Supply Chains to Admire 2022 - Report v4.0-web

2022

Lora Cecere Founder and CEO Supply Chain Insights, LLC

Regina Denman Client Services Director Supply Chain Insights, LLC

2022 // SUPPLY CHAINS TO ADMIRE

SUPPLY CHAINS TO ADMIRE // 2022

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..................................................................11 Trends and Insights....................................................................................13 A Closer Look at Supply Chains to Admire Results by Industry..............14 What Drives Value?.....................................................................................15 Recommendations.....................................................................................16 Conclusion..................................................................................................18 Analysis by Industry ..................................................................................20 Retail Overview ...........................................................................21 Discrete Industry Overview ........................................................28 Process Industry Overview.........................................................44 Research Methodology..............................................................................54 Calculations................................................................................................55 The Criteria..................................................................................................56 Prior Reports in this Series........................................................................58 About Supply Chain Insights LLC..............................................................59 About Lora Cecere......................................................................................59 Figures & Tables.........................................................................................60

2022 // SUPPLY CHAINS TO ADMIRE

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 http://creativecommons.org/licenses/by-nc-sa/3.0/us/ Noncommercial-Share-Alike 3.0 United States , and you will find our citation policy here.

SUPPLY CHAINS TO ADMIRE // 2022

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 four percent of public companies succeed.

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.)

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 2012-2021. Within each peer group, we track the year-over- year patterns for publicly-held companies in the three areas of improvement, performance, and value.

The Supply Chains to Admire™ methodology evaluates the progress of public companies over ten years. The analysis includes over four hundred and sixty public companies within twenty-eight industry sectors. The annual report is designed to serve several goals:

5. Gain an understanding of what is achievable by companies in the execution of multi-year roadmaps In the 2022 analysis, twenty-two companies meet the Supply Chains to Admire Award criteria for improvement, performance, and value. The winners include Apple, AbbVie Inc., Assa Abloy AB, Ametek, Broadcom, CCL Industries, Celanese, Clorox, Intuitive Surgical, Hubble, Lockheed Martin Corporation, Koninklijke Ahold Delhaize NV, Monster Beverages, Nike Inc.,

1. Guide supply chain leaders in setting realistic supply chain goals.

2. Provide industry benchmarks by industry peer group.

Northrup Grumman, PACCAR Inc, ResMed, Ross Stores, Sleep Number, Subaru, Taiwan Semiconductor Manufacturing (TSMC)

3. Reward companies that are achieving higher levels of supply chain excellence.

Figure 1. Supply Chains to Admire Winners for 2022

RETAIL (2)

PROCESS (5)

DISCRETE (15)

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Company, and Toro. No company met the criteria in eleven of the twenty-eight sectors studied.

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 type of industry bias. The basis is public reporting in global markets. We obtained the information to start 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.

When we compare the list of Supply Chain to Admire Award Winners to the conventional wisdom of industry leaders, there is a stark difference. While some like Apple and Nike are commonly 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, General Mills, Intel, J&J, and P&G—do not make the cut of outperforming their peer group on improvement, performance and driving value. 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

In this report, we share the background on the analysis and celebrate the achievements of leaders.

SUPPLY CHAINS TO ADMIRE // 2022

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

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

improvement, better performance, and a superior level of value in public markets during the 2012-2021 period. 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. While the companies, over the nine years of the analysis, vary by year, the win rate remains constant at 4%. The path to excellence for supply chain leaders takes

and do not make it into the Winner’s Circle. From our research, it is clear that a focus on efficient organization-optimizes overall corporate performance. 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

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 launch.

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 find 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.

of leadership but that relative positions can quickly shift when management teams change. In 2013, Alex Blanco, became SVP of Supply Chain for Ecolab. He left in 2020. Over the nine 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 fall out of the winner’s circle in 2022. (Posted ROIC results below the peer group on a downward slide for the past three years.)

Historically, the focus has been on building efficient selling, delivering, making, and sourcing processes. The organization

In Figure 2, we show the progress of Ecolab against the industry in the period of 2013-2019 and the slight slide in 2020 and 2021.

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The presence of the new executive team with deep experience in 2013 led the rise in capabilities. Was Alex’s departure the reason for the fall? Probably not the sole factor. Supply Chain Excellence is a combination of factors, but performance is hard to sustain through management changes.

Companies following traditional supply chain practices focused on transactional efficiency do not make the cut to place in the Winner’s Circle. The use of 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 supply chain function is a more significant issue in Europe than in the Americas.

There are many barriers to beating the peer group in the areas of improvement, performance, and value.

Smaller innovative and newer companies focusing on customer value tend to win the Supply Chains to Admire award. Examples of smaller innovative companies winning the award include AbbVie, Intuitive Surgical, and Sleep Number. The retail winners drove excellence through constant change and business model innovation.

