Launch of the Supply Chain Index webinar Slide Deck

Supply Chain Index
April 25, 2013
#sciwebinar

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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18 Reports in 2012
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Over 30 Reports Planned for 2013
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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:
13 Five-Star Reviews on Amazon
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Publishing Two eBooks in
2013 on Supply Chain
Metrics That Matter
– Consumer Value Networks
– Industrial Value Networks
2013 Publications
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Supply Chain Metrics That Matter Readership
Focus of Report Date of Publication Readership (as of 4-15-2013)
Retail August 2012 1,420
Consumer Products September 2012 983
Chemical Industry November 2012 600
The Cash-to-Cash Cycle November 2012 1,620
Pharmaceutical Industry December 2012 1,095
Driving Reliability in Margins January 2013 1,180
Hospitals January 2013 657
Brick & Mortar Retail February 2013 366
Medical Device Manufacturers February 2013 458
Consumer Electronics April 2013 199
Supply Chain Metrics that Matter:
Reports
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Our Focus
2-DAY PUBLIC
TRAINING
Dallas – May 6-7
Princeton – June 24-25
Minneapolis – August 8-9
$1500
GLOBAL
SUMMIT
PODCASTS
www.supplychaininsights.com
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 What Is Supply Chain Excellence?
 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
 Alignment in metrics
 Delivery of performance against
the business strategy
 Consistency in results
 Be a leader in managing trade-offs
What Is Best in Class?
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 What is Supply Chain Excellence?
 Understanding the Supply Chain as a
Complex System
Agenda
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#sciwebinar
A Supply Chain
is a Complex System
with Complex Processes
with Increasing Complexity

Profitable Growth
Revenue Cost of Goods
Working Capital
Corporate Social Responsibility
R&D Strategy and Investment Asset Strategy and Investment
Forecast Accuracy Customer Service Inventory
Channel Strategy Product and
Service Portfolio
Supplier Strategy
Sales
Policies
Distribution
Policies
Manufacturing
Policies
Logistics
Policies
Procurement
Policies
Returns Backorders First Pass Yield Empty Miles Material Yield
The Supply Chain Effective Frontier:
First Representation
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Mining 20 Years
of Financial Ratio 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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Cross Industry View: (2000-2011)
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Company Performance within an
Industry Sector: (2000-2011)
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Competitive Analysis: (2006-2011)
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Peer Group Analysis: (2000-2012)
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Healthcare Value Chain:
Financial Metrics
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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?
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• 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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• April 25th: introduction of the Index and the
application to 3 Morningstar sectors
• May: release of results for additional industries
and discussion in Supply Chain Insights
Community
• May, June, July, August: monthly reports and
publication of additional industries
• September 11-12th: 1st annual Global Summit
with speakers selected based on Index
performance
Now and Then
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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: Analysis of peer group companies over the last decade
Step 7: Correlations to supply chain practices, technologies and
organizational design
Supply Chain Index Methodology
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– Market capitalization data of public companies
(Ycharts.com)
– Industry peer groups defined by Morningstar Sector
(36)
– Financial ratios built from balance sheet and income
statement data collected from OneSource
– Analysis of quarterly data using R (frequency 2006Q1
to 2012Q4)
Step 1: Located Data Sources
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Step 2: Selected 14 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

Step 3: Identified Industry Metrics
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Market Capitalization vs. Revenue Growth
Insight: For
example,
growth did
not correlate
for chemical
companies.

