2023
Lora Cecere Founder and CEO Supply Chain Insights, LLC
Regina Denman Client Services Director Supply Chain Insights, LLC
A TEN-YEAR VIEW OF PROGRESS ON SUPPLY CHAIN EXCELLENCE
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Table of Contents Disclosure...................................................................................................................................................................... 4 Executive Summary.......................................................................................................................................................5 What is the Right Stuff?.................................................................................................................................................7 Driving Progress by Conquering The Effective Frontier..............................................................................................9 Comparison of Methodologies...................................................................................................................................13 Trends and Insights.....................................................................................................................................................15 A Closer Look at Supply Chains to Admire Results by Industry...............................................................................16 What Drives Value?......................................................................................................................................................17 Recommendations...................................................................................................................................................... 18 Conclusion................................................................................................................................................................... 20 Analysis by Industry ...................................................................................................................................................22 Retail Overview ...........................................................................................................................................................24 Discrete Industry Overview ........................................................................................................................................32 Process Industry Overview.........................................................................................................................................49 Research Methodology...............................................................................................................................................60 Calculations................................................................................................................................................................. 61 The Criteria...................................................................................................................................................................62 Prior Reports in this Series.........................................................................................................................................65 About Supply Chain Insights LLC...............................................................................................................................65 About Lora Cecere.......................................................................................................................................................65 Figures & Tables..........................................................................................................................................................66
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Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships and our research processes. This independent research is 100% funded by Supply Chain Insights.
Please share this data freely within your company and across the industry. All we ask for in return is attribution when you use the materials. We publish under the Creative Commons License Attribution , and you will find our citation policy here.
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Executive Summary
Business leaders are action-oriented and competitive. Executive teams strive to drive significant improvement in supply chain results, yet, as shown in this report, only 6.5 percent of public companies succeed. The Supply Chains to Admire™
4. Provide a clear definition of supply chain excellence for the Supply Chain Insights research. (The analysis enables an explicit objective function for correlation to understand how the choices made by supply chain leaders tie to value.) 5. Gain an understanding of what is achievable by companies in the execution of multi-year roadmaps. 6. Understand industry patterns and sector potential over time. 7. Harvest insights from the stories of supply chain leaders that outperform their industry sector.
METHODOLOGY OVERVIEW Supply Chain Insights completes the Supply Chains to Admire™ of supply chain excellence annually. Now in its ninth year, the methodology measures industry sector performance for the period of 2013-2022. Within each peer group, we track the year-over-year patterns for publicly-held companies in the three areas of improvement, performance, and value.
methodology evaluates the progress of public companies over ten years. The analysis includes over five hundred and twenty-one public companies within twenty-six industry sectors. We design this report to meet several goals:
1. Guide supply chain leaders in setting realistic supply chain goals. 2. Provide industry benchmarks by industry peer group. 3. Reward companies that are achieving higher levels of supply chain excellence.
In the 2023 analysis, thirty-four companies met the Supply Chains to Admire Award
criteria for improvement, performance, and value. The winners include Apple , Assa Abloy AB , BorgWarner , CCL Industries , Celanese , Cummins Engine , CF Industry , Decker Outdoors ,
Figure 1. Supply Chains to Admire Winners for 2023
RETAIL (4)
PROCESS (8)
DISCRETE (22)
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Gilead Sciences , Intuitive Surgical , Hubble , Huntington Ingalls Industries , Leggett & Platt, Lockheed Martin Corporation , LyondellBasell , Koninklijke Ahold Delhaize NV , Monster Beverages , Nike Inc. , Nvidia , Northrup Grumman , PACCAR Inc, PCA (Packaging Corporation of America) , ResMed , Rockwell Automation , Ross Stores , Taiwan Semiconductor Manufacturing (TSMC) Company , Tempur-Pedic , TJX , Toro , Toyota , West Pharma , United Tractors , and Urban Outfitters . No company met the criteria in eleven of the twenty-eight sectors studied. There is a stark difference when we compare the list of Supply Chain to Admire Award Winners to the conventional wisdom of industry leaders. While some companies like Apple and Nike are accepted supply chain leaders, the performance and recognition of other companies on the list are not. In addition, many companies touted as supply chain leaders—BASF, Cisco, Colgate-Palmolive, General Mills, Intel, J&J, Nestle, and P&G—do not outperform their peer group on improvement, performance, and driving value. The reason? Industry leaders are positively
biased toward the performance of large brand companies in the process and retail sectors. While many of these companies were supply chain leaders outperforming their peer groups twenty years ago, today, they underperform against the industry averages. The story of shifts in the market carries lessons for all. Since the Supply Chains to Admire is a data-driven analysis, it is less subject to industry bias. The source is public reporting in global markets. We obtain the information for the report through a syndicated data provider, Y Charts. As a result, the Supply Chains to Admire methodology is a valuable assessment tool for companies of all sizes and regions. In this report, we share the background of the analysis and celebrate the achievements of leaders.
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What is the Right Stuff?
