sustaining win-win value proposition.
Supply Chain Insights LLC Copyright © 2013, p. 115
SHARED
VISION
+ SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE
SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION
SHARED
VISION
+ INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY
SHARED
VISION
+ SKILLS + INCENTIVE + RESOURCES + LEADERSHIP =
FALSE
STARTS
SHARED
VISION
+ SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION
SHARED
VISION
+ SKILLS + RESOURCES + PLAN + LEADERSHIP =
GRADUAL
CHANGE
Source: J.P. Kotter
Collaboration: The Right Stuff
Supply Chain Insights LLC Copyright © 2013, p. 116
Demand
Signal
Accurate
Weekly
Forecasting
is ...
Delay from
Purchase to
Signal
Data Latency and Distortion Across the Network
Red Represents Emerging Economies with
Distributor Trade
Retailer DC
Easy
3-10 Days
7-20 Days
Manufacturer DC
Difficult
10-20 Days
20-45 Days
Suppliers
Almost
Impossible
20-50 Days
45-80 Days
Store
Trivial
Instant
Variable
Supply Chain Insights LLC Copyright © 2013, p. 117
We have not Fixed Replenishment
Processes….
Supply Chain Insights LLC Copyright © 2013, p. 118
Supply Reliability
Manufacturer
mentioned by
name
Supply Chain Insights LLC Copyright © 2013, p. 119
Current State: Usage of Downstream Data
Supply Chain Insights LLC Copyright © 2013, p. 120
Bar codes were first used at Marsh Supermarket in 1968
Supply Chain Insights LLC Copyright © 2013, p. 121
Barriers
Supply Chain Insights LLC Copyright © 2013, p. 122
Data Used
Supply Chain Insights LLC Copyright © 2013, p. 123
Quality of Data
100%
72%
62% 59%
52%
41% 38%
72%
55%
41%
14% 17%
10% 7%
-28%
-17% -21%
-45%
-34% -31% -31%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Point of Sale Warehouse
Withdrawal
Warehouse
Perpetual Inventory
Changes
Store Forecasts In-store Perpetual
Inventory Changes
Company
Forecasts
Loyalty
Downstream Data Received from Retailers vs. Clean
Receives Clean (Rated 5-7 on 7-Pt Scale) Gap (Clean - Receive)
____________________________________________________________
Source: Supply Chain Insights LLC, Downstream Data (Aug-Oct 2012)
Base: Manufacturers using/trying to use downstream data (n=29 – CAUTION: Small base size)
Q17. What types of downstream data does your company get from retailers? Please select all that apply.
Q19. For each type of data that you get, please rate how clean it is, on average, considering all retailers from which you get it. SCALE:
1=Extremely dirty, 7=Extremely clean
Supply Chain Insights LLC Copyright © 2013, p. 124
Percent of Channel
Supply Chain Insights LLC Copyright © 2013, p. 125
Days of Inventory (DOI): Companies with and without Demand
Sensing (CPG, Food, Heath & Beauty Industries)
Evolution
64
65
66
63
66
65 65
63
60
61
2007 2008 2009 2010 2011
Source: Company Financials
DaysInventory
Supply Chain Insights LLC Copyright © 2013, p. 126
Risk Management
high
low
highlow
Impact
Probability of Adverse Event
catastrophic
periodic incident
strategic
daily surprise
Probability * Impact = Value at Risk
Supply Chain Insights LLC Copyright © 2013, p. 127
Risk Assessment: A Value-Driven Approach
high
low
highlow
safety, quality
Impact
Probability of Adverse Event
catastrophic
periodic incident
strategic
daily surprise
mark to market
portfolio mgmt risksustainability
product mix shift
commodity costs
margin pressure
private label
deflation
foreign exchange
* AMR Research – Top CP Risk Mentions last quarterly earnings report
innovation stalls
health & wellness
nutrition & labeling
consumer trends
failed cost reduction programs
failed productivity
n. american economy
de-stocking
Supply Chain Insights LLC Copyright © 2013, p. 128
Value Network Strategy
Supply chain strategy
Business Strategy
What are the right things to do to increase company value?
Value-network Supply Chain Strategy
What are the right ways to support the business strategy?
What are the right trade-offs between value drivers for each value network?
Right product
platforms
Design the
supply
response
Build
organizational
systems and
manage talent
Align supply
relationships
Align demand
relationships
Effective Supply
Networks
Execution of buy-
side strategies
Continuous
Improvement
Capabilities Required
Supply Chain
Network Design
Design Networks
Innovation
Methodologies
Demand Networks
Joint Value Creation
Strategies
Business Process
How do I do the right things right?
