supply chain metrics that matter in a market-driven world
TRANSCRIPT
Supply Chain Insights LLC Copyright © 2015, p. 1
Supply Chain Metrics That Matter in the Market-Driven
World
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Supply Chain Insights LLC Copyright © 2015, p. 2
Our Goal is to Help the Average Joe
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Supply Chain Insights LLC Copyright © 2015, p. 3
Four Years of Work
WileyDecember 2012
Wiley December 2014
Self-publishedSeptember 2014
Self-publishingSeptember 2015
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Supply Chain Insights LLC Copyright © 2015, p. 4
• 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.
Let’s Start with Definitions
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Supply Chain Insights LLC Copyright © 2015, p. 5
Methodology Comparison
Gartner Top 25 Supply Chains to Admire
Focus 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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Supply Chain Insights LLC Copyright © 2015, p. 6
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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Supply Chain Insights LLC Copyright © 2015, p. 7
9 out of 10 Supply Chains are Stuck
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Supply Chain Insights LLC Copyright © 2015, p. 8
Descriptors Used by Leaders
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Supply Chain Insights LLC Copyright © 2015, p. 9
Functional Organizational
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Supply Chain Insights LLC Copyright © 2015, p. 10
Fallacy: Functional Excellence
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Growing Demand Volatility
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Why? The Long Tail of the Supply Chain: Growing Complexity
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Ability to Get to Total Supply Chain Costs
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A Project-based Focus
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Supply Chain Insights LLC Copyright © 2015, p. 15
Which Metrics Matter?
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Supply Chain Insights LLC Copyright © 2015, p. 16
What We Expected
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Supply Chain Insights LLC Copyright © 2015, p. 17
A Supply Chain is a Complex System
with Complex Processes
with Increasing Complexity
What We Learned….
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Supply Chain Insights LLC Copyright © 2015, p. 18
The Supply Chain Effective Frontier
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Supply Chain Insights LLC Copyright © 2015, p. 19
Correlations to Market Capitalization
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Supply Chain Insights LLC Copyright © 2015, p. 20
Orbit Chart: Wal-Mart(Inventory Turns and Operating Margin)
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Supply Chain Insights LLC Copyright © 2015, p. 21
Orbit Chart: Apple (Inventory Turns and Operating Margin)
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Supply Chain Insights LLC Copyright © 2015, p. 22
Orbit Charts: Dow Chemical Company
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Supply Chain Insights LLC Copyright © 2015, p. 23
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+
𝟏𝟑𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓+
𝟏𝟑𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓
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Supply Chain Insights LLC Copyright © 2015, p. 24
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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Supply Chain Insights LLC Copyright © 2015, p. 25
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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Supply Chain Insights LLC Copyright © 2015, p. 26
Consumer Products
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Supply Chain Insights LLC Copyright © 2015, p. 27
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
Supply Chain Insights LLC Copyright © 2015, p. 28
-0.07 -0.02 0.03 0.08 0.13 0.189%
14%
19%
Procter & Gamble
Return on Invested Capital (ROIC)
Re
ve
nu
e G
row
th
2000
2014
2001
2002
20032004
2005
2006
2007
2008
2009
2010
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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Supply Chain Insights LLC Copyright © 2015, p. 29
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 & Gamble
Operating Margin
Inv
en
tory
Tu
rns
2000
2014
2001 2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
P&G: Inventory Turns and Operating Margins
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from YCharts
Best Scenario
PG0.18, 11.75
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 .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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Supply Chain Insights LLC Copyright © 2015, p. 30
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
Inv
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tory
Tu
rns
2000 2014
2001
2002
2003
20042005
2006
20072008
20092010
2011
2012
2013
Colgate: Operating Margins and Inventory Turns
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from YCharts
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).
Average (Operating Margin, Inventory Turns)
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Supply Chain Insights LLC Copyright © 2015, p. 31
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
Inv
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tory
Tu
rns
2000
2014
2001
2002
2003
2004
2005
2006
2007
2008
2009
20102011
2012
2013
Biggest Loser: Kimberly-Clark
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from YCharts
Best Scenario
KMB0.15, 9.01
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 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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Supply Chain Insights LLC Copyright © 2015, p. 32
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
Unilever
Operating Margin
Inv
en
tory
Tu
rns
2000
2014
20012002
20032004
2005
20062007 200820092010
20112012
2013
Unilever: Impressive Gains
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from One Source & YCharts
Best Scenario
UN0.13, 8.66
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 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).
