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Where are we on the Journey?A Closer Look at Healthcare
Providers
Supply Chain Insights LLC Copyright © 2013, p. 3
Supply Chain Insights is focused on delivering independent, actionable and objective advice for supply chain leaders. A company dedicated to research, turn to us when you want the latest insights on supply chain trends, technologies to know and metrics that matter.
About Us
Supply Chain Insights LLC Copyright © 2013, p. 4
Healthcare Value Chain Financial Metrics
Supply Chain Insights LLC Copyright © 2013, p. 5
Components of Cash to Cash
Supply Chain Insights LLC Copyright © 2013, p. 6
Supply Chain Organization:Three-Quarters Have a Formal Supply Chain Organization
Supply Chain Insights LLC Copyright © 2013, p. 7
Supply Chain Organization:7 Functions Report Through It on Average;Reports Primarily to Chief Financial Officer
Supply Chain Insights LLC Copyright © 2013, p. 8
Supply Chain Organization:Purchasing is Primarily Done Corporate-Wide
Supply Chain Insights LLC Copyright © 2013, p. 9
Hospitals: Measuring Value
Supply Chain Insights LLC Copyright © 2013, p. 10
Hospitals: Value Analysis
Supply Chain Insights LLC Copyright © 2013, p. 11
Value Analysis Group: Supply Chain is Primary Leader;
Changing/Adding Products are Most Common Decisions
Supply Chain Insights LLC Copyright © 2013, p. 12
Value Analysis Program
Supply Chain Insights LLC Copyright © 2013, p. 13
Focus: Negotiating Lower Prices
Supply Chain Insights LLC Copyright © 2013, p. 14
Current State
Supply Chain Insights LLC Copyright © 2013, p. 15
SHARED VISION
+ SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE
SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION
SHARED VISION
+ INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY
SHARED VISION
+ SKILLS + INCENTIVE + RESOURCES + LEADERSHIP =FALSE
STARTS
SHARED VISION
+ SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION
SHARED VISION
+ SKILLS + RESOURCES + PLAN + LEADERSHIP =GRADUAL CHANGE
Source: J.P. Kotter
Collaboration: The Right Stuff
Supply Chain Insights LLC Copyright © 2013, p. 16
Applying the Supply Chain Index to Healthcare
A formulaic representation of how companies are trading off growth, profitability, cycle and
complexity performance on selected supply chain financial
metrics against market valuation.
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 17
Value Chain
Source: Supply Chain Insights LLC
Metrics That Matter by Industry
Medical Care Industry Medical Distribution Pharmaceutical Major
Free Cash Flow Ratio Operating Margin Free Cash Flow Ratio
Working Capital Ratio Return on Invested Capital Return on Invested Capital
Operating Margin Free Cash Flow Ratio Altman Z
SG&A to COGS Ratio Working Capital Ratio Current Ratio
YoY Revenue Growth Return on Net AssetsDays of Payables
Outstanding
Current Ratio DPO/DSO Ratio
Days of Sales Outstanding Current Ratio
Days of Inventory Days of Inventory
Days of Payables Outstanding
0.73 0.84 78
Supply Chain Insights LLC Copyright © 2013, p. 18
• Redesign for value• Focus on outcomes• Management of end-to-end processes
Summary
Supply Chain Insights LLC Copyright © 2013, p. 19
Our Focus
2-DAY PUBLIC TRAINING
Princeton – June 24-25Minneapolis – August 8-9
$1500
GLOBAL SUMMIT
PODCASTS
www.supplychaininsights.com
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 20
PAST SUPPLY CHAIN INDEX WEBINARS:
AVAILABLE ON DEMAND• From September 24, 2012:
The Supply Chain Index, 20 Years in the Making: A Focus on Process Industries
• From October 26, 2012: The Supply Chain Index, 20 Years in the Making: A Focus on Discrete Industries
Webinars
www.supplychaininsights.com/upcoming-webinars
#sciwebinar
UPCOMING WEBINARS• May 23 rd: Supply Chain Index, Update, Part II
• June 13th: Sales and Operations Planning: State of the Union
• July 11th: Big Data Supply Chains and the Future of Analytics
• August 15th: State of Supply Chain Talent: Missing Link in the Supply Chain
• August 29th: Digital Manufacturing
In Search of Supply Chain Excellence
Lora Cecere of Supply Chain Insights
Supply Chain Insights LLC Copyright © 2013, p. 22
Supply Chain Insights is focused on delivering independent, actionable and objective advice for supply chain leaders. A company dedicated to research, turn to us when you want the latest insights on supply chain trends, technologies to know and metrics that matter.