Source: Supply Chain Insights, LLC
Supply Chain 2020 and the Path
Forward
Supply Chain Insights LLC Copyright © 2013, p. 130
The Supply Chain of the Future
World
Population
Source: “The World at Six Billion” United Nations, 2004; The World UN Population Assessment 2006; “Unsustainable World,” 04/15/08, BBC
North America
2007 2020
339M 342M
Europe
2007 2020
731M 722M
Asia
2007 2020
4.0B 4.6B
L America
2007 2020
572M 660M
Africa
2007 2020
965M 1.3B
Oceania
2007 2020
34M 40M
Supply Chain Insights LLC Copyright © 2013, p. 131
Outside-In
Value-Based Outcomes
Delivered by Value Networks
Supply Chain Excellence =
Supply Chain 2020 Tipping Points
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Talent
Shortage
Compliance on
Safe & Secure
Orchestration
Big Data
Supply Chains
Internet of Things
Learning
Supply Chains
Digital Manufacturing
Supply Chain Insights LLC Copyright © 2013, p. 132
Supply Chain Insights LLC Copyright © 2013, p. 133
Create Your Own Future
Supply Chain Insights LLC Copyright © 2013, p. 134
Rethinking Analytics
Supply Chain Insights LLC Copyright © 2013, p. 135
Definition
Challenges:• Transactional
• Time phased data
Structured
Data
• Social
• Channel
• Customer Service
• Warranty
• Temperature
• RFID
• QR codes
• GPS
• Mapping and GPS
• Video
• Voice
• Digital Images
Unstructured
Data
Sensor
Data
New
Data
Types
Volume
Velocity
Variability
Supply Chain Insights LLC Copyright © 2013, p. 136
Analytics Evolution
Supply Chain Insights LLC Copyright © 2013, p. 137
Listening Post Strategy
Supply Chain Insights LLC Copyright © 2013, p. 138
• Outside-in
• End-to-End Orchestration
• Supply Chain Matters
Path Forward
Supply Chain Insights LLC Copyright © 2013, p. 139
Questions?
Supply Chain Insights LLC Copyright © 2013, p. 140
• May 17th: How Do We Heal the Healthcare Value Chain, Part II
• June 13th: Sales and Operations Planning: State of the Union
• July 11th: Big Data Supply Chains and the Future of Analytics
• August 15th: State of Supply Chain Talent. Missing Link in the
Supply Chain
• August 29th: Digital Manufacturing
Upcoming Webinars
Each webinar is based on new and relevant research
and will feature two-three industry leaders
Supply Chain Insights LLC Copyright © 2013, p. 141
Join Us!
www.scicommunity.com
Supply Chain Insights LLC Copyright © 2013, p. 142
Supply Chain Insights Community
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 143
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.
Supply Chain Insights LLC Copyright © 2013, p. 144
Where Do You Find Lora?
Contact Information:
lora.cecere@supplychaininsights.com
Blog: www.supplychainshaman.com
(4000 pageviews/month)
Twitter: lcecere 3800 followers. Rated as the
top rated supply chain social network user.
LinkedIn: linkedin.com/pub/lora-
cecere/0/196/573 (3560 in the network)

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Healthcare Value Chain Financial Metrics

  • 1. Where are we on the Journey? A Closer Look at Healthcare Providers
  • 2.
  • 3. Supply Chain Insights LLC Copyright © 2013, p. 3 Supply Chain Insights is focused on delivering independent, actionable and objective advice for supply chain leaders. A company dedicated to research, turn to us when you want the latest insights on supply chain trends, technologies to know and metrics that matter. About Us
  • 4. Supply Chain Insights LLC Copyright © 2013, p. 4 Healthcare Value Chain Financial Metrics
  • 5. Supply Chain Insights LLC Copyright © 2013, p. 5 Components of Cash to Cash
  • 6. Supply Chain Insights LLC Copyright © 2013, p. 6 Supply Chain Organization: Three-Quarters Have a Formal Supply Chain Organization
  • 7. Supply Chain Insights LLC Copyright © 2013, p. 7 Supply Chain Organization: 7 Functions Report Through It on Average; Reports Primarily to Chief Financial Officer
  • 8. Supply Chain Insights LLC Copyright © 2013, p. 8 Supply Chain Organization: Purchasing is Primarily Done Corporate-Wide
  • 9. Supply Chain Insights LLC Copyright © 2013, p. 9 Hospitals: Measuring Value
  • 10. Supply Chain Insights LLC Copyright © 2013, p. 10 Hospitals: Value Analysis
  • 11. Supply Chain Insights LLC Copyright © 2013, p. 11 Value Analysis Group: Supply Chain is Primary Leader; Changing/Adding Products are Most Common Decisions
  • 12. Supply Chain Insights LLC Copyright © 2013, p. 12 Value Analysis Program
  • 13. Supply Chain Insights LLC Copyright © 2013, p. 13 Focus: Negotiating Lower Prices
  • 14. Supply Chain Insights LLC Copyright © 2013, p. 14 Current State
  • 15. Supply Chain Insights LLC Copyright © 2013, p. 15 SHARED VISION + SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION SHARED VISION + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY SHARED VISION + SKILLS + INCENTIVE + RESOURCES + LEADERSHIP = FALSE STARTS SHARED VISION + SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION SHARED VISION + SKILLS + RESOURCES + PLAN + LEADERSHIP = GRADUAL CHANGE Source: J.P. Kotter Collaboration: The Right Stuff
