Over the last decade, 75% of companies in process industries have lost ground on margins and only 5% of companies improved their positions on the number of days of inventory, according to a report from Supply Chain Insights LLC titled “Supply Chain Metrics That Matter: Driving Reliability in Margins.” The goal of this report was to answer “Why?”
In general, chemical and consumer packaged goods (CPG) companies are more mature than those operating in the food and pharmaceutical industries, says the report’s author, Lora Cecere, founder of Supply Chain Insights LLC. With slowing of growth, the volatility of commodity prices, and the management of product portfolios for global expansion, supply chain management matters more than ever. However, only 23% of companies feel that they can easily use the data in their organization to determine financial outcomes, the report states.
In the CPG space, the author cites General Mills, Inc. and The Procter & Gamble Co. as performing better on operating margins than others in their peer group, but worse on return on assets (ROA). They also perform better than their peer group on revenue/employee. The report states that it is largely due to a focus on driving supply chain excellence and automating decisions through the use of advanced analytics.
The organizations that have driven the best results over the past decade focused on talent development, driving value in horizontal processes, and building the value chains outside-in from the channel back.
“The Consumer Packaged Goods industry has demonstrated one of the highest levels of understanding of demand-driven value networks,” Cecere writes. “They remain supply chain leaders in regards to supply chain maturity within both process and discrete companies. While they are not as advanced as the high-tech and electronics companies in the use of supply chain planning systems and the management of inventories, they have been leaders in the field for many years. These companies operate global teams with global expansion powering growth in recent years.”
The report states that identifying the best supply chain in the CPG space depends on its goal. If the goal is growth, P&G would be the winner. If the goal is the lowest cost producer, the winner would be Colgate. Cecere identifies three factors in determining supply chain success:
∙ Conscious choice and alignment of metrics to the goals;
∙ Reliability in results, and
∙ Year-over-year improvement against a strategy.
“Without the knowledge of the goal of the supply chain strategy, the winner cannot be determined,” she concludes.
Lora Cecere will speak at The 4th Chief Supply Chain Officer Forum in Chicago, June 18-20, 2013.