How to define supply chain excellence and who are the winners?

from Ashutosh Bansal:

Lora Cecere and her team at Supply Chain Insights just came out with their report on Supply Chains to Admire in 2016. It's a compelling read. If you would like to understand which financial metrics best map to supply chain excellence and who the 2016 winners are by industry verticals, then read on.

Lora's initiative to come out with an objective benchmark for supply chain excellence is now in its third year. It is a deep analysis of performance, improvement, and value (through assessing Price to Tangible Book Value PTBV) of 320 companies across 31 industries for the period of 2009-2015. 5% of companies were declared winners, while the next 7% were declared finalists. See the picture below.

What are the top 12% doing right that the bottom 88% underperformers are missing out on? Most underperformers are either moving backwards on key metrics or are unable to drive improvement across a balanced set of metrics. You will be surprised: the list of underperformers includes J&J, McDonald's, Unilever, Nike, Starbucks, and many others that have been celebrated by Gartner as winners in their top 25 supply chains report. 

Another interesting point to note is that only 19 of the 31 industries surveyed had top performers who made it into the list of winners or finalists. No one from the following industries made it: Pharmaceutical, Automotive, Automotive Suppliers, eCommerce Retail, Hospitals, Third Party Logistics, Consumer Durables, and Aerospace & Defense. It's no coincidence that these are the verticals GitaCloud is focused on: these verticals have the most value potential. Necessity is indeed the mother of invention: highly challenged verticals like high-tech electronics are outperforming, while stable environment verticals like Food & Beverage are regressing. 

The 31 industries have been grouped into three segments: retail, process, and discrete. 17% of companies in the retail segment made it, 15% in the discrete segment made it too, but only 7% in the process segment were able to qualify as a winner or a finalist. Why are process industries (Chemical, Food & Beverage, etc.) losing ground? Leaders maintain consistency in direction and focus on long-term outcomes, while laggards focus too narrowly or chase the latest fads. 

Leaders are managing complexity better by adopting customer segmentation, cost-to-serve analysis, item rationalization, and network design of form and function of inventory. These are all focus ares for GitaCloud as we help companies get a handle on their demand, inventory, and overall supply response effectiveness. We believe companies need to invest in maximizing the use of channel data, build demand networks, and design joint value creation strategies. A strong focus on revenue management through Integrated Business Planning is required. Sales & Operations Planning is good, but not great. Discrete industries are doing this better than process industries. 

Supply Chains to Admire 2016 benchmark has an industry specific and data-driven approach to evaluating supply chain winners. This is a fresh approach when compared to the partly subjective and industry agnostic assessment that Gartner top 25 Supply Chain represents. It's not perfect of course, given missing reliable data on customer service and missing focus on Corporate Social Responsibility CSR, but it is a far more objective take overall on supply chain excellence. See a quick comparison below.

To read the full report, please visit supplychaininsights.com.

You can also visit the Insights section in our website: GitaCloud.com 


 Ashutosh Bansal is the Founder & CEO of GitaCloud.