launch of the supply chain index webinar slide deck
DESCRIPTION
This is a new ranking system and benchmarking tool for companies to use to evaluate supply chain excellence. To build the index, we have taken the long view. The Index is based upon financial performance of companies from 2006 forward. Using market valuations of publically traded companies, we have built a formulaic representation of supply chain excellence using supply chain ratios (e.g., ratios like Days of Inventory, Operating Margin, Revenue/Employee, Altman Z). Building a great supply chain is not something that can be done with a short-term project approach. Excellence comes in small steps over a sustained long-term period. The Supply Chain Index allows companies to better understand the relationship between supply chain ratios and financial (market capitalization) performance. In the webinar, companies will be able to understand which metrics correlate strongly with market capitalization growth. Come listen to this webinar to understand who has done it best and the lessons learned. https://supplychaininsights.webex.com/supplychaininsights/lsr.php?AT=pb&SP=EC&rID=6764712&rKey=dcea792f1c22013dTRANSCRIPT
Supply Chain Index
April 25, 2013
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Supply Chain Insights LLC Copyright © 2013, p. 2
Supply Chain Insights is focused on delivering independent, actionable and objective advice for
supply chain leaders. A company dedicated to research, turn to us when you want the latest
insights on supply chain trends, technologies to know and metrics that matter.
About Us
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Presenters
Abby MayerResearch Associate
Lora CecereFounder and CEO
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18 Reports in 2012
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Over 30 Reports Planned for 2013
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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
Second Printing of Bricks Matter: 13 Five-Star Reviews on Amazon
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Publishing Two eBooks in 2013 on Supply Chain Metrics That Matter
– Consumer Value Networks– Industrial Value Networks
2013 Publications
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Supply Chain Metrics That Matter Readership
Focus of Report Date of Publication Readership (as of 4-15-2013)
Retail August 2012 1,420
Consumer Products September 2012 983
Chemical Industry November 2012 600
The Cash-to-Cash Cycle November 2012 1,620
Pharmaceutical Industry December 2012 1,095
Driving Reliability in Margins January 2013 1,180
Hospitals January 2013 657
Brick & Mortar Retail February 2013 366
Medical Device Manufacturers February 2013 458
Consumer Electronics April 2013 199
Supply Chain Metrics that Matter: Reports
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Supply Chain Insights LLC Copyright © 2013, p. 9
Our Focus
2-DAY PUBLIC TRAINING
Dallas – May 6-7Princeton – June 24-25
Minneapolis – August 8-9$1500
GLOBAL SUMMIT
PODCASTS
www.supplychaininsights.com#sciwebinar
Supply Chain Insights LLC Copyright © 2013, p. 10
What Is Supply Chain Excellence?
Understanding the Supply Chain as a Complex System
Which Companies Have Maximized Market Valuation Through Supply Chain Excellence?
Using the Insights
Agenda
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Perform better than peer group
Improve year-over-year results
Alignment in metrics
Delivery of performance against the business strategy
Consistency in results
Be a leader in managing trade-offs
What Is Best in Class?
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What is Supply Chain Excellence?
Understanding the Supply Chain as a Complex System
Which Companies Have Maximized Market Valuation Through Supply Chain Excellence?
Using the Insights
Agenda
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A Supply Chain
is a Complex System
with Complex Processes
with Increasing Complexity
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The Supply Chain Effective Frontier:First Representation
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Mining 20 Years of Financial Ratio 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
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The Supply Chain Effective Frontier: Second Representation
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• Supply Chain Index: A formulaic representation of supply chain financial ratios correlated to stock market capitalization valuation.
• Supply Chain Effective Frontier: The balance of growth, profitability, cycle and complexity metrics to deliver the supply chain strategy. It may or may not maximize the company’s market valuation.
• Supply Chain Excellence: The behavior of companies working to maximize value through the setting of targets for supply chain financial ratios and aligning metrics that matter (tied to value chain strategy).
Definitions
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A Look at History: Progress in Productivity
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Cross Industry View: (2000-2011)
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Company Performance within an Industry Sector: (2000-2011)
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Competitive Analysis: (2006-2011)
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Peer Group Analysis: (2000-2012)
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Healthcare Value Chain: Financial Metrics
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What Is Supply Chain Excellence?
Understanding the Supply Chain as a Complex System
Which Companies Have Maximized Market Valuation Through Supply Chain Excellence?
Using the Insights
Agenda
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Introducing the Supply Chain Index
A formulaic representation of how companies are trading off growth, profitability, cycle and
complexity performance on selected supply chain financial
metrics against market valuation.