Average (Operating Margin, Inventory Turns)
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Supply Chain Insights LLC Copyright © 2015, p. 33
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
Inv
en
tory
Tu
rns
2014
2006
2014 2006
Procter & Gamble and UnileverInventory Turns vs. Operating Margin
(2006 – 2014)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from One Source & YCharts
Best Scenario
UN0.14, 10.74
Average (Operating Margin, Inventory Turns)
PG0.19, 11.59
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Supply Chain Insights LLC Copyright © 2015, p. 34
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
Inv
en
tory
Tu
rns
2014
2006
2014
2006
Colgate and UnileverInventory Turns vs. Operating Margin
(2006 – 2014)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from One Source & YCharts
Best Scenario
UN0.14, 10.74
Average (Operating Margin, Inventory Turns)
CL0.21, 12.77
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Supply Chain Insights LLC Copyright © 2015, p. 35
Procter & Gamble and ColgateInventory Turns vs. Operating Margin
(2006 – 2014)
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Supply Chain Insights LLC Copyright © 2015, p. 36
Clorox and Church& Dwight Rising Stars
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Supply Chain Insights LLC Copyright © 2015, p. 37
Beauty
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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
Avon Products 0.08 0.07 0.05 9.92 9.73 9.65 10% 5% -1% 4 6
Estee Lauder 0.12 0.12 0.14 9.09 9.36 9.58 18% 19% 22% 1 3
Inter Parfums 0.15 0.17 0.20 4.45 4.38 4.41 10% 11% 13% 3 2
KAO Brands 0.09 0.09 0.09 10.35 10.18 9.98 8% 8% 9% 6 5
L'Oreal 0.16 0.15 0.16 11.10 10.92 10.77 14% 15% 16% 2 1
Elizabeth Arden 0.04 0.03 0.04 3.75 3.98 4.30 2% 1% 0% 5 4
Revlon 0.11 0.14 0.13 10.01 11.23 11.66 9% 25% 6% 6 7
Performance and Improvement
Operating Margin Inventory Turns Return on Invested CapitalSupply Chain Index
Rankings
Supply Chain Insights LLC Copyright © 2015, p. 38
Estee Lauder and L’Oreal
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Supply Chain Insights LLC Copyright © 2015, p. 39
Colgate Estee Lauder
Clorox
L’Oreal
2015 Supply Chains to Admire Additions
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Supply Chain Insights LLC Copyright © 2015, p. 40
Food & BeverageWebinar
August 4, 2015
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Supply Chain Insights LLC Copyright © 2015, p. 41
Beverage
Company 2006-2014 2009-2014 2011-2014 2006-2014 2009-2014 2011-2014 2006-2014 2009-2014 2011-2014 2006-2014 2009-2014
Anheuser-Busch 0.31 0.34 0.36 14.57 15.52 15.94 8% 8% 10% 6 1Coca-Cola 0.24 0.23 0.22 14.80 14.63 15.02 18% 16% 13% 1 2Diageo 0.28 0.27 0.28 2.92 2.85 2.80 14% 13% 14% 2 3Molson Coors 0.17 0.21 0.21 19.56 18.30 17.20 6% 6% 5% 6 4SABMiller 0.19 0.20 0.22 16.61 14.94 15.20 8% 8% 8% 5 5Heineken 0.14 0.14 0.15 13.06 12.99 12.79 8% 7% 8% 6 6PepsiCo 0.16 0.15 0.14 18.64 18.61 18.88 20% 16% 13% 4 7Monster Beverage 0.26 0.28 0.27 10.76 10.95 11.39 22% 14% 0% 3 8Average 0.22 0.23 0.23 13.87 13.6 13.65 13% 11% 9%
Performance and Improvement
Operating Margin Inventory TurnsSupply Chain
Index RankingsReturn on Invested Capital
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Supply Chain Insights LLC Copyright © 2015, p. 42
0.08 0.11 0.14 0.17 0.20 0.23 0.26 0.29 0.32 0.35 0.38 0.41 0.44 0.4710.00
12.00
14.00
16.00
18.00
20.00
22.00
Anheuser-Busch Inbev SABMiller
Operating Margin
Inv
en
tory
Tu
rns
2014
2006
2014
2006
Inventory Turns vs. Operating Margin(2006 – 2014)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
Best Scenario
SBMRF0.18, 17.14
Average (Operating Margin, Inventory Turns)
BUD0.31, 14.57
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Supply Chain Insights LLC Copyright © 2015, p. 43
Coca-Cola and PepsiCo
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Supply Chain Insights LLC Copyright © 2015, p. 44
Food Products
Operating Margin Inventory Turns Return on Invested Capital