Annual Growth vs. Inventory Turns (2012 - 2021) Figure 2. Orbit Chart: Ecolab Progress Against Peer Group

Best Scenario

7.0

2019

6.5

Ecolab 0.14, 5.44

6.0

2012

2016

2013 2014

2017

2012

2020

5.5

2013

2015

Chemical Industry 0.11 4.95

2021

2014

2015

5.0

2016

2017

2018

4.5

2019

2020

2021

2018

4.0

0.06

0.07

0.08

0.09

0.10

0.11

0.12

0.13

0.14

0.15

0.16

Annual Growth

Chemical Industry

Ecolab

 Average (Annual Growth, Inventory Turns) Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2021 from YCharts

SUPPLY CHAINS TO ADMIRE // 2022

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

While we wish to include customer service in the analysis, there is no industry standard to enable the comparison. Likewise, while we strongly believe in corporate

Arizona State University to determine the most appropriate metrics to correlate to Market

Figure 3. The Approach: Balanced Scorecard Analysis

sustainability, we do not feel that any of the current sustainability indexes, due to dependency on self- reported data, are accurate reflections of 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,

Capitalization. Based on the correlation of data from over 150 metrics for the period of 2006- 2012 for more than five hundred companies, we nced ard ed on Value

selected the parameters of growth, operating margin, inventory and Return on Invested Capital (ROIC) for the balanced scorecard analysis. We call this balanced scorecard, as shown in Figure 3, the Effective Frontier.

in Table 1, we show consecutive year winners.

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Over the eight 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 marketing practices introduce complexity through product proliferation. These marketing programs, in addition, tend to shift and distort demand versus shaping demand by improving market potential (baseline lift). Shifting demand decimates margin. The more significant the alignment gap between operational and commercial teams, the lower the company’s position in the sector. Marketing-driven organizations handicap process companies, which are no substitute for market-driven planning capabilities. Mergers and Acquisitions (M&A) activity in the decade was more significant in process-based companies. No industry sector successfully achieved economy of scale in delivering supply chain performance. 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.

Table 1. Winners Over Time

Winners Over Time

company

frequency

this year

Apple

L'Oréal

Broadcom

TSMC

Dollar General

Nike

TJX

Paccar

Dollar Tree

Ross Stores

Eastman

Sleep Number

Abbvie

Asso Abloy

Celanese

Clorox

Intuitive Surgical

Koninklijke Ahold Delhaize NV

Monster Beverages

ResMed

Toro

Table 2. Consecutive Year Winners for the Supply Chains to Admire Year-over-Year

Supply Chains to Admire Summary Year

Sector

2014

2015

2016

2017

2018

2019

2020

2021

2022

Retail

Process

Discrete

Sum

SUPPLY CHAINS TO ADMIRE // 2022

Comparison of Methodologies

Client requests initiated the development of the Supply Chains to Admire methodology. The industry was frustrated with the Gartner Top 25 approach. Companies wanted more than a popularity contest. The request was for a data-driven analysis based on corporate financials, allowing comparisons of large and small companies across currencies. The goal was to understand the relative positions of companies within industry peer groups. Shown in Table 3 is a comparison of the two approaches.

For the 2022 analysis, AbbVie, Apple, and Nike are the only three companies that meet the criteria for these two very different comparisons. As shown in Table 4, The Gartner methodology biases underperforming companies on growth, inventory management and asset utilization. The process lacks a peer group comparison. Instead, in the Gartner work, all companies are compared without a reference to industry sector performance.

Table 3. Comparison of Methodologies

Methodology Comparison: Gartner Top 25 and Supply Chains to Admire

Comparison of Methodologies

Comparison

Gartner Top 25

Supply Chains to Admire™

Comparison

Gartner Top 25

Supply Chains to Admire TM All public companies by analyzed by industry peer groups. 600 companies by 26 peer groups. No revenue minimum. No limit on the number of winners peer group. Likewise, there may be no winner by industry. All public companies analyzed by industry peer groups. 480 companies by 26 peer groups. No revenue minimum for consideration. No limit on the number of winners by peer group. Likewise, there may be no winner by industry.

Focus

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)

Focus

Analysis Analysis

2018-2021 2018-2020

2011-2020

2012-2021

Calculation

50% Opinion: (Equally split between analyst and peer voting) 50% Quantitative Analysis: 1. Return on Plant Assets (ROPA): [(2021 operating income / 2021 net property, plant, equipment + year-end inventory) × 50%] + {[(2020 opearting income / 2020 net property, plant equipment + year-end inventory)} × 30%) + ((2019 operating income / 2019 net property, plant, equipment + year-end inventory)) × 20%) 2. Inventory (Average for 2019-2021) 5% 3. Revenue Growth: ((change in revenue 2021-2020) × 50%) + ((change in revenue 2020-2019) × 30%) + ((change in revenue 2019-2018) × 20%) (10%) 4. ESG Component Score: Index of third-party environmental, social, and governance easures of commitment, transparency, and performance 50% Opinion: (Equally split between analyst and peer voting) 50% Quantitative Analysis: . 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.