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1. To better understand which supply chain metrics matter to corporate balance sheet performance in public markets. We want to help leaders better align supply chain and financial performance.
2. To create an objective system for evaluating and ranking supply chains by industry peer group.
3. To connect financial performance with supply chain excellence as measured through quantitative surveys in an effort to better identify and define best practices across industry groups.
Why Did We Do This?
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• What it is: A way to understand the impact of companies’ supply chain (relative to peers within an industry sector) to market capitalization based a set of preselected supply chain ratio metrics.
• What it is NOT: A way to evaluate overall company performance or compare the model results to actual market capitalization.
What It Is. What It Is Not.
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• April 25th: introduction of the Index and the application to 3 Morningstar sectors
• May: release of results for additional industries and discussion in Supply Chain Insights Community
• May, June, July, August: monthly reports and publication of additional industries
• September 11-12th: 1st annual Global Summit with speakers selected based on Index performance
Now and Then
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Step 1: Located data sources
Step 2: Selected core supply chain ratios from over 50 financial metrics
Step 3: Identified meaningful metrics per industry using regression analysis among selected ratios
Step 4: Constructed industry equation based on correlation of industry metrics to market capitalization values
Step 5: Determined company rankings within industry by applying 2012 company results to industry equation
Step 6: Analysis of peer group companies over the last decade
Step 7: Correlations to supply chain practices, technologies and organizational design
Supply Chain Index Methodology
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– Market capitalization data of public companies (Ycharts.com)
– Industry peer groups defined by Morningstar Sector (36)
– Financial ratios built from balance sheet and income statement data collected from OneSource
– Analysis of quarterly data using R (frequency 2006Q1 to 2012Q4)
Step 1: Located Data Sources
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Step 2: Selected 14 Core Supply Chain Ratios to Study
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
Source: Supply Chain Insights LLC
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Selected Ratios
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Step 3: Identified Industry Metrics
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Market Capitalization vs. Revenue Growth
Insight: For example, growth did not correlate for chemical companies.
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Step 3: Identified Industry Metrics
Metrics That Matter by Industry
Mass Retail IndustryConsumer Packaged
Goods IndustryChemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSODays of Payables
OutstandingDays of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
0.89 0.68
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Source: Supply Chain Insights LLC
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Step 4: Mass Retail Equation
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Ln(market cap) = 10.41 + 52.67(OM) -34.72(WC) - 16.02(ROIC) – 0.09(DPODSO) + 0.02(DOI)
NOTE: Full equation is Ln(market capitalization) = 10.40934 + 52.66784(operating margin) -34.7248(working capital ratio) – 16.0211(return on invested capital) – 0.09183(dpo/dso) + 0.017478(days of inventory). We utilized adjusted which accounts for the occurrence of large p values. Outlier values were defined and excluded as those 5 times larger than IQR.
Correlation Strength
Mass Retail Industry Equation
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Step 5: Determined Rankings by IndustryMass Retail Industry (2012)
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Top Ranked Mass Retail Industry (2012)
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Step 3: Identified Industry Metrics
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Source: Supply Chain Insights LLC
Metrics That Matter by Industry
Mass Retail IndustryConsumer Packaged
Goods IndustryChemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSODays of Payables
OutstandingDays of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
0.89 0.68
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Step 4: Consumer Packaged Goods (CPG) Equation
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Ln(market cap) = 3.37 + 2.11(OM) + 1.62(FCF) – 1.29(ROIC) – 1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI)
NOTE: Full equation is Ln(market capitalization) = 3.368152 + 2.107516(operating margin) + 1.624277(free cash flow ratio) – 1.2891(return on invested capital) – 1.16775*ln(current ratio) + 0.2455(sga to cogs ratio) + 0.016078(days of payables outstanding) – 0.00655(days of inventory). We utilized adjusted which accounts for the occurrence of large p values. Outlier values were defined and excluded as those 5 times larger than IQR.
Correlation Strength
CPG Industry Equation
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Step 5: Determined Rankings by IndustryCPG Industry (2012)
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Top Ranked CPG Industry (2012)
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Step 3: Identified Industry Metrics
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Source: Supply Chain Insights LLC
Metrics That Matter by Industry
Mass Retail IndustryConsumer Packaged
Goods IndustryChemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSODays of Payables
OutstandingDays of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
0.89 0.68
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Step 4: Chemical Industry Equation
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Ln(market cap) = 7.85(OM) – 4.84(ROA) + 1.81ln(DPO) + 0.01(DOI)
Correlation Strength
NOTE: Full equation is Ln(market capitalization) = 7.850179(operating margin) – 4.83507(return on assets) + 1.806959* ln(days of payables outstanding) + 0.008524(days of inventory). We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 3 times larger than IQR.
