Supply Chains to Admire - Slides - 24 SEP 2015

Supply Chain Insights LLC Copyright © 2015, p. 1

Supply Chains to AdmireSeptember 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

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Methodology Comparison

Gartner Top 25 Supply Chains to AdmireFocus Fortune 1000

CompaniesCompanies 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

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Current State


9 out of 10 Supply Chains are Stuck


Progress: All Industries

Industry Snapshots (2006-2013)

IndustryYear –over-

Year Revenue Growth

Operating Margin

Inventory Turns

Cash-to-Cash Cycle

Revenue per Employee

(K$)SG&A Ratio

Retail Apparel Industry

18%39%

0.3927%

0505%

6826%

32518%

27%05%

Apparel Manufacturing Industry

14%82%

0.1232%

0568%

15008%

400355%

27%63%

Mass Retail Industry

09%50%

0.0620%

0606%

03148%

35048%

23%6%

Beverage Industry

09%61%

0.1916%

0204%

5346%

512 NC

24% 16%

Pharmaceutical Industry

08%47%

0.2329%

0316%

15547%

57232%

27%08%

Chemical Industry

08%45%

0.1010%

0604%

8723%

55723%

14%27%

Medical Device Industry

06%38%

0.1432%

0213%

20616%

35112%

34%04%

Grocery Retail Industry

06%31%

0.0337%

1701%

1050%

40554%

14%06%

Consumer Packaged Goods

05%25%

0.1473%

08482%

7217%

33314%

26% 09%

Food Industry

05%55%

0.1019%

07 17%

4004%

53455%

20% 18%

Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2013Industry 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 $1billionNC=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=𝟏𝟑𝑩𝒂𝒍𝒂𝒏𝒄𝒆 𝑭𝒂𝒄𝒕𝒐𝒓+

𝟏𝟑 𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓+

𝟏𝟑 𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓


Supply Chains to Admire Methodology

PerformanceBeats the industry

average for operating margin, inventory turns

and ROIC for 2006-2014 and 2009-2014

ImprovementRanks 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

0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.197.50

8.00

8.50

9.00

9.50

10.00

10.50

11.00

Kimberly ClarkOperating Margin

Inve

ntor

y Tu

rns

2000

2014

2001

2002

2003

20042005

2006

2007

2008

2009

20102011

2012

2013

Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from YCharts

Best Scenario

KMB0.15, 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

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Colgate and Procter & Gamble


Colgate Versus Unilever


Colgate versus J&J


Consumer Packaged Goods ComparisonInventory Turns vs. Operating Margin

(2006 – 2014)


Beauty


Estee Lauder and L’Oreal


Food Manufacturing

Food


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 0.259.00

10.00

11.00

12.00

General MillsOperating Margin

Inve

ntor

y Tu

rns

2000

2014

20012002

2003

2004

2005

20062007

2008

20092010

2011

2012

2013

General Mills: Visualizing the Patterns


Best Scenario

GIS0.17, 10.77

Average (Revenue per Employee, Inventory Turns)

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General Mills versus Kellogg

0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.205.0

7.0

9.0

11.0

13.0

15.0

General Mills KelloggOperating Margin

K0.14, 12.68

2014

2006

20142006

Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014

GIS0.17, 11.00


Inve

ntor

y Tu

rns

Best Scenario


Hershey and Danone

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Beverages


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 0.4710.00

12.00

14.00

16.00

18.00

20.00

22.00

Anheuser-Busch Inbev SABMiller

Operating Margin

Inve

ntor

y Tu

rns

2014

2006

2014

2006

AB Inbev versus SAB Miller(2006 – 2014)


Best Scenario

SBMRF0.18, 17.14


BUD0.31, 14.57

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Coca-Cola and PepsiCo

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Apparel

Apparel


Nike: Inventory Turns vs. Operating Margin

0.09 0.10 0.11 0.12 0.13 0.14 0.157.0

8.0

9.0

NikeOperating Margin

Inve

ntor

y Tu

rns

2014

2006

Average (Operating Margin, Inventory Turns)Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts

Best Scenario

NKE0.13, 6.10


Nike and Adidas

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 0.195.0

6.0

7.0

8.0

9.0

Adidas NikeOperating Margin

Inve

ntor

y Tu

rns

2014

2006 2014

2006

Average (Operating Margin, Inventory Turns)Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts

Best Scenario

NKE0.13, 6.10

ADDD0.08, 6.10


Chemical

Chemical


BASF and Eastman

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 0.206.0

7.0

8.0

9.0

10.0

11.0

12.0

BASF EastmanOperating Margin

Inve

ntor

y Tu

rns

2014

2006

2014

2006

Best Scenario


EMN0.11, 9.20


BASFY0.11, 8.01


Pharmaceutical

Pharmaceuticals Analysis for the Supply Chains to Admire


Pharmaceutical ComparisonInventory Turns vs. Operating Margin


Pharmaceutical ComparisonInventory Turns vs. Operating Margin


Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014

-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.604.0

5.0

6.0

7.0

8.0

9.0

10.0

2006

Eli Lilly and Company Novo Nordisk

Operating Margin

2014 NVO0.31, 6.48

2014

2006

Best Scenario

LLY0.24, 8.30


Inve

ntor

y Tu

rns

Novo Nordisk Making Progress


Semiconductor


Semiconductor Results


Intel and Qualcomm

0.10 0.20 0.30 0.407.0

12.0

17.0

22.0

27.0

32.0

37.0

42.0

Intel QualcommOperating Margin

INTC0.25, 11.67 2014

2006

2006

2014

Best Scenario

Inve

ntor

y Tu

rns

Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 Average (Operating Margin, Inventory Turns)

QCOM0.30, 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

WileyDecember 2012

Wiley December 2014

Self-publishedSeptember 2014

Self-publishingSeptember 2015

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Questions?

Launches Oct. 1, 2015


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: [email protected]• 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)

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Supply Chains to Admire - Slides - 24 SEP 2015