cscmp metrics that matter

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


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:


Today’s Supply Chains: Inside-out and Cautious

Current State


Growth has Slowed


The Efficient Supply Chain


The Long Tail of the Supply Chain: Growing Complexity

Volume

Level of PredictabilityPredictability based on forecast accuracy vs Actual Order Profiles


Increasing Commodity Volatility


Current State


Gap in What-if Architectures


Need for Agility


Outsourcing


Greatest Gaps in Visibility Importance vs. Performance:Inter-enterprise Order Management, 1st Tier Suppliers

and 3rd Party Manufacturing


Building Visibility Solutions

Driving Progress on the Effective Frontier


The Supply Chain

is a Complex System

with Complex Processes

with Increasing Complexity


The Effective Frontier


The Supply Chain Effective Frontier


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


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


Industry Progress


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


Most Interesting Patterns

• Cash-to-Cash Cycle vs. Inventory Turns

• Inventory Turns vs. Operating Margin

• Inventory Turns vs. Revenue per Employee


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.


Correlation to Market Capitalization


Nine out of Ten Companies are Stuck


Impact of A Recession


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


Let me Give you an Example


Cash-to-Cash Cycle vs. Inventory Turns(2000-2012)


Inventory Turns vs. Operating Margin(2000-2012)


Inventory Turns vs. Revenue per Employee (2002-2012)


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


BASF SE 66 38 61



BASF SE 64 30 54


Company (2012) Days of Inventory Days of Payables Days of Receivables

BASF SE 64 30 50


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

Cash-to-Cash Cycle Components


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











Delphi Automotive PLC 30 65 57



Consumer Packaged Goods


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


Cash-to-Cash Cycle vs. Inventory Turns (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


Inventory Turns vs. Operating Margin (2000-2012)


0.10 0.15 0.20 0.254

5

6

7

2000

2012

20002012 2000

2012


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




200 300 400 500 600 7002

4

6

8

20122002

2002

20122002

2012


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



Colgate-Palmolive Company 59 62 46

Kimberly-Clark Corporation 61 35 51

The Procter & Gamble Company 61 40 27














Consumer Electronics


Corporate Summary


Cash-to-Cash Cycle Components


LG Electronics 62 61 49

Samsung Electronics Co., Ltd. 48 47 38




General Mills, Inc.Company (2008-2011) Days of Inventory Days of Payables Days of Receivables








The Change Management Journey


Resilience: Mean Distance Analysis of Orbit Charts


Why it Matters

Company Average Operating Margin

Average Inventory Turns

Resiliency Ranking

BASF .10 5.3 .55

DuPont .10 4.0 .67



Resiliency Ranking

Samsung .11 8.3 .59

LG Electronics .04 6.7 3.47



Resiliency Ranking

Procter & Gamble .18 5.7 .52

Unilever .13 5.6 .74


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


Questions?


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


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


Annual Event September 2014


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.


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)

cscmp metrics that matter

Business

supply chain management

supply chain executives

efficient supply chain

supply chain excellence

grizzled supply chain

todays supply chains

chain leaders hav

operating margin inventory