  • 16. Supply Chain Insights LLC Copyright © 2013, p. 16 Applying the Supply Chain Index to Healthcare A formulaic representation of how companies are trading off growth, profitability, cycle and complexity performance on selected supply chain financial metrics against market valuation. #sciwebinar
  • 17. Supply Chain Insights LLC Copyright © 2013, p. 17 Value Chain Metrics That Matter by Industry Medical Care Industry Medical Distribution Pharmaceutical Major Free Cash Flow Ratio Operating Margin Free Cash Flow Ratio Working Capital Ratio Return on Invested Capital Return on Invested Capital Operating Margin Free Cash Flow Ratio Altman Z SG&A to COGS Ratio Working Capital Ratio Current Ratio YoY Revenue Growth Return on Net Assets Days of Payables Outstanding Current Ratio DPO/DSO Ratio Days of Sales Outstanding Current Ratio Days of Inventory Days of Inventory Days of Payables Outstanding
  • 18. Supply Chain Insights LLC Copyright © 2013, p. 18 • Redesign for value • Focus on outcomes • Management of end-to-end processes Summary
  • 19. Supply Chain Insights LLC Copyright © 2013, p. 19 Our Focus 2-DAY PUBLIC TRAINING Princeton – June 24-25 Minneapolis – August 8-9 $1500 GLOBAL SUMMIT PODCASTS www.supplychaininsights.com #sciwebinar
  • 20. Supply Chain Insights LLC Copyright © 2013, p. 20 PAST SUPPLY CHAIN INDEX WEBINARS: AVAILABLE ON DEMAND • From September 24, 2012: The Supply Chain Index, 20 Years in the Making: A Focus on Process Industries • From October 26, 2012: The Supply Chain Index, 20 Years in the Making: A Focus on Discrete Industries Webinars www.supplychaininsights.com/upcoming-webinars #sciwebinar UPCOMING WEBINARS • May 23 rd: Supply Chain Index, Update, Part II • June 13th: Sales and Operations Planning: State of the Union • July 11th: Big Data Supply Chains and the Future of Analytics • August 15th: State of Supply Chain Talent: Missing Link in the Supply Chain • August 29th: Digital Manufacturing
  • 21. In Search of Supply Chain Excellence Lora Cecere of Supply Chain Insights
  • 22. Supply Chain Insights LLC Copyright © 2013, p. 22 Supply Chain Insights is focused on delivering independent, actionable and objective advice for supply chain leaders. A company dedicated to research, turn to us when you want the latest insights on supply chain trends, technologies to know and metrics that matter. About Us
  • 23. Supply Chain Insights LLC Copyright © 2013, p. 23 18 Reports in 2012
  • 24. Supply Chain Insights LLC Copyright © 2013, p. 24 Over 30 Reports Planned for 2013 #sciwebinar
  • 25. Supply Chain Insights LLC Copyright © 2013, p. 25 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 Second Printing of Bricks Matter: 14 Five-Star Reviews on Amazon Book can be ordered from Amazon.com in Hardcopy or Digital Format
  • 26. Supply Chain Insights LLC Copyright © 2013, p. 26 Right Use of Assets Expansion into BRIC Countries (Brazil, Russia, India and China) Supply Chain Process Knowledge
  • 27. In Search of Supply Chain Excellence
  • 28. Supply Chain Insights LLC Copyright © 2013, p. 28 Current State Supply Chain Insights LLC Copyright 2013
  • 29. Supply Chain Insights LLC Copyright © 2013, p. 29 The Supply Chain Pioneers
  • 30. Supply Chain Insights LLC Copyright © 2013, p. 30 Source: Supply Chain Insights, Corporate Annual Reports 2000-2011 Inventory Performance 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Consumer Packaged Goods 59.0 57.0 62.0 64.0 67.0 67.0 68.0 70.0 70.0 64.0 64.0 67.0 Chemical 71.5 71.9 78.2 75.1 62.0 70.3 68.1 64.3 64.3 78.6 72.9 72.8 Pharma 122.2 133.7 190.1 171.0 184.3 175.6 167.8 149.8 154.9 198.7 154.3 131.8 High Tech 93.1 57.6 46.5 48.5 35.9 37.3 43.8 36.8 34.6 41.3 34.8 30.4 Average 86.5 80.0 94.2 89.6 87.3 87.5 86.9 80.2 81.0 95.6 81.5 75.5 0.0 50.0 100.0 150.0 200.0 250.0 DaysofInventory
  • 31. Supply Chain Insights LLC Copyright © 2013, p. 31  Perform better than peer group  Improve year-over-year results  Alignment in metrics  Delivery of performance against the business strategy  Consistency in results  Be a leader in managing trade-offs What Is Supply Chain Excellence? #sciwebinar
  • 32. Supply Chain Insights LLC Copyright © 2013, p. 32
  • 33. Supply Chain Insights LLC Copyright © 2013, p. 33 Evolving Practices
  • 34. Supply Chain Insights LLC Copyright © 2013, p. 34 A Supply Chain is a Complex System with Complex Processes with Increasing Complexity
  • 35. Supply Chain Insights LLC Copyright © 2013, p. 35 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
  • 36. Supply Chain Insights LLC Copyright © 2013, p. 36 Trying to Reach Balance
  • 37. Supply Chain Insights LLC Copyright © 2013, p. 37 Useful Ratios
  • 38. Supply Chain Insights LLC Copyright © 2013, p. 38 Industry Averages
  • 39. Supply Chain Insights LLC Copyright © 2013, p. 39 Chemical Industry Performance
  • 40. Supply Chain Insights LLC Copyright © 2013, p. 40 Consumer Packaged Goods Industry Performance
  • 41. Supply Chain Insights LLC Copyright © 2013, p. 41 Colgate-Palmolive Company vs Unilever N.V.
