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Supply Chains to AdmireSeptember 2015
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We Write for the Supply Chain Leader
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What is Supply Chain Excellence?
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• 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
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9 out of 10 Supply Chains are Stuck
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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
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Descriptors Used by Leaders
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Fallacy: Functional Excellence
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Growing Demand Volatility
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Why? The Long Tail of the Supply Chain: Growing Complexity
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A Project-based Focus
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Which Metrics Matter?
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What We Expected
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A Supply Chain is a Complex System
with Complex Processes
with Increasing Complexity
What We Learned….
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The Supply Chain Effective Frontier
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Correlations to Market Capitalization
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Orbit Chart: Wal-Mart(Inventory Turns and Operating Margin)
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Orbit Chart: Apple (Inventory Turns and Operating Margin)
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Orbit Charts: Dow Chemical Company
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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
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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
+
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Supply Chains To Admire for 2014
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Winners Two Years in a Row
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Hear from Winners
Presentations at the Conference
Andrea Turner Kevin Pruitt Sharon Hall
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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
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Consumer Products Group
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Consumer Packaged Goods
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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).
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Clorox and Church & Dwight Rising Stars
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Colgate and Procter & Gamble
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Colgate Versus Unilever
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Colgate versus J&J
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Consumer Packaged Goods ComparisonInventory Turns vs. Operating Margin
(2006 – 2014)
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Beauty
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Estee Lauder and L’Oreal
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Food Manufacturing
Food
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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
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2014 from YCharts
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
Average (Operating Margin, Inventory Turns)
Inve
ntor
y Tu
rns
Best Scenario
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Hershey and Danone
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Beverages
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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)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
Best Scenario
SBMRF0.18, 17.14
Average (Operating Margin, Inventory Turns)
BUD0.31, 14.57
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Coca-Cola and PepsiCo
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Apparel
Apparel
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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
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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
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Chemical
Chemical
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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
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
EMN0.11, 9.20
Average (Operating Margin, Inventory Turns)
BASFY0.11, 8.01
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Pharmaceutical
Pharmaceuticals Analysis for the Supply Chains to Admire
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Pharmaceutical ComparisonInventory Turns vs. Operating Margin
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Pharmaceutical ComparisonInventory Turns vs. Operating Margin
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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
Average (Operating Margin, Inventory Turns)
Inve
ntor
y Tu
rns
Novo Nordisk Making Progress
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Semiconductor
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Semiconductor Results
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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
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• 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?
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• 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?
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Four Years of Work
WileyDecember 2012
Wiley December 2014
Self-publishedSeptember 2014
Self-publishingSeptember 2015
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Questions?
Launches Oct. 1, 2015
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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)