The Math Behind the Supply Chain Index

transcript

9/11/2014 September 2014, p.1Supply Chain Insights Global Summit #ImagineSC

Lora Cecere, Supply Chain InsightsDr. George Runger, Arizona State University

Abby Mayer, Supply Chain Insights

Speakers

Lora CecereSupply Chain Insights

Founder and CEO

Dr. George RungerArizona State University

Professor, School of Computing, Informatics and

Decision Systems Engineering – Ira A. Fulton School of

Engineering

Abby MayerSupply Chain Insights

Research Associate

The Supply Chain Effective Frontier

Mining 20 Years of Financial Data

Companies Get More Serious with a Recession

Correlations to Market Capitalization

The Promise

Orbit Chart: Dow Chemical (Inventory Turns Vs. Operating Margin)

Supply Chain Metrics That Matter Reports

Operating Margin: Is Bigger Better? Operating Margin for Years 2000-2012

Industry Segment Companies between $1-5B in Annual Revenue

Companies Greater than $5B in Annual Revenue

Automotive .03 .04

Chemical .08 .10

Consumer Electronics .03 .03

Consumer Packaged Goods .11 .13

Contract Manufacturers .02 .04

Food and Beverage .08 .05

Hospitals .09 .14

Mass Retail .04 .03

Medical Device .15 .16

Pharmaceuticals .11 .19

Semiconductors .03 .04Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012

Inventory Turns: Is Bigger Better? Inventory Turns for Years 2000-2012

Industry Segment Companies between $1-5B in Annual Revenue

Companies Greater than $5B in Annual Revenue

Automotive 7.4 7.5

Chemical 5.3 4.6

Consumer Electronics 6.5 6.8

Consumer Packaged Goods 4.1 4.8

Contract Manufacturers 7.6 7.2

Food and Beverage 6.2 11.1

Hospitals 13.3 11.1

Mass Retailers 10.5 7.6

Medical Device 4.7 3.2

Pharmaceuticals 3.6 2.7

Semiconductor 7.6 6.5Source: Supply Chain Insights LLC, Corporate Annual Reports 2000-2012

Our Answer? For Supply Chain Excellence?

Supply Chain Index: A Measure of Supply Chain Improvement

Overall Ranking per Company• Balance: Return on Invested Capital & Revenue Growth Vector Trajectory• Strength: Inventory Turns & Operating Margin Vector Trajectory• Resiliency: Inventory Turns & Operating Margin Mean Distance

A new way to measure relative supply chain performance by industry, based on the components of balance, strength and resiliency.

Supply Chain Index: A Measure of Supply Chain Improvement

Do you think that the factors in the Supply Chain Index (balance, strength and resiliency)

should be weighted equally?

a) Yes, weight them equally

b) No, weight them differently

c) Not sure – still thinking about it

To respond, go to www.scisummitpolling.cnf.io, select current session name and choose your response. Aggregated responses will be shared at the end!

Polling sponsored by

What Is Resiliency?

Resiliency =Tightness of the pattern on the orbit chart for operating margin and inventory turns

Resiliency 2000-2013

Consumer Goods

Chemical 2006-2013

Chemical 2009-2013

Summary

• Patterns are significantly different by industry.

• Many have exaggerated both supply chain performance and improvement.

• Work on the Supply Chain Index is challenging and evolving.

The Math Behind the Supply Chain Index

Business