  • 42. Supply Chain Insights LLC Copyright © 2013, p. 42 Inventory Turns vs. Revenue per Employee (2002-2011) SUMMARY SLIDE
  • 43. Supply Chain Insights LLC Copyright © 2013, p. 43 Cash-to-Cash Cycle vs. Operating Margin (2000-2011)
  • 44. Supply Chain Insights LLC Copyright © 2013, p. 44 Cash-to-Cash Cycle vs. Gross Margin (2000-2011) SUMMARY SLIDE
  • 45. Supply Chain Insights LLC Copyright © 2013, p. 45 Pharmaceutical Industry Historical Performance
  • 46. Supply Chain Insights LLC Copyright © 2013, p. 46 Cash-to-Cash Cycle vs. Gross Margin (2000-2011) SUMMARY SLIDE
  • 47. Supply Chain Insights LLC Copyright © 2013, p. 47 Healthcare Value Chain: Financial Metrics #sciwebinar
  • 48. Supply Chain Insights LLC Copyright © 2013, p. 48 Healthcare Value Chain Cash-to-Cash Cycle
  • 49. Supply Chain Insights LLC Copyright © 2013, p. 49 Food Industry Historical Performance
  • 50. Supply Chain Insights LLC Copyright © 2013, p. 50 Cash-to-Cash Cycle vs. Gross Margin (2000-2011) SUMMARY SLIDE
  • 51. Supply Chain Insights LLC Copyright © 2013, p. 51 Five Year Comparison
  • 53. Supply Chain Insights LLC Copyright © 2013, p. 53 Corporate Summary
  • 54. Supply Chain Insights LLC Copyright © 2013, p. 54 Metrics Included for Comparison
  • 55. Supply Chain Insights LLC Copyright © 2013, p. 55 Metric Equations
  • 56. Supply Chain Insights LLC Copyright © 2013, p. 56 Cash-to-Cash Cycle vs. Operating Margin (2000-2003)
  • 57. Supply Chain Insights LLC Copyright © 2013, p. 57 Cash-to-Cash Cycle vs. Operating Margin (2004-2007)
  • 58. Supply Chain Insights LLC Copyright © 2013, p. 58 Cash-to-Cash Cycle vs. Operating Margin (2008- 2011)
  • 59. Supply Chain Insights LLC Copyright © 2013, p. 59 Cash-to-Cash Cycle vs. Operating Margin (2012)
  • 60. Supply Chain Insights LLC Copyright © 2013, p. 60 Cash-to-Cash Cycle vs. Operating Margin (2000- 2012) SUMMARY SLIDE
  • 61. Supply Chain Insights LLC Copyright © 2013, p. 61 Inventory Turns vs. Revenue per Employee (2002- 2003)
  • 62. Supply Chain Insights LLC Copyright © 2013, p. 62 Inventory Turns vs. Revenue per Employee (2004- 2007)
  • 63. Supply Chain Insights LLC Copyright © 2013, p. 63 Inventory Turns vs. Revenue per Employee (2008- 2011)
  • 64. Supply Chain Insights LLC Copyright © 2013, p. 64 Inventory Turns vs. Revenue per Employee (2012)
  • 65. Supply Chain Insights LLC Copyright © 2013, p. 65 Inventory Turns vs. Revenue per Employee (2002- 2012) SUMMARY SLIDE
  • 66. Supply Chain Insights LLC Copyright © 2013, p. 66 Cash-to-Cash Cycle Components (2000-2003)
  • 67. Supply Chain Insights LLC Copyright © 2013, p. 67 Cash-to-Cash Cycle Components (2004-2007)
  • 68. Supply Chain Insights LLC Copyright © 2013, p. 68 Cash-to-Cash Cycle Components (2008-2011)
  • 69. Supply Chain Insights LLC Copyright © 2013, p. 69 Cash-to-Cash Cycle Components (2012)
  • 70. Supply Chain Insights LLC Copyright © 2013, p. 70 Cash-to-Cash Cycle (2000-2012)
  • 71. Supply Chain Insights LLC Copyright © 2013, p. 71 Publishing Two eBooks in 2013 on Supply Chain Metrics That Matter – Consumer Value Networks – Industrial Value Networks 2013 Publications
  • 72. Supply Chain Insights LLC Copyright © 2013, p. 72 Introducing the Supply Chain Index A formulaic representation of how companies are trading off growth, profitability, cycle and complexity performance on selected supply chain financial metrics against market valuation. #sciwebinar
  • 73. Supply Chain Insights LLC Copyright © 2013, p. 73 1. To better understand which supply chain metrics matter to corporate balance sheet performance in public markets. We want to help leaders better align supply chain and financial performance. 2. To create an objective system for evaluating and ranking supply chains by industry peer group. 3. To connect financial performance with supply chain excellence as measured through quantitative surveys in an effort to better identify and define best practices across industry groups. Why Did We Do This? #sciwebinar
  • 74. Supply Chain Insights LLC Copyright © 2013, p. 74 • What it is: A way to understand the impact of companies’ supply chain (relative to peers within an industry sector) to market capitalization based a set of preselected supply chain ratio metrics. • What it is NOT: A way to evaluate overall company performance or compare the model results to actual market capitalization. What It Is. What It Is Not. #sciwebinar