About Us
Supply Chain Insights LLC Copyright © 2013, p. 23
18 Reports in 2012
Supply Chain Insights LLC Copyright © 2013, p. 24
Over 30 Reports Planned for 2013
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 25
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
Second Printing of Bricks Matter: 14 Five-Star Reviews on Amazon
Book can be ordered from Amazon.com in Hardcopy or Digital Format
Supply Chain Insights LLC Copyright © 2013, p. 26
BRICKSRight Use of Assets
Expansion into BRIC Countries (Brazil, Russia, India and China)
Supply Chain Process Knowledge
In Search of Supply Chain Excellence
Supply Chain Insights LLC Copyright © 2013, p. 28Supply Chain Insights LLC Copyright 2013
Current State
Supply Chain Insights LLC Copyright © 2013, p. 29
The Supply Chain Pioneers
Supply Chain Insights LLC Copyright © 2013, p. 30
Source: Supply Chain Insights, Corporate Annual Reports 2000-2011
Inventory Performance
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Consumer Packaged Goods
59 57 62 64 67 67 68 70 70 64 64 67
Chemical
71.5 71.9 78.2 75.1 62 70.3 68.1 64.3 64.3 78.6 72.9 72.8
Pharma
122.236691097
869
133.699100562
175
190.147616165
968
170.986522478
989
184.342617399
859
175.550260476
877
167.799951139
247
149.815153981
283
154.915781882
591
198.663134119
976
154.313480863
244
131.819794240
294
High Tech
93.1 57.6 46.5 48.5 35.9 37.3 43.8 36.8 34.6 41.3 34.8 30.4
Average
86.4591727744
674
80.0497751405
437
94.2119040414
919
89.6466306197
472
87.3106543499
647
87.5375651192
192
86.9249877848
117
80.2287884953
207
80.9539454706
477
95.6407835299
941
81.5033702158
11
75.5049485600
736
25.0
75.0
125.0
175.0
225.0
Da
ys
o
f In
ve
nto
ry
Supply Chain Insights LLC Copyright © 2013, p. 31
Perform better than peer group
Improve year-over-year results
Alignment in metrics
Delivery of performance against the business strategy
Consistency in results
Be a leader in managing trade-offs
What Is Supply Chain Excellence?
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 32
Supply Chain Insights LLC Copyright © 2013, p. 33
Evolving Practices
Supply Chain Insights LLC Copyright © 2013, p. 34
A Supply Chain
is a Complex System
with Complex Processes
with Increasing Complexity
Supply Chain Insights LLC Copyright © 2013, p. 35
The Effective Frontier
Supply Chain Insights LLC Copyright © 2013, p. 36
Trying to Reach Balance
Supply Chain Insights LLC Copyright © 2013, p. 37
Useful Ratios
Supply Chain Insights LLC Copyright © 2013, p. 38
Industry Averages
Supply Chain Insights LLC Copyright © 2013, p. 39
Chemical Industry Performance
Supply Chain Insights LLC Copyright © 2013, p. 40
Consumer Packaged Goods Industry Performance
Supply Chain Insights LLC Copyright © 2013, p. 41
Colgate-Palmolive Company vs Unilever N.V.
