Supply Chain Leaders vs. Laggards
Supply chain processes are now three decades old. They are maturing. The understanding of supply chain excellence is evolving. Most companies feel that they have made great results in driving growth, reducing costs, improving inventories and managing complexity; however, data from the financial balance sheets and income statements show otherwise.
The financial results support that while all industries have made progress on improving revenue/employee through the use of technology, substantial progress on costs and inventory management has only happened in the high-tech and electronics industry. For everyone else, progress has stalled. We find that most industries are at a supply chain plateau on the journey of managing supply chain excellence. Companies are frustrated. They have invested in systems, people and processes; but yet, the progress is elusive.
While many think of consumer packaged goods (CPG) as a leader within supply chain management, over the course of the last decade, progress has stalled. The companies within the CPG peer group grew topline revenue by 7 percent, increased the number of days of inventory by 3 percent, and fought an uphill and then a downhill battle to manage operating margins. The efforts toward supply chain excellence have been more project-based than systemic, and the industry has been slow to manage the end-to-end value chain.
Barriers exist to design supply chains across sales and marketing to improve the end-to-end flows, and costs and waste are being pushed backwards in the chain towards suppliers. These companies tend to be more sales-driven (opportunistic) or marketing-driven (focused on market share) than driving long-term value. Companies will have to adopt market-driven practices, like demand sensing, test and learn practices and demand orchestration in order to drive themselves off of the current supply chain plateau.
Similarly, the average food manufacturing company grew 7 percent with slight improvement in the number of days of inventory. Costs rose with a 4 percent increase in cost of goods sold as a percentage of revenue. Overall, the industry made some progress, but the leaders are battling rising commodity volatility and bracing for escalating costs. The concepts of market-driven value networks are the most critical in the face of market volatility. The industry lags the chemical and consumer products sectors in their understanding of supply chain excellence. With the rising costs of materials and the shortage of food in the global supply chain, this peer group will be pressured to step-up their practices quickly.
By comparison, companies within the high-tech and electronics industry grew at a rate of 19 percent while reducing inventories by 40 percent and improving cost of goods sold by 12 percent. As an industry sector, these companies have done the best in navigating the "Supply Chain Effective Frontier" (the management of growth, costs, complexity and cycles). They were the first to embrace supply chain planning, network design, the use of channel data, and the building of extended value networks with suppliers and contract manufacturers.
The biggest opportunity to improve business results lies deep within the organization. It comes from leadership and clear articulation of a supply chain strategy. It takes discipline and patience. Results on the Supply Chain Effective Frontier do not happen quickly: these results take three to five years. To make progress, companies need to: educate and align on the principles, evolve the organization’s understanding of supply chain processes, and learn from the industries that have done it well.
Bottom line, we believe that excellence in supply chain matters. The companies that have made the most progress have managed the supply chain as a complex system. While information technology companies tout that IT systems made the difference, we believe that the results in this report are all about leadership and talent development. The greatest issue for the supply chain department is the lack of clear understanding of supply chain excellence by the executive team. The goal of this report is to help close this gap.
Note: This article is an abbreviated excerpt from “Bricks Matter”, a new book from Lora Cecere and Charles Chase Jr. that explores the role of supply chains in building market-driven differentiation. Click here to buy this book.
The financial results support that while all industries have made progress on improving revenue/employee through the use of technology, substantial progress on costs and inventory management has only happened in the high-tech and electronics industry. For everyone else, progress has stalled. We find that most industries are at a supply chain plateau on the journey of managing supply chain excellence. Companies are frustrated. They have invested in systems, people and processes; but yet, the progress is elusive.
While many think of consumer packaged goods (CPG) as a leader within supply chain management, over the course of the last decade, progress has stalled. The companies within the CPG peer group grew topline revenue by 7 percent, increased the number of days of inventory by 3 percent, and fought an uphill and then a downhill battle to manage operating margins. The efforts toward supply chain excellence have been more project-based than systemic, and the industry has been slow to manage the end-to-end value chain.
Barriers exist to design supply chains across sales and marketing to improve the end-to-end flows, and costs and waste are being pushed backwards in the chain towards suppliers. These companies tend to be more sales-driven (opportunistic) or marketing-driven (focused on market share) than driving long-term value. Companies will have to adopt market-driven practices, like demand sensing, test and learn practices and demand orchestration in order to drive themselves off of the current supply chain plateau.
Similarly, the average food manufacturing company grew 7 percent with slight improvement in the number of days of inventory. Costs rose with a 4 percent increase in cost of goods sold as a percentage of revenue. Overall, the industry made some progress, but the leaders are battling rising commodity volatility and bracing for escalating costs. The concepts of market-driven value networks are the most critical in the face of market volatility. The industry lags the chemical and consumer products sectors in their understanding of supply chain excellence. With the rising costs of materials and the shortage of food in the global supply chain, this peer group will be pressured to step-up their practices quickly.
By comparison, companies within the high-tech and electronics industry grew at a rate of 19 percent while reducing inventories by 40 percent and improving cost of goods sold by 12 percent. As an industry sector, these companies have done the best in navigating the "Supply Chain Effective Frontier" (the management of growth, costs, complexity and cycles). They were the first to embrace supply chain planning, network design, the use of channel data, and the building of extended value networks with suppliers and contract manufacturers.
The biggest opportunity to improve business results lies deep within the organization. It comes from leadership and clear articulation of a supply chain strategy. It takes discipline and patience. Results on the Supply Chain Effective Frontier do not happen quickly: these results take three to five years. To make progress, companies need to: educate and align on the principles, evolve the organization’s understanding of supply chain processes, and learn from the industries that have done it well.
Bottom line, we believe that excellence in supply chain matters. The companies that have made the most progress have managed the supply chain as a complex system. While information technology companies tout that IT systems made the difference, we believe that the results in this report are all about leadership and talent development. The greatest issue for the supply chain department is the lack of clear understanding of supply chain excellence by the executive team. The goal of this report is to help close this gap.
Note: This article is an abbreviated excerpt from “Bricks Matter”, a new book from Lora Cecere and Charles Chase Jr. that explores the role of supply chains in building market-driven differentiation. Click here to buy this book.