9 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
9
Understanding the Mission
Supply chain excellence is easier to say than to explain. The Supply Chain Insights Supply Chains to Admire™ methodology identifies companies within industry peer groups that drove
by focusing on cross-functional process development and organizational alignment. They tend to be more innovative and data-driven.
higher levels of improvement, better financial performance, and superior value in public markets during a ten-year period. The analysis tracks year-over-year progress on the metrics: year-over-year growth, operating margin, inventory turns, and Return on Invested Capital
Large organizations focused on functional metrics throw the supply chain out of balance. From our research, it is clear that focusing on an efficient organization (lowest cost) degrades the overall corporate performance. Only 20-25% of volume can be managed by efficient measurement tethered to cost reduction objectives. The remaining flows
______________________________ The focus on functional performance, and optimizing one supply chain link at a time is flawed thinking. This traditional view creates “winning functions” and “losing teams.” ______________________________
(ROIC). The study focuses on moving the supply chain excellence from a cost-based focus to margin-driven performance. The selection of the metrics is based on work completed with Arizona State University in 2013. This combination of metrics as shown in Figure 1, improves market capitalization and price to book values. While the individual company performance varies by year, over the ten years of the analysis, the win rate remains constant at 4%. The path to excellence for supply chain leaders takes four to five years, and the most critical factor is leadership. Winning is not magic. Leaders drive higher levels of improvement
must be aligned with market data to improve customer service. Supply chain teams find it easier to drive improvement than to 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. In Figure 2, we show the progress of Ecolab against the chemical industry peer group for 2013-2022. Supply Chain Excellence is a combination of factors. In this orbit chart, Ecolab averages a 14% margin against the chemical peer group of an 11% margin and 5.35 inventory turns against the industry
Figure 1. Performance Factors
Growth
Profitability
Cycle
Complexity
Year-over-Year Growth
Operating Margin
Inventory Turns
Return on Invested Capital
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