Executive Overview When we ask companies to imagine the supply chain of the future, they have to start with what they have today. Most companies today are stuck, and find it hard to conceive the supply chain of the future. To free their thinking they have to learn from the past, to unlearn what they believe is a world of best practices, and establish methodologies to imagine the supply chain of the future. Changing traditional paradigms is a starting point. For most, the journey is not easy. As shown in Figure 1, the terms most commonly used to describe the supply chain today are traditional, tactical, and cautious. Today there is significant room for improvement, with only one in three supply chain leaders feeling that what they have now is working well. Most of the supply chain processes are inside-out which is a barrier to sensing demand and building demand-driven or market-driven processes. The incentive to change lies in balance sheet performance. When we analyze financial balance sheet performance for the period of 2006-2013, we find that nine out of ten companies are stuck at the intersection of the two critical metrics of operating margin and inventory turns. Publicly-held companies are unable to power improvements in both metrics for more than two consecutive years. For most, improvement has become an OR condition with companies making improvements in one of the two metrics, but not both together. This is an area of frustration and disappointment for business leaders that want to leverage supply chain technologies and processes to deliver both cash and cost savings to the organization. As growth slows, this shift is more important. In this report, we share highlights on the research gathered for our recent conference, Supply Chain Insights Global Summit.

1. Imagine the Supply Chain of the Future
… While Recognizing the State of Supply Chains Today
10/21/2014
By Lora Cecere
Founder and CEO Supply Chain Insights LLC

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Contents
Disclosure
Research
Research Methodology and Overview
Executive Overview
Current State: The Supply Chain Organization
Reporting Relationships
Sales and Operations Planning
Supply Chain Centers of Excellence
Focus on New Technologies
Summary
Appendix: Demographic Data
About Supply Chain Insights
About the Author
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Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships and our research processes. This research is based on a number of research studies that were done to get ready for the Supply Chain Insights Global Summit 2014.
Research Focus
Supply Chain Insights LLC is dedicated to bringing thought-leading research to the supply chain leader. This report is designed to help supply chain teams understand the state of the industry. This report centers on the current state of organizations and the focus on future technology spending.
Please share this data freely within your company and across your industry. All we ask for in return is attribution when you use the materials in this report. We publish under the Creative Commons License, Attribution-Noncommercial-Share Alike 3.0 United States and you will find our citation policy here.
Research Methodology and Overview
This report is based on responses from 54 supply chain leaders from a quantitative study fielded during summer of 2014. While the detailed demographics are shared in the Appendix of this report, an overview of the quantitative study is shown here:

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In addition, to get ready for the conference, the Supply Chain Insights team aggregated responses to core questions across 16 quantitative studies tendered during 2012-2014, and correlated these to supply chain financial ratios to understand which processes and technologies are driving the greatest value. The results of this analysis are included in Figures 1, 3 and 6 in this report.
The results from the quantitative studies and the financial analysis were shared in executive networking sessions to get a greater understanding of the business drivers and insights. We share these here.
To guide the reader and ensure clarity in reading this report, here we start with some definitions.
Demand-Driven: The term demand-driven in this report is defined as the use of demand data (channel data of point of sale, warehouse retail withdrawal data, perpetual inventory information, and loyalty data) to better sense, shape and translate demand with zero latency.
Market-Driven: The concepts of market-driven build on the principles of the demand-driven value network and include bidirectional orchestration of market signals from channel to supplier. This includes sensing, translating and shaping demand based on orchestration from market-to-market.
Resiliency: Tightness of the pattern of financial results at the intersection of operating margin and inventory turns
Cognitive Learning: The use of artificial intelligence guided by a rules-based ontology to deliver supply chain systems that learn.

