While financial metrics are easy to track and measure, metrics around supply chain performance are more complex to access. Research consultancy Supply Chain Insights has worked with statisticians at Arizona State University for over a decade to define a way to measure supply chain success.
The result is an annual report, “Supply Chains to Admire,” a robust document that provides analysis across 31 industry peer groups.
Interestingly, their methodology begins at the same point as a finance review: the balance sheet. Using vector analysis of five years of metrics including inventory turns, operating margins, and growth as well as Price to Tangible Book Value and Return on Invested Capital, the analysts identified “patterns of success” across peer groups of companies analyzed.
A pattern of success for supply chain leadership
Earning a top rank is difficult, notes Lora Cecere, founder and CEO of the research group, as it can take three years for a supply chain management team to impact change. Top rankings are usually tied to a strong leader in an organization or an innovative project.
Ranking once on the Supply Chains to Admire™ report is notable. To rank consecutive years or repeat success, however, requires effort to sustain improvement and performance, says Cecere. Only a few companies hold this distinction. Apple, Cummins and TSMC — are winners for two consecutive years. Dollar Tree and L’Oréal are winners for the past three years. And Cisco, a consistent top performer, has made the winners’ list for the past four years.
“Even though we don’t stack rank companies across verticals, these are companies we are studying to understand what makes a difference. In our interviews, we know that they are much more aggressive with the use of analytics, horizontal processes, and their leadership has a focus on strategic alignment over reaction as well as driving a business strategy that includes supply chain to deliver on financial results,” says Cecere.
“I think we need to celebrate the winners and understand what drove them. Cisco Systems has been one of the most aggressive in building business value networks and use of analytics. There’s an awful lot we can learn [from them],” she says.
Setting industry-specific benchmarks is key to success
Cecere recommends that companies who seek to improve supply chain performance should set realistic and industry-specific benchmarks across all supply chain metrics. Industries, she notes, each have unique supply chain challenges which determine potential success.
“It’s fool’s play to put all companies in a spreadsheet and shake them up,” says Cecere, “or for Cummins to have benchmarks that are like Apple because it just doesn’t reflect the potential of their supply chain.”
Learning from success
Over the course of the next few months, the research team will host The Supply Chain Global Insights conference in September. Winners from the 2016 report will present their success stories. The stories will also be published as podcasts and interviews with the 2016 winners online.
“We want this to be a learning exercise for the supply chain market so people can actively learn what drives value and value chains, and drives balance sheet improvement,” says Cecere.