Supply chain excellence is easier to say than to explain. The Supply Chains to Admire methodology identifies companies within industry peer groups that drove higher levels of improvement , better performance , and superior value in public markets during 2013-2022. The analysis tracks year-over-year progress on the metrics: year-over-year growth, operating margin, inventory turns, and return on invested capital. The study focuses on moving the supply chain excellence from a cost-based focus to margin-driven performance.
that focusing on an efficient organization (lowest cost) sub- optimizes overall corporate performance. When focusing on the lowest cost per unit, we find that the strategy is only effective for 20-30% of the supply chain flow. Supply chain leaders quickly find it easier to drive improvement than sustain performance. Progress requires patience and building capabilities to manage the supply
chain as a complex nonlinear system based on a multi-year roadmap. Let's take Ecolab as an example. Companies can drive improvement and achieve peer group performance through an infusion of leadership, but performance can quickly shift when management teams change. In 2013, Alex Blanco, became SVP of Supply Chain for Ecolab. He left in 2020. Over the ten years of the Supply Chains to Admire, we tracked Ecolab as they became a Supply Chain to Admire award winner in 2020 and 2021 and then fell out of the winner's circle in 2022. (The Company failed to meet the growth target, and the
WHY OPERATING MARGIN VERSUS TOTAL COST? A focus on cost throws the supply chain out of balance, increasing inventories. In contrast, an organizational focus on margin helps organizations to better align on channel programs and new product launches. Cost of Goods Sold is less correlated with market capitalization than operating margin.
While the companies, over the ten years of the analysis, vary by year, the win rate remains constant at 4-7%. The path to excellence for supply chain leaders takes four to five years, and the most critical factor is leadership. Our research finds no correlation to performance based on technology or consultant selection. We also see an adverse impact of IT
standardization and outsourcing. Winning is not magic. Leaders drive higher levels of improvement by focusing on cross-functional process development and organizational alignment. Historically, the focus has been building efficient selling, delivering, making, and sourcing processes. The organization is thrown out of balance when companies are marketing-driven or sales-driven. We also find that large organizations focused on functional metrics throw the supply chain out of balance and do not make it into the Winner's Circle. From our research, it is clear
ROIC results have been below the peer group for four years.) In Figure 2 , we show the progress of Ecolab against the industry in 2013-2019 and the slight slide in 2020-2022. Was Alex's departure the reason? Probably not the sole reason. Supply Chain Excellence combines factors, but management changes make performance hard to sustain. The presence of the new executive team with deep experience in 2013 led to a rise in capabilities.
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There are many barriers to beating the peer group in improvement, performance, and value. Smaller, innovative, newer companies focusing on customer value tend to win the Supply Chains to Admire award. Examples of smaller innovative companies winning the award include Monster Beverages and Intuitive Surgical. The retail winners drove excellence through business model innovation. Companies following traditional supply chain practices focused
on transactional efficiency do not make the cut to place in the Winner's Circle. Using functional metrics and close coupling of the supply chain to the budget is a barrier to improving balance sheet improvement. (In contrast, the budget is input but not a constraint for winners.) A worst-case scenario is defining the supply chain as another function within a rigid set of silos. The definition of the supply chain function is more problematic in Europe than in the Americas.
Operating Margin vs. Inventory Turns (2013 - 2022) Figure 2. Orbit Chart: Ecolab Progress Against Peer Group
Best Scenario
7.00
2019
6.50
ECL 0.14, 5.35
6.00
2016
2014
2017
2013 2016
2020
2013
5.50
Chemical 0.11 4.92
2014
2021
5.00
2015
2015
2017
2020
2022
2019
2018
2022
4.50
2018
2021
4.00
0.07
0.08
0.09
0.10
0.11
0.12
0.13
0.14
0.15
0.16
0.17
Operating Margin
Fundamental Average Scores Ecolab = 9 Industry = 8
Ecolab
Chemical Industry
◆ Average (Operating Margin, Inventory Turns) Source: Supply Chain Insights LLC, Corporate Annual Reports 2013-2022 from YCharts
Supply Chain Insights LLC Copyright © 2023, p. 2 Source: Supply Chain Insights LLC, Corporate Annual Reports 2013-2022 from YCharts
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Driving Progress by Conquering The Effective Frontier
The supply chain is a complex, nonlinear system. Globalization increased both complexity and non-linearity. In 2012, Supply Chain Insights worked with Arizona State University to
marketing practices introduce complexity through product proliferation. These marketing programs also tend to shift and distort demand versus shaping demand by improving market potential (baseline 7
determine the most appropriate metrics to correlate to Market Capitalization. Based on the correlation of data from over 150 metrics for the period of 2006- 2012 for more than five hundred companies, we selected the parameters nced ard ed on Value
Figure 3. The Approach: Balanced Scorecard Analysis
lift). Shifting demand decimates the margin. The more significant the alignment gap between operational and commercial teams, the lower the Company's position in the sector, and
the less likely that the Company will meet the Supply Chains to Admire criteria. Mergers and Acquisitions (M&A) activity in the decade was more significant in process-based companies. No industry sector achieved economy of scale in delivering supply chain performance through M&A through the decade. Within process-based companies, manufacturing processes became more global, increasing logistics complexity and burgeoning in-transit inventories. The average Company entered the pandemic of 2020 with twenty more days of inventory than at the beginning of the Great Recession in 2007. Today, companies face inventory sell-offs while facing inflationary pressures. The giant e-commerce providers of Amazon and Alibaba are conspicuously absent from the list. While we recognize them as supply chain leaders, the Supply Chains to Admire methodology requires a peer group comparison. There are too few companies to drive a good peer group for comparison, thus eliminating the inclusion in the analysis.
of growth, operating margin, inventory, and Return on Invested Capital (ROIC) for the balanced scorecard analysis. We call this balanced scorecard the Effective Frontier, as shown in Figure 3 .