Metrics That Matter by Industry
Mass Retail Industry
Consumer Packaged
Goods Industry
Chemical Industry
Operating Margin Operating Margin Operating Margin
Days of Inventory Days of Inventory Days of Inventory
DPO/DSO
Days of Payables
Outstanding
Days of Payables
Outstanding
Return on Invested Capital Return on Invested Capital Return on Assets
Working Capital Ratio Current Ratio
Free Cash Flow Ratio
SG&A to COGS Ratio
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Step 4: Mass Retail Equation
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Ln(market cap) = 10.41 + 52.67(OM) -34.72(WC) - 16.02(ROIC)
– 0.09(DPODSO) + 0.02(DOI)
Mass Retail Industry Equation

Step 5: Determined Rankings by Industry
Mass Retail Industry (2012)
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Top Ranked Mass Retail Industry (2012)
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Consumer Packaged
Goods Industry
Chemical Industry
DPO/DSO
Days of Payables
Outstanding
Days of Payables
Outstanding
SG&A to COGS Ratio

Step 4: Consumer Packaged Goods
(CPG) Equation
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Ln(market cap) = 3.37 + 2.11(OM) + 1.62(FCF) – 1.29(ROIC) –
1.17ln(CR) + 0.25(SGAC) + 0.02(DPO) – 0.01(DOI)
CPG Industry Equation

CPG Industry (2012)
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Top Ranked CPG Industry (2012)
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Consumer Packaged
Goods Industry
Chemical Industry
DPO/DSO
Days of Payables
Outstanding
Days of Payables
Outstanding
SG&A to COGS Ratio

Step 4: Chemical Industry Equation
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Ln(market cap) = 7.85(OM) – 4.84(ROA) + 1.81ln(DPO) +
0.01(DOI)
Chemical Industry Equation

Chemical Industry (2012)
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Top Ranked Chemical Industry (2012)
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In Progress
Food Industry
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Ln(market cap) = 5.57 +15.56(OM) – 7.50(ROIC) – 4.13(ROA) +
2.74(RONA) + 0.61(Z) + 0.04(DPO) – 0.04(DSO)
Food Industry Equation

 Understanding Supply Chain as a Complex
System
Agenda
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Value Chain Relationships
Retail
(Mass
Merchant)
CPG Chemical
Equations:
Ln(market cap) =
10.41
+ 52.67(OM)
-34.72(WC)
- 16.02(ROIC)
-0.09(DPODSO)
+ 0.02(DOI)
3.37
+ 2.11(OM)
+ 1.62(FCF)
- 1.29(ROIC)
- 1.17ln(CR)
+ 0.25(SGAC)
+ 0.02(DPO)
– 0.01(DOI)
7.85(OM)
- 4.84(ROA)
+ 1.81ln(DPO)
+ 0.01(DOI)
True collaboration only happens when there is
a sustaining win-win value proposition.

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: Analysis of peer group companies over the last decade
Step 7: Correlations to supply chain practices, technologies and
organizational design
Our Next Steps: Supply Chain Index
Methodology
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• What drives value in each industry is different.
• Public markets reward supply chain balance and
alignment.
• The supply chain is a complex system. Supply
chain excellence must be carefully defined.
• Trading relationships should recognize the
differences between the definitions of value
within an industry to define win-win relationships.
• There is no substitute for leadership.
• Supply chain excellence matters.
Summary
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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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PAST SUPPLY CHAIN INDEX WEBINARS:
AVAILABLE ON DEMAND
• From September 24, 2012:
The Supply Chain Index, 20 Years in the Making:
A Focus on Process Industries
• From October 26, 2012:
The Supply Chain Index, 20 Years in the Making:
A Focus on Discrete Industries
Webinars
www.supplychaininsights.com/upcoming-webinars
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UPCOMING WEBINARS
• May 9th: How Do We Heal the Healthcare Value
Chain? Part II
• June 13th: Sales and Operations Planning: State
of the Union
• July 11th: Big Data Supply Chains and the Future
of Analytics
• August 15th: State of Supply Chain Talent:
Missing Link in the Supply Chain
• August 29th: Digital Manufacturing

Private Networking
Chief Supply Chain Officer Chief Information Officer
CIO’s
Corner
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Superheroes 2013:
Coming Soon
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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?
#sciwebinar
Contact Information:
abby.mayer@supplychaininsights.com
Blog: www.supplychainindex.com
(2500 pageviews/month)
Twitter: @indexgirl
LinkedIn: www.linkedin.com/pub/abby-
mayer/40/941/972

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