Embracing Supply Chain
Metrics That Matter

Supply Chain Insights LLC Copyright © 2016, p. 2
Disclaimer: I am a Skeptic

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A Social Scientist

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A Fortune-teller of Sorts….

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I Write for the Supply Chain Leader

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Delivering Open Content To The Market

Today’s Supply Chain Is
Stuck

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Descriptors Used by Leaders

Supply Chain Insights LLC Copyright © 2016, p. 9
Today, the healthcare supply chain is focused on
efficient sickness. With a focus on affordable care,
there is a movement towards health and wellness.
Who is the customer? Physician? Patient?
Current State

Supply Chain Insights LLC Copyright © 2016, p. 10
Long Term View
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

Supply Chain Insights LLC Copyright © 2016, p. 11
Today’s Supply Chain Is Stuck

Supply Chain Insights LLC Copyright © 2016, p. 12
What Is a Supply Chain?

Drivers of Change

Supply Chain Insights LLC Copyright © 2016, p. 14
State of Healthcare

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Within the Hospital

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Supply Chain Risk

5 Fallacies

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Fallacy #1 : Organizations Can Align

Supply Chain as a Function

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Focus on Total Supply Chain Costs

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Manage the Costs Like a Decathlete

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Fallacy #2: A Project-based Focus

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Fallacy #3: The Efficient Supply Chain is the Most
Effective

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Bullwhip Effect

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Fallacy #4: We Have Best Practices

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Fallacy #5: Integration is the Answer Beyond the
Firewall

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Confidence in ERP to Build Business Networks

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Gaps in Supply Chain Visibility

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Collaboration: The Right Stuff

Improving the Metrics
That 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….

Supply Chain Insights LLC Copyright © 2016, p. 33
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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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 Chain Insights LLC Copyright © 2016, p. 39
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2014
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
Average (Operating Margin, Inventory Turns)
InventoryTurns
Novo Nordisk Making Progress

Supply Chain Insights LLC Copyright © 2016, p. 40
Path of Medical Device Supply Chains

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Pharmaceutical

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Medical Device

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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
+

Supply Chain Insights LLC Copyright © 2016, p. 44
Supply Chains to Admire

Supply Chain Insights LLC Copyright © 2015, p. 45
Change the Metrics Focus

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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 the 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
Insights

Supply Chain Insights LLC Copyright © 2015, p. 47
Our Insights

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About Lora Cecere
• Founder of Supply Chain Insights
• “LinkedIn Influencer”
• Guest blog for Forbes
• Author of 4 books: Bricks Matter (2012), Shaman’s Journal (2014),
Supply Chain Metrics That Matter (2014), Shaman’s Journal (2015)
• 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 (15,000 pageviews/month)
• Forbes: www.forbes.com/sites/loracecere
• Twitter: twitter.com/lcecere (6,800 followers)
• LinkedIn: www.linkedin.com/in/loracecere (76,724 followers)
• LinkedIn Influencer: www.linkedin.com/today/author/446631

Supply Chain Insights LLC Copyright © 2016, p. 52
Definition:
Metric Equations
Source: Supply Chain Insights LLC, Corporate Annual Reports (2000-2014)
Metric Equations
Cash-to-Cash Cycles = (Avg. Inventory/COGS + Avg. Accounts Receivable/Sales - Avg. Accounts
Payable/Purchases)*91.5
Days of Inventory = (Average Inventory/COGS)*91.5
Days of Payables = (Average Accounts Payables/Purchases)*91.5
Days of Receivables = (Average Accounts Receivable/Sales)*91.5
Inventory Turns = (Cost of Sales/Average Inventory)
Operating Margin = (Operating Income/Revenue)
Return on Invested Capital = (Net Income/Invested Capital)
Return on Net Assets = (Trailing 12 Month Net Income/Total Assets from the most recent quarter)
Revenue Growth = (Quarterly Revenuei/Quarterly Revenuei-4 -1)
Revenue per Employees = (Revenue/Average Annual Employee)