Copyright © 2021
While we wish to include customer service in the Supply Chains to Admire analysis, no industry standard exists for comparison. Likewise, while we strongly believe in corporate sustainability, we do not feel that any of the current sustainability indexes, due to dependency on self-reported data, accurately reflect company performance. A test of a true leader is the ability to drive higher performance levels within a peer group and sustain this competitive advantage over time. Using the Supply Chains to Admire analysis, in Table 1 , we show consecutive year winners. Over the ten years of analysis, fewer process manufacturers and retailers qualify for the Supply Chains to Admire recognition. We observe that discrete manufacturers are smaller and more agile, less likely to struggle with product complexity, and more aligned. In contrast, process industries tied to conventional
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Table 1. Winners Over Time
Supply Chains to Admire Summary
YEARS
COMPANNY
TOTAL
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
TJX
X
X
X
X
X
X
6
Dollar General
X
X
X
X
X
5
Ross Stores
X
X
X
X
X
5
Dollar Tree
X
X
X
X
4
Koninklijke Ahold Delhaize NV
X
X
X
X
4
L'Oreal
X
X
X
X
X
X
X
7
AbbVie
X
X
X
X
4
Eastman
X
X
X
X
4
Abbvie
X
X
X
4
Celanese
X
X
X
X
4
Monster
X
X
X
X
4
PCA
X
X
X
X
4
Ecolab
X
X
X
3
The Clorox Company
X
X
X
3
CCL
X
X
X
3
Apple
X
X
X
X
X
X
X
8
TSMC
X
X
X
X
X
X
X
7
Broadcom
X
X
X
X
X
X
6
Nike
X
X
X
X
X
X
6
Paccar
X
X
X
X
X
X
6
Lockheed Martin
X
X
X
X
X
5
United Tractors
X
X
X
X
X
5
Cisco
X
X
X
X
4
Sleep Number
X
X
X
X
4
Asso Abloy
X
X
X
X
4
Intuitive Surgical
X
X
X
X
4
Toro
X
X
X
X
4
EMC
X
X
X
3
Intel
X
X
X
3
Leggett & Platt
X
X
X
3
Qualcomm
X
X
X
3
ResMed
X
X
X
3
Western Digital
X
X
X
3
Borg Warner
X
X
X
3
Cummins
X
X
X
3
NVIDIA
X
X
X
3
Rockwell Automation
X
X
X
3
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Table 2. Consecutive Year Winners for the Supply Chains to Admire Year-over-Year
Supply Chains to Admire Summary
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
RETAIL
2
6
6
4
9
5
3
3
2
4
PROCESS
4
5
3
4
11
6
5
4
5
8
DISCRETE
12
23
16
24
31
25
14
13
15
22
Comparison of Methodologies
Client discussions sparked the development of the Supply Chains to Admire methodology. The reason? The industry was frustrated with the Gartner Top 25 approach. Companies wanted a more data-driven approach reflecting industry trends. The concern was that the Gartner Top 25, based 50% on the opinion of analysts and industry leaders, was a popularity contest. The request was for a data-driven analysis based on corporate financials, allowing a comparison of large and small companies across currencies. The goal was to understand the relative positions of companies within industry peer groups. In Table 3, we share a comparison of the two methodologies
The Gartner analysis lacks a peer group comparison. As shown in this report, each industry's market drivers and inherent potential differ. As shown in Table 4 , the Gartner methodology biases large branded companies. The analysis shows that 67% of the Gartner Top 25 companies underperform their peer group on growth, 44% on operating margin, and 41% on inventory turns. The blue highlights underperformance, while the yellow highlights mark the companies meeting the criteria for both analyses. In the 2023 analysis, Apple and L'Oreal are the only companies that meet the requirements for these two very different techniques to assess supply chain excellence.
