Embracing Supply Chain
Metrics That Matter
Supply Chain Insights LLC Copyright © 2016, p. 2
Disclaimer: I am a Skeptic
Supply Chain Insights LLC Copyright © 2016, p. 3
A Social Scientist
Supply Chain Insights LLC Copyright © 2016, p. 4
A Fortune-teller of Sorts….
Supply Chain Insights LLC Copyright © 2016, p. 5
I Write for the Supply Chain Leader
Supply Chain Insights LLC Copyright © 2016, p. 6
Delivering Open Content To The Market
Today’s Supply Chain Is
Stuck
Supply Chain Insights LLC Copyright © 2016, p. 8
Descriptors Used by Leaders
Supply Chain Insights LLC Copyright © 2016, p. 9
Today, the healthcare supply chain is focused on
efficient sickness. With a focus on affordable care,
there is a movement towards health and wellness.
Who is the customer? Physician? Patient?
Current State
Supply Chain Insights LLC Copyright © 2016, p. 10
Long Term View
Industry Snapshots (2006-2013)
Industry
Year –over-
Year Revenue
Growth
Operating
Margin
Inventory
Turns
Cash-to-
Cash Cycle
Revenue per
Employee
(K$)
SG&A
Ratio
Retail Apparel Industry 18%
39%
0.39
27%
05
05%
68
26%
325
18%
27%
05%
Apparel Manufacturing Industry 14%
82%
0.12
32%
05
68%
150
08%
400
355%
27%
63%
Mass Retail Industry 09%
50%
0.06
20%
06
06%
03
148%
350
48%
23%
6%
Beverage Industry 09%
61%
0.19
16%
02
04%
53
46%
512
NC
24%
16%
Pharmaceutical Industry 08%
47%
0.23
29%
03
16%
155
47%
572
32%
27%
08%
Chemical Industry 08%
45%
0.10
10%
06
04%
87
23%
557
23%
14%
27%
Medical Device Industry 06%
38%
0.14
32%
02
13%
206
16%
351
12%
34%
04%
Grocery Retail Industry 06%
31%
0.03
37%
17
01%
10
50%
405
54%
14%
06%
Consumer Packaged Goods05%
25%
0.14
73%
08
482%
72
17%
333
14%
26%
09%
Food Industry 05%
55%
0.10
19%
07
17%
40
04%
534
55%
20%
18%
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2013
Industry 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 $1billion
NC=no change
Supply Chain Insights LLC Copyright © 2016, p. 11
Today’s Supply Chain Is Stuck
Supply Chain Insights LLC Copyright © 2016, p. 12
What Is a Supply Chain?
Drivers of Change
Supply Chain Insights LLC Copyright © 2016, p. 14
State of Healthcare
Supply Chain Insights LLC Copyright © 2016, p. 15
Within the Hospital
Supply Chain Insights LLC Copyright © 2016, p. 16
Supply Chain Risk
5 Fallacies
Supply Chain Insights LLC Copyright © 2016, p. 18
Fallacy #1 : Organizations Can Align
Supply Chain as a Function
Supply Chain Insights LLC Copyright © 2016, p. 20
Focus on Total Supply Chain Costs
Supply Chain Insights LLC Copyright © 2016, p. 21
Manage the Costs Like a Decathlete
Supply Chain Insights LLC Copyright © 2016, p. 22
Fallacy #2: A Project-based Focus
Supply Chain Insights LLC Copyright © 2016, p. 23
Fallacy #3: The Efficient Supply Chain is the Most
Effective
Supply Chain Insights LLC Copyright © 2016, p. 24
Bullwhip Effect
Supply Chain Insights LLC Copyright © 2016, p. 25
Fallacy #4: We Have Best Practices
Supply Chain Insights LLC Copyright © 2016, p. 26
Fallacy #5: Integration is the Answer Beyond the
Firewall
Supply Chain Insights LLC Copyright © 2016, p. 27
Confidence in ERP to Build Business Networks
Supply Chain Insights LLC Copyright © 2016, p. 28
Gaps in Supply Chain Visibility
Supply Chain Insights LLC Copyright © 2016, p. 29
Collaboration: The Right Stuff
Improving the Metrics
That Matter
Supply Chain Insights LLC Copyright © 2016, p. 31
What We Expected
Supply Chain Insights LLC Copyright © 2016, p. 32
A Supply Chain
is a Complex System
with Complex
Processes
with Increasing
Complexity
What We Learned….
Supply Chain Insights LLC Copyright © 2016, p. 33
The Supply Chain Effective Frontier
Supply Chain Insights LLC Copyright © 2016, p. 34
Correlations to Market Capitalization
Supply Chain Insights LLC Copyright © 2016, p. 35
Orbit Chart: Wal-Mart(Inventory Turns and Operating Margin)
Supply Chain Insights LLC Copyright © 2016, p. 36
Orbit Chart: Apple (Inventory Turns and Operating Margin)
Supply Chain Insights LLC Copyright © 2016, p. 37
Orbit Charts: Dow Chemical Company
Supply Chain Insights LLC Copyright © 2016, p. 38
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 =𝟏
𝟑𝑩𝒂𝒍𝒂𝒏𝒄𝒆 𝑭𝒂𝒄𝒕𝒐𝒓 +
𝟏
𝟑𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓 +
𝟏
𝟑𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓
Supply Chain Insights LLC Copyright © 2016, p. 39
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014
2006
4.0
5.0
6.0
7.0
8.0
9.0
10.0
-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60
Operating Margin
Eli Lilly and Company Novo Nordisk
2014NVO
0.31, 6.48
2014
2006
Best Scenario
LLY
0.24, 8.30
Average (Operating Margin, Inventory Turns)
Inven
tory
Tu
rns
Novo Nordisk Making Progress
Supply Chain Insights LLC Copyright © 2016, p. 40
Path of Medical Device Supply Chains
Supply Chain Insights LLC Copyright © 2016, p. 41
Pharmaceutical
Supply Chain Insights LLC Copyright © 2016, p. 42
Medical Device
Supply Chain Insights LLC Copyright © 2016, p. 43
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
+
Supply Chain Insights LLC Copyright © 2016, p. 44
Supply Chains to Admire
Supply Chain Insights LLC Copyright © 2015, p. 45
Change the Metrics Focus
Supply Chain Insights LLC Copyright © 2016, p. 46
• 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
Supply Chain Insights LLC Copyright © 2015, p. 47
Our Insights
Supply Chain Insights LLC Copyright © 2016, p. 51
About Lora Cecere
• Founder of Supply Chain Insights
• “LinkedIn Influencer”
• Guest blog for Forbes
• Author of 4 books: Bricks Matter (2012), Shaman’s Journal (2014),
Supply Chain Metrics That Matter (2014), Shaman’s Journal (2015)
• 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 (15,000 pageviews/month)
• Forbes: www.forbes.com/sites/loracecere
• Twitter: twitter.com/lcecere (6,800 followers)
• LinkedIn: www.linkedin.com/in/loracecere (76,724 followers)
• LinkedIn Influencer: www.linkedin.com/today/author/446631
Supply Chain Insights LLC Copyright © 2016, p. 52
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)
Top Related