understanding the supply chain index - 2015 - slide deck - 20 aug 2015

Supply Chain Insights LLC Copyright © 2015, p. 1

Understanding the Supply Chain Index

August 2015


About Me

• Founder of Supply Chain Insights• LinkedIn Influencer

• Guest Blogger for Forbes

• Author of three books: Bricks Matter (2012), The Shaman’s Journal (2014) and Supply Chain Metrics That Matter (December 2014)

• Partner at Altimeter Group (leader in open research)• Seven Years of Management Experience Leading Analyst Teams at Gartner

and AMR Research• Eight Years Experience in Marketing and Selling Supply Chain Software at

Descartes Systems Group and Manugistics (now JDA)• Fifteen Years Leading Teams in Manufacturing and Distribution Operations

for Clorox, Kraft/General Foods, Nestlé/Dreyer’s Grand Ice Cream and Procter & Gamble

Contact Information: • Email: [email protected]• Blog: www.supplychainshaman.com (10,000 page views/month)• Forbes: www.forbes.com/sites/loracecere/• Twitter: lcecere (6200 followers)• LinkedIn: www.linkedin.com/in/loracecere (46,000 followers)


Our Goal Is to Help the Average Joe


Four Years of Work

WileyDecember 2012

Wiley December 2014

Self-publishedSeptember 2014

Self-publishingSeptember 2015


The Goal


A Supply Chain Is a Complex System

with Complex Processes

with Increasing Complexity

What We Learned….


Descriptors Used by Leaders

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The Supply Chain Effective Frontier


9 out of 10 Supply Chains are Stuck


• 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.

• The Effective Frontier: Representation of a balanced set of measurements for the supply chain.

Let’s Start with Definitions

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Methodology Comparison

Gartner Top 25 Supply Chains to AdmireFocus 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

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New Research

Coming Soon!Individual Industries Automotive

Consumer ElectronicsAugust 25, 2015September 1, 2015

Supply Chains to Admire Final Report September 8, 2015

Metrics That Matter Correlations

New Report on the Connection of Financial Metrics to Supply Chain Performance

October 1, 2015

Industries (20)

3-PLA&DApparelAutomotiveAutomotive SuppliersBeautyBeveragesChemicalContract ManufacturingConsumer Packaged GoodsConsumer Durables

Consumer ElectronicsDepartment StoresFood Grocery RetailHi-Tech and ElectronicsHeavy EquipmentMass MerchantsMedical DevicePackaging and ClosuresSemiconductor

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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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Which Metrics Matter?

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Correlations to Market Capitalization

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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….

#SCIWEBINAR


The Supply Chain Effective Frontier

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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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Annual Study: Supply Chains To Admire

Supply Chains to Admire 2015 to be Announced at the Supply Chain Insights Global Summit on September 9th and 10th

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Consumer Products

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Consumer Packaged Goods

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Company2006-2014

2009-2014

2011-2014

2006-2014

2009-2014

2011-2014

2006-2014

2009-2014

2011-2014

2006-2014

2009-2014

Church & Dwight Co. Inc. 0.17 0.18 0.19 12.4 13.0 13.3 11% 13% 13% 4 2

Colgate-Palmolive 0.21 0.22 0.22 12.8 12.7 12.7 32% 33% 31% 7 8

The Clorox Company 0.17 0.17 0.16 14.9 14.5 14.4 21% 21% 22% 5 6

Kimberly Clark 0.13 0.13 0.13 8.7 8.9 9.0 16% 16% 16% 9 4

Newell Rubbermaid 0.09 0.10 0.09 7.7 8.0 8.2 7% 8% 9% 3 9

Procter & Gamble Co. 0.19 0.19 0.18 11.6 11.6 12.0 12% 12% 12% 6 5

Reckitt Benckiser Group 0.23 0.24 0.24 14.2 13.5 12.8 28% 26% 24% 8 7

Tupperware Brands Corp. 0.12 0.14 0.14 8.2 8.4 8.6 17% 20% 20% 1 1

Unilever plc 0.14 0.14 0.15 10.7 11.0 11.1 17% 17% 19% 2 3

Average 0.15 0.16 0.16 10.6 10.7 10.7 16% 17% 17%

Performance and Improvement

Operating Margin Inventory Turns Return on Invested CapitalSupply Chain Index

Rankings


-0.07 -0.02 0.03 0.08 0.13 0.189%

14%

19%

Procter & GambleReturn on Invested Capital (ROIC)

Rev

enue

Gro

wth

2000

2014

2001

2002

20032004

2005

2006

2007

2008

20092010

2011

20122013

P&G: Growth and ROIC

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

Best Scenario

PG0.06, 14%

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 Procter & Gamble Co. (PG) has an average of .06 for ROIC and 14% for revenue growth.

