Supply Chains to Admire - Slides - 24 SEP 2015

Supply Chain Insights LLC Copyright © 2015, p. 1
Supply Chains to Admire
September 2015

We Write for the Supply Chain Leader

What is Supply Chain Excellence?

• Metrics That Matter: Metrics that can be improved by the supply
chain leader and have high correlation to market capitalization.
• Market-Driven: The ability to sense and respond from market-to-
market (from the customer’s customer to the supplier’s supplier)
• NAICS Codes: US census classification(s) of industry groupings.
• Orbit Chart: A comparison of year-over-year improvement between
two supply chain metrics.
• Supply Chain Index: A methodology developed by Supply Chain
Insights in 2014 to measure supply chain improvement based on orbit
chart measurements.
• Supply Chains to Admire: An objective, and independent analysis of
supply chains that are outperforming in the Supply Chain Metrics That
Matter and are driving supply chain improvement as measured by the
Supply Chain Index.
Let’s Start with Definitions
#SCIWEBINAR

Methodology Comparison
Gartner Top 25 Supply Chains to Admire
Focus
Fortune 1000
Companies
Companies by Industry Irrespective
of Size
Calculation
-25% ROA (3 Year
Weighted Average)
-15% Inventory Turns
(2014)10% Growth
(2013 versus 2014)
-50 % Opinion
Performance Better than Peer
Group for the Period of 2009-2014
on the Metrics That Matter
Improvement Greater than the
Average of the Peer Group for
2009-2014
Experience 10th Year 2nd Year
#SCIWEBINAR

Current State

9 out of 10 Supply Chains are Stuck

Progress: All Industries
Industry Snapshots (2006-2013)
Industry
Year –over-
Year Revenue
Growth
Operating
Margin
Inventory
Turns
Cash-to-
Cash Cycle
Revenue per
Employee
(K$)
SG&A
Ratio
Retail Apparel Industry
18%
39%
0.39
27%
05
05%
68
26%
325
18%
27%
05%
Apparel Manufacturing Industry
14%
82%
0.12
32%
05
68%
150
08%
400
355%
27%
63%
Mass Retail Industry
09%
50%
0.06
20%
06
06%
03
148%
350
48%
23%
6%
Beverage Industry
09%
61%
0.19
16%
02
04%
53
46%
512
NC
24%
16%
Pharmaceutical Industry
08%
47%
0.23
29%
03
16%
155
47%
572
32%
27%
08%
Chemical Industry
08%
45%
0.10
10%
06
04%
87
23%
557
23%
14%
27%
Medical Device Industry
06%
38%
0.14
32%
02
13%
206
16%
351
12%
34%
04%
Grocery Retail Industry
06%
31%
0.03
37%
17
01%
10
50%
405
54%
14%
06%
Consumer Packaged Goods
05%
25%
0.14
73%
08
482%
72
17%
333
14%
26%
09%
Food Industry
05%
55%
0.10
19%
07
17%
40
04%
534
55%
20%
18%
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2013
Industry Average comprised of public companies (combined food & beverage industry: NAICS 3112% where % is any number from 0-9, 311320, 311520, 311821,
311941 & 312111), (chemical: NAICS 325188 & 325998), (consumer packaged goods: NAICS 3256% where % is any number from 0-9), (medical device
industry: NAICS 339112), (pharmaceutical industry: NAICS 325412) reporting in One Source with 20123annual sales greater than $1billion
NC=no change

Descriptors Used by Leaders

Fallacy: Functional Excellence

Growing Demand Volatility

Why? The Long Tail of the Supply Chain:
Growing Complexity

A Project-based Focus

Which Metrics Matter?

What We Expected

A Supply Chain
is a Complex System
with Complex
Processes
with Increasing
Complexity
What We Learned….

The Supply Chain Effective Frontier

Correlations to Market Capitalization

Orbit Chart: Wal-Mart
(Inventory Turns and Operating Margin)

Orbit Chart: Apple
(Inventory Turns and Operating Margin)

Orbit Charts: Dow Chemical Company

Measuring Supply Chain Improvement
Overall Ranking per Company
• Balance: Return on Invested Capital & Revenue Growth Vector Trajectory (30%)
• Strength: Inventory Turns & Operating Margin Vector Trajectory (30% of score)
• Resiliency: Inventory Turns & Operating Margin Mean Distance (30%)
𝑺𝒖𝒑𝒑𝒍𝒚 𝑪𝒉𝒂𝒊𝒏 𝑰𝒏𝒅𝒆𝒙 =
𝟏
𝟑
𝑩𝒂𝒍𝒂𝒏𝒄𝒆 𝑭𝒂𝒄𝒕𝒐𝒓 +
𝟏
𝟑
𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓 +
𝟏
𝟑
𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓

Supply Chains to Admire Methodology
Performance
Beats the industry
average for operating
margin, inventory turns
and ROIC for 2006-
2014 and 2009-2014
Improvement
Ranks above peer
group average on
The Supply Chain
Index for 2006-
2014 or 2009-2014
+

Supply Chains To Admire for 2014

Winners Two Years in a Row

Hear from Winners
Presentations at the Conference
Andrea Turner Kevin Pruitt Sharon Hall

High Performance. Stalled
Improvement.
High Improvement. Performance not
at Peer Group.
Apple Bridgestone
AstraZeneca Church & Dwight
BASF Hershey
Coca-Cola Medtronic
Colgate Novo Nordisk
Reckitt Benckiser Smucker’s
Seagate Under Armour
TSMC Unilever
The Dilemma

Consumer Products Group

Consumer Packaged Goods

Losing Ground: Kimberly-Clark
7.50
8.00
8.50
9.00
9.50
10.00
10.50
11.00
0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19
InventoryTurns
Operating Margin
Kimberly Clark
2000
2014
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from YCharts
Best Scenario
KMB
0.15, 9.01
Trace the line from 2000
point to 2014 point to
follow the performance
over time.
The diamond shows the company’s
average over the period. Ex: The
Kimberly Clark Co. (KMB) has an
average of .15 for operating margin
and 9.01 for inventory turns.
Ideally,
companies are
increasing
inventory turns
and operating
margin moving
towards the
upper right
corner of the
graph over time.
Average (Operating Margin, Inventory Turns)
Here, we plot inventory turns (y-axis)
vs. operating margin (x-axis).

