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Presentation for the CSCMP CSCO conference on April 6, 2014.
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Metrics that Matter
Supply Chain Insights LLC Copyright © 2013, p. 2
This is the new bible for all supply chain executives. It provides an insider’s perspective that will prove incredibly valuable to even the most grizzled supply chain veteran. This is the next must-have business book.
--Bruce Richardson, Chief Enterprise Strategist, Salesforce.com
Today, the worlds of social business and supply chain management have many degrees of separation. I enjoyed working with Lora to understand what the future transformation of digital marketing to digital business could look like.
--Jeremiah Owyang, Research Director, Altimeter
Bricks Matter
17 Five-Star Reviews on Amazon
http://tinyurl.com/bricksmatter
Supply Chain Insights LLC Copyright © 2013, p. 3
Metrics That Matter
• Lora Cecere’s 2nd book: Metrics That Matter
• To publish in Fall 2014
http://tinyurl.com/metricsthatmatter
Pre-orders available on Amazon:
Supply Chain Insights LLC Copyright © 2013, p. 5
Supply Chain Insights LLC Copyright © 2013, p. 6
Today’s Supply Chains: Inside-out and Cautious
Current State
Supply Chain Insights LLC Copyright © 2013, p. 8
Growth has Slowed
Supply Chain Insights LLC Copyright © 2013, p. 9
The Efficient Supply Chain
Supply Chain Insights LLC Copyright © 2013, p. 10
The Long Tail of the Supply Chain: Growing Complexity
Volume
Level of PredictabilityPredictability based on forecast accuracy vs Actual Order Profiles
Supply Chain Insights LLC Copyright © 2013, p. 11
Increasing Commodity Volatility
Supply Chain Insights LLC Copyright © 2013, p. 12
Current State
Supply Chain Insights LLC Copyright © 2013, p. 13
Supply Chain Insights LLC Copyright © 2013, p. 14
Gap in What-if Architectures
Supply Chain Insights LLC Copyright © 2013, p. 15
Need for Agility
Supply Chain Insights LLC Copyright © 2013, p. 16
Outsourcing
Supply Chain Insights LLC Copyright © 2013, p. 17
Greatest Gaps in Visibility Importance vs. Performance:Inter-enterprise Order Management, 1st Tier Suppliers
and 3rd Party Manufacturing
Supply Chain Insights LLC Copyright © 2013, p. 18
Building Visibility Solutions
Driving Progress on the Effective Frontier
Supply Chain Insights LLC Copyright © 2013, p. 20
The Supply Chain
is a Complex System
with Complex Processes
with Increasing Complexity
Supply Chain Insights LLC Copyright © 2013, p. 21
The Effective Frontier
Supply Chain Insights LLC Copyright © 2013, p. 22
The Supply Chain Effective Frontier
Supply Chain Insights LLC Copyright © 2013, p. 23
Mining 20 Years of Financial Data
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
Supply Chain Insights LLC Copyright © 2013, p. 24
What defines supply chain excellence? Equal weighting of:• Strength: Year-over-year improvement in operating margin,
inventory, and revenue/employee• Balance: Ability to balance a portfolio to maximize market
capitalization• Resiliency: Tight pattern and predictable pattern at the
intersection of operating margin and inventory turns• Peer Input: Input of peers (Shaman’s Circle) on
performance
Company Rankings by Peer Group
Supply Chain Insights LLC Copyright © 2013, p. 25
Industry Progress
Supply Chain Insights LLC Copyright © 2013, p. 26
In a way that is:
Resilient and predictable
Balanced across the set of metrics to maximize value
Showing year-over-year improvement against peer group
To Drive Corporate Performance
Supply Chain Insights LLC Copyright © 2013, p. 27
Most Interesting Patterns
• Cash-to-Cash Cycle vs. Inventory Turns
• Inventory Turns vs. Operating Margin
• Inventory Turns vs. Revenue per Employee
Supply Chain Insights LLC Copyright © 2013, p. 28
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.