Supply Chain Insights LLC Copyright © 2013, p. 42
Inventory Turns vs. Revenue per Employee (2002-2011) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 43
Cash-to-Cash Cycle vs. Operating Margin (2000-2011)
Supply Chain Insights LLC Copyright © 2013, p. 44
Cash-to-Cash Cycle vs. Gross Margin (2000-2011) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 45
Pharmaceutical Industry Historical Performance
Supply Chain Insights LLC Copyright © 2013, p. 46
Cash-to-Cash Cycle vs. Gross Margin (2000-2011) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 47
Healthcare Value Chain: Financial Metrics
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 48
Healthcare Value Chain Cash-to-Cash Cycle
Supply Chain Insights LLC Copyright © 2013, p. 49
Food Industry Historical Performance
Supply Chain Insights LLC Copyright © 2013, p. 50
Cash-to-Cash Cycle vs. Gross Margin (2000-2011)SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 51
Five Year Comparison
Royal Dutch Shell
Supply Chain Insights LLC Copyright © 2013, p. 53
Corporate Summary
Supply Chain Insights LLC Copyright © 2013, p. 54
Metrics Included for Comparison
Supply Chain Insights LLC Copyright © 2013, p. 55
Metric Equations
Supply Chain Insights LLC Copyright © 2013, p. 56
Cash-to-Cash Cycle vs. Operating Margin (2000-2003)
Supply Chain Insights LLC Copyright © 2013, p. 57
Cash-to-Cash Cycle vs. Operating Margin (2004-2007)
Supply Chain Insights LLC Copyright © 2013, p. 58
Cash-to-Cash Cycle vs. Operating Margin (2008-2011)
Supply Chain Insights LLC Copyright © 2013, p. 59
Cash-to-Cash Cycle vs. Operating Margin (2012)
Supply Chain Insights LLC Copyright © 2013, p. 60
Cash-to-Cash Cycle vs. Operating Margin (2000-2012) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 61
Inventory Turns vs. Revenue per Employee (2002-2003)
Supply Chain Insights LLC Copyright © 2013, p. 62
Inventory Turns vs. Revenue per Employee (2004-2007)
Supply Chain Insights LLC Copyright © 2013, p. 63
Inventory Turns vs. Revenue per Employee (2008-2011)
Supply Chain Insights LLC Copyright © 2013, p. 64
Inventory Turns vs. Revenue per Employee (2012)
Supply Chain Insights LLC Copyright © 2013, p. 65
Inventory Turns vs. Revenue per Employee (2002-2012) SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 66
Cash-to-Cash Cycle Components (2000-2003)
Supply Chain Insights LLC Copyright © 2013, p. 67
Cash-to-Cash Cycle Components (2004-2007)
Supply Chain Insights LLC Copyright © 2013, p. 68
Cash-to-Cash Cycle Components (2008-2011)
Supply Chain Insights LLC Copyright © 2013, p. 69
Cash-to-Cash Cycle Components (2012)
Supply Chain Insights LLC Copyright © 2013, p. 70
Cash-to-Cash Cycle (2000-2012)
Supply Chain Insights LLC Copyright © 2013, p. 71
Publishing Two eBooks in 2013 on Supply Chain Metrics That Matter
– Consumer Value Networks– Industrial Value Networks
2013 Publications
Supply Chain Insights LLC Copyright © 2013, p. 72
Introducing the Supply Chain Index
A formulaic representation of how companies are trading off growth, profitability, cycle and
complexity performance on selected supply chain financial
metrics against market valuation.
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 73
1. To better understand which supply chain metrics matter to corporate balance sheet performance in public markets. We want to help leaders better align supply chain and financial performance.
2. To create an objective system for evaluating and ranking supply chains by industry peer group.
3. To connect financial performance with supply chain excellence as measured through quantitative surveys in an effort to better identify and define best practices across industry groups.
Why Did We Do This?
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 74
• What it is: A way to understand the impact of companies’ supply chain (relative to peers within an industry sector) to market capitalization based a set of preselected supply chain ratio metrics.
• What it is NOT: A way to evaluate overall company performance or compare the model results to actual market capitalization.
What It Is. What It Is Not.