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Executive Overview
When we ask companies to imagine the supply chain of the future, they have to start with what they have today. Most companies today are stuck, and find it hard to conceive the supply chain of the future. To free their thinking they have to learn from the past, to unlearn what they believe is a world of best practices, and establish methodologies to imagine the supply chain of the future. Changing traditional paradigms is a starting point.
For most, the journey is not easy. As shown in Figure 1, the terms most commonly used to describe the supply chain today are traditional, tactical, and cautious. Today there is significant room for improvement, with only one in three supply chain leaders feeling that what they have now is working well. Most of the supply chain processes are inside-out which is a barrier to sensing demand and building demand-driven or market-driven processes.
Figure 1. Current Supply Chains
The incentive to change lies in balance sheet performance. When we analyze financial balance sheet performance for the period of 2006-2013, we find that nine out of ten companies are stuck at the intersection of the two critical metrics of operating margin and inventory turns. Publicly-held

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companies are unable to power improvements in both metrics for more than two consecutive years. For most, improvement has become an OR condition with companies making improvements in one of the two metrics, but not both together. This is an area of frustration and disappointment for business leaders that want to leverage supply chain technologies and processes to deliver both cash and cost savings to the organization. As growth slows, this shift is more important. In this report, we share highlights on the research gathered for our recent conference, Supply Chain Insights Global Summit.
Current State: The Supply Chain Organization
Today, the supply chain leader is struggling with alignment issues and increasing volatility. Both demand and supply volatility are at record highs driving the need for demand and supply sensing. Today’s supply chains respond: they do not sense. Visibility is an issue.
Figure 2. Top Elements of Supply Chain Management Pain

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While there are many supply chain systems, companies struggle to get to data. Today’s systems are designed to put data into the system, but getting data out of the system and driving insights remains an issue. As a result, one of the top investments for 2015 is in-memory analytics like QlikView, and the purchase of visualization technologies like Tableau and Spotfire. The focus is less on the use of analytics from singular systems like SAP and more on enabling the line-of-business user to access and use data in heterogeneous environments.
Reporting Relationships
No two supply chains are the same. Each organization defines supply chain slightly differently. Some of the issues that the supply chain leader faces in building alignment for the end-to-end supply chain vision are the reporting relationships and the definition of the term ‘supply chain’.
While many in the organization will use ‘supply chain’ superfluously, few will have the same definition. For many, the term is a functional view based in the understanding of a singular process of source, make or deliver. Companies struggle in making the trade-offs between the silos of the supply chain to increase performance. In the quantitative study for the Supply Chain Insights Global Summit, the most common definition of the supply chain organization included the functions of supply chain planning, transportation, inventory management, and distribution. Procurement was included in the definition of the organization 69% of the time, and manufacturing was included 48% of the time.
In preparation for the conference, we also analyzed the quantitative web-based studies conducted during the period of 2012-2014 by Supply Chain Insights to understand the impact of reporting relationships on financial performance. In this analysis we find that when the manufacturing organization reports to the supply chain organization, there is increased resiliency, or a tighter pattern, at the intersection of operating margin and inventory turns. As shown in Figure 3, the pattern is 30% more reliable when manufacturing reports to supply chain, and 28% more reliable when procurement reports to supply chain.
Why is resiliency important? In our analysis of performance for the report Supply Chains to Admire, we find that the companies that outperform their peer groups on industry averages for inventory turns, operating margins and return on invested capital, have tighter patterns characterized by small, incremental improvements. They are strong, balanced and resilient.

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Figure 3. Impact of Reporting Relationships on Resiliency
Sales and Operations Planning
We also find that companies that are more mature in the delivery of the metrics that matter have a more balanced and mature Sales and Operations Planning (S&OP) process.
As can be seen in Figure 4, for the companies attending the conference, 68% of the companies are out-of-balance on S&OP.

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Figure 4. Companies’ ability to balance the “S” and the “OP” in the S&OP Processes
While the processes of S&OP are over 35 years old, they are still maturing. As shown in Figure 5, 69% of companies attending the conference report that their technologies for S&OP are immature or maturing, with many reporting that this is an area of investment for 2015.
Figure 5. Current State of S&OP Technology

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Unfortunately, this state of S&OP automation is very characteristic of the industry. There is a common, and erroneous, belief that companies can adequately manage their S&OP processes using spreadsheets. With the complexity of today’s organization with growing demand and supply volatility, this is becoming a larger gap. Today’s S&OP process needs to be modeled using technologies that recognize constraints and bottlenecks and can model volatility and demand/supply probabilities.
Many might look at this analysis and say, “Why does it matter?” In our cross-survey analysis, we find that there is a correlation between S&OP maturity and balance, and inventory turns. As shown in Figure 6, companies in our analysis are evenly split overall between increasing or decreasing inventory turns. Those with better alignment between sales and operations, however, are more likely to have a positive improvement on inventory turns (67% vs. 49%). This is a significant difference and one worth noting. Alignment and balance in S&OP makes a difference in inventory turns, and this cannot be achieved without an investment in technology to enable the visualization of options and alternatives.
Figure 6. Impact of Alignment on S&OP to Inventory Turns

