Supply Chain Index – Part III – Technology and Apparel

Supply Chain Index Part III
Technology & Apparel
June 27, 2013
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Supply Chain Insights LLC Copyright © 2013, p. 2
Supply Chain Insights is focused on delivering
independent, actionable and objective advice
for supply chain leaders. A company dedicated to
research, turn to us when you want the latest
insights on supply chain trends, technologies to
know and metrics that matter.
About Us
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Presenters
Abby Mayer
Research Associate
Lora Cecere
Founder and CEO
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This is the new bible for all supply chain
executives. It provides an insider’s
perspective that will prove incredibly
valuable to even the most grizzled supply
chain veteran. This is the next must-have
business book.
--Bruce Richardson, Chief Enterprise
Strategist, Salesforce.com
Today, the worlds of social business and
supply chain management have many
degrees of separation. I enjoyed working
with Lora to understand what the future
transformation of digital marketing to digital
business could look like.
--Jeremiah Owyang, Research Director, Altimeter
Second Printing of Bricks Matter:
16 Five-Star Reviews on Amazon
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Available at http://www.amazon.com/Bricks-Matter-Building-Market-Driven-
Differentiation/dp/1118218310/ref=sr_1_1?ie=UTF8&qid=1369245253&sr=8-
1&keywords=bricks+matter

Publishing Two eBooks in
2013 on Supply Chain
Metrics That Matter
2013 Publications
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18 Reports in 2012
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Over 30 Reports Planned for 2013
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Supply Chain Metrics That Matter Readership
Focus of Report Date of Publication Readership (as of 6-17-2013)
Retail August 2012 1,726
Consumer Products September 2012 1,205
Chemical Industry November 2012 810
The Cash-to-Cash Cycle November 2012 1,971
Pharmaceutical Industry December 2012 1,695
Driving Reliability in Margins January 2013 1,365
Hospitals January 2013 991
Brick & Mortar Retail February 2013 629
Medical Device Manufacturers February 2013 760
Consumer Electronics April 2013 655
Apparel May 2013 557
Launch of the Supply Chain Index June 2013 422
Supply Chain Metrics That Matter
Readership
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• Report details year-long development of the Supply Chain Index
• Presents Index performance of consumer and healthcare value
chain (12 industries)
• Available in the Supply Chain Insights Community:
http://www.supplychaininsightscommunity.com/docs/DOC-1422
Launch of the Supply Chain Index
Report
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 What Is Best in Class?
 Understanding the Supply Chain as a Complex
System
 Which Companies Have Maximized Market
Valuation Through Supply Chain Excellence?
 Using the Insights
Agenda
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 Perform better than peer group
 Improve year-over-year results
 Align internally on metrics
 Deliver against the business strategy
 Demonstrate consistency in results
 Use innovation in supply chain
processes
 Balance. Leaders in managing trade-offs
What Is Best in Class?
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 Understanding the Supply Chain as a
Complex System
Agenda
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What Is A Supply Chain?
A Supply Chain
is a Complex System
with Complex
Processes
with Increasing
Complexity
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The Supply Chain Effective Frontier:
First Representation
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Mining 20 Years of Financial Data
Financial Metrics
Growth Profitability Cycle Complexity
Common Shares Cash Cash-to-Cash Cycle Altman Z
Employee Growth Cash Change in Period Days of Finished Goods Capital Turnover
Employees Cash on Hand Days of Inventory Current Ratio
Market Capitalization Cash Ratio TTM Days of Payables Outstanding Quick Ratio
R&D Margin Cash Ratio Quarter Days of Raw Materials Return on Assets
R&D Ratio Cash Ratio Year Days of Sales Outstanding Return on Equity
R&D to COGS Ratio Cost of Goods Sold Days of Work in Progress Return on Invested Capital
Revenue EBITDA DPO/DSO Return on Net Assets
Revenue Growth Free Cash Flow Ratio Finished Goods Inventory Revenue per Employee
Revenue Growth TTM Gross Margin Inventory Working Capital Ratio
Revenue TTM Gross Profit Inventory Turns
SG&A Margin Net Profit Margin Receivables Turns
SG&A Ratio Operating Cash Flow Ratio Raw Materials Inventory
SG&A to COGS Ratio Operating Margin Work in Progress Inventory
OPEX Ratio
Pretax Margin
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The Supply Chain Effective Frontier:
Second Representation
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• Supply Chain Index: A formulaic representation of
supply chain financial ratios correlated to stock
market capitalization valuation.
• Supply Chain Effective Frontier: The balance of
growth, profitability, cycle and complexity metrics to
deliver the supply chain strategy. It may or may not
maximize the company’s market valuation.
• Supply Chain Excellence: The behavior of
companies working to maximize value through the
setting of targets for supply chain financial ratios and
aligning metrics that matter (tied to value chain
strategy).
Definitions
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A Look at History: Progress in Productivity
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A Look at Retail
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CPG: An Industry with Leaders
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Apparel Manufacturing
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Apparel Stores
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Communication Equipment
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 Understanding the Supply Chain as a Complex
System
Valuation Through Supply Chain
Excellence?
Agenda
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Introducing the
Supply Chain Index
A formulaic representation of
how companies are trading off
growth, profitability, cycle and
complexity performance on
selected supply chain financial
metrics against market
valuation.
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1. To better understand which supply chain metrics
matter to corporate balance sheet performance in
public markets. We want to help leaders better
align supply chain and financial performance.
2. To create an objective system for evaluating and
ranking supply chains by industry peer group.
3. To connect financial performance with supply
chain excellence as measured through
quantitative surveys in an effort to better identify
and define best practices across industry groups.
Why Did We Do This?
#sciwebinar