Improvement: Top 2/3 ranking on the Supply Chain Index. 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. 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.

Calculation

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

History History

17 th Year

8 th Year

18 th Year

9 th Year

2022 // SUPPLY CHAINS TO ADMIRE

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 Metrics

Industry Peer Group

Inventory Turns

Price to Book

Inventory Turns

Price to Book

Growth

Margin

ROIC

Growth

Margin

ROIC

Amazon

25.7%

0.03

10.89

9.4%

17.44

26.0%

0.14

38.95

14.3%

8.03

Apple

14.0%

0.28

52.99

30.9%

12.35

2.9%

0.06

8.00

7.0%

2.61

Procter & Gamble

-0.5%

0.20

6.60

12.1%

4.92

2.0%

0.16

4.92

14.0%

29.96

McDonalds

-1.2%

0.35

182.28

19.7%

3.39

4.9%

0.14

83.03

18.5%

17.05

Unilever

-0.4%

0.16

5.51

7.7%

7.75

2.0%

0.16

4.92

14.0%

29.96

Cisco

1.5%

0.25

12.32

12.8%

3.57

4.0%

0.12

12.01

10.1%

4.33

Schneider

1.3%

0.14

5.14

7.2%

2.19

1.9%

0.14

4.95

9.2%

3.58

Colgate

0.5%

0.24

4.90

30.1%

105.92

2.0%

0.16

4.92

14.0%

29.96

Johnson & Johnson

3.8%

0.26

2.89

15.4%

14.46

6.8%

0.21

2.61

12.8%

8.10

PepsiCo

1.9%

0.15

9.31

14.2%

10.88

4.7%

0.17

5.42

10.4%

4.77

Pfizer

6.1%

0.25

1.62

12.6%

3.09

6.8%

0.21

2.61

12.8%

8.10

Intel

4.0%

0.28

4.01

16.0%

2.66

11.8%

0.15

4.48

10.2%

4.23

Nestle

0.2%

0.16

5.00

12.3%

4.43

5.9%

0.10

6.27

7.1%

3.44

Lenovo

11.5%

0.02

12.96

11.2%

2.88

3.2%

0.07

8.26

7.5%

2.80

Microsoft

9.3%

0.34

15.71

20.5%

7.89

3.2%

0.07

8.26

7.5%

2.80

L'Oreal

3.3%

0.18

2.85

14.8%

4.48

3.5%

0.11

2.76

10.4%

4.13

Coca-Cola

1.5%

0.25

5.18

10.9%

8.72

4.7%

0.17

5.42

10.4%

4.77

Nike

8.4%

0.13

3.74

24.2%

11.02

6.4%

0.11

2.94

13.0%

6.06

Wal-Mart

2.9%

0.05

8.43

10.8%

3.75

4.2%

0.06

5.20

13.5%

4.53

Hewlett Packard

-4.8%

0.07

9.02

47.3%

0.35

3.2%

0.07

8.26

7.5%

2.80

Diageo

1.1%

0.28

0.96

12.4%

7.84

4.7%

0.17

5.42

10.4%

4.77

Dell

------

Inditex

------

AbbVie

12.9%

0.31

4.22

16.4%

18.75

6.8%

0.21

2.61

12.8%

8.10

British American Tobacco

------

Astrazeneca

2.1%

0.12

1.97

7.8%

5.72

6.8%

0.21

2.61

12.8%

8.10

Siemens

-2.1%

0.09

3.80

8.1%

2.32

1.9%

0.14

4.95

9.2%

3.58

General Mills

2.1%

0.17

7.17

10.3%

5.40

5.9%

0.10

6.27

7.1%

3.44

BMW

3.3%

0.10

6.09

8.1%

1.17

7.3%

0.05

6.84

4.9%

3.09

Alibaba

65.2%

0.27

5.84

19.3%

5.00

26.0%

0.14

38.95

14.3%

8.03

SUPPLY CHAINS TO ADMIRE // 2022

Trends and Insights

We found commonalities and similar patterns in our prior interviews with companies making the Supply Chains to Admire list. 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.

Focused on managing complexity and aligning the organization in Sales and Operations Planning (S&OP). Recognizing and managing supply chain flows based on rhythms and cycles. Not treating all products are treated the same.

Focus on tight integration of the budget to supply chain flows in S&OP. Manage the supply chain as a homogeneous process— treating all items the same.