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 75
Step 1: Located data sources
Step 2: Selected core supply chain ratios from over 50 financial metrics
Step 3: Identified meaningful metrics per industry using regression analysis among selected ratios
Step 4: Constructed industry equation based on correlation of industry metrics to market capitalization values
Step 5: Determined company rankings within industry by applying 2012 company results to industry equation
Step 6: Analysis of peer group companies over the last decade
Step 7: Correlations to supply chain practices, technologies and organizational design
Supply Chain Index Methodology
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 76
– Market capitalization data of public companies (Ycharts.com)
– Industry peer groups defined by Morningstar Sector (36)
– Financial ratios built from balance sheet and income statement data collected from OneSource
– Analysis of quarterly data using R (frequency 2006Q1 to 2012Q4)
Step 1: Located Data Sources
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 77
Step 2: Selected 14 Core Supply Chain Ratios to Study
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
Source: Supply Chain Insights LLC
#sciwebinar
Selected Ratios
Supply Chain Insights LLC Copyright © 2013, p. 78
Step 3: Identified Industry Metrics
#sciwebinar
Market Capitalization vs. Revenue Growth
Insight: For example, growth did not correlate for chemical companies.
Supply Chain Insights LLC Copyright © 2013, p. 79
Step 3: Identified Industry Metrics
Metrics That Matter by Industry
Mass Retail IndustryConsumer Packaged
Goods IndustryChemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSODays of Payables
OutstandingDays of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
0.89 0.68
#sciwebinar
Source: Supply Chain Insights LLC
Supply Chain Insights LLC Copyright © 2013, p. 80
Step 4: Mass Retail Equation
#sciwebinar
Ln(market cap) = 10.41 + 52.67(OM) -34.72(WC) - 16.02(ROIC) – 0.09(DPODSO) + 0.02(DOI)
NOTE: Full equation is Ln(market capitalization) = 10.40934 + 52.66784(operating margin) -34.7248(working capital ratio) – 16.0211(return on invested capital) – 0.09183(dpo/dso) + 0.017478(days of inventory). We utilized adjusted which accounts for the occurrence of large p values. Outlier values were defined and excluded as those 5 times larger than IQR.
Correlation Strength
Mass Retail Industry Equation
Supply Chain Insights LLC Copyright © 2013, p. 81
Step 5: Determined Rankings by IndustryMass Retail Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 82
Top Ranked Mass Retail Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 83
Step 3: Identified Industry Metrics
#sciwebinar
Source: Supply Chain Insights LLC
Metrics That Matter by Industry
Mass Retail IndustryConsumer Packaged
Goods IndustryChemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSODays of Payables
OutstandingDays of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
0.89 0.68
Supply Chain Insights LLC Copyright © 2013, p. 84
Step 4: Consumer Packaged Goods (CPG) Equation
#sciwebinar
Ln(market cap) = 3.37 + 2.11(OM) + 1.62(FCF) – 1.29(ROIC) – 1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI)
NOTE: Full equation is Ln(market capitalization) = 3.368152 + 2.107516(operating margin) + 1.624277(free cash flow ratio) – 1.2891(return on invested capital) – 1.16775*ln(current ratio) + 0.2455(sga to cogs ratio) + 0.016078(days of payables outstanding) – 0.00655(days of inventory). We utilized adjusted which accounts for the occurrence of large p values. Outlier values were defined and excluded as those 5 times larger than IQR.
Correlation Strength
CPG Industry Equation
Supply Chain Insights LLC Copyright © 2013, p. 85
Step 5: Determined Rankings by IndustryCPG Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 86
Top Ranked CPG Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 87
Step 3: Identified Industry Metrics
#sciwebinar
Source: Supply Chain Insights LLC
Metrics That Matter by Industry
Mass Retail IndustryConsumer Packaged
Goods IndustryChemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSODays of Payables
OutstandingDays of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
0.89 0.68
Supply Chain Insights LLC Copyright © 2013, p. 88
Step 4: Chemical Industry Equation
#sciwebinar
Ln(market cap) = 7.85(OM) – 4.84(ROA) + 1.81ln(DPO) + 0.01(DOI)
Correlation Strength
NOTE: Full equation is Ln(market capitalization) = 7.850179(operating margin) – 4.83507(return on assets) + 1.806959* ln(days of payables outstanding) + 0.008524(days of inventory). We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 3 times larger than IQR.