Chemical Industry Equation
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Step 5: Determined Rankings by IndustryChemical Industry (2012)
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Top Ranked Chemical Industry (2012)
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In ProgressFood Industry
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Ln(market cap) = 5.57 +15.56(OM) – 7.50(ROIC) – 4.13(ROA) + 2.74(RONA) + 0.61(Z) + 0.04(DPO) – 0.04(DSO)
Correlation Strength
NOTE: Full equation is Ln(market capitalization) = 5.567785 + 15.56315(operating margin) -7.49664 (return on invested capital) – 4.12637(return on assets) + 2.743363(return on net assets) + 0.605805(altman z) + 0.040756(days of payables outstanding) – 0.03914(days of sales outstanding). We utilized adjusted which accounts for the occurrence of large p values. Outliers values were defined and excluded as those 5 times larger than IQR.
Food Industry Equation
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What Is Supply Chain Excellence?
Understanding Supply Chain as a Complex System
Which Companies Have Maximized Market Valuation Through Supply Chain Excellence?
Using the Insights
Agenda
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Supply Chain Insights LLC Copyright © 2013, p. 47
Value Chain Relationships
Retail(Mass
Merchant)CPG Chemical
Equations:Ln(market cap) =
10.41 + 52.67(OM) -34.72(WC)
- 16.02(ROIC) -0.09(DPODSO)
+ 0.02(DOI)
3.37+ 2.11(OM) + 1.62(FCF) - 1.29(ROIC) - 1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI)
7.85(OM) - 4.84(ROA) + 1.81ln(DPO)
+ 0.01(DOI)
True collaboration only happens when there is a sustaining win-win value proposition.
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Step 1: Located data sources
Step 2: Selected core supply chain ratios from over 50 financial metrics
Step 3: Identified meaningful metrics per industry using regression analysis among selected ratios
Step 4: Constructed industry equation based on correlation of industry metrics to market capitalization values
Step 5: Determined company rankings within industry by applying 2012 company results to industry equation
Step 6: Analysis of peer group companies over the last decade
Step 7: Correlations to supply chain practices, technologies and organizational design
Our Next Steps: Supply Chain Index Methodology
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• What drives value in each industry is different.
• Public markets reward supply chain balance and alignment.
• The supply chain is a complex system. Supply chain excellence must be carefully defined.
• Trading relationships should recognize the differences between the definitions of value within an industry to define win-win relationships.
• There is no substitute for leadership.
• Supply chain excellence matters.
Summary
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1. Join the Supply Chain Index Group in the Supply Chain Insights Community for Peer Review and Discussion: www.scicommunity.com
2. Gain Insights from Supply Chain Leaders at the Global Summit www.supplychaininsightsglobalsummit.com
3. Build the Next Generation of Supply Chain Research Using the Index
4. Leverage the Index to Connect Supply Chain Processes, People and Technology Decisions to Balance Sheet Results
What You Can Do
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PAST SUPPLY CHAIN INDEX WEBINARS:
AVAILABLE ON DEMAND• From September 24, 2012:
The Supply Chain Index, 20 Years in the Making: A Focus on Process Industries
• From October 26, 2012: The Supply Chain Index, 20 Years in the Making: A Focus on Discrete Industries
Webinars
www.supplychaininsights.com/upcoming-webinars
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UPCOMING WEBINARS• May 9th: How Do We Heal the Healthcare Value
Chain? Part II
• June 13th: Sales and Operations Planning: State of the Union
• July 11th: Big Data Supply Chains and the Future of Analytics
• August 15th: State of Supply Chain Talent: Missing Link in the Supply Chain
• August 29th: Digital Manufacturing
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Private Networking
Chief Supply Chain Officer Chief Information Officer
CIO’s Corner
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Superheroes 2013:Coming Soon
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Supply Chain Insights Community
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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. #sciwebinar
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Where Do You Find Lora?
Contact Information: [email protected]
Blog: www.supplychainshaman.com (4000 pageviews/month)
Twitter: lcecere 3850 followers. Rated as a top rated supply chain social network user.
LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (3750 in the network)
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Where Do You Find Abby?
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Contact Information: [email protected]
Blog: www.supplychainindex.com (2500 pageviews/month)
Twitter: @indexgirl
LinkedIn: www.linkedin.com/pub/abby-mayer/40/941/972