lora cecere “market driven value network”

Market-driven Value Networks

Lora Cecere of Supply Chain Insights

Supply Chain Insights LLC Copyright © 2013, p. 2

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


Over 30 Reports Planned for 2013

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18 Reports in 2012

2012 and 2013 Reports


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: 15 Five-Star Reviews on Amazon

Book can be ordered from Amazon.com in Hardcopy or Digital Format


Publishing Two eBooks in 2013 on Supply Chain Metrics That Matter

– Consumer Value Networks – Industrial Value Networks

2013 Publications

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Right Use of Assets

Expansion into BRIC Countries (Brazil, Russia, India and China)

Supply Chain Process Knowledge

Where are we on Supply Chain Excellence?


A Look at History: Progress in Productivity

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Source: Supply Chain Insights, Corporate Annual Reports 2000-2011

Inventory Performance

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Consumer Packaged Goods 59.0 57.0 62.0 64.0 67.0 67.0 68.0 70.0 70.0 64.0 64.0 67.0Chemical 71.5 71.9 78.2 75.1 62.0 70.3 68.1 64.3 64.3 78.6 72.9 72.8Pharma 122.2 133.7 190.1 171.0 184.3 175.6 167.8 149.8 154.9 198.7 154.3 131.8High Tech 93.1 57.6 46.5 48.5 35.9 37.3 43.8 36.8 34.6 41.3 34.8 30.4Average 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

Day

s of

Inve

ntor

y


Current State


Corporate Sustainability Alignment


è Perform better than peer group

è Improve year-over-year results

è Alignment in metrics

è Delivery of performance against the business strategy

è Consistency in results

è Be a leader in managing trade-offs

What Is Supply Chain Excellence?

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A Supply Chain is a Complex System

with Complex Processes with Increasing Complexity


Trying to Reach Balance

The Effective Frontier


Industry Averages


Chemical Industry Performance


Consumer Packaged Goods Industry Performance


Colgate-Palmolive Company vs Unilever N.V.


Industry Progress


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.

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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

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– 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

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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

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Selected Ratios


• “The output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy.”

• Z = 1.2 𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊 𝐶𝐶𝐶𝐶𝐶𝐶𝑊𝑊𝐶𝐶𝐶𝐶𝐶𝐶

𝑇𝑇𝑊𝑊𝐶𝐶𝐶𝐶𝐶𝐶 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐶𝐶𝐴𝐴+ 1.4 𝑅𝑅𝐴𝐴𝐶𝐶𝐶𝐶𝑊𝑊𝑊𝑊𝐴𝐴𝑅𝑅 𝐸𝐸𝐶𝐶𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝐴𝐴

𝑇𝑇𝑊𝑊𝐶𝐶𝐶𝐶𝐶𝐶 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐶𝐶𝐴𝐴+ 3.3 𝐸𝐸𝐸𝐸𝐸𝐸𝑇𝑇

𝑇𝑇𝑊𝑊𝐶𝐶𝐶𝐶𝐶𝐶 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐶𝐶𝐴𝐴+

0.6 𝑀𝑀𝐶𝐶𝑊𝑊𝑊𝑊𝐴𝐴𝐶𝐶 𝑉𝑉𝐶𝐶𝐶𝐶𝑉𝑉𝐴𝐴 𝑊𝑊𝑜𝑜 𝐸𝐸𝐸𝐸𝑉𝑉𝑊𝑊𝐶𝐶𝐸𝐸𝑇𝑇𝑊𝑊𝐶𝐶𝐶𝐶𝐶𝐶 𝐿𝐿𝑊𝑊𝐶𝐶𝐿𝐿𝑊𝑊𝐶𝐶𝑊𝑊𝐶𝐶𝑊𝑊𝐴𝐴𝐴𝐴

+ 1.0( 𝑆𝑆𝐶𝐶𝐶𝐶𝐴𝐴𝐴𝐴𝑇𝑇𝑊𝑊𝐶𝐶𝐶𝐶𝐶𝐶 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐶𝐶𝐴𝐴

)

What is Altman Z?