Chemical Industry Equation
Supply Chain Insights LLC Copyright © 2013, p. 89
Step 5: Determined Rankings by IndustryChemical Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 90
Top Ranked Chemical Industry (2012)
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 91
In ProgressFood Industry
#sciwebinar
Ln(market cap) = 5.57 +15.56(OM) – 7.50(ROIC) – 4.13(ROA) + 2.74(RONA) + 0.61(Z) + 0.04(DPO) – 0.04(DSO)
Correlation Strength
NOTE: Full equation is Ln(market capitalization) = 5.567785 + 15.56315(operating margin) -7.49664 (return on invested capital) – 4.12637(return on assets) + 2.743363(return on net assets) + 0.605805(altman z) + 0.040756(days of payables outstanding) – 0.03914(days of sales outstanding). We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 5 times larger than IQR.
Food Industry Equation
Supply Chain Insights LLC Copyright © 2013, p. 92
Value Chain Relationships
Retail(Mass
Merchant)CPG Chemical
Equations:Ln(market cap) =
10.41 + 52.67(OM) -34.72(WC)
- 16.02(ROIC) -0.09(DPODSO)
+ 0.02(DOI)
3.37+ 2.11(OM) + 1.62(FCF) - 1.29(ROIC) - 1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI)
7.85(OM) - 4.84(ROA) + 1.81ln(DPO)
+ 0.01(DOI)
True collaboration only happens when there is a sustaining win-win value proposition.
Supply Chain Insights LLC Copyright © 2013, p. 93
Future Evolution
Align:Market Driven
Building Horizontal Process Connectors
ContinuousTesting
LearningImprovingIn Market
OrchestrateDemand and Supply
ResilientReliable
Adapt: Demand Driven
EfficientSense
Demandand Supply
Shape Demand andSupply based
on Market
Absorb DemandVolatility
Absorb Supply Volatility
Right Product
Right Place
Right Time
Right Cost
Cost
Procure to pay/order to
cash
Supply Chain Insights LLC Copyright © 2013, p. 94
A network that senses demand with minimal latency to drive a near-real time response for
demand shaping and demand translation.
What Is a Demand-driven Value Network?
Supply Chain Insights LLC Copyright © 2013, p. 95
Rising Price of a Barrel of West Texas Intermediate (WTI)
Supply Chain Insights LLC Copyright © 2013, p. 96
Commodity Price Increases and Volatility
Supply Chain Insights LLC Copyright © 2013, p. 97
An adaptive network focused on a value-based outcome that senses and translates
market changes (buy and sell-side markets) bi-directionally with near-real time data latency to align sell, deliver, make and
sourcing operations.
What Is a Market-driven Value Network?
Supply Chain Insights LLC Copyright © 2013, p. 98
E2E Order Delivery kaizen team was able to quantify the current order processing
inefficiencies
04/08/2023
12
32
174
Process Steps Valued by the Cus-tomer
Necessary process steps but not value-producing for our business
Manual intervention steps now part of "normal"
Zero (0) orders flow through the e2e process without being manually handled! Massive value creation potential for eliminating waste, inefficiency and re-focusing
resources on activities that actually deliver value
Breakdown of E2E Order to Delivery Process
0%
20%
40%
60%
80%
100%
% of time actually spent completing process stepsTime spent in Queues and "Do Loops"
Vast majority of time is spent on activities that do not produce
enterprise value
>60% of order processing is spent waiting or in inefficient manual intervention
Supply Chain Insights LLC Copyright © 2013, p. 99
CPG Food+bev Electronics Semi-conductor
Durables Process Discrete
26%19% 21%
30%26%
12% 13%
17%26% 19%
20%
18%
11%
24%
17% 14%13%
16%
18%
14%
18%
17%
9%13%
12%
9%
12%
17%
10%
8%17%
5%13%
14%
11%
10%
15%
11% 9% 12%
18%
9%
10%5% 4%
11%
8%6% 7%
Other
Fax
Phone
Internet orders
Customer portal
VMI/collab.