Clorox and Church & Dwight Rising Stars
#SCIWEBINAR

Colgate and Procter & Gamble

Colgate Versus Unilever

Colgate versus J&J

Consumer Packaged Goods Comparison
Inventory Turns vs. Operating Margin
(2006 – 2014)

Beauty

Estee Lauder and L’Oreal

Food Manufacturing

9.00
10.00
11.00
12.00
0.10 0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19 0.20 0.21 0.22 0.23 0.24 0.25
InventoryTurns
Operating Margin
General Mills
2000
2014
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
General Mills:
Visualizing the Patterns
Best Scenario
GIS
0.17, 10.77
Average (Revenue per Employee, Inventory Turns)
#SCIWEBINAR

General Mills versus Kellogg
5.0
7.0
9.0
11.0
13.0
15.0
0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20
Operating Margin
General Mills Kellogg
K
0.14, 12.68
2014
2006
2014
2006
GIS
0.17, 11.00
InventoryTurns
Best Scenario

Hershey and Danone
#SCIWEBINAR

Beverages

10.00
12.00
14.00
16.00
18.00
20.00
22.00
0.08 0.11 0.14 0.17 0.20 0.23 0.26 0.29 0.32 0.35 0.38 0.41 0.44 0.47
InventoryTurns
Operating Margin
Anheuser-Busch Inbev SABMiller
2014
2006
2014
2006
AB Inbev versus SAB Miller
(2006 – 2014)
Best Scenario
SBMRF
0.18, 17.14
BUD
0.31, 14.57
#SCIWEBINAR

Coca-Cola and PepsiCo
#SCIWEBINAR

Apparel

Nike: Inventory Turns vs. Operating Margin
7.0
8.0
9.0
0.09 0.10 0.11 0.12 0.13 0.14 0.15
InventoryTurns
Operating Margin
Nike
2014
2006
Best Scenario
NKE
0.13, 6.10

Nike and Adidas
5.0
6.0
7.0
8.0
9.0
0.04 0.05 0.06 0.07 0.08 0.09 0.10 0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19
InventoryTurns
Operating Margin
Adidas Nike
2014
2006 2014
2006
Best Scenario
NKE
0.13, 6.10
ADDD
0.08, 6.10

Chemical

BASF and Eastman
6.0
7.0
8.0
9.0
10.0
11.0
12.0
0.07 0.08 0.09 0.10 0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19 0.20
InventoryTurns
Operating Margin
BASF Eastman
2014
2006
2014
2006
Best Scenario
EMN
0.11, 9.20
BASFY
0.11, 8.01

Pharmaceutical

Pharmaceuticals Analysis for the Supply Chains to Admire

Pharmaceutical Comparison

2006
4.0
5.0
6.0
7.0
8.0
9.0
10.0
-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60
Operating Margin
Eli Lilly and Company Novo Nordisk
2014 NVO
0.31, 6.48
2014
2006
Best Scenario
LLY
0.24, 8.30
InventoryTurns
Novo Nordisk Making Progress

Semiconductor

Semiconductor Results

Intel and Qualcomm
7.0
12.0
17.0
22.0
27.0
32.0
37.0
42.0
0.10 0.20 0.30 0.40
Operating Margin
Intel Qualcomm
INTC
0.25, 11.67 2014
2006
2006
2014
Best Scenario
InventoryTurns
QCOM
0.30, 23.94

• Which metrics matter?
– Growth, operating margin, inventory turns, ROIC, customer
service (in the eyes of the customer)
• How do we get unstuck?
– Focus cross-functionally on a balanced portfolio. Bonus
employees against a portfolio.
– Augment with functional metrics focused on improving
RELIABILITY.
• What are the functional reliability metrics?
– Examples include: Forecasting, first pass yield, OEE, on-time
delivery, orders shipped complete, hands-free orders, schedule
attainment, safety metrics, employee turnover
How do You Improve Value?

• Continuity of leadership
• Supply chain talent development
• Focus on a multi-year supply chain strategy
• Clear governance to guide cross-functional decision-making
• Strength in horizontal processes
• Excellence in supply chain planning, network design and inventory
management
What Drives Top Performance?

Four Years of Work
Wiley
December 2012
Wiley
December 2014
Self-published
September 2014
Self-publishing
September 2015
#SCIWEBINAR

Founder: Lora Cecere
• Founder of Supply Chain Insights
• “LinkedIn Influencer”
• Guest blogger for Forbes
• Author of 4 books: Bricks Matter (2012), Shaman’s Journal (2014)
and Supply Chain Metrics That Matter (December 2014), Shaman’s Journal (2014)
• 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.
Contact Information:
• Email: lora.cecere@supplychaininsights.com
• Blog: www.supplychainshaman.com (8,000 pageviews/month)
• Forbes: http://www.forbes.com/search/?q=lora+cecere
• Twitter: lcecere (6200 followers)
• LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (46,000 followers)

Supply Chains to Admire - Slides - 24 SEP 2015

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Supply Chains to Admire - Slides - 24 SEP 2015