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)
Industry
Year –over-
Year Revenue
Growth
Operating
Margin
Inventory
Turns
Cash-to-
Cash Cycle
Revenue per
Employee
(K$)
SG&A
Ratio
Retail Apparel Industry
18%
39%
0.39
27%
05
05%
68
26%
325
18%
27%
05%
Apparel Manufacturing Industry
14%
82%
0.12
32%
05
68%
150
08%
400
355%
27%
63%
Mass Retail Industry
09%
50%
0.06
20%
06
06%
03
148%
350
48%
23%
6%
Beverage Industry
09%
61%
0.19
16%
02
04%
53
46%
512
NC
24%
16%
Pharmaceutical Industry
08%
47%
0.23
29%
03
16%
155
47%
572
32%
27%
08%
Chemical Industry
08%
45%
0.10
10%
06
04%
87
23%
557
23%
14%
27%
Medical Device Industry
06%
38%
0.14
32%
02
13%
206
16%
351
12%
34%
04%
Grocery Retail Industry
06%
31%
0.03
37%
17
01%
10
50%
405
54%
14%
06%
Consumer Packaged Goods
05%
25%
0.14
73%
08
482%
72
17%
333
14%
26%
09%
Food Industry
05%
55%
0.10
19%
07
17%
40
04%
534
55%
20%
18%
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2013
Industry 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 $1billion
NC=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

7.50
8.00
8.50
9.00
9.50
10.00
10.50
11.00
0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19
InventoryTurns
Operating Margin
Kimberly Clark
2000
2014
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Losing Ground: Kimberly-Clark
Source: Supply Chain Insights LLC, Corporate Annual Reports 2002-2012 from YCharts
Best Scenario
KMB
0.15, 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).

2006
4.0
5.0
6.0
7.0
8.0
9.0
10.0
-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60
Operating Margin
Eli Lilly and Company Novo Nordisk
2014 NVO
0.31, 6.48
2014
2006
Best Scenario
LLY
0.24, 8.30
InventoryTurns
Novo Nordisk Making Progress

General Mills versus Kellogg
5.0
7.0
9.0
11.0
13.0
15.0
0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20
Operating Margin
General Mills Kellogg
K
0.14, 12.68
2014
2006
2014
2006
GIS
0.17, 11.00
InventoryTurns
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 =
𝟏
𝟑
𝑩𝒂𝒍𝒂𝒏𝒄𝒆 𝑭𝒂𝒄𝒕𝒐𝒓 +
𝟏
𝟑
𝑺𝒕𝒓𝒆𝒏𝒈𝒕𝒉 𝑭𝒂𝒄𝒕𝒐𝒓 +
𝟏
𝟑
𝑹𝒆𝒔𝒊𝒍𝒊𝒆𝒏𝒄𝒚 𝑭𝒂𝒄𝒕𝒐𝒓

Supply Chains to Admire Methodology
Performance
Beats the industry
average for operating
margin, inventory turns
and ROIC for 2006-
2014 and 2009-2014
Improvement
Ranks 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 Printing
Digital Imaging
Shared Printing
Personal Printing
Supplies
Portables and Handhelds
Business PC & Workstation
Consumer PC
Monitors & Options
Network Storage Solutions
Business Critical Servers
Managed Services Solutions
Customer Support Solutions
Consulting & Integration Sol.
Enterprise Solutions
Services
High value &
solutions
Configure-to-
order (CTO)
Low touch
No touch
Demand Chain
Enterprise
SMB
Consumer
Direct/Indirect/PartnerDirect
Public
HP: Put The “Customer” First - High Tech Example

How Many Supply Chains?
Volume, demand variability, technology and of life cycle clusters
High
Low
HighLow
Demand Predictability
Volume Lifecycle
Short Long
Technology
Commoditized
Specialized
6 5
8 7
Lifecycle
Short Long
Technology
Commoditized
Specialized
2 1
4 3
Lifecycle
Short Long
Technology
Commoditized
Specialized
Lifecycle
Short 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?

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: lora.cecere@supplychaininsights.com
• 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)

Presentation for the OM Partners Conference end of September

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Presentation for the OM Partners Conference end of September