Supply Chain Insights LLC Copyright © 2013, p. 29
Correlation to Market Capitalization
Supply Chain Insights LLC Copyright © 2013, p. 30
Nine out of Ten Companies are Stuck
Supply Chain Insights LLC Copyright © 2013, p. 31
Impact of A Recession
Supply Chain Insights LLC Copyright © 2013, p. 32
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)
Chemical
Supply Chain Insights LLC Copyright © 2013, p. 34
Let me Give you an Example
Supply Chain Insights LLC Copyright © 2013, p. 35
Cash-to-Cash Cycle vs. Inventory Turns(2000-2012)
Supply Chain Insights LLC Copyright © 2013, p. 36
Inventory Turns vs. Operating Margin(2000-2012)
Supply Chain Insights LLC Copyright © 2013, p. 37
Inventory Turns vs. Revenue per Employee (2002-2012)
Supply Chain Insights LLC Copyright © 2013, p. 38
Company (2000-2003) Days of Inventory Days of Payables Days of Receivables
BASF SE 82 50 72
E. I. du Pont de Nemours and Co. 95 51 44
Company (2004-2007) Days of Inventory Days of Payables Days of Receivables
BASF SE 66 38 61
E. I. du Pont de Nemours and Co. 86 49 53
Company (2008-2011) Days of Inventory Days of Payables Days of Receivables
BASF SE 64 30 54
E. I. du Pont de Nemours and Co. 100 66 49
Company (2012) Days of Inventory Days of Payables Days of Receivables
BASF SE 64 30 50
E. I. du Pont de Nemours and Co. 106 69 42
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012
Cash-to-Cash Cycle Components
Supply Chain Insights LLC Copyright © 2013, p. 39
Cash-to-Cash Cycle vs. Inventory Turns(2000-2012)
Supply Chain Insights LLC Copyright © 2013, p. 40
Inventory Turns vs. Operating Margin(2000-2012)
Supply Chain Insights LLC Copyright © 2013, p. 41
Inventory Turns vs. Revenue per Employee (2002-2012)
Supply Chain Insights LLC Copyright © 2013, p. 42
Cash-to-Cash Cycle ComponentsCompany (2000-2003) Days of Inventory Days of Payables Days of Receivables
Danaher Corporation 65 45 61
Delphi Automotive PLC N/A N/A N/A
Johnson Controls, Inc. 15 60 55
Company (2004-2007) Days of Inventory Days of Payables Days of Receivables
Danaher Corporation 68 63 65
Delphi Automotive PLC N/A N/A N/A
Johnson Controls, Inc. 19 60 64
Company (2008-2011) Days of Inventory Days of Payables Days of Receivables
Danaher Corporation 70 66 63
Delphi Automotive PLC N/A N/A N/A
Johnson Controls, Inc. 23 64 65
Company (2012) Days of Inventory Days of Payables Days of Receivables
Danaher Corporation 75 64 65
Delphi Automotive PLC 30 65 57
Johnson Controls, Inc. 23 62 64
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012
Consumer Packaged Goods
Supply Chain Insights LLC Copyright © 2013, p. 44
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
Supply Chain Insights LLC Copyright © 2013, p. 45
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
Supply Chain Insights LLC Copyright © 2013, p. 46
Inventory Turns vs. Operating Margin (2000-2012)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012
0.10 0.15 0.20 0.254
5
6
7
2000
2012
20002012 2000
2012
Colgate-Palmolive Company Kimberly-Clark CorporationThe Procter & Gamble Company
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
Supply Chain Insights LLC Copyright © 2013, p. 47
Inventory Turns vs. Revenue per Employee (2002-2012)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012
200 300 400 500 600 7002
4
6
8
20122002
2002
20122002
2012
Colgate-Palmolive Company Kimberly-Clark CorporationThe Procter & Gamble Company
Revenue per Employee (K$)
Inv
en
tory
Tu
rns
Best Scenario
CL361, 5.5
KMB309, 5.9
Average (Revenue per Employee, Inventory Turns)
PG536, 5.6
Supply Chain Insights LLC Copyright © 2013, p. 48
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 (2004-2007) Days of Inventory Days of Payables Days of Receivables
Colgate-Palmolive Company 67 67 44
Kimberly-Clark Corporation 63 38 50
The Procter & Gamble Company 69 55 31