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: a focus 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 launch and Corporate Social Responsibility programs all have great aspirations, but operate in silos. The gap in performance between process-based and discrete industries 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. Without the supply chain's redesign, companies cannot drive progress based on traditional process paradigms. Inventory is a sticky wicket—a political hot potato—in many organizations. Inventory levels at the end of 2021 were significantly higher across industries than pre-recession levels in 2007. Today, many companies have burgeoning inventories; but lack the right product to ship orders reliably. They are drowning in inventory, decreasing cash-to-cash performance, but have the wrong products to ship orders. This is due to the lack of evolution of processes to manage inventory holistically. Winners focus on the design of inventory strategies while most companies, often laggards, only focus on safety stock levels. 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 greater than 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 the analysis 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 - 2021

Beverage

114

160

153

Pharmaceuticals

146

135

158

184

182

Medical Device

100

107

120

129

145

Beauty

105

127

132

142

147

Automotive Parts

Household Products

Aerospace & Defense

103

122

Apparel Retail

Chemical

Semiconductor

Automotive

Food

Broadline Retail

-5

SUPPLY CHAINS TO ADMIRE // 2022

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 Supply Chains to Admire methodology is designed to help business leaders understand 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? " The definition is: Price to Book Value = Market Share Price / Book Value/Share Outstanding

Figure 4. Driving Market 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.

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Recommendations When benchmarking a supply chain, companies need to 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, while companies with a lower level of perf performance level will drive faster progress rates improvement processes do not always drive value. Why? The average global multinational has more than a thousand improvement initiatives 1 . 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

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. Companies with higher performance 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

Industry-Specific Data. To maximize potential and to set goals, organizations should benchmark against companies within their industry sector. Each industry has unique rhythms and cycles. As a result, supply chain excellence analysis needs to be an industry-specific comparison.

SUPPLY CHAINS TO ADMIRE // 2022

teams. Many do not understand how their work can drive growth. Unfortunately, companies stuck in a cost-focused paradigm with significant gaps in horizontal organizational alignment between operations and commercial teams struggle. To break the cycle, use this report to shine a light on 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 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

2022 // SUPPLY CHAINS TO ADMIRE

Conclusion

Supply chain excellence does not just " happen ." Progress requires moving past the buzzwords of " end-to-end supply chain excellence " 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 4% 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.

SUPPLY CHAINS TO ADMIRE // 2022

Appendix

2022 // SUPPLY CHAINS TO ADMIRE

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 is a measure of improvement. Companies are stack ranked based on performance on orbit charts. The performance criteria is 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 these criteria. Table 7A. Retail Industry Improvement Cut-off Information

Supply Chain Index Cut-off

Retail

Total

Winners

Broadline Retail

Drug Retail

eCommere Pure Play Retailers

Food Retail

Home Improvement Retail

Restaurants

Retail Apparel

Table 7B. Discrete Industry Improvement Cut-off Information

Supply Chain Index Cut-off

Discrete

Total

Winners

Aerospace and Defense

Apparel

Automotive

Automotive Aftermarket

B2B Technology

Contract Manufacturing

Consumer Durables

Diversified Industries

Furniture

Medical Device

Semiconductor

Tires

Telecommunications

Trucks and Heavy Equipment

SUPPLY CHAINS TO ADMIRE // 2022

Table 7C. Process Industry Improvement Cut-off Information

Supply Chain Index Cut-off

Process

Total

Winners

Beverages

Chemical

Consumer Nondurables

Containers and Packaging

Food

Personal Products

Pharmaceuticals

Retail Overview

In this analysis, we evaluate 83 companies in seven retail sectors. In the report, two companies—Koninklijke Ahold Delhaize NV (Ahold) and Ross Stores—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

Price to Book Value

RETAIL

Average for 2012-2021

Apparel

$7,362

3.1%

4.60

8.9%

14.4%

4.74

Broadline

$65,402

4.2%

5.20

6.4%

13.5%

3.61

Drug

$66,434

7.3%

7.02

6.8%

14.0%

4.01

eCommerce Pure Play

$147,217

26.0%

38.95

13.7%

14.3%

8.03

Home Improvement

$37,664

8.2%

3.19

7.1%

9.6%

5.42

Grocery

$44,274

2.1%

12.77

3.5%

10.3%

2.71

Restaurants

$5,741

6.1%

81.44

14.1%

18.5%

6.19

2022 // SUPPLY CHAINS TO ADMIRE

Apparel Retail The overall industry performance declined over the last decade. The operating margin in 2012 was 12% and fell to 1% in 2021. Inventory values remained relatively flat. TJX, a 2021 Supply Chains to Admire Winner for the fifth consecutive year, dropped out of the winner’s circle. Ross Stores is an award winner for four out of eight years of analysis. Shown in Table 10 are the industry averages along with the Supply Chain Index measurement of improvement.

Table 9. Retail Sector Averages for Apparel Retail for the Period of 2012-2021

INDUSTRY: Retail Apparel