Presentation for the OM Partners Conference end of September

Supply Chain Insights LLC Copyright © 2015, p. 1

Supply Chain Planning: A Look Back and a Look Forward

September 2015


Disclaimer: I am a Skeptic


A Curmudgeon…


A Fortune-teller of Sorts….


I Write for the Supply Chain Leader


Current State


9 out of 10 Supply Chains are Stuck


Progress: All Industries

Industry Snapshots (2006-2013)

IndustryYear –over-

Year Revenue Growth

Operating Margin

Inventory Turns

Cash-to-Cash Cycle

Revenue per Employee

(K$)SG&A Ratio

Retail Apparel Industry

18%39%

0.3927%

0505%

6826%

32518%

27%05%

Apparel Manufacturing Industry

14%82%

0.1232%

0568%

15008%

400355%

27%63%

Mass Retail Industry

09%50%

0.0620%

0606%

03148%

35048%

23%6%

Beverage Industry

09%61%

0.1916%

0204%

5346%

512 NC

24% 16%

Pharmaceutical Industry

08%47%

0.2329%

0316%

15547%

57232%

27%08%

Chemical Industry

08%45%

0.1010%

0604%

8723%

55723%

14%27%

Medical Device Industry

06%38%

0.1432%

0213%

20616%

35112%

34%04%

Grocery Retail Industry

06%31%

0.0337%

1701%

1050%

40554%

14%06%

Consumer Packaged Goods

05%25%

0.1473%

08482%

7217%

33314%

26% 09%

Food Industry

05%55%

0.1019%

07 17%

4004%

53455%

20% 18%

Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2013Industry 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 $1billionNC=no change


Descriptors Used by Leaders


Fallacy: Functional Excellence


Functional Organizational


Growing Demand Volatility


Why? The Long Tail of the Supply Chain: Growing Complexity


A Project-based Focus


Which Metrics Matter?


What We Expected


A Supply Chain is a Complex System

with Complex Processes

with Increasing Complexity

What We Learned….


The Supply Chain Effective Frontier


Correlations to Market Capitalization


Orbit Chart: Wal-Mart(Inventory Turns and Operating Margin)


Orbit Chart: Apple (Inventory Turns and Operating Margin)


Orbit Charts: Dow Chemical Company


0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.197.50

8.00

8.50

9.00

9.50

10.00

10.50

11.00

Kimberly ClarkOperating Margin

Inve

ntor

y Tu

rns

2000

2014

2001

2002

2003

20042005

2006

2007

2008

2009

20102011

2012

2013

Losing Ground: Kimberly-Clark

Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from YCharts

Best Scenario

KMB0.15, 9.01

Trace the line from 2000 point to 2014 point to follow the performance over time.

The diamond shows the company’s average over the period. Ex: The Kimberly Clark Co. (KMB) has an average of .15 for operating margin and 9.01 for inventory turns.

Ideally, companies are increasing inventory turns and operating margin moving towards the upper right corner of the graph over time.

Average (Operating Margin, Inventory Turns)

Here, we plot inventory turns (y-axis) vs. operating margin (x-axis).


Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014

-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.604.0

5.0

6.0

7.0

8.0

9.0

10.0

2006

Eli Lilly and Company Novo Nordisk

Operating Margin

2014 NVO0.31, 6.48

2014

2006

Best Scenario

LLY0.24, 8.30


Inve

ntor

y Tu

rns

Novo Nordisk Making Progress


General Mills versus Kellogg

0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.205.0

7.0

9.0

11.0

13.0

15.0

General Mills KelloggOperating Margin

K0.14, 12.68

2014

2006

20142006

Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014

GIS0.17, 11.00


Inve

ntor

y Tu

rns

Best Scenario


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=𝟏𝟑𝑩𝒂𝒍𝒂𝒏𝒄𝒆 𝑭𝒂𝒄𝒕𝒐𝒓+

𝟏𝟑 𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓+

𝟏𝟑 𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓


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

+


• Continuity of leadership• Supply chain talent development• Focus on a multi-year supply chain strategy• Clear governance to guide cross-functional decision-making• Strength in horizontal processes• Excellence in supply chain planning, network design and inventory

management

What Drives Top Performance?


Building the End-to-End Supply Chain


Maturity of End-to-End Thinking


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


• Almost all End-to-end Transformation Projects Started with Failure• Each is Culturally Unique: No one Right Answer• Characteristics:

– Continuity of Leadership– Alignment to the Business– Business Sponsorship– Slow and Deliberate

Characteristics

Supply ChainProducts

Industry Standard Servers

Commercial PrintingDigital ImagingShared Printing

Personal PrintingSupplies

Portables and Handhelds

Business PC & WorkstationConsumer PC

Monitors & Options

Network Storage Solutions

Business Critical Servers

Managed Services SolutionsCustomer Support Solutions

Consulting & Integration Sol.

Enterprise Solutions

Services

High value & solutions

Configure-to-order (CTO)

Low touch

No touch

Demand Chain

Enterprise

SMB

Consumer

Dire

ct/In

dire

ct/P

artn

er D

irect

Public

HP: Put The “Customer” First - High Tech Example

How Many Supply Chains?Volume, demand variability, technology and of life cycle clusters

High

Low

HighLowDemand Predictability

Volume LifecycleShort Long

Technology

Commoditized

Specialized

6 5

8 7

LifecycleShort Long

Technology

Commoditized

Specialized

2 1

4 3

LifecycleShort Long

Technology

Commoditized

Specialized

LifecycleShort Long

Technology

Commoditized

Specialized

13

16 15

10 9

12 11

14

Responsiveness Efficiency

Agility


Top Disruptions


Technology


Order to Cash and Procure to Pay


IT Systems: Importance & Satisfaction by Role & Supply Chain


Current State of Planning


Technology Effectiveness


Planners


Greatest Gaps in Visibility


Best of Breed versus ERP Planning


• 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 a 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

How do You Improve Value?


• Kill the Spreadsheet Ghettos!!!• Carefully Define the Terms.• Be Clear on the Goal: Responsive, Efficient and Agile• Ensure the Fit of the Model• Redefine Demand to be About the Market• Work for Clarity of the Supply Chain Planning Footprint and Time

Horizons• Give Planners Time to Plan

How do You Improve Value Through Planning?


Questions?

Launches Oct. 1, 2015


Founder: Lora Cecere

• Founder of Supply Chain Insights• “LinkedIn Influencer”

• Guest blogger for Forbes

• Author of 4 books: Bricks Matter (2012), Shaman’s Journal (2014) and Supply Chain Metrics That Matter (December 2014), Shaman’s Journal (2014)

• 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 (8,000 pageviews/month)• Forbes: http://www.forbes.com/search/?q=lora+cecere• Twitter: lcecere (6200 followers)• LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (46,000 followers)