  • 75. Supply Chain Insights LLC Copyright © 2013, p. 75 Step 1: Located data sources Step 2: Selected core supply chain ratios from over 50 financial metrics Step 3: Identified meaningful metrics per industry using regression analysis among selected ratios Step 4: Constructed industry equation based on correlation of industry metrics to market capitalization values Step 5: Determined company rankings within industry by applying 2012 company results to industry equation Step 6: Analysis of peer group companies over the last decade Step 7: Correlations to supply chain practices, technologies and organizational design Supply Chain Index Methodology #sciwebinar
  • 76. Supply Chain Insights LLC Copyright © 2013, p. 76 – Market capitalization data of public companies (Ycharts.com) – Industry peer groups defined by Morningstar Sector (36) – Financial ratios built from balance sheet and income statement data collected from OneSource – Analysis of quarterly data using R (frequency 2006Q1 to 2012Q4) Step 1: Located Data Sources #sciwebinar
  • 77. Supply Chain Insights LLC Copyright © 2013, p. 77 Step 2: Selected 14 Core Supply Chain Ratios to Study 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 Source: Supply Chain Insights LLC #sciwebinar Selected Ratios
  • 78. Supply Chain Insights LLC Copyright © 2013, p. 78 Step 3: Identified Industry Metrics #sciwebinar Market Capitalization vs. Revenue Growth Insight: For example, growth did not correlate for chemical companies.
  • 79. Supply Chain Insights LLC Copyright © 2013, p. 79 Step 3: Identified Industry Metrics Metrics That Matter by Industry Mass Retail Industry Consumer Packaged Goods Industry Chemical Industry Operating Margin Operating Margin Operating Margin Days of Inventory Days of Inventory Days of Inventory DPO/DSO Days of Payables Outstanding Days of Payables Outstanding Return on Invested Capital Return on Invested Capital Return on Assets Working Capital Ratio Current Ratio Free Cash Flow Ratio SG&A to COGS Ratio #sciwebinar
  • 80. Supply Chain Insights LLC Copyright © 2013, p. 80 Step 4: Mass Retail Equation #sciwebinar Ln(market cap) = 10.41 + 52.67(OM) -34.72(WC) - 16.02(ROIC) – 0.09(DPODSO) + 0.02(DOI) Mass Retail Industry Equation
  • 81. Supply Chain Insights LLC Copyright © 2013, p. 81 Step 5: Determined Rankings by Industry Mass Retail Industry (2012) #sciwebinar
  • 82. Supply Chain Insights LLC Copyright © 2013, p. 82 Top Ranked Mass Retail Industry (2012) #sciwebinar
  • 83. Supply Chain Insights LLC Copyright © 2013, p. 83 Step 3: Identified Industry Metrics #sciwebinar Metrics That Matter by Industry Mass Retail Industry Consumer Packaged Goods Industry Chemical Industry Operating Margin Operating Margin Operating Margin Days of Inventory Days of Inventory Days of Inventory DPO/DSO Days of Payables Outstanding Days of Payables Outstanding Return on Invested Capital Return on Invested Capital Return on Assets Working Capital Ratio Current Ratio Free Cash Flow Ratio SG&A to COGS Ratio
  • 84. Supply Chain Insights LLC Copyright © 2013, p. 84 Step 4: Consumer Packaged Goods (CPG) Equation #sciwebinar Ln(market cap) = 3.37 + 2.11(OM) + 1.62(FCF) – 1.29(ROIC) – 1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI) CPG Industry Equation
  • 85. Supply Chain Insights LLC Copyright © 2013, p. 85 Step 5: Determined Rankings by Industry CPG Industry (2012) #sciwebinar
  • 86. Supply Chain Insights LLC Copyright © 2013, p. 86 Top Ranked CPG Industry (2012) #sciwebinar
  • 87. Supply Chain Insights LLC Copyright © 2013, p. 87 Step 3: Identified Industry Metrics #sciwebinar Metrics That Matter by Industry Mass Retail Industry Consumer Packaged Goods Industry Chemical Industry Operating Margin Operating Margin Operating Margin Days of Inventory Days of Inventory Days of Inventory DPO/DSO Days of Payables Outstanding Days of Payables Outstanding Return on Invested Capital Return on Invested Capital Return on Assets Working Capital Ratio Current Ratio Free Cash Flow Ratio SG&A to COGS Ratio
  • 88. Supply Chain Insights LLC Copyright © 2013, p. 88 Step 4: Chemical Industry Equation #sciwebinar Ln(market cap) = 7.85(OM) – 4.84(ROA) + 1.81ln(DPO) + 0.01(DOI) Chemical Industry Equation
