Driving Supply Chain Excellence: Understanding Improvement and Performance

Supply chain excellence is easier to say than to measure. For a supply chain leader having a clear definition is the starting point to drive improvement. Without clarity it is very difficult to define an effective operating strategy. To help supply chain leaders fill this gap, over the course of the past two years we have studied industry progress on supply chain excellence by analyzing corporate balance sheet and income statement information for the period of 2006-2014. In this work, we analyzed patterns of performance and improvement for individual companies, for industries, and for value networks. Why Are We Doing This Study? Supply chain process evolution is relatively new: about 30-years old. The supply chain is a complex system. There is a nonlinear relationships between metrics. When we plot the year-over-year progress of companies at the intersection of metrics, very few companies have made improvement at the intersection of critical metrics like operating margin and inventory turn. Nine out of ten companies are stuck. For most companies, the journey is a gnarly and tangled pattern. The rhythms and cycles of each industry define the possible band of performance in the critical supply chain metrics of growth, operating margin, inventory turns, and Return on Invested Capital (ROIC). A supply chain leader’s goal is to improve the potential of the supply chain within the possible range for a specific industry. It is a balancing act. Supply chain teams must balance growth objectives, define asset strategies while managing costs and inventories. In our research, we define this as the Effective Frontier. (It is deliberately NOT termed the efficient frontier as most companies are hard-wired to think about efficiency as the lowest cost per unit. The efficient supply chain is usually not the most effective because it cannot balance the portfolio of metrics that maximize market capitalization.) Figure 1: The Effective Frontier of the Supply Chain Metrics That Matter