Ideally, companies are increasing growth and Return on Invested Capital (ROIC) moving towards the upper right corner of the graph over time.

Here, we Growth (y-axis) vs. ROIC (x-axis).

Average (Return on Invested Capital, Revenue Growth)

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0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19 0.20 0.2110.00

11.00

12.00

13.00

Procter & GambleOperating Margin

Inve

ntor

y Tu

rns

2000

2014

2001 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

P&G: Inventory Turns and Operating Margins


Best Scenario

PG0.18, 11.75


The diamond shows the company’s average over the period. Ex: The Procter & Gamble Co. (PG) has an average of .18 for operating margin and 11.75 for inventory turns.

Ideally, companies are increasing inventory turns and operating margins moving towards the upper right corner of the graph over time.

Here, we plot inventory turns (y-axis) vs. operating margins(x-axis).

Average (Operating Margin, Inventory Turns)

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0.17 0.18 0.19 0.20 0.21 0.22 0.23 0.24 0.2510.00

11.00

12.00

13.00

14.00

15.00

Colgate-PalmoliveOperating Margin

Inve

ntor

y Tu

rns

2000 2014

20012002

2003

200420052006

20072008

20092010

2011

2012

2013

Colgate: Operating Margins and Inventory Turns


Best Scenario

CL0.21, 13.03

Trace the line from 2000 point to 2014 point to follow performance over time.

The diamond shows the company’s average over the period. Ex: The Colgate-Palmolive Co. (CL) has an average of .21 for operating margin and 13.03 for inventory turns.

Ideally, companies are increasing inventory turns and operating margin, moving towards the upper right corner of the graph over time.

Here, we plot inventory turns (y-axis) vs. operating margin (x-axis).


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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

Biggest Loser: Kimberly-Clark


Best Scenario

KMB0.15, 9.01


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.



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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 0.184.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

UnileverOperating Margin

Inve

ntor

y Tu

rns

2000

2014

20012002

20032004

200520062007 20082009

20102011

20122013

Unilever: Impressive Gains

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

Best Scenario

UN0.13, 8.66


The diamond shows the company’s average over the period. Ex: The Unilever Co. (UN) has an average of .13 for operating margin and 8.66 for inventory turns. Ideally, companies are increasing

inventory turns and operating margin moving towards the upper right corner of the graph over time.

Here, we plot inventory turns (y-axis) vs. operating margin(x-axis).


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0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19 0.20 0.219.00

10.00

11.00

12.00

13.00

Procter & Gamble UnileverOperating Margin

Inve

ntor

y Tu

rns

2014

2006

2014 2006

Procter & Gamble and UnileverInventory Turns vs. Operating Margin

(2006 – 2014)


Best Scenario

UN0.14, 10.74


PG0.19, 11.59

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0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19 0.20 0.21 0.22 0.239.50

10.50

11.50

12.50

13.50

Colgate Palmolive UnileverOperating Margin

Inve

ntor

y Tu

rns

2014

2006

2014

2006

Colgate and UnileverInventory Turns vs. Operating Margin

(2006 – 2014)


Best Scenario

UN0.14, 10.74


CL0.21, 12.77

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Procter & Gamble and ColgateInventory Turns vs. Operating Margin

(2006 – 2014)

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PharmaceuticalsWebinar

August 4, 2015

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Pharmaceuticals

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Company 2006-2014 2009-2014 2011-2014 2006-2014 2009-2014 2011-2014 2006-2014 2009-2014 2011-2014 2006-2014 2009-2014Abbott Laboratories 0.11 0.11 0.12 8.98 8.79 8.11 12% 11% 10% 3 6AstraZeneca plc 0.27 0.27 0.22 14.96 15.79 14.28 22% 19% 15% 9 8Bristol-Myers Squibb Co. 0.08 0.08 0.08 7.77 7.76 7.48 7% 6% 7% 4 4Eli Lilly and Company 0.20 0.23 0.21 8.24 8.42 8.40 16% 21% 18% 7 7Merck and Company 0.15 0.13 0.16 9.12 7.35 7.22 15% 13% 11% 8 2Novo Nordisk A/S 0.36 0.35 0.37 6.47 7.31 8.16 42% 51% 60% 5 4Novartis AG 0.21 0.21 0.20 8.09 8.32 8.44 13% 11% 11% 1 1Pfizer, Inc. 0.50 0.23 0.26 8.13 7.83 8.10 12% 0.10 12% 7 5Teva Pharmaceutical Industries Limited 0.16 0.16 0.14 4.23 4.13 4.00 7% 8% 7% 2 3Average 0.19 0.20 0.20 8.44 8.41 8.95 16% 18% 17%