B2b (w/manual)
B2b (no manual)
Order Entry Process
CONSUMER PRODSCONSUMER PRODS HIGH-TECHHIGH-TECH INDUSTRIALINDUSTRIAL
Supply Chain Insights LLC Copyright © 2013, p. 100
Market-Driven Value Networks Characteristics
Supply Chain Insights LLC Copyright © 2013, p. 101
Demand-shaping Levers
New Product Launch
Marketing
Sales Incentives
Trade Promotions
Distributor Incentives
Assortment
Price
Run-out of obsolescence or mark-down strategies
Orchestration Levers
Market-driven Orchestration Levers
Price to Price Orchestration
Alternate Bill of Materials
Alternate Sourcing
Change in Assortment
Orchestration of Product Mix (Incent products with less commodity variability)
Changes in Demand Shaping Strategies
Commodity Hedging
Corporate Sustainability
Supply Chain Insights LLC Copyright © 2013, p. 103
Current State
Supply Chain Insights LLC Copyright © 2013, p. 104
Corporate Sustainability Alignment
Supply Chain Insights LLC Copyright © 2013, p. 105
Corporate Sustainability Alignment
Supply Chain Insights LLC Copyright © 2013, p. 106
Who Does it Best?
Building Value Networks
Supply Chain Insights LLC Copyright © 2013, p. 108
Years 1990-1994 1995-1999 2000-2004 2005-2009 2010-2012
RETAIL AVERAGE
17.05% 42.46% 12.89% 8.76% 5.15%
CPG AVERAGE 2.12% 0.84% 3.91% 7.26% 2.32%
FOOD CPG AVERAGE
3.68% 2.97% 8.13% 2.59% 4.27%
BEVERAGE CPG AVERAGE
12.87% 2.00% 9.59% 11.53% 4.92%
Year-over-Year Growth
Supply Chain Insights LLC Copyright © 2013, p. 109
1990-1994
1995-1999
2000-2004
2005 2006 2007 2008 2009 2010 2011 2012
eCommerce
NaN NaN 343.09821573893
2
455.82322184244
8
549.35711669921
7
758.40384928385
3
848.30227661132
6
1016.2521057128
9
998.48733520507
7
1073.2823486328
1
NaN
Grocery
197.66727663333
3
182.42270665714
3
424.51644165604
2
478.66342206434
8
475.07786840959
519.72557456152
9
612.0607266696
610.86592366145
2
572.42064453125
518.07959238688
3
503.89105224609
3
Mass
111.531258
6
143.587382
4
252.77049342572
2
348.13922174952
2
378.84717362577
3
616.60869811562
9
486.97209019814
8
474.46172598636
5
533.31497862844
8
463.61525573730
5
348.44249979655
Specialty
NaN NaN 295.67612169279
384.31348812580
2
413.83267235756
458.27304815738
8
478.62063006965
5
527.32440307617
3
534.01690254211
5
282.31685002644
9
312.05143394470
2
100
300
500
700
900
1100
Revenue per Employee
Re
ve
nu
e p
er E
mp
loye
e (
K$
)
Retail: Revenue Per Employee
Source: Supply Chain Index Analysis from Annual Reports 1990-2012Mean values utilized excluding outlier data
Supply Chain Insights LLC Copyright © 2013, p. 110
Revenue Per Store
Supply Chain Insights LLC Copyright © 2013, p. 111
A Look at History
Supply Chain Insights LLC Copyright © 2013, p. 112
Supply Chain Insights LLC Copyright © 2013, p. 113
Cash-to-Cash Cycle vs. Gross Margin (2000-2011)SUMMARY SLIDE
Supply Chain Insights LLC Copyright © 2013, p. 114
Value Chain Relationships
Retail(Mass
Merchant)CPG Chemical
Equations:Ln(market cap) =
10.41 + 52.67(OM) -34.72(WC)
- 16.02(ROIC) -0.09(DPODSO)
+ 0.02(DOI)
3.37+ 2.11(OM) + 1.62(FCF) - 1.29(ROIC) - 1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI)
7.85(OM) - 4.84(ROA) + 1.81ln(DPO)
+ 0.01(DOI)
True collaboration only happens when there is a sustaining win-win value proposition.
