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What Is Supply Chain Excellence? What can we learn? What does it mean? Why should you care? Who did it best? How does supply chain performance effect corporate performance? Where are we on the evolution of Supply Chain Excellence? A presentation by Lora Cecere, Founder of Supply Chain Insights on which metrics matter by industry, along with an assessment on where the industry subgroups are on improving performance on the Supply Chain Effective Frontier (the ability to drive growth, manage costs, and inventories while balancing complexity). Lora Cecere, Founder of Supply Chain Insights LLC
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Supply Chain Insights Global Summit #SCISummit September 2013, p.1TM
Supply Chain Insights Global Summit #SCISummit September 2013, p.2TM
Lora Cecere
Founder and CEO
Supply Chain Insights
What Is Supply Chain Excellence?
Supply Chain Insights Global Summit #SCISummit September 2013, p.3TM
Supply Chain Insights Global Summit #SCISummit September 2013, p.4TM September 2013, p.4TMSupply Chain Insights Global Summit #SCISummit
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• Defining Supply Chain Excellence
• Conquering the Effective Frontier
• The Supply Chain Index
• Imagine
Agenda
Supply Chain Insights Global Summit #SCISummit September 2013, p.6TM September 2013, p.6TMSupply Chain Insights Global Summit #SCISummit
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Current State
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Agility
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Need for Strategy
Supply Chain Insights Global Summit #SCISummit September 2013, p.10TM
Process Evolution
Align: Market Driven
Build Horizontal Process Connectors
Continuously Test,Learn & Improve
in Market
OrchestrateDemand and Supply
Source: Supply Chain Insights LLC
Adapt: DemandDriven
Sense Demandand Supply
Shape Demand and Supply
Based on Market
Resilient
Absorb DemandVolatility
AbsorbSupply
Volatility
ReliableRight Product
Right Place
Right Time
Right Cost
Efficient
Cost
Procure to pay/ order to cash
Supply Chain Insights Global Summit #SCISummit September 2013, p.11TM
What Is Supply Chain Excellence?
• Perform better than peer group
• Improve year-over-year results
• Align internally on metrics
• Deliver against the business strategy
• Demonstrate consistency in results
• Use innovation in supply chain processes
• Balance. Be leaders in managing trade-offs
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• Defining Supply Chain Excellence
• Conquering the Effective Frontier
• The Supply Chain Index
• Imagine
Agenda
Supply Chain Insights Global Summit #SCISummit September 2013, p.13TM
Definitions
• Supply Chain Excellence: The behavior of companies working to maximize value through the setting of targets for supply chain financial ratios and aligning metrics that matter (tied to value chain strategy).
• Supply Chain Effective Frontier: The balance of growth, profitability, cycle and complexity metrics to deliver the supply chain strategy. It may or may not maximize the company’s market valuation.
• Supply Chain Index: A formulaic representation of supply chain financial ratios correlated to stock market capitalization valuation.
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The Supply Chain Effective Frontier
Supply Chain Insights Global Summit #SCISummit September 2013, p.15TM
Mining 20 Years of Financial Data
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Most Interesting Patterns
• Cash to Cash versus Inventory Turns• Revenue per Employee versus Inventory Turns• Operating Margin versus Inventory Turns
Supply Chain Insights Global Summit #SCISummit September 2013, p.17TM
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.
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Productivity in Manufacturing
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Productivity in Retail
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Progress in Inventory Turns and Operating Margin (2000-2012)
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Impact of A Recession
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0 250 500 750 1,000 1,2500
3
6
9
12
15
2002 2012
The Dow Chemical Company
Revenue per Employee (K$)
Inv
en
tory
Tu
rns
Visualizing the Patterns
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from One Source
Best Scenario
DOW999, 6.7
Trace the line from 2002 point to 2012 point to follow the performance over time. The diamond shows the company’s average over the period.
Ex: The Dow Chemical Company (DOW) has an average of 461 K$ for revenue per employee and 4.0 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)
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Beverage
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Cereal
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Household Products
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A Closer Look
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Another View
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Comparison Chart (2000-2006, 2007-2009, 2010-2012)
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• Defining Supply Chain Excellence
• Conquering the Effective Frontier
• The Supply Chain Index
• Imagine
Agenda
Supply Chain Insights Global Summit #SCISummit September 2013, p.30TM September 2013, p.30TMSupply Chain Insights Global Summit #SCISummit
A formulaic representation of how companies are trading off growth, profitability, cycle and
complexity performance on selected supply chain financial metrics against
market valuation.
Supply Chain Insights Global Summit #SCISummit September 2013, p.31TM
Household & Personal Products Equation
Y = 2.93 – 0.01(DOI) + 0.02(DPO) + 0.01(DSO) + 3.07(FCF) –
0.93(ROIC) + 0.28(SGAC) – 4.10(WC)
NOTE: Full equation is Y = 2.931928671 - 0.006302786 (Days of Inventory) + 0.019638717 (Days of Payables Outstanding) + 0.008347971 (Days of Sales Outstanding) + 3.06558272 (Free Cash Flow Ratio) - 0.929537849 (Return on Invested Capital) + 0.282841974 (SG&A to COGS Ratio) - 4.097122543 (Working Capital Ratio). We utilized adjusted which accounts for the occurrence of large p values. Outlier values were defined and excluded as those 5 times larger than IQR.
Correlation Strength
Household & Personal Products Equation
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CPG Ranking 2012
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Mean Absolute Percent Error & Value
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• Defining Supply Chain Excellence
• Conquering the Effective Frontier
• The Supply Chain Index
• Imagine
Agenda
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Digital Manufacturing
Internet of Things
Big Data
Digital Path to Purchase
CSR as a Brand Advantage
New Forms of Analytics
Business Networks
Inter-Enterprise Systems of Record
3D Printing
Collaborative Economy
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imagine
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Imagine
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Conventional Manufacturing
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Use of 3-D Printing
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Yelling Listening Functional Silos T-Shaped ManagersFunctional Silos
BREADTH
DE
PT
H
Re-aligning Process & People
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• Most Companies Are Stuck
• New Practices Are Emerging
• We Must Design with the End in Mind
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Thanks to Our Sponsors!
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Visit the Supply Chain Insights Global Summit website for all conference content:
Continue the Discussion
www.supplychaininsightsglobalsummit.com
Supply Chain Insights Global Summit #SCISummit September 2013, p.46TM
Save the Date!
Supply Chain Insights Global Summit 2014September 10-11, 2014
The Phoenician – Scottsdale, AZ USA
Supply Chain Insights Global Summit #SCISummit September 2013, p.47TM
Enjoy the Conference!