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

Defining Supply Chain Excellence

Supply Chain Insights LLC Copyright © 2013, p. 2

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

3

6

9

12

15

2002 2012

The Dow Chemical Company

Revenue per Employee (K$)

Inv

en

tory

Tu

rns

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

Stock

Exchange:

Ticker

Symbol

2012

Revenue

(billions

USD)

2012 Global

Employees

(thousands)

Country

Where

Based

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

10

20

30

40

50

60

70

80

90

2000

2012

2000

2012

2000

2012

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

Inventory Turns

Ca

sh

-to

-Ca

sh

Cy

cle

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

5

6

7

2000

2012

20002012 2000

2012


Operating Margin

Inv

en

tory

Tu

rns

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

4

6

8

20122002

2002

20122002

2012



Inv

en

tory

Tu

rns

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

25

50

75

2001

2012

2000

2012

CVS Caremark Corporation Walgreen Company

Inventory Turns

Ca

sh

-to

-Ca

sh

Cy

cle

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

20

40

60

2000

2012

2000

2012

Target Corporation Wal-Mart Stores, Inc.

Inventory Turns

Ca

sh

-to

-Ca

sh

Cy

cle

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

Stock

Exchange:

Ticker

Symbol

2012

Revenue

(billions

USD)

2012 Global

Employees

(thousands)

Country

Where

Based

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

5

10

15

20

25

2000

2012

2000

2012

Safeway Inc. The Kroger Co.

Inventory Turns

Ca

sh

-to

-Ca

sh

Cy

cle

Best Scenario


SWY10.5, 10.3

KR10.6, 11.9




-0.02 0 0.02 0.04 0.06 0.08 0.17

8

9

10

11

12

13

14

15

2000

2012

2000

2012


Operating Margin

Inv

en

tory

Tu

rns

Best Scenario

SWY0.04, 10.5

KR0.03, 10.6





150 200 250 3007

8

9

10

11

12

13

14

15

2012

2003

2012

2002



Inv

en

tory

Tu

rns

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

-30

-10

10

30

50

70

2000

2012

2000

2012

PepsiCo Inc. The Coca-Cola Company

Inventory Turns

Ca

sh

-To

-Ca

sh

Cy

cle

Best Scenario

PEP8.3, 30

KO5.4, 48

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




0.10 0.20 0.30 0.404

5

6

7

8

9

2000 2012

2000

2012


Operating Margin

Inv

en

tory

Tu

rns

Best Scenario

PEP0.17, 8.3

KO0.27, 5.4





0 100 200 300 400 5004

5

6

7

8

9

10

2002

2012

20022012



Inv

en

tory

Tu

rns

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

10

20

30

40

50

2000

2012

2000

2012

General Mills, Inc. Kellogg Company

Inventory Turns

Ca

sh

-to

-Ca

sh

Cy

cle

Best Scenario

GIS6.2, 37.5

K7.4, 26.5





0.10 0.15 0.20 0.254

5

6

7

8

9

2000

2012

2000

2012


Operating Margin

Inv

en

tory

Tu

rns

Best Scenario

GIS0.18, 6.2

K0.16, 7.4





300 350 400 450 5004

5

6

7

8

9

2002

2012

2003

2012



Inv

en

tory

Tu

rns

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

-50

0

50

100

150

200

250

300

350

2001

2012

2000

2012

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

Inventory Turns

Ca

sh

-to

-Ca

sh

Cy

cle

Best Scenario

MRK2.4, 175


BMY3.2, 57



0.0 0.1 0.2 0.3 0.4 0.5 0.60

1

2

3

4

5

6

7

82000

2012 2000

2012


Operating Margin

Inv

en

tory

Tu

rns

BMY0.22, 3.2 MRK

0.31, 2.8

Best Scenario





200 300 400 500 600 700 8000

1

2

3

4

5

2002

2012

2002

2012



Inv

en

tory

Tu

rns

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

25

50

75

100

2000

2012

2000

2012

Danaher Corporation Johnson Controls, Inc.

Inventory Turns

Ca

sh

-to

-Ca

sh

Cy

cle

Best Scenario

DHR5.4, 73.1


JCI20.1, 19.5




-0.05 0.00 0.05 0.10 0.15 0.200

5

10

15

20

25

30

2000

2012

2000 2012


Operating Margin

Inv

en

tory

Tu

rns

Best Scenario

DHR0.15, 5.4

JCI0.04, 20.1





150 200 250 3000

5

10

15

20

25

30

2002

2012

2002 2012



Inv

en

tory

Tu

rns

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

20

40

60

80

100

2000

2012

2000

2012

Owens-Illinois Inc. Sonoco Products Company

Inventory Turns

Ca

sh

-to

-Ca

sh

Cy

cle

Best Scenario

OI5.2, 67.9

SON9.2, 42.6





100 150 200 250 300 3503

5

7

9

11

2002

2012

2002

2012

Owens-Illinois Inc. Sonoco Products Company


Inv

en

tory

Tu

rns

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

Business

chain leaders

inventory turns12ideally

operating margin inventory

cash cyclesource

cash cycle70kmb

interesting patterns

corporate annual reports

dow chemical company