  • 89. Supply Chain Insights LLC Copyright © 2013, p. 89 Step 5: Determined Rankings by Industry Chemical Industry (2012) #sciwebinar
  • 90. Supply Chain Insights LLC Copyright © 2013, p. 90 Top Ranked Chemical Industry (2012) #sciwebinar
  • 91. Supply Chain Insights LLC Copyright © 2013, p. 91 In Progress Food Industry #sciwebinar Ln(market cap) = 5.57 +15.56(OM) – 7.50(ROIC) – 4.13(ROA) + 2.74(RONA) + 0.61(Z) + 0.04(DPO) – 0.04(DSO) Food Industry Equation
  • 92. Supply Chain Insights LLC Copyright © 2013, p. 92 Value Chain Relationships Retail (Mass Merchant) CPG Chemical Equations: Ln(market cap) = 10.41 + 52.67(OM) -34.72(WC) - 16.02(ROIC) -0.09(DPODSO) + 0.02(DOI) 3.37 + 2.11(OM) + 1.62(FCF) - 1.29(ROIC) - 1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI) 7.85(OM) - 4.84(ROA) + 1.81ln(DPO) + 0.01(DOI) True collaboration only happens when there is a sustaining win-win value proposition.
  • 93. Supply Chain Insights LLC Copyright © 2013, p. 93 Future Evolution Align: Market Driven Building Horizontal Process Connectors Continuous Testing Learning Improving In Market Orchestrate Demand and Supply Resilient Reliable Adapt: Demand Driven Efficient Sense Demand and Supply Shape Demand and Supply based on Market Absorb Demand Volatility Absorb Supply Volatility Right Product Right Place Right Time Right Cost Cost Procure to pay/order to cash
  • 94. Supply Chain Insights LLC Copyright © 2013, p. 94 A network that senses demand with minimal latency to drive a near-real time response for demand shaping and demand translation. What Is a Demand-driven Value Network?
  • 95. Supply Chain Insights LLC Copyright © 2013, p. 95 Rising Price of a Barrel of West Texas Intermediate (WTI)
  • 96. Supply Chain Insights LLC Copyright © 2013, p. 96 Commodity Price Increases and Volatility
  • 97. Supply Chain Insights LLC Copyright © 2013, p. 97 An adaptive network focused on a value- based outcome that senses and translates market changes (buy and sell-side markets) bi-directionally with near-real time data latency to align sell, deliver, make and sourcing operations. What Is a Market-driven Value Network?
  • 98. Supply Chain Insights LLC Copyright © 2013, p. 98 E2E Order  Delivery kaizen team was able to quantify the current order processing inefficiencies 5/21/201 3 12 32 174 Process Steps Valued by the Customer Necessary process steps but not value-producing for our business Manual intervention steps now part of "normal" Zero (0) orders flow through the e2e process without being manually handled! Massive value creation potential for eliminating waste, inefficiency and re- focusing resources on activities that actually deliver value 0% 20% 40% 60% 80% 100% Breakdown of E2E Order to Delivery Process % of time actually spent completing process steps Time spent in Queues and "Do Loops" Vast majority of time is spent on activities that do not produce enterprise value >60% of order processing is spent waiting or in inefficient manual intervention
  • 99. Supply Chain Insights LLC Copyright © 2013, p. 99 26% 19% 21% 30% 26% 12% 13% 17% 26% 19% 20% 18% 11% 24% 17% 14% 13% 16% 18% 14% 18% 17% 9% 13% 12% 9% 12% 17% 10% 8% 17% 5% 13% 14% 11% 10% 15% 11% 9% 12% 18% 9% 10% 5% 4% 11% 8% 6% 7% CPG Food+bev Electronics Semi- conductor Durables Process Discrete Other Fax Phone Internet orders Customer portal VMI/collab. B2b (w/manual) B2b (no manual) Order Entry Process CONSUMER PRODS HIGH-TECH INDUSTRIAL
  • 100. Supply Chain Insights LLC Copyright © 2013, p. 100 Market-Driven Value Networks Characteristics
  • 101. Supply Chain Insights LLC Copyright © 2013, p. 101 Demand-shaping Levers New Product Launch Marketing Sales Incentives Trade Promotions Distributor Incentives Assortment Price Run-out of obsolescence or mark- down strategies Orchestration Levers Market-driven Orchestration Levers Price to Price Orchestration Alternate Bill of Materials Alternate Sourcing Change in Assortment Orchestration of Product Mix (Incent products with less commodity variability) Changes in Demand Shaping Strategies Commodity Hedging
  • 103. Supply Chain Insights LLC Copyright © 2013, p. 103 Current State
  • 104. Supply Chain Insights LLC Copyright © 2013, p. 104 Corporate Sustainability Alignment
  • 105. Supply Chain Insights LLC Copyright © 2013, p. 105 Corporate Sustainability Alignment
  • 106. Supply Chain Insights LLC Copyright © 2013, p. 106 Who Does it Best?