• What it is: A way to understand the impact of
companies’ supply chain (relative to peers within
an industry sector) to market capitalization based a
set of preselected supply chain ratio metrics.
• What it is NOT: A way to evaluate overall
company performance or compare the model
results to actual market capitalization.
What It Is. What It Is Not.
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• July, August: release of results for additional
industries and discussion in Supply Chain Insights
Community
• Monthly Webinars (August 29)
• Monthly Reports (July 9, August 13)
• September 11-12th: 1st annual Global Summit with
speakers selected based on Index performance
What to Look Forward to?
#sciwebinar

Selected 13 Core
Supply Chain Ratios to Study
Financial Metrics
Growth Profitability Cycle Complexity
Common Shares Cash Cash-to-Cash Cycle Altman Z
Employee Growth Cash Change in Period Days of Finished Goods Capital Turnover
Employees Cash on Hand Days of Inventory Current Ratio
Market Capitalization Cash Ratio TTM Days of Payables Outstanding Quick Ratio
R&D Margin Cash Ratio Quarter Days of Raw Materials Return on Assets
R&D Ratio Cash Ratio Year Days of Sales Outstanding Return on Equity
R&D to COGS Ratio Cost of Goods Sold Days of Work in Progress Return on Invested Capital
Revenue EBITDA DPO/DSO Return on Net Assets
Revenue Growth Free Cash Flow Ratio Finished Goods Inventory Revenue per Employee
Revenue Growth TTM Gross Margin Inventory Working Capital Ratio
Revenue TTM Gross Profit Inventory Turns
SG&A Margin Net Profit Margin Receivables Turns
SG&A Ratio Operating Cash Flow Ratio Raw Materials Inventory
SG&A to COGS Ratio Operating Margin Work in Progress Inventory
OPEX Ratio
Pretax Margin
Source: Supply Chain Insights LLC
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Selected Ratios

Summary of Progress
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Luxury Goods
Discount Stores
Medical Distribution
Medical Care
Household & Personal
Products
Chemical
Drug Manufacturers-
Major
Medical Instruments &
Supplies
Medical Devices
Computer Systems
Apparel Stores
Packaged Food
Drug Manufacturers-
Specialty & Generic
Communication
Equipment
0
2
4
6
8
10
12
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Y-Intercept
R^2 Value
Source: Supply Chain Insights LLC
#sciwebinar

Apparel Manufacturing Equation
Ln(market cap) = 6.15 + 30.65(OM) – 16.08(ROIC) + 7.01(WC) –
6.79(FCF) + 1.65(SGAC) – 0.45(CR) – 0.01(DSO) – 0.01(DOI)
Apparel Manufacturing Equation
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Apparel Manufacturing Ranking 2012
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Apparel Stores Equation
Ln(market cap) = 6.98 + 11.49(OM) – 7.19(ROA) + 4.77(WC) +
3.96(RONA) – 2.87(FCF) – 0.44(CR) -0.04(DSO) – 0.04(DPODSO)
+ 0.02(DPO) – 0.01(DOI)
Apparel Stores Equation
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Apparel Stores Ranking 2012
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Computer Systems Equation
Ln(market cap) = 6.59 – 4.54(ROA) + 3.82(OM) + 3.08(FCF) +
2.19(RONA) + 2.05(WC) + 1.67(DPODSO) – 0.45(CR) – 0.01(DOI)
– 0.01(DPO)
Computer Systems Equation
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Computer Systems Ranking 2012
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Communication Equipment Equation
Ln(market cap) = 9.32 – 0.38(CR) – 0.01(DOI) + 0.03(DPO) –
0.04(DSO) – 3.10(DPODSO) + 3.79(OM) – 1.04(SGAC) + 3.09(WC)
Communication Equipment Equation
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Communication Equipment Ranking
2012
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 Understanding Supply Chain as a Complex
System
Agenda
#sciwebinar