Methodology Comparison: Gartner Top 25 and Supply Chains to Admire
Comparison
Table 3. Comparison of Methodologies Gartner Top 25
Supply Chains to Admire™
Focus
Gartner Top 25 Public Manufacturing and Retail Companies from Fortune Global 500 and Forbes 2000 lists. 12$B minimum annual revenue. (roughly 300 companies) Fortune Global 500 and Forbes 2000 lists. 15$B minimum annual revenue. (roughly 300 companies) 2018-2020
Supply Chains to Admire TM All public companies analyzed by industry peer groups. 512 companies by 28 peer groups. No revenue minimum. There is no limit on the number of winners by peer group. Likewise, there may be no winner by industry. All public companies by analyzed by industry peer groups. 600 companies by 26 peer groups. No revenue minimum. 2013-2022 Improvement: Top 2/3 ranking on the Supply Chain Index. Performance: At or above the industry mean for: • Year-over-year revenue growth. • Operating margin. • Inventory turns. Improvement: Top 2/3 ranking on the Supply Chain Index. Performance : At or above the industry mean for: • Year-over-year revenue growth. • Operating margin. • Inventory turns. • Return on Invested Capital (ROIC). Value: At or above the mean for Price-to-Tangible Book or Market Capitalization. • Return on Invested Capital (ROIC). Value: At or above the mean for Price-to- Tangible Book or Market Capitalization. Index Calculations: https://www.slideshare.net/loracecere/sci-summit-2014-math-behind-sc- index?qid=27326733-0325-4ee7-aacd-e2827bd216de&v=&b=&from_search=11 No limit on the number of winners peer group. Likewise, there may be no winner by industry. 2011-2020
Comparison of Methodologies
Comparison
Focus Analysis
Calculation
2020-2022 50% Opinion: (Equally split between analyst and peer voting) 50% Quantitative Analysis: . 50% Opinion: (Equally split between analyst and peer voting) 50% Quantitative Analysis: • 10% of score is Revenue Growth: (Change in revenue 2022-2021)*50%+(Change in Revenue 2021-2020)*50% 1, Return on Plant Assets (ROPA): ((2020 operating income / 2020 net property, plant, equipment + year-end inventory)) *50%) + ((2019 operating income / 2019 net property, plant, equipment + year-end inventory)) *30%) + ((2018 operating income / 2018 net property, plant, equipment + year-end inventory)) *20%). (20%) 2. Inventory (Average for 2018-2020) 5% 3. Revenue Growth: ((change in revenue 2020-2019) *50%) + ((change in revenue 2019-2018) *30%) + ((change in revenue 2018-2017) *20%). (10%) 4. ESG Component Score: Index of third-party environmental, social and governance measures of commitment, transparency and performance. • 5% of score is Inventory Turns: 2022 cost of goods sold / 2022 quarterly average inventory • 15% of the Score is a Weighted Return on Physical Assets (ROPA). Three- year weighted average. (50% 2022 ROPA, 30% 2021 ROPA and 20% 2020 ROPA). • 20% is Environmental, Social, and Governmental responsibility (3 rd party indexes) - 20%
Analysis
Calculation
History
17 th Year
8 th Year
History
19 th Year
10 th Year
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Table 4. Comparison of the Gartner Top 25 to the Supply Chains to Admire
Comparison of the Gartner Top 25 to the Supply Chains to Admire
COMPANY
INDUSTRY
RANK
Growth
Inventory Turns
Operating Margin
ROIC
Growth
Inventory Turns
Operating Margin
ROIC
1
Schneider Electric
2.0%
5.13
14.0%
7.0%
2.0%
4.7
13.0%
9.0%
2
Cisco
1.0%
12
26.0%
14.0%
5.0%
11.82
12.0%
11.0%
3
Colgate Palmolive
0.6%
4.75
23.3%
28.8%
1.4%
4.78
16.1%
13.4%
4
Johnson & Johnson
4.0%
2.85
26.0%
13.0%
6.0%
2.1
22.0%
16.0%
5
PepsiCo
3.0%
9.21
15.0%
15.0%
5.0%
5.34
17.0%
10.0%
6
Pfizer
9.0%
1.84
26.0%
14.0%
6.0%
2.1
22.0%
16.0%
7
Microsoft
11.0%
15.84
34.0%
22.0%
3.0%
7.09
6.0%
8.0%
8
Lenovo
10.0%
11.53
2.3%
8.0%
3.0%
7.09
6.0%
8.0%
9
Walmart
3.0%
8.37
5.0%
11.0%
5.0%
5.19
6.0%
14.0%
10
L'Oreal
4.0%
2.79
18.0%
15.0%
3.0%
2.49
11.0%
10.0%
11
Coca-Cola
-1.0%
5.02
26.0%
11.0%
5.0%
5.34
17.0%
10.0%
12
Diageo
2.0%
0.94
28.0%
13.0%
5.0%
5.34
17.0%
10.0%
13
Tesla
86.0%
4.54
-2.0%
-3.0%
8.0%
6.94
6.0%
6.0%
14
Intel
2.0%
3.86
26.0%
15.0%
14.0%
4.39
16.0%
11.0%
15
Siemens
5.0%
3.86
9.0%
12.0%
2.0%
4.88
14.0%
10.0%
16
Nestle
0.0%
6.23
14.0%
12.0%
4.5%
6.19
9.7%
7.5%
17
AsraZeneca
6.0%
1.97
9.0%
6.0%
6.0%
1.84
22.0%
13.0%
18
Dell
7.0%
13.78
0.0%
2.0%
5.0%
11.82
12.0%
11.0%
19
McDonalds
-1.0%
187.7
36.0%
20.0%
7.0%
83.03
14.0%
19.0%
20
Hewlett Packard
-6.0%
6.2
7.0%
4.0%
3.0%
8
3.0%
8.0%
21
Anheuser-Busch
4.0%
5.1
29.0%
10.0%
5.0%
5.34
17.0%
10.0%
22
Alibaba
46.0%
5.18
26.0%
18.0%
17.0%
4.11
14.0%
12.0%
23
GlaxoSmithKline
1.0%
1.81
20.0%
16.0%
6.0%
1.84
22.0%
13.0%
24
Dow
-4.0%
4.02
10.0%
8.0%
3.0%
4.92
11.0%
9.0%
Master
Amazon
24.0%
11.24
30.0%
9.0%
17.0%
4.11
14.0%
12.0%
Master
Apple
10.0%
46.4
28.0%
32.0%
5.0%
7.09
10.0%
9.0%
Master
Procter & Gamble
-1.0%
6.59
20.0%
12.8%
140.0%
4.78
16.1%
13.4%
Master
Unilever
-3.0%
5.43
17.0%
17.2%
140.0%
4.78
16.1%
13.4%
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Trends and Insights Our prior interviews with companies making the Supply Chains to Admire list found commonalities and similar patterns. Leaders have five characteristics. We share these in Table 5 .