Source: Investopedia (http://www.investopedia.com/terms/a/altman.asp)

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http://www.investopedia.com/terms/a/altman.asp


Step 3: Identified Industry Metrics

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Market Capitalization vs. Revenue Growth Insight: For example, growth did not correlate for chemical companies.


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

𝑟𝑟2 =0.89 𝑟𝑟2 =0.68 𝑟𝑟2 = 0.64

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Source: Supply Chain Insights LLC r2 = statistical measure of how well a regression line our model matches real data points supply chain ratios where perfect correlation is r2 = 1.0


Step 4: Chemical Industry Equation

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Ln(market cap) = 7.85(OM) – 4.84(ROA) + 1.81ln(DPO) + 0.01(DOI)

Correlation Strength 𝑟𝑟2 = 0.64 𝑤𝑤𝑤𝑤𝑤𝑟𝑟𝑤𝑤 𝑟𝑟2 𝑖𝑖𝑖𝑖 𝑑𝑑𝑤𝑤𝑑𝑑𝑖𝑖𝑑𝑑𝑤𝑤𝑑𝑑 𝑎𝑎𝑖𝑖 𝑎𝑎 𝑖𝑖𝑠𝑠𝑎𝑎𝑠𝑠𝑖𝑖𝑖𝑖𝑠𝑠𝑖𝑖𝑠𝑠𝑎𝑎𝑠𝑠 𝑚𝑚𝑤𝑤𝑎𝑎𝑖𝑖𝑚𝑚𝑟𝑟𝑤𝑤 𝑜𝑜𝑑𝑑

𝑤𝑜𝑜𝑤𝑤 𝑤𝑤𝑤𝑤𝑠𝑠𝑠𝑠 𝑎𝑎 𝑟𝑟𝑤𝑤𝑟𝑟𝑟𝑟𝑤𝑤𝑖𝑖𝑖𝑖𝑖𝑖𝑜𝑜𝑑𝑑 𝑠𝑠𝑖𝑖𝑑𝑑𝑤𝑤 𝑜𝑜𝑚𝑚𝑟𝑟 𝑚𝑚𝑜𝑜𝑑𝑑𝑤𝑤𝑠𝑠 𝑚𝑚𝑎𝑎𝑠𝑠𝑠𝑠𝑤𝑤𝑤𝑖𝑖 𝑟𝑟𝑤𝑤𝑎𝑎𝑠𝑠 𝑑𝑑𝑎𝑎𝑠𝑠𝑎𝑎 𝑝𝑝𝑜𝑜𝑖𝑖𝑑𝑑𝑠𝑠𝑖𝑖 𝑠𝑠𝑜𝑜𝑟𝑟𝑤𝑤 𝑖𝑖𝑚𝑚𝑝𝑝𝑝𝑝𝑠𝑠𝑠𝑠 𝑠𝑠𝑤𝑎𝑎𝑖𝑖𝑑𝑑 𝑟𝑟𝑎𝑎𝑠𝑠𝑖𝑖𝑜𝑜𝑖𝑖 𝑤𝑤𝑤𝑤𝑤𝑟𝑟𝑤𝑤 𝑝𝑝𝑤𝑤𝑟𝑟𝑑𝑑𝑤𝑤𝑠𝑠𝑠𝑠 𝑠𝑠𝑜𝑜𝑟𝑟𝑟𝑟𝑤𝑤𝑠𝑠𝑎𝑎𝑠𝑠𝑖𝑖𝑜𝑜𝑑𝑑 𝑖𝑖𝑖𝑖 𝑟𝑟2 = 1.0.

NOTE: Full equation is Ln(market capitalization) = 7.850179(operating margin) – 4.83507(return on assets) + 1.806959* ln(days of payables outstanding) + 0.008524(days of inventory). We utilized adjusted 𝑟𝑟2 which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 3 times larger than IQR.

Chemical Industry Equation

What is a Market-Driven Value Network?


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


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?


Rising Price of a Barrel of West Texas Intermediate (WTI)


Commodity Price Increases and Volatility


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?


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


Market-Driven Value Networks Characteristics


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


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


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


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


Rethinking Analytics


• Outside-in • End-to-End Orchestration • Supply Chain Matters

Path Forward


• 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


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.

Contact Information: [email protected]

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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