Company 2006-2014 2009-2014 2011-2014 2006-2014 2009-2014 2011-2014 2006-2014 2009-2014 2011-2014 2006-20142009-2014The J.M. Smucker Company 0.14 0.15 0.16 6.93 6.59 6.14 7% 7% 7% 4 1Hershey Co. 0.16 0.17 0.18 9.60 10.36 10.47 19% 22% 24% 1 2Mead Johnson Nutrition Co. 0.24 0.23 0.22 7.67 8.49 8.26 2% 4% 4% 3 3Mondelez 0.10 0.10 0.10 8.85 8.35 8.21 6% 6% 6% 9 4Conagra Foods Inc. 0.08 0.09 0.08 6.68 7.20 7.38 8% 7% 6% 8 5Nestle SA 0.14 0.14 0.14 11.13 10.65 10.13 17% 18% 13% 7 6General Mills, Inc. 0.17 0.17 0.17 11.00 10.98 11.04 11% 12% 12% 2 7Maple Leaf Foods 0.14 0.13 0.12 12.68 12.07 11.47 14% 13% 11% 6 8Campbell Soup Co. 0.16 0.16 0.15 9.58 9.45 9.40 19% 18% 16% 5 9Danone SA 0.13 0.13 0.12 18.81 18.56 18.42 6% 2% 1% 10 10Kellogg Company 0.10 0.20 0.22 16.61 14.94 15.20 8% 8% 8% 11 11Average 0.14 0.15 0.15 10.87 10.69 10.56 11% 11% 10%
Performance and ImprovementSupply Chain
Index Rankings
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Supply Chain Insights LLC Copyright © 2015, p. 45
0.10 0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19 0.20 0.21 0.22 0.23 0.24 0.259.00
10.00
11.00
12.00
General MillsOperating Margin
Inv
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tory
Tu
rns
2000
2014
20012002
2003
2004
2005
20062007
2008
20092010
2011
2012
2013
General Mills: Visualizing the Patterns
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2014 from YCharts
Best Scenario
GIS0.17, 10.77
Average (Revenue per Employee, Inventory Turns)
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Supply Chain Insights LLC Copyright © 2015, p. 46
General Mills versus Kellogg: Inventory Turns vs. Operating Margin
(2006 – 2014)
0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.205.0
7.0
9.0
11.0
13.0
15.0
General Mills KelloggOperating Margin
K0.14, 12.68
2014
2006
20142006
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014
GIS0.17, 11.00
Average (Operating Margin, Inventory Turns)
Inve
nto
ry T
urn
s
Best Scenario
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Supply Chain Insights LLC Copyright © 2015, p. 47
Hershey and Danone
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Supply Chain Insights LLC Copyright © 2015, p. 48
General MillsInBev
2015 Supply Chains to Admire Additions
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Supply Chain Insights LLC Copyright © 2015, p. 49
Chemical
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Supply Chain Insights LLC Copyright © 2015, p. 50
Results of Chemical Leaders
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Supply Chain Insights LLC Copyright © 2015, p. 51
-0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10 0.11 0.126.00
7.00
8.00
9.00
10.00
Dow ChemicalOperating Margin
Inv
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tory
Tu
rns
2000
2014
2001
2002
2003
2004 2005
20062007
2008
2009
2010
2011
20122013
Dow Chemical
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2014 from YCharts
Best Scenario
DOW0.06, 7.66
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 Dow Chemical Co. (DOW) has an average of .06 for operating margin and 7.66 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 (Operating Margin, Inventory Turns)
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Supply Chain Insights LLC Copyright © 2015, p. 52
0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10 0.11 0.12 0.136.00
7.00
8.00
9.00
10.00
BASF Dow ChemicalOperating Margin
Inv
en
tory
Tu
rns
2014
2006
2014
2006
Dow Versus BASF(2006 – 2014)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
Best Scenario
DOW0.06, 7.73
Average (Operating Margin, Inventory Turns)
BASFY0.11, 8.01
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Supply Chain Insights LLC Copyright © 2015, p. 53
0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.206.00
7.00
8.00
9.00
10.00
11.00
12.00
Dow Chemical Eastman ChemicalOperating Margin
Inv
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tory
Tu
rns
2014
2006
2014
2006
Dow versus Eastman Chemical(2006 – 2014)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
Best Scenario
DOW0.06, 7.73
Average (Operating Margin, Inventory Turns)
EMN0.11, 9.20
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Supply Chain Insights LLC Copyright © 2015, p. 54