Supply Chain Insights LLC Copyright © 2013, p. 115
SHARED VISION
+ SKILLS + INCENTIVE + RESOURCES + PLAN + LEADERSHIP = CHANGE
SKILLS + INCENTIVE + RESOURCES + PLAN = CONFUSION
SHARED VISION
+ INCENTIVE + RESOURCES + PLAN + LEADERSHIP = ANXIETY
SHARED VISION
+ SKILLS + INCENTIVE + RESOURCES + LEADERSHIP =FALSE
STARTS
SHARED VISION
+ SKILLS + INCENTIVE + PLAN + LEADERSHIP = FRUSTRATION
SHARED VISION
+ SKILLS + RESOURCES + PLAN + LEADERSHIP =GRADUAL CHANGE
Source: J.P. Kotter
Collaboration: The Right Stuff
Supply Chain Insights LLC Copyright © 2013, p. 116
Demand Signal
Accurate Weekly
Forecasting is ...
Delay from Purchase to
Signal
Data Latency and Distortion Across the Network
Red Represents Emerging Economies with Distributor Trade
Retailer DC
Easy
3-10 Days
7-20 Days
Manufacturer DC
Difficult
10-20 Days
20-45 Days
Suppliers
Almost Impossible
20-50 Days
45-80 Days
Store
Trivial
Instant
Variable
Store
Supply Chain Insights LLC Copyright © 2013, p. 117
We have not Fixed Replenishment Processes….
Supply Chain Insights LLC Copyright © 2013, p. 118
Supply Reliability
Manufacturer mentioned by name
Supply Chain Insights LLC Copyright © 2013, p. 119
Current State: Usage of Downstream Data
Supply Chain Insights LLC Copyright © 2013, p. 120
Bar codes were first used at Marsh Supermarket in 1968
Supply Chain Insights LLC Copyright © 2013, p. 121
Barriers
Supply Chain Insights LLC Copyright © 2013, p. 122
Data Used
Supply Chain Insights LLC Copyright © 2013, p. 123
Quality of Data
Point of Sale Warehouse Withdrawal
Warehouse Perpetual In-
ventory Changes
Store Forecasts In-store Perpetual Inventory Changes
Company Forecasts
Loyalty-50%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%100%
72%
62% 59%52%
41% 38%
72%
55%
41%
14% 17%10% 7%
-28%
-17%-21%
-45%
-34%-31% -31%
Downstream Data Received from Retailers vs. Clean
Receives Clean (Rated 5-7 on 7-Pt Scale) Gap (Clean - Receive)
____________________________________________________________Source: Supply Chain Insights LLC, Downstream Data (Aug-Oct 2012)Base: Manufacturers using/trying to use downstream data (n=29 – CAUTION: Small base size)Q17. What types of downstream data does your company get from retailers? Please select all that apply.Q19. For each type of data that you get, please rate how clean it is, on average, considering all retailers from which you get it. SCALE: 1=Extremely dirty, 7=Extremely clean
Supply Chain Insights LLC Copyright © 2013, p. 124
Percent of Channel
Supply Chain Insights LLC Copyright © 2013, p. 125
Days of Inventory (DOI): Companies with and without Demand Sensing (CPG, Food, Heath & Beauty Industries)
Evolution
2007 2008 2009 2010 2011
6465
6663
66
65 65
6360
61
Source: Company Financials
Day
s In
vent
ory
Supply Chain Insights LLC Copyright © 2013, p. 126
Risk Management
high
low
highlow
Imp
act
Probability of Adverse Event
catastrophiccatastrophic
periodic incidentperiodic incident
strategic strategic
daily surprisedaily surprise
Probability * Impact = Value at Risk
Supply Chain Insights LLC Copyright © 2013, p. 127
Risk Assessment: A Value-Driven Approach
high
low
highlow
safety, quality
Imp
act
Probability of Adverse Event
catastrophiccatastrophic
periodic incidentperiodic incident
strategic strategic
daily surprisedaily surprise
mark to market
portfolio mgmt risksustainability
product mix shift
commodity costs
margin pressure
private labeldeflation
foreign exchange
* AMR Research – Top CP Risk Mentions last quarterly earnings report
innovation stallshealth & wellness
nutrition & labeling
consumer trends
failed cost reduction programs
failed productivity
n. american economy
de-stocking
Supply Chain Insights LLC Copyright © 2013, p. 128
Value Network Strategy
Supply chain strategy
Business StrategyWhat are the right things to do to increase company value?