Operating Margin Inventory Turns Return on Invested Capital Supply Chain Index Performance and Improvement


0.21 0.22 0.23 0.24 0.25 0.26 0.27 0.28 0.299.00

10.00

11.00

12.00

13.00

14.00

Johnson & JohnsonOperating Margin

Inve

ntor

y Tu

rns

20002014

20012002

2003

20042005

200620072008 2009

2010

2011

20122013

Visualizing the Patterns


Best Scenario

JNJ0.25,11.36


The diamond shows the company’s average over the period. Ex: The Johnson & Johnson Co. (JNJ) has an average of .25 for operating margin and 11.36 for inventory turns.

Ideally, companies are increasing inventory turns and operating margin, moving towards the upper right corner of the graph over time.



#SCIWEBINAR


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

#SCIWEBINAR


0.17 0.18 0.19 0.20 0.21 0.22 0.23 0.24 0.25 0.26 0.27 0.28 0.297.00

8.00

9.00

10.00

11.00

12.00

13.00

Johnson & Johnson NovartisOperating Margin

Inve

ntor

y Tu

rns

2014

2006

20142006

Inventory Turns vs. Operating Margin(2006 – 2014)


Best Scenario

JNJ0.25, 11.11


NVS0.21, 8.30

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0.14 0.16 0.18 0.20 0.22 0.24 0.26 0.28 0.305.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

13.00

Johnson & Johnson PfizerOperating Margin

Inve

ntor

y Tu

rns

2014

2006

2014 2006



Best Scenario

JNJ0.25, 11.11


PFE0.21, 8.13

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

TEVA0.16, 4.28


0.00 0.10 0.20 0.303.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2006

TEVA Pharmaceutical Industries Mylan N.V.Operating Margin

2014

MYL0.16, 4.83

2014 2006

Best Scenario

Inve

ntor

y Tu

rns

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The Journey

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Metrics Maturity

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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 the 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

Insights

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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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Questions?

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About Me

• Founder of Supply Chain Insights• LinkedIn Influencer

• Guest Blogger for Forbes

• Author of three books: Bricks Matter (2012), The Shaman’s Journal (2014) and Supply Chain Metrics That Matter (December 2014)

• Partner at Altimeter Group (leader in open research)• Seven Years of Management Experience Leading Analyst Teams at Gartner

and AMR Research• Eight Years Experience in Marketing and Selling Supply Chain Software at

Descartes Systems Group and Manugistics (now JDA)• Fifteen Years Leading Teams in Manufacturing and Distribution Operations

for Clorox, Kraft/General Foods, Nestlé/Dreyer’s Grand Ice Cream and Procter & Gamble

Contact Information: • Email: [email protected]• Blog: www.supplychainshaman.com (10,000 page views/month)• Forbes: www.forbes.com/sites/loracecere/• Twitter: lcecere (6200 followers)• LinkedIn: www.linkedin.com/in/loracecere (46,000 followers)


Definition: Metric Equations

Source: Supply Chain Insights LLC, Corporate Annual Reports (2000-2014)

Metric EquationsCash-to-Cash Cycles = (Avg. Inventory/COGS + Avg. Accounts Receivable/Sales - Avg. Accounts Payable/Purchases)*91.5Days of Inventory = (Average Inventory/COGS)*91.5

Days of Payables = (Average Accounts Payables/Purchases)*91.5

Days of Receivables = (Average Accounts Receivable/Sales)*91.5

Inventory Turns = (Cost of Sales/Average Inventory)

Operating Margin = (Operating Income/Revenue)

Return on Invested Capital = (Net Income/Invested Capital)

Return on Net Assets = (Trailing 12 Month Net Income/Total Assets from the most recent quarter) Revenue Growth = (Quarterly Revenuei/Quarterly Revenuei-4 -1)

Revenue per Employees = (Revenue/Average Annual Employee)

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understanding the supply chain index - 2015 - slide deck - 20 aug 2015

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