Ecolab Making Progress
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Supply Chain Insights LLC Copyright © 2015, p. 55
Eastman Chemical
2015 Supply Chains to Admire Additions
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Supply Chain Insights LLC Copyright © 2015, p. 56
PharmaceuticalsWebinar
August 4, 2015
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Supply Chain Insights LLC Copyright © 2015, p. 57
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
Supply Chain Insights LLC Copyright © 2015, p. 58
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
Inv
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tory
Tu
rns
20002014
2001
2002
2003
20042005
20062007
2008 2009
2010
2011
20122013
Visualizing the Patterns
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2014 from YCharts
Best Scenario
JNJ0.25,11.36
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 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.
Here, we plot inventory turns (y-axis) vs. operating margin (x-axis).
Average (Operating Margin, Inventory Turns)
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Supply Chain Insights LLC Copyright © 2015, p. 59
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
Average (Operating Margin, Inventory Turns)
Inve
nto
ry T
urn
sNovo Nordisk Making Progress
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Supply Chain Insights LLC Copyright © 2015, p. 60
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
Inv
en
tory
Tu
rns
2014
2006
20142006
Inventory Turns vs. Operating Margin(2006 – 2014)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
Best Scenario
JNJ0.25, 11.11
Average (Operating Margin, Inventory Turns)
NVS0.21, 8.30
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Supply Chain Insights LLC Copyright © 2015, p. 61
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
Inv
en
tory
Tu
rns
2014
2006
2014 2006
Inventory Turns vs. Operating Margin(2006 – 2014)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014 from YCharts
Best Scenario
JNJ0.25, 11.11
Average (Operating Margin, Inventory Turns)
PFE0.21, 8.13
Supply Chain Insights LLC Copyright © 2015, p. 62
Inventory Turns vs. Operating Margin(2006 – 2014)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014
TEVA0.16, 4.28
Average (Operating Margin, Inventory Turns)
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
nto
ry T
urn
s
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Supply Chain Insights LLC Copyright © 2015, p. 63
The Journey
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Supply Chain Insights LLC Copyright © 2015, p. 64
Metrics Maturity
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Supply Chain Insights LLC Copyright © 2015, p. 65
• 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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Supply Chain Insights LLC Copyright © 2015, p. 66
• 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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Supply Chain Insights LLC Copyright © 2015, p. 67
Clorox Colgate
Eastman Chemical Estee Lauder
General Mills Inbev
L’Oreal
Congratulations!2015 Supply Chains to Admire Winners
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Questions?
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Supply Chain Insights LLC Copyright © 2015, p. 71
Founder: Lora Cecere
• Founder of Supply Chain Insights
• “LinkedIn Influencer”
• Guest blog for Forbes
• Author of 3 books: Bricks Matter (2012), Shaman’s Journal (2014) and Supply Chain Metrics That Matter (December 2014)
• 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: [email protected]• Blog: www.supplychainshaman.com (8,000 pageviews/month)• Forbes: http://www.forbes.com/search/?q=lora+cecere• Twitter: lcecere (6200 followers)• LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (46,000 followers)
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Supply Chain Insights LLC Copyright © 2015, p. 72
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)*91.5
Days 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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