Company (2008-2011) Days of Inventory Days of Payables Days of Receivables
Colgate-Palmolive Company 68 64 38
Kimberly-Clark Corporation 63 54 47
The Procter & Gamble Company 68 66 28
Company (2012) Days of Inventory Days of Payables Days of Receivables
Colgate-Palmolive Company 70 66 36
Kimberly-Clark Corporation 60 63 39
The Procter & Gamble Company 58 68 26
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012
Consumer Electronics
Supply Chain Insights LLC Copyright © 2013, p. 50
Corporate Summary
Supply Chain Insights LLC Copyright © 2013, p. 51
Cash-to-Cash Cycle vs. Inventory Turns(2000-2012)
Supply Chain Insights LLC Copyright © 2013, p. 52
Inventory Turns vs. Operating Margin(2000-2012)
Supply Chain Insights LLC Copyright © 2013, p. 53
Inventory Turns vs. Revenue per Employee (2002-2012)
Supply Chain Insights LLC Copyright © 2013, p. 54
Cash-to-Cash Cycle Components
Company (2000-2003) Days of Inventory Days of Payables Days of Receivables
LG Electronics 62 61 49
Samsung Electronics Co., Ltd. 48 47 38
Company (2004-2007) Days of Inventory Days of Payables Days of Receivables
LG Electronics 62 41 37
Samsung Electronics Co., Ltd. 46 30 38
General Mills, Inc.Company (2008-2011) Days of Inventory Days of Payables Days of Receivables
LG Electronics 47 44 45
Samsung Electronics Co., Ltd. 48 30 44
Company (2012) Days of Inventory Days of Payables Days of Receivables
LG Electronics 47 52 50
Samsung Electronics Co., Ltd. 59 29 46
Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012
Supply Chain Insights LLC Copyright © 2013, p. 55
The Change Management Journey
Supply Chain Insights LLC Copyright © 2013, p. 56
Resilience: Mean Distance Analysis of Orbit Charts
Supply Chain Insights LLC Copyright © 2013, p. 57
Resilience: Mean Distance Analysis of Orbit Charts
Supply Chain Insights LLC Copyright © 2013, p. 58
Why it Matters
Company Average Operating Margin
Average Inventory Turns
Resiliency Ranking
BASF .10 5.3 .55
DuPont .10 4.0 .67
Company Average Operating Margin
Average Inventory Turns
Resiliency Ranking
Samsung .11 8.3 .59
LG Electronics .04 6.7 3.47
Company Average Operating Margin
Average Inventory Turns
Resiliency Ranking
Procter & Gamble .18 5.7 .52
Unilever .13 5.6 .74
Supply Chain Insights LLC Copyright © 2013, p. 59
Metrics Matter. Align for Strength, Balance and Resiliency
Future is Bright: But, we have to learn from the past, to unlearn to be open to the future.
Summary
Supply Chain Insights LLC Copyright © 2013, p. 60
Questions?
Supply Chain Insights LLC Copyright © 2013, p. 61
Public Training
www.supplychaininsights.com/services/training
• Chicago, IL – June 18-19, 2014• Philadelphia, PA – August 6-7, 2014• Dallas, TX – November 5-6, 2014
Supply Chain Insights LLC Copyright © 2013, p. 62
Complimentary Webinars
www.supplychaininsights.com/upcoming-webinars
UPCOMING WEBINARSApril 10, 2014: Risk Management
April 24, 2014: Supply Chain Resiliency
May 8, 2014: Our Research Difference
May 15, 2014: Metrics That Matter Book
June 12, 2014: Digital Supply Chain
PAST WEBINARS: ON DEMANDFrom Mar. 6, 2014: Voice of the Supply Chain
From Nov. 14, 2013: Healthcare Value Chain
From Nov. 13, 2013: The Shaman’s Circle
From Oct. 10, 2013: Metrics That Matter
From Aug. 30, 2013: Supply Chain Matters
Supply Chain Insights LLC Copyright © 2013, p. 63
Annual Event September 2014
Supply Chain Insights LLC Copyright © 2013, p. 64
Who is Lora?
• Founder of Supply Chain Insights
• 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.
Supply Chain Insights LLC Copyright © 2013, p. 65
Where Do You Find Lora?
Contact Information: [email protected]
Blog: 100 Posts/Year www.supplychainshaman.com (10000 pageviews/month)
Forbes: Write 2X/Month http://www.forbes.com/search/?q=lora+cecere
Twitter: lcecere 4800 followers.
LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (Linkedin Influencer over 6000 followers in the network)