Table 5. Characteristics of Supply Chains to Admire Leaders
Outperforming Companies Are More Likely to be:
Underperforming Companies Are More Likely to:
More aligned organizationally. Smaller gaps between Commercial and Operations teams and Finance and Operations.
Embrace IT standardization.
Smaller and younger organizations.
Believe that traditional practices are "best practices."
Product innovators in their sectors.
Reward functional behavior with less clarity on corporate governance.
Driving process innovation agendas.
Be more dependent on services outsourcing.
Actively designing supply chain flows.
Have attempted to grow through M&A.
Winning companies have longer tenure of their leadership teams, focusing on driving long-term outcomes. There is an avoidance of supply chain fads and multiple consulting-based projects, with a constant emphasis on supply chain excellence. Complexity throws the supply chain out of balance. In business, there is both good and bad complexity. It is analogous to cholesterol. Good complexity increases market share and drives growth with a minimal impact on margin, while bad complexity does not improve share but has a significant detrimental effect on margin. Leaders actively manage complexity through robust horizontal processes, focusing on revenue management, Sales and Operations Planning (S&OP), new product launch/innovation (NPI), Corporate Social Responsibility, and Supplier Development. These cross-functional programs align strategy with execution. Through the processes, there is a conscious choice to manage and actively reduce bad complexity through cross-functional processes. The issue? Only 1/3 of companies have a supplier development program, and more S&OP processes are out of alignment (65%) than aligned organizationally. New product launches and Corporate Social Responsibility programs all have great aspirations but operate in silos. The gap in performance between process-based and discrete industries has widened over the last decade. The smaller discrete companies started strong and developed even stronger supply chain practices in the face of declining margins. The strongest S&OP, NPI, and supplier development processes are in fast-moving discrete industries. We feel this is one of the reasons many process-based companies are regressing on the Supply Chain Metrics That Matter.
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A Closer Look at Supply Chains to Admire Results by Industry
At the start of this analysis, we start by mapping industry trends. Supply chain practices grew in importance as the margins of 85% of the industry sectors regressed over the last decade. Companies cannot drive progress based on traditional process paradigms without redesigning the supply chain. In many organizations, inventory is a sticky wicket—a political hot potato. At the end of 2021, inventory levels were significantly higher across industries than pre-recession levels in 2007. Today, many companies have burgeoning inventories but lack the right products to ship orders reliably. They are drowning in inventory, decreasing cash-to-cash performance, but have the wrong products to ship orders. The lack of performance in inventory optimization is a significant factor in determining the winners in the Supply Chains to Admire Award process. While over 82% of manufacturers with over $ 5B in annual revenue own an advanced planning solution, a spreadsheet is the most often used technology. There is a significant gap in
inventory performance between companies that use advanced optimization versus those dependent on spreadsheets. When we started this analysis, we believed it would favor the iconic brands of Procter & Gamble, Unilever, or Walmart. While each Company contributed significantly to supply chain process improvement, in this study, each struggled to outperform its peer group on the balanced scorecard selected for this analysis.
Table 6. Inventory Levels by Industry Sector Across Time Periods
Days of Inventory by Industry: Comparison across Years
Years
Diffeence (2020 - 2021 vs 2004 - 2006)
Industries
2004 - 2006
2007 - 2008
2009 - 2013
2014 - 2019
2020 - 2031
Medical Device
110
113
131
143
163
53
Beverage
115
229
238
191
164
49
Pharmaceuticals
155
144
170
195
197
42
Beauty
89
108
116
125
124
35
Automotive Parts
49
55
64
69
81
32
Household Products
50
51
57
74
82
32
Aerospace & Defense
94
89
97
103
123
29
Chemical
62
58
64
80
88
26
Apparel Retail
62
65
66
69
84
22
Automotive
35
39
41
45
49
14
Food
50
51
56
58
59
9
Semiconductor
61
68
80
91
68
7
Broadline Retail
65
62
63
66
58
-7
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What Drives Value? When I wrote the book Bricks Matter, one of the reviewers asked, "How do you define value?" I struggled to answer the question.