  • 108. Supply Chain Insights LLC Copyright © 2013, p. 108 Years 1990-1994 1995-1999 2000-2004 2005-2009 2010-2012 RETAIL AVERAGE 17.05% 42.46% 12.89% 8.76% 5.15% CPG AVERAGE 2.12% 0.84% 3.91% 7.26% 2.32% FOOD CPG AVERAGE 3.68% 2.97% 8.13% 2.59% 4.27% BEVERAGE CPG AVERAGE 12.87% 2.00% 9.59% 11.53% 4.92% Year-over-Year Growth
  • 109. Supply Chain Insights LLC Copyright © 2013, p. 109 1990- 1994 1995- 1999 2000- 2004 2005 2006 2007 2008 2009 2010 2011 2012 eCommerce 343 456 549 758 848 1016 998 1073 Grocery 198 182 425 479 475 520 612 611 572 518 504 Mass 112 144 253 348 379 617 487 474 533 464 348 Specialty 296 384 414 458 479 527 534 282 312 0 200 400 600 800 1000 1200 RevenueperEmployee(K$) Revenue per Employee Retail: Revenue Per Employee Source: Supply Chain Index Analysis from Annual Reports 1990-2012 Mean values utilized excluding outlier data
  • 110. Supply Chain Insights LLC Copyright © 2013, p. 110 Revenue Per Store
  • 111. Supply Chain Insights LLC Copyright © 2013, p. 111 A Look at History
  • 112. Supply Chain Insights LLC Copyright © 2013, p. 112
  • 113. Supply Chain Insights LLC Copyright © 2013, p. 113 Cash-to-Cash Cycle vs. Gross Margin (2000-2011) SUMMARY SLIDE
  • 114. Supply Chain Insights LLC Copyright © 2013, p. 114 Value Chain Relationships Retail (Mass Merchant) CPG Chemical Equations: Ln(market cap) = 10.41 + 52.67(OM) -34.72(WC) - 16.02(ROIC) -0.09(DPODSO) + 0.02(DOI) 3.37 + 2.11(OM) + 1.62(FCF) - 1.29(ROIC) - 1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI) 7.85(OM) - 4.84(ROA) + 1.81ln(DPO) + 0.01(DOI) True collaboration only happens when there is a sustaining win-win value proposition.
  • 115. Supply Chain Insights LLC Copyright © 2013, p. 115 SHARED VISION + SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION SHARED VISION + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY SHARED VISION + SKILLS + INCENTIVE + RESOURCES + LEADERSHIP = FALSE STARTS SHARED VISION + SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION SHARED VISION + SKILLS + RESOURCES + PLAN + LEADERSHIP = GRADUAL CHANGE Source: J.P. Kotter Collaboration: The Right Stuff
  • 116. Supply Chain Insights LLC Copyright © 2013, p. 116 Demand Signal Accurate Weekly Forecasting is ... Delay from Purchase to Signal Data Latency and Distortion Across the Network Red Represents Emerging Economies with Distributor Trade Retailer DC Easy 3-10 Days 7-20 Days Manufacturer DC Difficult 10-20 Days 20-45 Days Suppliers Almost Impossible 20-50 Days 45-80 Days Store Trivial Instant Variable
  • 117. Supply Chain Insights LLC Copyright © 2013, p. 117 We have not Fixed Replenishment Processes….
