what is supply chain excellence? a closer look at industry performance

Defining Supply Chain Excellence

Understanding Supply Chain Excellence

The Fundamentals

Progress by Industry

Comparison of Companies within a Peer Group

Recommendations

Wrap-up

The Supply Chain

is a Complex System

with Complex Processes

with Increasing Complexity

The Supply Chain Effective Frontier

Methodology: Mining 20 Years of Financial Data to Understand the Patterns

Financial Metrics

Growth Profitability Cycle ComplexityCommon 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

Operating Margins versus Cycles

The Change Management Journey

As companies mature progress is seen in:• Strength: Year-over-year improvement in metrics.• Balance: Balance in growth, profitability, cycles and

profitability.• Resiliency: A tight, predictable pattern in results at

the intersection of operating margin and inventory turns irrespective of what is happening in buy or sell-side markets.

What Does Good Look Like?

Most Interesting Patterns

• Cash-to-Cash Cycle vs. Inventory Turns

• Inventory Turns vs. Operating Margin

• Inventory Turns vs. Revenue per Employee

What Have We Learned?

• Each industry has a different pattern of trade-offs of balancing growth, profitability, cycles and complexity.

• Companies that are supply chain leaders have very small movement with a balanced portfolio of metrics.

• It is about MUCH more than Return on Assets (ROA), growth and inventory.

The Fundamentals

Recommendations

Wrap-up

Where Are We by Industry?

Progress in Manufacturing Productivity

Productivity in Retail

Progress in Inventory Turns and Operating Margin

Impact of A Recession

• Nine out of ten industries are stuck: unable to power improvements in inventory turns and profitability.

• Manufacturers have outperformed retailers on productivity.

• The more steps back in the supply chain that a company is, the more important the principles of supply chain management are.

Where Are We?

The Fundamentals

Recommendations

Wrap-up

0 250 500 750 1,000 1,2500

2002 2012

The Dow Chemical Company

Revenue per Employee (K$)

Visualizing the Patterns

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

Best Scenario

DOW999, 6.7

Trace the line from 2002 point to 2012 point to follow the performance over time.

The diamond shows the company’s average over the period. Ex: The Dow Chemical Company (DOW) has an average of 999 K$ for revenue per employee and 6.7 for inventory turns.

Ideally, companies are increasing inventory turns and revenue per employee, moving towards the upper right corner of the graph over time.

Here, we plot inventory turns (y-axis) vs. revenue per employee (x-axis).

Average (Revenue per Employee, Inventory Turns)

Understanding the Patterns

Consumer Packaged Goods

Corporate Summary

Company

Exchange:

Ticker

Symbol

Revenue

(billions

2012 Global

Employees

(thousands)

Country

Colgate-Palmolive

CompanyNYSE: CL 17.1 37.7 USA

(New York)

Kimberly-Clark

CorporationNYSE: KMB 21.1 58.0 USA

(Texas)

The Procter & Gamble

CompanyNYSE: PG 83.7 126.0 USA

(Ohio)

Source: Supply Chain Insights LLC, Corporate Annual Reports 2012

Cash-to-Cash Cycle vs. Inventory Turns (2000-2012)

Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012

4 5 6 70

Colgate-Palmolive Company Kimberly-Clark CorporationThe Procter & Gamble Company

Inventory Turns

Best Scenario

CL5.7, 43

KMB5.9, 67

Average (Inventory Turns, Cash-to-Cash Cycle)

PG5.6, 39

Inventory Turns vs. Operating Margin (2000-2012)

0.10 0.15 0.20 0.254

20002012 2000

Operating Margin

CL0.21, 5.7

KMB0.15, 5.7

Average (Operating Margin, Inventory Turns)

PG0.18, 5.6

Best Scenario

Inventory Turns vs. Revenue per Employee (2002-2012)

200 300 400 500 600 7002

20122002

Best Scenario

CL361, 5.5

KMB309, 5.9

PG536, 5.6

Company (2000-2003) Days of Inventory Days of Payables Days of Receivables

Colgate-Palmolive Company 59 62 46

Kimberly-Clark Corporation 61 35 51

The Procter & Gamble Company 61 40 27

Company (2012) Days of Inventory Days of Payables Days of Receivables

Consumer packaged goods companies have strength and resilience in their metrics performance, but have lost balance in the last three years. New techniques in supply chain management are needed to power the next level of improvement.

Summary

Retail

Corporate Summary

4 5 6 7 8 9 100

CVS Caremark Corporation Walgreen Company

Inventory Turns

Best Scenario

CVS6.07, 58

WAG6.00, 39

CVS Caremark Corporation 83 33 16

Walgreen Company N/A N/A N/A

Walgreen Company 65 37 14

Cash-to-Cash Cycle Components

Corporate Summary

5 6 7 8 9 100

Target Corporation Wal-Mart Stores, Inc.

Inventory Turns

Best Scenario

TGT6.2, 39.6

WMT7.8, 13.5

Target Corporation 62 57 32

Wal-Mart Stores, Inc. 52 36 3

Corporate Summary

Company

Exchange:

Ticker

Symbol

Revenue

(billions

2012 Global

Employees

(thousands)

Country

Safeway Inc. NYSE: SWY 41.1 178.0 USA (Idaho)

The Kroger Co. NYSE: KR 82.2 338.0 USA(Ohio)

Source: Supply Chain Insights LLC, Corporate Annual Reports 2012

7 8 9 10 11 12 13 14 150

Safeway Inc. The Kroger Co.