The definition is:
Market Share Price Book Value ÷ Share Outstanding
Price to Book Value =
The focus of the traditional supply chain organization is cost management. Saving money does not drive value. Improving cost also does not necessarily improve margin. So, as a part of this analysis, our goal was to answer the questions, "What drives value?" and "What steps should companies take to improve Price to Book Value?"
Our research finds that companies with a Supply Chain Center of Excellence, an effective S&OP process, and operational supplier development programs to drive supplier reliability are more likely to improve value. These processes become even more critical to managing the supply chain through the pandemic.
Figure 4. Driving Market Value
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SUPPLY CHAINS TO ADMIRE | 2023
Recommendations When benchmarking a supply chain, companies must look at performance and improvement (together) within a peer group over time. There are trade-offs. Companies operating with higher performance levels will struggle with improvement. In contrast, companies with a lower level of performance will drive faster progress rates, but improvement processes do not always drive value. Why? The average global multinational has more than a thousand improvement initiatives . Many are overlapping and conflicting. As a result, there is a need to define a multi-year plan reinforced by cross-functional metrics to drive progress against a strategy. As supply chain leaders develop strategies and focus on driving balance sheet improvement, we recommend that supply chain teams consider these seven recommendations: 1. Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data. Organizations should benchmark against companies within their industry sector to maximize potential and set goals. Each industry has unique rhythms and cycles. As a result, supply chain excellence analysis needs to be an industry-specific comparison.
2. Understand the Supply Chain Potential and Orchestrate Trade-offs. Balanced metrics portfolios drive higher levels of value for the Company. The metrics are nonlinear and tightly coupled. Managing them as a group in a balanced portfolio requires system thinking. Higher-performance companies use advanced analytics to plan outcomes and design the supply chain. 3. Drive Horizontal Alignment. We find that those with the best performance on the Effective Frontier align teams to focus on supply chain finance and translate supply chain processes and strategies into balance sheet results. Holistic organizational thinking is a marked departure from traditional functional thinking, shifting the need for new forms of analytics and reporting. For example, today, while most organizations can easily access functional costs, only 24% of companies quickly access total costs across source, make and deliver together. As a result, it is tough for operational teams to make trade-offs. 4. Make the Supply Chain an Engine for Growth. There is a pushback when we present this data to many supply chain
17 SUPPLY CHAINS TO ADMIRE | 2023
17
teams. Many do not understand how their work can drive growth. Unfortunately, companies stuck in a cost-focused paradigm struggle with significant horizontal organizational alignment gaps between operations and commercial teams. To break the cycle, use this report to highlight the opportunity and take steps to drive growth. 5. Effectively Manage Complexity. We heard a consistent theme when we interviewed the leaders in past reports. Increasing product and customer complexity degrades value. In an organization, there is good complexity and bad complexity. Good complexity drives growth with minimal impact on the performance factors on the Effective Frontier, while bad complexity degrades performance. Maximize the growth opportunity with good complexity and eliminate bad complexity. 6. Focus on Building Value Networks. While many of the companies in this report could leverage power in the network to be a powerbroker in the industry to redefine outside-in processes and build effective value chains, 95% of companies accept the limitations of the inside-out supply chain. Over the last decade, only TSMC and Walmart
successfully executed value network strategies. In this decade, only Maersk successfully built a value network. The efforts are few and far and few between. The next frontier of supply chain effectiveness lies in the bi-directional orchestration of process flows with trading partners. 7. Learn from Other Industries. Use a Steady Hand and Focused Leadership to Drive Improvement. Over the years, when we have interviewed the Supply Chain to Admire winners and asked, "What do you think drove improvement?" They responded, "The avoidance of fads and a steady focus on supply chain strategy." The Story of Supply Chains to Admire award winners is not a story of consultants driving a project for change transformation. Nor is it a story of technology implementation. Instead, it is a story of supply chain leadership driven by a focused internal team over many years.
1 https://www.slideshare.net/loracecere/driving-supply-chain-excellence18june2015final
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Conclusion
Supply chain excellence does not just " happen ." Progress requires moving past "end-to-end supply chain excellence" buzzwords and driving cross-functional programs focused on balance sheet improvements. Success requires focus by teams over many years based on a multi-year roadmap with a clear definition of supply chain strategy. Higher levels of performance require leadership, patience, and organizational alignment. This report aims to provide feedback to leadership teams to help them better align supply chain programs with corporate finance efforts to drive improved shareholder value. This report recognizes the 6.5% of companies creating value while improving and outperforming on the Supply Chain Metrics That Matter against their industry peer group. Please join us in celebrating these Company's achievements.
