presentation for the om partners conference end of september
TRANSCRIPT
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Supply Chain Insights LLC Copyright © 2015, p. 1
Supply Chain Planning: A Look Back and a Look Forward
September 2015
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Disclaimer: I am a Skeptic
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A Curmudgeon…
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A Fortune-teller of Sorts….
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I Write for the Supply Chain Leader
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Current State
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9 out of 10 Supply Chains are Stuck
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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
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Descriptors Used by Leaders
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Fallacy: Functional Excellence
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Functional Organizational
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Growing Demand Volatility
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Why? The Long Tail of the Supply Chain: Growing Complexity
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A Project-based Focus
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Which Metrics Matter?
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What We Expected
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A Supply Chain is a Complex System
with Complex Processes
with Increasing Complexity
What We Learned….
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The Supply Chain Effective Frontier
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Correlations to Market Capitalization
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Orbit Chart: Wal-Mart(Inventory Turns and Operating Margin)
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Orbit Chart: Apple (Inventory Turns and Operating Margin)
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Orbit Charts: Dow Chemical Company
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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).
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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
Average (Operating Margin, Inventory Turns)
Inve
ntor
y Tu
rns
Novo Nordisk Making Progress
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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
Average (Operating Margin, Inventory Turns)
Inve
ntor
y Tu
rns
Best Scenario
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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
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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
+
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• 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?
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Building the End-to-End Supply Chain
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Maturity of End-to-End Thinking
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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
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• 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
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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
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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
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Top Disruptions
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Technology
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Order to Cash and Procure to Pay
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IT Systems: Importance & Satisfaction by Role & Supply Chain
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Current State of Planning
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Technology Effectiveness
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Planners
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Greatest Gaps in Visibility
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Best of Breed versus ERP Planning
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• 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?
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• 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?
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Questions?
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Launches Oct. 1, 2015
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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)