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Supply chain index april 25 2013

Supply Chain IndexApril 25, 2013

#sciwebinar


About us

About Us

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.

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Presenters

Presenters

Abby Mayer

Research Associate

Lora Cecere

Founder and CEO

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18 reports in 2012

18 Reports in 2012

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Over 30 reports planned for 2013

Over 30 Reports Planned for 2013

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Second printing of bricks matter 13 five star reviews on amazon

Second Printing of Bricks Matter: 13 Five-Star Reviews on Amazon

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

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2013 publications

2013 Publications

Publishing Two eBooks in 2013 on Supply Chain Metrics That Matter

  • Consumer Value Networks

  • Industrial Value Networks

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Supply chain metrics that matter reports

Supply Chain Metrics that Matter: Reports

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Our focus

Our Focus

www.supplychaininsights.com

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Agenda

Agenda

  • 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

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What is best in class

What Is Best in Class?

  • 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

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Agenda1

Agenda

  • 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

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Supply chain index april 25 2013

A Supply Chain

is a Complex System

with Complex Processes

with Increasing Complexity

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The supply chain effective frontier first representation

The Supply Chain Effective Frontier:First Representation

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Mining 20 years of financial ratio data

Mining 20 Years of Financial Ratio Data

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The supply chain effective frontier second representation

The Supply Chain Effective Frontier: Second Representation

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Definitions

Definitions

  • 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).

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A look at history progress in productivity

A Look at History: Progress in Productivity

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Cross industry view 2000 2011

Cross Industry View: (2000-2011)

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Company performance within an industry sector 2000 2011

Company Performance within an Industry Sector: (2000-2011)

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Competitive analysis 2006 2011

Competitive Analysis: (2006-2011)

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Peer group analysis 2000 2012

Peer Group Analysis: (2000-2012)

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Healthcare value chain financial metrics

Healthcare Value Chain: Financial Metrics

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Agenda2

Agenda

  • 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

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Introducing the supply chain index

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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Why did we do this

Why Did We Do This?

  • 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.

  • To create an objective system for evaluating and ranking supply chains by industry peer group.

  • 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.

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What it is what it is not

What It Is. What It Is Not.

  • 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.

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Now and then

Now and Then

  • 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

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Supply chain index methodology

Supply Chain Index Methodology

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

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Step 1 located data sources

Step 1: Located Data Sources

  • 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)

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Step 2 selected 14 core supply chain ratios to study

Step 2: Selected 14 Core Supply Chain Ratios to Study

Source: Supply Chain Insights LLC

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Step 3 identified industry metrics

Step 3: Identified Industry Metrics

Market Capitalization vs. Revenue Growth

Insight: For example, growth did not correlate for chemical companies.

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Step 3 identified industry metrics1

Step 3: Identified Industry Metrics

Source: Supply Chain Insights LLC

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Step 4 mass retail equation

Step 4: Mass Retail Equation

Mass Retail Industry Equation

Ln(market cap) = 10.41 + 52.67(OM) -34.72(WC) - 16.02(ROIC) – 0.09(DPODSO) + 0.02(DOI)

Correlation Strength

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.

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Step 5 determined rankings by industry mass retail industry 2012

Step 5: Determined Rankings by IndustryMassRetail Industry (2012)

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Top ranked mass retail industry 2012

Top Ranked Mass Retail Industry (2012)

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Step 3 identified industry metrics2

Step 3: Identified Industry Metrics

Source: Supply Chain Insights LLC

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Step 4 consumer packaged goods cpg equation

Step 4: Consumer Packaged Goods (CPG) Equation

CPG Industry Equation

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)

Correlation Strength

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.

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Step 5 determined rankings by industry cpg industry 2012

Step 5: Determined Rankings by IndustryCPG Industry (2012)

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Top ranked cpg industry 2012

Top Ranked CPG Industry (2012)

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Step 3 identified industry metrics3

Step 3: Identified Industry Metrics

Source: Supply Chain Insights LLC

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Step 4 chemical industry equation

Step 4: Chemical Industry Equation

Chemical Industry Equation

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.

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Step 5 determined rankings by industry chemical industry 2012

Step 5: Determined Rankings by IndustryChemical Industry (2012)

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Top ranked chemical industry 2012

Top Ranked Chemical Industry (2012)

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In progress food industry

In ProgressFood Industry

Food Industry Equation

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.

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Agenda3

Agenda

  • 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

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Value chain relationships

Value Chain Relationships

Retail

(Mass Merchant)

CPG

Chemical

True collaboration only happens when there is a sustaining win-win value proposition.


Our next steps supply chain index methodology

Our Next Steps: Supply Chain Index Methodology

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

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Summary

Summary

  • 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.

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What you can do

What You Can Do

  • Join the Supply Chain Index Group in the Supply Chain Insights Community for Peer Review and Discussion: www.scicommunity.com

  • Gain Insights from Supply Chain Leaders at the Global Summit www.supplychaininsightsglobalsummit.com

  • Build the Next Generation of Supply Chain Research Using the Index

  • Leverage the Index to Connect Supply Chain Processes, People and Technology Decisions to Balance Sheet Results

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Webinars

Webinars

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

www.supplychaininsights.com/upcoming-webinars

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: BigData 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

Private Networking

CIO’s Corner

Chief Supply Chain Officer

Chief Information Officer

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Superheroes 2013 coming soon

Superheroes 2013:Coming Soon

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Supply chain insights community

Supply Chain Insights Community

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Who is lora

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.

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Where do you find lora

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

Where Do You Find Abby?

  • Contact Information: [email protected]

  • Blog: www.supplychainindex.com (2500 pageviews/month)

  • Twitter: @indexgirl

  • LinkedIn: www.linkedin.com/pub/abby-mayer/40/941/972

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