metrics that matter in a market-driven world

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Metrics That Matter in a Market-Driven WorldSeptember 2015

Supply Chain Insights LLC Copyright 2015, p. #

Disclaimer: I am a Skeptic

Supply Chain Insights LLC Copyright 2015, p. #

A Social Scientist

Supply Chain Insights LLC Copyright 2015, p. #

A Curmudgeon

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A Fortune-teller of Sorts.

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We Write for the Supply Chain Leader

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Four Years of Work

WileyDecember 2012Wiley December 2014Self-publishedSeptember 2014Self-publishingSeptember 2015

#SCIWEBINAR

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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 customers customer to the suppliers 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.

Lets Start with Definitions

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Current State

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9 out of 10 Supply Chains are Stuck

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Progress: All IndustriesIndustry Snapshots (2006-2013)IndustryYear over-Year Revenue GrowthOperating MarginInventory TurnsCash-to-Cash CycleRevenue 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 NC24% 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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Improvement With Effective S&OP

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Fallacy: Functional Excellence

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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 ComplexityWhat We Learned.

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The Supply Chain Effective Frontier

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Why? The Long Tail of the Supply Chain: Growing Complexity

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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 ImprovementOverall Ranking per CompanyBalance: 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%)

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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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Winners Two Years in a Row

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Consumer Products Group

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Consumer Packaged Goods

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Losing Ground: Kimberly-ClarkSource: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from YCharts Best ScenarioKMB0.15, 9.01Trace the line from 2000 point to 2014 point to follow the performance over time. The diamond shows the companys 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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Colgate and Procter & Gamble

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Colgate Versus Unilever

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Beauty

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Estee Lauder and LOreal

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Food Manufacturing

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Food

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General Mills: Visualizing the PatternsSource: Supply Chain Insights LLC, Corporate Annual Reports 2000-2014 from YCharts Best ScenarioGIS0.17, 10.77Average (Revenue per Employee, Inventory Turns)

#SCIWEBINAR

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General Mills versus KelloggSource: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 GIS0.17, 11.00Average (Operating Margin, Inventory Turns)

Inventory Turns Best Scenario

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Hershey and Danone

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Beverages

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AB Inbev versus SAB Miller(2006 2014)Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts Best ScenarioSBMRF0.18, 17.14Average (Operating Margin, Inventory Turns)

BUD0.31, 14.57#SCIWEBINAR

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Coca-Cola and PepsiCo

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Apparel

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Apparel

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Nike: Inventory Turns vs. Operating Margin Best ScenarioNKE0.13, 6.10

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Nike and AdidasNKE0.13, 6.10ADDD0.08, 6.10

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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 leadershipSupply chain talent developmentFocus on a multi-year supply chain strategyClear governance to guide cross-functional decision-makingStrength in horizontal processesExcellence in supply chain planning, network design and inventory managementWhat Drives Top Performance?

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Why TechnologyMatters

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Current State of Planning

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IT Systems: Importance & Satisfaction by Role & Supply Chain

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