Appendix
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Analysis by Industry
Here, we share the individual analyses by industry peer groups to help the reader understand the data behind this report. In this analysis, we share the details of each Company by peer group in alpha order. Each chart enables a quick assessment of revenue, improvement, performance, and value. At the beginning of each section, we share the high-level benchmark averages. In Figures 7A-7C , we share the improvement index cut-off information. As outlined in the methodology, the Supply Chain Index measures improvement. Companies are stack ranked on orbit charts based on performance. The performance criteria are driving improvement better than 2/3 of the industry sector. The Supply Chain Index cut-off in Tables 7A-7C allows quick reference to determine who met this criteria. Table 7A. Retail Industry Improvement Cut-off Information
Number of Companies
Improvement Score Cut-Off
Number of Winners
RETAIL
Winners by Name
Apparel Retail
19
13
3
Ross Stores, TJX, and Urban Outfitters
Broadline Retail
16
11
0
Drug Retail
7
5
0
Food Retail
11
7
1
Koninklijke Ahold Delhaize NV
Home Improvement Retail
6
4
0
Resturants
19
13
0
78
4
5.1%
Table 7B. Discrete Industry Improvement Cut-off Information
Number of Companies
Improvement Score Cut-Off
Number of Winners
DISCRETE
Winners by Name
A&D
25
17
3
Northrop Grumman, Huntington Ingalls Indus- tries, Lockheed Martin,
Apparel Manufacturers
26
17
2
Deckers Outdoors, Nike
Automotive Aftermarket
30
22
1
BorgWarner
Automotive
12
8
1
Toyota
B2B Technology
26
17
1
Apple
Contract Packaging
9
6
0
Consumer Durable
18
12
2
Assa Abloy, Toro
Diversified Industries
28
19
2
Hubbell, Rockwell Automation
Medical Device
26
17
3
Intuitive Surgical, ResMed, West Pharmaceutical
Furniture
14
9
2
Leggett & Platt, Tempur Sealy
Semiconductor
28
19
2
NVIDIA, TSMC
Telecommunications
17
11
0
Tires
4
3
0
Trucks and Heavy Equipment
18
12
3
Cummins, Paccar, and United Tractors
281
22
7.8%
21 SUPPLY CHAINS TO ADMIRE | 2023
21
Table 7C. Process Industry Improvement Cut-off Information
Number of Companies
Improvement Score Cut-Off
Number of Winners
PROCESS
Winners by Name
Beverages
20
13
1
Monster Beverages
Chemical
37
25
3
Celanese, Lyondell Bassel, and CF Industries
Consumer Non-Durable
12
8
0
Containers and Packaging
19
13
2
CCL, Packaging Corporation of America
Food
31
21
0
Pharmaceuticals
31
21
1
Gilead Sciences
Personal Products
12
8
1
L'Oreal
162
8
4.9%
Retail Overview
In this analysis, we evaluate 78 companies in seven retail sectors. In the report, four companies—Koninklijke Ahold Delhaize NV (Ahold), Ross Stores, TJX, and Urban Outfitters—qualify for the Winner's Circle. There are no winners in the other retail sectors.
Table 8. Retail Overview
Number of Companies
Average Revenue (M$)
Year- over-Year Growth
Inventory Turns
Operating Margin
Return on Invested Capital
Fundamental Score
Price to Book Value
RETAIL
Average for 2013-2022
Apparel
19
$9,771
4.7%
4.52
8.8%
14.1%
7.90
4.63
Broadline
16
$70,482
5.2%
5.19
6.4%
14.4%
8.31
4.04
Drug
7
$71,437
6.3%
7.20
6.7%
14.3%
8.48
4.18
Home Improvement
6
$41,969
7.5%
4.99
7.0%
12.4%
7.82
4.90
Grocery
16
$47,091
2.5%
12.77
3.5%
9.7%
7.07
2.78
Restaurants
19
$6,348
7.2%
81.94
14.3%
18.9%
6.42
6.23
22
22
SUPPLY CHAINS TO ADMIRE | 2023
Apparel Retail The Apparel Retail sector has three Supply Chain to Admire Award winners for 2023: Ross Stores for the fifth year, TJX for the sixth year, and Urban Outfitters for the second year. Business process innovation defined the winners as the industry rebounded from the pandemic in 2022. When we compare 2022 to 2013 operating margins, we find operating margins down 1% and a decline in inventory turns of 13%.
Table 9. Retail Sector Averages for Apparel Retail for the Period of 2013-2022
INDUSTRY: Retail Apparel
IMPROVE- MENT
COMPANY INFORMATION
PERFORMANCE
VALUE
RETURN ON INVESTED CAPITAL
SUPPLY CHAIN INDEX
GROWTH (Year Over Year Revenue)
FUNDAMENTAL AVERAGE SCORE
2022 REVENUE
INVENTORY TURNS
OPERATING MARGIN
PRICE TO BOOK
MARKET CAP
NAME
2013 - 2022
Abercrombie & Fitch Co
$3,713
9
-0.5%
3.21
4.0%
3.8%
7
1.38
1,531
American Eagle Outfitters
$5,011
5
5.5%
6.52
8.0%
13.3%
8
2.50
3,067
ASOS PLC
$5,122
19
38.4%
2.83
3.9%
16.0%
NA
11.72
4,559
Carter`s, Inc
$3,200
13
3.4%
3.33
11.7%
16.0%
9
5.17
4,275
Chico`s FAS
$1,810
14
-0.3%
5.74
2.4%
-0.6%
7
2.01
1,257
Designer Brands Inc
$3,197
12
6.4%
3.86
4.6%
5.2%
7
2.24
1,809
Dick's Sporting Goods Inc
$12,293
1
9.2%
3.35
7.8%
20.6%
9
2.97
5,866
Foot Locker
$8,958
6
5.0%
4.21
10.0%
18.6%
10
2.29
6,027
Gap Inc
$16,670
14
1.7%
4.82
7.5%
16.3%
9
3.54
10,210
Guess?