Value-network Supply Chain StrategyWhat are the right ways to support the business strategy?
What are the right trade-offs between value drivers for each value network?
Right productplatforms
Design the supply
response
Build organizational systems and
manage talent
Align supply relationships
Align demandrelationships
Effective Supply Networks
Execution of buy-side strategies
Continuous Improvement
Capabilities RequiredSupply Chain
Network Design
Design Networks
Innovation Methodologies
Demand Networks
Joint Value Creation Strategies
Business ProcessHow do I do the right things right?
Source: Supply Chain Insights, LLC
Supply Chain 2020 and the Path Forward
Supply Chain Insights LLC Copyright © 2013, p. 130
The Supply Chain of the Future
World Population
Source: “The World at Six Billion” United Nations, 2004; The World UN Population Assessment 2006; “Unsustainable World,” 04/15/08, BBC
North America
2007 2020339M 342M
Europe
2007 2020731M 722M
Asia
2007 20204.0B 4.6B
L America
2007 2020572M 660M
Africa
2007 2020965M 1.3B
Oceania
2007 202034M 40M
Supply Chain Insights LLC Copyright © 2013, p. 131
Outside-In
Value-Based OutcomesDelivered by Value Networks
Supply Chain Excellence =
Supply Chain 2020 Tipping Points
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Talent Shortage
Compliance on Safe & Secure
Orchestration
Big Data Supply Chains
Internet of Things
Learning Supply Chains
Digital Manufacturing
Supply Chain Insights LLC Copyright © 2013, p. 132
Supply Chain Insights LLC Copyright © 2013, p. 133
Create Your Own Future
Supply Chain Insights LLC Copyright © 2013, p. 134
Rethinking Analytics
Supply Chain Insights LLC Copyright © 2013, p. 135
Definition
Challenges:• Transactional• Time phased data
Structured Data
• Social• Channel• Customer Service• Warranty
• Temperature• RFID• QR codes• GPS
• Mapping and GPS• Video• Voice• Digital Images
Unstructured Data
SensorData
NewDataTypes
Volume
Velocity
Variability
Supply Chain Insights LLC Copyright © 2013, p. 136
Analytics Evolution
Supply Chain Insights LLC Copyright © 2013, p. 137
Listening Post Strategy
Supply Chain Insights LLC Copyright © 2013, p. 138
• Outside-in• End-to-End Orchestration• Supply Chain Matters
Path Forward
Supply Chain Insights LLC Copyright © 2013, p. 139
Questions?
Supply Chain Insights LLC Copyright © 2013, p. 140
• May 17th: How Do We Heal the Healthcare Value Chain, Part II• June 13th: Sales and Operations Planning: State of the Union• July 11th: Big Data Supply Chains and the Future of Analytics• August 15th: State of Supply Chain Talent. Missing Link in the
Supply Chain• August 29th: Digital Manufacturing
Upcoming Webinars
Each webinar is based on new and relevant research and will feature two-three industry leaders
Supply Chain Insights LLC Copyright © 2013, p. 141
Join Us!
www.scicommunity.com
Supply Chain Insights LLC Copyright © 2013, p. 142
Supply Chain Insights Community
#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 143
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. 144
Where Do You Find Lora?
Contact Information: [email protected]
Blog: www.supplychainshaman.com (4000 pageviews/month)
Twitter: lcecere 3800 followers. Rated as the top rated supply chain social network user.
LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (3560 in the network)