  • 118. Supply Chain Insights LLC Copyright © 2013, p. 118 Supply Reliability Manufacturer mentioned by name
  • 119. Supply Chain Insights LLC Copyright © 2013, p. 119 Current State: Usage of Downstream Data
  • 120. Supply Chain Insights LLC Copyright © 2013, p. 120 Bar codes were first used at Marsh Supermarket in 1968
  • 121. Supply Chain Insights LLC Copyright © 2013, p. 121 Barriers
  • 122. Supply Chain Insights LLC Copyright © 2013, p. 122 Data Used
  • 123. Supply Chain Insights LLC Copyright © 2013, p. 123 Quality of Data 100% 72% 62% 59% 52% 41% 38% 72% 55% 41% 14% 17% 10% 7% -28% -17% -21% -45% -34% -31% -31% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% Point of Sale Warehouse Withdrawal Warehouse Perpetual Inventory Changes Store Forecasts In-store Perpetual Inventory Changes Company Forecasts Loyalty Downstream Data Received from Retailers vs. Clean Receives Clean (Rated 5-7 on 7-Pt Scale) Gap (Clean - Receive) ____________________________________________________________ Source: Supply Chain Insights LLC, Downstream Data (Aug-Oct 2012) Base: Manufacturers using/trying to use downstream data (n=29 – CAUTION: Small base size) Q17. What types of downstream data does your company get from retailers? Please select all that apply. Q19. For each type of data that you get, please rate how clean it is, on average, considering all retailers from which you get it. SCALE: 1=Extremely dirty, 7=Extremely clean
  • 124. Supply Chain Insights LLC Copyright © 2013, p. 124 Percent of Channel
  • 125. Supply Chain Insights LLC Copyright © 2013, p. 125 Days of Inventory (DOI): Companies with and without Demand Sensing (CPG, Food, Heath & Beauty Industries) Evolution 64 65 66 63 66 65 65 63 60 61 2007 2008 2009 2010 2011 Source: Company Financials DaysInventory
  • 126. Supply Chain Insights LLC Copyright © 2013, p. 126 Risk Management high low highlow Impact Probability of Adverse Event catastrophic periodic incident strategic daily surprise Probability * Impact = Value at Risk
  • 127. Supply Chain Insights LLC Copyright © 2013, p. 127 Risk Assessment: A Value-Driven Approach high low highlow safety, quality Impact Probability of Adverse Event catastrophic periodic incident strategic daily surprise mark to market portfolio mgmt risksustainability product mix shift commodity costs margin pressure private label deflation foreign exchange * AMR Research – Top CP Risk Mentions last quarterly earnings report innovation stalls health & wellness nutrition & labeling consumer trends failed cost reduction programs failed productivity n. american economy de-stocking
  • 128. Supply Chain Insights LLC Copyright © 2013, p. 128 Value Network Strategy Supply chain strategy Business Strategy What are the right things to do to increase company value? Value-network Supply Chain Strategy What are the right ways to support the business strategy? What are the right trade-offs between value drivers for each value network? Right product platforms Design the supply response Build organizational systems and manage talent Align supply relationships Align demand relationships Effective Supply Networks Execution of buy- side strategies Continuous Improvement Capabilities Required Supply Chain Network Design Design Networks Innovation Methodologies Demand Networks Joint Value Creation Strategies Business Process How do I do the right things right? Source: Supply Chain Insights, LLC
  • 129. Supply Chain 2020 and the Path Forward
  • 130. Supply Chain Insights LLC Copyright © 2013, p. 130 The Supply Chain of the Future World Population Source: “The World at Six Billion” United Nations, 2004; The World UN Population Assessment 2006; “Unsustainable World,” 04/15/08, BBC North America 2007 2020 339M 342M Europe 2007 2020 731M 722M Asia 2007 2020 4.0B 4.6B L America 2007 2020 572M 660M Africa 2007 2020 965M 1.3B Oceania 2007 2020 34M 40M
  • 131. Supply Chain Insights LLC Copyright © 2013, p. 131 Outside-In Value-Based Outcomes Delivered by Value Networks Supply Chain Excellence = Supply Chain 2020 Tipping Points 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Talent Shortage Compliance on Safe & Secure Orchestration Big Data Supply Chains Internet of Things Learning Supply Chains Digital Manufacturing
  • 132. Supply Chain Insights LLC Copyright © 2013, p. 132
  • 133. Supply Chain Insights LLC Copyright © 2013, p. 133 Create Your Own Future
  • 134. Supply Chain Insights LLC Copyright © 2013, p. 134 Rethinking Analytics
  • 135. Supply Chain Insights LLC Copyright © 2013, p. 135 Definition Challenges:• Transactional • Time phased data Structured Data • Social • Channel • Customer Service • Warranty • Temperature • RFID • QR codes • GPS • Mapping and GPS • Video • Voice • Digital Images Unstructured Data Sensor Data New Data Types Volume Velocity Variability
  • 136. Supply Chain Insights LLC Copyright © 2013, p. 136 Analytics Evolution
  • 137. Supply Chain Insights LLC Copyright © 2013, p. 137 Listening Post Strategy
  • 138. Supply Chain Insights LLC Copyright © 2013, p. 138 • Outside-in • End-to-End Orchestration • Supply Chain Matters Path Forward
  • 139. Supply Chain Insights LLC Copyright © 2013, p. 139 Questions?
  • 140. Supply Chain Insights LLC Copyright © 2013, p. 140 • May 17th: How Do We Heal the Healthcare Value Chain, Part II • June 13th: Sales and Operations Planning: State of the Union • July 11th: Big Data Supply Chains and the Future of Analytics • August 15th: State of Supply Chain Talent. Missing Link in the Supply Chain • August 29th: Digital Manufacturing Upcoming Webinars Each webinar is based on new and relevant research and will feature two-three industry leaders
  • 141. Supply Chain Insights LLC Copyright © 2013, p. 141 Join Us! www.scicommunity.com
  • 142. Supply Chain Insights LLC Copyright © 2013, p. 142 Supply Chain Insights Community #sciwebinar
  • 143. Supply Chain Insights LLC Copyright © 2013, p. 143 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.
  • 144. Supply Chain Insights LLC Copyright © 2013, p. 144 Where Do You Find Lora? Contact Information: lora.cecere@supplychaininsights.com Blog: www.supplychainshaman.com (4000 pageviews/month) Twitter: lcecere 3800 followers. Rated as the top rated supply chain social network user. LinkedIn: linkedin.com/pub/lora- cecere/0/196/573 (3560 in the network)