7 SUPPLY CHAINS TO ADMIRE | 2023
7
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.
Made with FlippingBook interactive PDF creator