Inventory Turns

Best Scenario

SWY10.5, 10.3

KR10.6, 11.9

-0.02 0 0.02 0.04 0.06 0.08 0.17

Operating Margin

Best Scenario

SWY0.04, 10.5

KR0.03, 10.6

150 200 250 3007

Best Scenario

SWY211, 10.7

KR218, 11.1

Safeway Inc. N/A N/A N/A

The Kroger Co. 42 31 5

Safeway Inc. 37 28 4

Safeway Inc. N/A N/A N/A

Safeway Inc. 29 35 7

• Retailers have not been able to power the levels of productivity (revenue/employee) of consumer packaged goods, and mass merchants are doing better on performance improvements than grocery retailers.

• Wal-Mart is the leader in driving The Effective Frontier.

Retail Comments

Chemical

Corporate Summary

Cash-to-Cash Cycle vs. Inventory Turns(2000-2012)

Inventory Turns vs. Operating Margin(2000-2012)

BASF SE 82 50 72

E. I. du Pont de Nemours and Co. 95 51 44

BASF SE 66 38 61

BASF SE 64 30 54

BASF SE 64 30 50

• BASF has outperformed DuPont.• Chemical companies have less resilience

than CPG.

Chemical Comments

Food and Beverage

Corporate Summary

Cash-To-Cash Cycle vs. Inventory Turns(2000-2012)

4 5 6 7 8 9

PepsiCo Inc. The Coca-Cola Company

Inventory Turns

Best Scenario

PEP8.3, 30

KO5.4, 48

Average (Inventory Turns, Cash-To-Cash Cycle)

0.10 0.20 0.30 0.404

2000 2012

Operating Margin

Best Scenario

PEP0.17, 8.3

KO0.27, 5.4

0 100 200 300 400 5004

20022012

Best Scenario

PEP207, 8.2

KO351, 5.4

PepsiCo Inc. 43 46 36

The Coca-Cola Company 63 N/A 38

The Coca-Cola Company 70 N/A 39

The Coca-Cola Company 71 46 41

The Coca-Cola Company 63 35 36

Corporate Summary

Cash-to-Cash Cycle vs Inventory Turns (2000-2012)

4 5 6 7 8 90

General Mills, Inc. Kellogg Company

Inventory Turns

Best Scenario

GIS6.2, 37.5

K7.4, 26.5

0.10 0.15 0.20 0.254

Operating Margin

Best Scenario

GIS0.18, 6.2

K0.16, 7.4

300 350 400 450 5004

Best Scenario

GIS424, 6.6

K398, 7.4

Average (Revenue per Employee, Operating Margin)

General Mills, Inc. 71 85 40

Kellogg Company 49 48 32

General Mills, Inc.Company (2008-2011) Days of Inventory Days of Payables Days of Receivables

• General Mills has outperformed Kellogg. PepsiCo has outperformed Coke.

• With rising commodity volatility, the focus on balanced portfolio metrics is critical.

Food and Beverage

Pharmaceuticals

Corporate Summary

0 1 2 3 4 5

Bristol-Myers Squibb Co. Merck & Co., Inc.

Inventory Turns

Best Scenario

MRK2.4, 175

BMY3.2, 57

0.0 0.1 0.2 0.3 0.4 0.5 0.60

2012 2000

Operating Margin

BMY0.22, 3.2 MRK

0.31, 2.8

Best Scenario

200 300 400 500 600 700 8000

Best Scenario

BMY526, 3.3

MRK412, 2.5

Bristol-Myers Squibb Co. 109 110 72

Merck & Co., Inc. 222 N/A 74

Merck & Co., Inc. 119 33 53

Merck & Co., Inc. 179 55 68

Merck & Co., Inc. 145 39 62

Healthcare Value Chain Financial Metrics

• Pharmaceutical companies lack supply chain muscle.

• The industry lacks balance and resiliency.

Pharmaceutical Companies

Automotive Suppliers

Corporate Summary

0 5 10 15 20 25 300

Danaher Corporation Johnson Controls, Inc.

Inventory Turns

Best Scenario

DHR5.4, 73.1

JCI20.1, 19.5

-0.05 0.00 0.05 0.10 0.15 0.200

2000 2012

Operating Margin

Best Scenario

DHR0.15, 5.4

JCI0.04, 20.1

150 200 250 3000

2002 2012

DHR224, 5.4

JCI234, 18.9

Best Scenario

Danaher Corporation 65 45 61

Johnson Controls, Inc. 15 60 55

• The automotive supplier has more resiliency than pharmaceutical or chemical companies, but is going backwards, not forwards in driving improvement in results.

Automotive Industry

Consumer Electronics

Corporate Summary

LG Electronics 62 61 49

Samsung Electronics Co., Ltd. 48 47 38

• Samsung has outperformed LG.• Demand and price volatility has impacted

strength, balance and resiliency of performance.

Consumer Electronics

Packaging

Corporate Summary

3 5 7 9 110

Owens-Illinois Inc. Sonoco Products Company

Inventory Turns

Best Scenario

OI5.2, 67.9

SON9.2, 42.6

100 150 200 250 300 3503

Owens-Illinois Inc. Sonoco Products Company

Best Scenario

OI258, 5.3

SON210, 9.5

Owens-Illinois Inc. 79 45 49

Sonoco Products Company 44 40 43

• Sonoco Products has outperformed Owens Illinois in strength, resiliency and balance.

• The more steps back that a company is in the supply chain, the greater the importance of supply chain principles.

Packaging

• Nine out of ten industries are stuck in their ability to power The Effective Frontier. The potential and pattern of each industry is different.

• It is a trade-off of strength, balance and resiliency.• The larger the company, and the more steps back in the

supply chain, the more important the principles of supply chain management.

• For leaders, progress is made in small increments based on strategy.

Summary

what is supply chain excellence? a closer look at industry performance

chain leaders

inventory turns12ideally

operating margin inventory

cash cyclesource

cash cycle70kmb

interesting patterns

corporate annual reports

dow chemical company

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