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Supply Chain Centers of Excellence
Today’s company is in search of excellence. Many, in their end-to-end journey, have formed a supply chain center of excellence. In the pre-Summit study, as shown in Figure 7, 48% of companies have a center of excellence, but less than 1/3 consider it successful.
Figure 7. Supply Chain Centers of Excellence
We began the conference with small focused groups networking on specific topics. One of the topics was Supply Chain Centers of Excellence. I asked the group why this was true. I found that the fate of the supply chain center of excellence is closely tied to business strategy. When the business strategy is clear, and translated into an actionable operating strategy, there is a higher correlation of success for the supply chain center of excellence. Supply chain centers of excellence have a higher probability of success when:
 There is a clear understanding of the operating strategy with an established vision of the end-to-end supply chain.
 There is alignment on what ‘supply chain’ means.
 The center serves the business. There is more ‘pull’ from the center to the operating units than ‘push’ of audits and standardization.

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Focus on New Technologies
Technologies, and the building of new capabilities, play a strong role in the building of the supply chain of the future. The focus of technology investment for supply chain leaders coming to the conference, as shown in Figure 8, is on data visualization, demand sensing, visibility, and the use of data. More forward-looking technologies like machine learning, the Internet of Things, the sharing or collaborative economy, and digital manufacturing are lower on the list.
Figure 8. Planned Investments in New Supply Chain Technologies
Instead, as shown in Figure 9, the planned investments are in more traditional software areas of inventory management, forecasting and Sales and Operations Planning. Only 9% of companies are considering an investment in cognitive learning (see Appendix), and 6% are investing in digital manufacturing. When investing in cognitive learning, the focus is on business insights, as shown in Figure 10.

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Figure 9. Planed Software Purchases
Figure 10. Focus on Cognitive Learning Investments

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Summary
Change happens slowly in supply chain organizations. While nine out of ten supply chains are stuck in delivering business performance, the first focus needs to be on carefully defining the supply chain organization. The secondary focus needs to be on building alignment which is best accomplished through clarity of the operating strategy and definition of organizational reporting. In the journey, technology is not a panacea, but it is an important enabler.

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Appendix: Demographic Data
In this section, we share the demographic information of survey respondents and additional charts referenced in the report to substantiate the research findings.
The participants in this research answered the surveys of their own free will. There was no exchange of currency to drive an improved response rate. The primary incentive made to stimulate the response was an offer to discuss the survey results by phone at the end of the study, in the form of Open Content research sharing.
The names, both of individual respondents and companies participating in this study, are held in confidence. It is our policy to never share the names of the respondents or the identity of the companies where they work.
The demographics are shared to help the readers of this report gain a better perspective on the results. The demographics and additional charts are found in Figures A–D.
Figure A. Survey Respondent Overview

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Figure B. Supply Chain Organization Definition
Figure C. Respondent Overview

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Figure D. Investment in Cognitive Computing

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About Supply Chain Insights, LLC
Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is focused on delivering independent, actionable, and objective advice for supply chain leaders. If you need to know which practices and technologies make the biggest difference to corporate performance, turn to us. As a company dedicated to supply chain research, we focus on sharing insights on supply chain trends, evolving technologies and the relationship between supply chain excellence and corporate performance.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and the author of popular enterprise software blog Supply Chain Shaman currently read by 6,000 supply chain professionals. She also writes as a LinkedIn Influencer and is a contributor for Forbes. Her book, Bricks Matter, (co-authored with Charlie Chase) published on December 26th, 2012. She is currently working on two new books, Metrics That Matter and The Shaman’s Journal to publish in Q4 2014.
With over ten years as a research analyst with AMR Research, Altimeter Group, and Gartner Group and now as a Founder of Supply Chain Insights, Lora understands supply chain. She has worked with over 600 companies on their supply chain strategy and speaks at over 50 conferences a year on the evolution of supply chain processes and technologies. Her research is designed for the early adopter seeking first mover advantage.