Apparel Value Chain
Apparel Stores
Apparel
Manufacturing
Equations:
Ln(market cap) =
6.98
+ 11.49(OM)
– 7.19(ROA)
+ 4.77(WC)
+ 3.96(RONA)
– 2.87(FCF)
– 0.44(CR)
– 0.04(DSO)
– .039(DPODSO)
+ 0.02(DPO)
– 0.01(DOI)
6.15
+ 30.65(OM)
– 16.08(ROIC)
+ 7.01(WC)
– 6.79(FCF)
+ 1.65(SGAC)
– 0.45(CR)
– 0.01(DSO)
– 0.01(DOI)
True collaboration only happens when there is
a sustaining win-win value proposition.
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Step 1: Located data sources
Step 2: Selected core supply chain ratios from over 50 financial metrics
Step 3: Identified meaningful metrics per industry using regression analysis
among selected ratios
Step 4: Constructed industry equation based on correlation of industry
metrics to market capitalization values
Step 5: Determined company rankings within industry by applying 2012
company results to industry equation
Step 6: Analyze peer group companies over the last decade
Step 7: Correlate Supply Chain Index findings to supply chain
practices, technologies and organizational design
Our Next Steps:
Supply Chain Index Methodology
#sciwebinar

• What drives value in each industry is different.
• Financial markets reward supply chain balance
and alignment.
• The supply chain is a complex system. Supply
chain excellence must be carefully defined.
• Relationships should be built upon cross-industry
definitions of value to create win-win
relationships.
• There is no substitute for leadership.
• Supply chain excellence matters.
Summary
#sciwebinar

1. Join the Supply Chain Index Group in the Supply
Chain Insights Community for Peer Review and
Discussion: www.scicommunity.com
2. Gain Insights from Supply Chain Leaders at the
Global Summit www.supplychaininsightsglobalsummit.com
3. Build the Next Generation of Supply Chain
Research Using the Index
4. Leverage the Index to Connect Supply Chain
Processes, People and Technology Decisions to
Balance Sheet Results
What You Can Do
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Join Us!
www.supplychaininsightsglobalsummit.com
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PAST SUPPLY CHAIN INDEX WEBINARS:
AVAILABLE ON DEMAND
• From October 26, 2012:
The Supply Chain Index, 20 Years in the Making:
A Focus on Discrete Industries
• From April 25, 2013:
Launch of the Supply Chain Index
• From May 23, 2013:
Supply Chain Index Part II: How and Why?
Webinars
www.supplychaininsights.com/upcoming-webinars
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UPCOMING WEBINARS
• July 11th: Big Insights From Big Data Supply
Chains
• July 25th: What is the Role of the Store?
And, Which Metrics Matter for Retail?
• August 15, 2013: Supply Chain Talent : The
Missing Link in the Supply Chain?

Supply Chain Insights Community
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Who Is Lora?
• Founder of Supply Chain Insights
• Partner at Altimeter Group (leader in open
research)
• 7 years of Management Experience leading
Analyst Teams at Gartner and AMR Research
• 8 years Experience in Marketing and Selling
Supply Chain Software at Descartes Systems
Group and Manugistics (now JDA)
• 15 Years Leading teams in Manufacturing and
Distribution operations for Clorox, Kraft/General
Foods, Nestle/Dreyers Grand Ice Cream and
Procter & Gamble.
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Where Do You Find Lora?
Contact Information:
lora.cecere@supplychaininsights.com
Blog: www.supplychainshaman.com
(4000 pageviews/month)
Twitter: lcecere 3850 followers. Rated as a top
rated supply chain social network user.
LinkedIn: linkedin.com/pub/lora-
cecere/0/196/573 (3750 in the network)
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Where Do You Find Abby?
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Contact Information:
abby.mayer@supplychaininsights.com
Blog: www.supplychainindex.com
(2600 pageviews/month)
Twitter: @indexgirl
LinkedIn: www.linkedin.com/pub/abby-
mayer/40/941/972

Supply Chain Index – Part III – Technology and Apparel

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