$2,592
9
0.9%
3.96
6.0%
6.7%
8
2.10
1,568
J.Jill Inc
$585
2
4.5%
1.62
3.2%
-8.9%
3
0.40
110
L Brands Inc
$7,882
2
0.3%
5.09
16.6%
17.1%
6
0.00
12,803
Lululemon Athletica inc
$6,257
17
20.5%
3.63
21.3%
28.7%
8
12.05
22,643
Marks and Spencer Group PLC
$14,875
4
-2.9%
7.81
5.7%
4.0%
NA
1.86
7,442
Nordstrom
$14,789
16
4.4%
4.84
5.6%
9.1%
8
8.58
7,767
Ross Stores Inc
$18,916
7
9.4%
6.07
12.3%
35.9%
10
10.36
31,081
Tapestry Fashion Co
$6,685
18
3.0%
2.71
15.6%
16.1%
9
3.75
10,495
TJX Companies Inc
$48,550
8
5.4%
5.76
11.2%
34.3%
10
11.10
54,774
Urban Outfitters
$4,549
11
8.7%
6.52
9.1%
15.9%
8
3.86
12,351
MEAN WITH OUTLIERS
$9,771
6.5%
4.52
8.8%
14.1%
7.9
4.63
10,507
MEAN WITHOUT OUTLIERS
4.7%
4.52
8.8%
14.1%
7.9
4.63
8,048
23 SUPPLY CHAINS TO ADMIRE | 2023
23
Broadline Retail
While Dollar General placed for five years and Dollar General for four years in the Winners Circle, there is no Supply Chains to Admire winner for 2023 in the Broadline Retail Sector. Of note, Walmart and Target, winners in 2016 and 2015, no longer lead this peer group. Each fails due to the focus on singular metrics. When comparing 2022 to 2013, we see that margins declined by 1% while inventory turns decreased by 10%.
Table 10. Broadline Retail Sector Averages for 2013-2022
INDUSTRY: Retail Broadline
IMPROVE- MENT
COMPANY INFORMATION
PERFORMANCE
VALUE
RETURN ON INVESTED CAPITAL
2022 REVENUE (MS)
SUPPLY CHAIN INDEX
GROWTH (Year Over Year Revenue)
FUNDAMENTAL AVERAGE SCORE
INVENTORY TURNS
OPERATING MARGIN
PRICE TO BOOK
MARKET CAP
NAME
2013 - 2022
Bed Bath & Beyond Inc
$7,867.8
15
-1.4%
2.96
7%
6.7%
7
2.09
5,597
Best Buy Co
$51,761.0
5
1.6%
6.05
4%
22.1%
8
4.69
17,631
Big Lots
$6,150.6
61
1.9%
3.50
5%
21.0%
9
2.31
1,621
Burlinton Stores Inc
$9,322.3
1
10.6%
3.66
5%
15.1%
6
20.36
9,960
Costco Wholesale
$226,954.0 7
8.7%
11.53
3%
16.1%
10
7.88
117,862
Dillard's Inc
$6,624.3
2
1.9%
3.05
6%
11.2%
9
1.82
3,074
Dollar General Corp
$34,220.4
13
8.8%
4.48
9%
16.8%
9
5.55
33,675
Dollar Tree Stores
$26,321.2
13
16.6%
4.73
9%
13.8%
8
5.17
22,007
Kohl's
$19,433.0
6
0.8%
3.39
7%
8.8%
9
1.62
8,636
Macy's
$25,292.0
10
0.7%
3.06
6%
5.2%
8
2.36
10,333
Office Depot Inc
$8,491.0
4
-2.0%
6.90
3%
0.6%
5
1.33
2,335
Pricesmart Inc
$4,066.1
9
7.2%
8.41
5%
11.4%
10
3.60
2,485
Target
$106,005.0 7
4.5%
5.99
7%
11.6%
9
4.53
57,647
Tractor Supply Co
$14,204.7
12
11.9%
3.43
10%
29.4%
9
8.72
14,179
WalMart
$572,754.0 10
2.5%
8.37
5%
10.5%
9
3.97
303,203
Williams-Sonoma Inc
$8,245.9
3
9.3%
3.47
11%
29.6%
10
4.88
7,066
MEAN WITH OUTLIERS
$70,482.1
5.2%
5.19
6%
14.4%
8.3
5.06
38,582
MEAN WITHOUT OUTLIERS
5.2%
5.19
6%
14.4%
8.3
4.04
14,017
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