60 CSCMP’s Supply Chain Quarterly [QUARTER 4/2015] www.SupplyChainQuarterly.com www.SupplyChainQuarterly.com [QUARTER 4/2015] CSCMP’s Supply Chain Quarterly 61

[TOP-PERFORMING SUPPLY CHAINS]

Retail companies: Who’s on top, and why[BY LORA CECERE, FOUNDER AND CHIEF EXECUTIVE OFFICER, SUPPLY CHAIN INSIGHTS]

TRADITIONALLY, RETAIL COMPANIES’ supply chain performance and improvement have lagged that of their suppliers. In general, they have been slower to adopt mature inventory and transportation systems. But this is changing. When Supply Chain Insights conducted the analysis for our second annual Supply Chains to Admire listing, we were pleased to see retailers making strong gains during the period of 2013–2015 and delivering on the promise of supply chain excellence.

While it sounds simple, supply chain excellence is not easy to define. For the Supply Chains to Admire methodology, we used our Supply Chain Index to define “supply chain excellence” based on balance-sheet patterns for more than 2,000 public companies. We selected metrics that had a correlation to market capitalization: growth, inventory turns, operating margin, and return on invested capital (ROIC). We believe supply chain excellence is based on the ability to improve across this entire portfolio

of metrics. (For more details about the Supply Chain Index and its associated metrics, see “The Supply Chain Index: A new way to measure value” in the Q3/2014 issue of CSCMP’s Supply Chain Quarterly.)

No retailer made the cut for inclusion in our inau-gural Supply Chains to Admire list. In 2015, however, five general merchandisers/retailers met the criteria: CVS, Wal-Mart, Dollar General, Dollar Tree, and Whole Foods.

When studying retail, it is important to note that not all retailers are the same. In fact, there are sharp contrasts between the different retail models. The supply chains for grocery retail, for example, have few similarities with those for apparel. For our Supply Chains to Admire listing, then, we chose to break retail into three segments: apparel/specialty retail, mass merchant retail, and grocery retail. This article focuses on mass merchant and grocery retail.

In Figure 1, we analyze companies in the mass mer-chant retail segment for the period 2006–2014, while

in Figure 2, we share insights on grocery retailers for the same period.

A common characteristic of the top-performing retailers is that they have revised and adapted their supply chains to deliver to new business models, such as club stores, dollar stores, organic grocery stores, and new drugstore formats that include “a store within a store” where customers can get well-patient checkups. Other traits included data sharing with suppliers, per-petual inventory signals at the store and distribution center, and more advanced transportation manage-ment practices.

While CVS, Whole Foods, and Dollar General were top performers, we believe that Wal-Mart Stores is the supply chain leader. A supply chain leader shows positive change on a portfolio of metrics while maintaining year-over-year momentum. Still, momentum is not enough; a leader must at the same time maintain resiliency.

The Supply Chain Index measures resiliency as the intersection of inventory turns and operating margin. A tighter pattern indicates greater reliability and consistency in responding to market and economic conditions over time. As shown in Figure 3, when Wal-Mart is compared to Target, Wal-Mart shows more momentum in inventory management and operating margin, while Target lacks resiliency. (The diamonds indicate each company’s average operating margin and inventory turns.)

Another reason we believe Wal-Mart is a top per-former: the retail giant sets the industry standard for data sharing with suppliers. Wal-Mart’s data frequency and granularity are the best in the industry, and the company shares its daily supply chain data with suppli-ers every day. In contrast, Target shares its daily data with suppliers on a weekly basis. Target’s data, there-fore, is not as clean, and the latency of the data is a bar-rier to the company’s being able to provide shelf-level

[FIGURE 1] SUPPLY CHAIN PERFORMANCE AND IMPROVEMENT: MASS MERCHANTS

[FIGURE 2] SUPPLY CHAIN PERFORMANCE AND IMPROVEMENT: GROCERY RETAIL

62 CSCMP’s Supply Chain Quarterly [QUARTER 4/2015] www.SupplyChainQuarterly.com

[TOP-PERFORMING SUPPLY CHAINS]

customer service at the speed of the market.Moreover—as has always been the case—effective

inventory management is critical for retail success.

Wal-Mart continues to lead the way when it comes to tracking perpetual inventory changes at the store and dis-

tribution center. In spite of its leadership

position, Wal-Mart is under pressure to redefine itself. The dollar stores are attract-ing cost-conscious consumers, and the drugstore chains are serving the inner-city shop-per. With the maturation of the supply chains of the dollar stores and the drugstore chan-nel, Wal-Mart’s strong supply chain management skills are no longer as great a competi-tive advantage as they were 10 years ago.

LORA CECERE IS FOUNDER AND CHIEF

EXECUTIVE OFFICER OF THE RESEARCH

FIRM SUPPLY CHAIN INSIGHTS

[FIGURE 3] ORBIT CHART COMPARISON OF WAL-MART AND TARGET