SUPPLY CHAINS TO ADMIRE // 2022
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Calculations
The methodology used to define the 2022 winners outlined in this report is as follows:
Company's Supply Chain Index Ranking, a measurement of supply chain improvement based on balance, strength, and resiliency. Companies are then stack ranked within a peer group and assigned an overall ranking based on the relative level of improvement. The lower the rank number, the higher the level of maturity. When companies tied, each Company received the same ranking. 6. Analyzing Performance. For each metric chosen, we calculated the mean, adjusted for outliers, and then analyzed the pattern over the period. We then compared each Company's statistical mean to that of the industry peer group. 7. Define Winners. Our final step was to determine winners based on the criteria of improvement, value, and performance, as will be explained in detail in this report.
1. Determine Industry Peer Groups . We started by placing companies into industry peer groups (based on prior work, we found NAICS and SIC codes inadequate). After much debate, we defined 28 peer groups, assigned companies to their respective industry sectors, and started analyzing 460 public companies. There is no such thing as a perfect peer group. 2. Define Timeframe. The next step was to determine the appropriate period. Since it takes at least three years for supply chain leaders to translate strategy to balance sheet results, and project outputs are often hard to sustain, we selected the 2012-2021 time period. Our goal was to understand post-recessionary trends.. 3. Identify the Metrics for Comparison . The third step was to identify the metrics to be collected and analyzed. In this analysis, we selected two value metrics (Market Capitalization and Price to Tangible Book Value (PTBV)) and four performance metrics (Growth, Operating Margin, Inventory Turns, and Return on Invested Capital (ROIC)). Our goal to move supply chain leaders from a cost to value focus. We know that the performance metrics selected have the highest correlation to market capitalization from our work with Arizona State University based on prior research 4. Start the Analysis. To complete the analysis, we collected publicly available data from balance sheets and income statements. We used YCharts, a syndicated data provider of the balance sheet, and income statement data for this analysis. We only included companies that had at least one data point across all of the metrics in the period selected. 5. Defining Improvement. The base principle of this analysis is that supply chain winners drive improvement while also outperforming their peer group. As will be seen, this is hard to do. Our first calculation was defining improvement on balance sheet performance as compared to the peer group. To accomplish this goal, we calculated each
To understand the methodology completely, it is essential to note what the analysis does not include:
• This analysis does not include private companies or companies trading only on Chinese and Korean stock exchanges.
• Companies with issues on reporting during the period (M&A), or public offerings, are excluded from the analysis.
• We excluded companies that did not have at least one data point for each metric across the time period studied.
• The research is a focused look at the retail, distribution, and manufacturing companies. The work does not include financial, insurance, or service sectors. • Within each industry, there are metrics we consider to be essential but feel that there is no good source of data. An example is customer service. While we firmly believe that the analysis should include customer service in the performance metrics, we cannot find a reliable data source.
2 Supply Chain Index, published by Supply Chain Insights, http://supplychaininsights.com/research, July 12, 2017
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