Supply Chain Metrics That Matter: A Focus on the Retail Industry - 16 FEB 2017

A Focus on the Retail Industry
A Ten Year View of Progress on Supply Chain Excellence
02/15/2016
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC
and Helen King
Research Associate
Supply Chain Insights LLC
Supply Chain Metrics That Matter

Contents
Research
Disclosure
Research Methodology
Understanding the Data
A Complex System with Nonlinear Relationships
Driving Profitability
Improving Cycles
Managing Complexity
A Closer Look at Value
Driving Value
Supply Chain Index: A Measurement of Supply Chain Improvement
Balance
Strength
Resiliency
Calculating the Supply Chain Index
Evaluating Supply Chain Excellence: Putting It All Together
Executive Overview
The Race for Growth
What Is Value?
Judging Supply Chain Performance
Managing Cash-To-Cash Cycles
Industry Focus
Recommendations
Conclusion
Prior Reports in This Series
Appendix
Methodology: Understanding the Math and Ratios
Supply Chain Index Methodology: Formulas and Calculations
Balance
Strength
Resiliency
A Closer Look at Inventory Turns: An Important Measurement
Corporate Overview Data
About Supply Chain Insights LLC
About Lora Cecere
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Research
Supply Chain Metrics That Matter is a series of industry-specific reports published throughout the
year by Supply Chain Insights LLC. The series starts in May when we can access full-year corporate
reporting for the prior year. Here we look at the retail industry.
This analysis is based on data collected from financial balance sheets and income statements over
the period of 2006-2015. In the report we analyze pre- and post-recessionary trends. The analysis
focuses on supply chains strategies: how companies made trade-offs over the course of the last
decade and delivered the best portfolio of supply chain metrics during that period.
Within the world of Supply Chain Management each industry is unique. The pattern for the retail
supply chain is distinctly different than those in a consumer products or food/beverage. It is for this
reason we believe it is dangerous to list all companies across many different industries in a
spreadsheet, compare the results, and declare a supply chain leader. Instead, we think it is more
prudent to evaluate the change in a balanced scorecard of metrics over time, with a focus on
business results within an industry peer group.
Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships
and our research processes. This independent research is 100% funded by Supply Chain Insights.
These reports are intended for you to read, share and use to improve your supply chain decisions.
Please share this data freely within your company and across your industry. All we ask for in return is
attribution when you use the materials. We publish under the Creative Commons License Attribution-
Noncommercial-Share Alike 3.0 United States and you will find our citation policy here.
Research Methodology
Supply chain leaders are in a race to deliver supply chain excellence. The teams are competitive.
They are continually being asked questions by their boards of directors like, “What defines
excellence?” and “How do teams define value?” The answers are not easy; but here, in this report,
we attempt to give some insights to guide the journey. We believe that the best supply chains
outperform similar companies in their peer groups while driving improvement and outpacing the
industry in driving value.

Performance is easier to measure than improvement. To build a method to measure improvement we
partnered with a research team from the School of Computing, Informatics and Decision Systems
Engineering at Arizona State University (ASU) during the spring of 2014 to develop the Supply Chain
Index™ methodology to analyze supply chain improvement. Details on the math used in this
methodology are outlined in the Appendix of this report. We have refined this methodology over time.
Value is not well-defined in the market. So, in this report, based on a review of academic literature,
we share a methodology to measure value.
Understanding the Data
In this analysis of supply chain excellence we use supply chain financial ratios as opposed to
absolute numbers. The use of ratios allows us to compare large companies to small entities, and also
to compare the progress of companies operating in different countries using differing currencies.
Additionally, it allows us to easily track progress over time. Our goal was to define an industry-
standard definition that could be used by all manufacturing, distribution and retail companies
irrespective of size or country affiliation.
Our first step was to determine which metrics to use. In Table 1 we share all of the supply chain ratios
we considered.
Table 1. Financial Ratios Considered in the Development of the Supply Chain Index

To select which to include in our analysis, we interviewed supply chain leaders. After two years of
analysis we determined that the patterns and trade-offs between year-over-year Revenue Growth,
Operating Margin, Inventory Turns, and Return on Invested Capital (ROIC) were the most helpful in
the determination of performance and improvement. Since these metrics also have a correlation to
market capitalization, we term this portfolio of metrics as the Supply Chain Metrics That Matter™.
While there are other measurements which we believe are important in the determination of supply
chain excellence—like forecast accuracy, case fill rate, safety levels, carbon footprint, and inventory
write-offs—we do not use them in this report. Why? It is simple. We cannot find a reliable and
consistent source of data for these metrics for the peer group. Please note that this does not make
these metrics less important, but without a consistent source of data, we felt we could not include
them in the analysis.
A Complex System with Nonlinear Relationships
The supply chain is a complex system with increasing complexity. A complex system has multiple
inputs and multiple outputs which are interrelated. It is nonlinear, and becoming more and more
difficult to model with the evolution of global supply chain processes.
We believe it is the supply chain leader’s role to build and manage supply chain performance to drive
year-over-year improvements. We feel supply chain excellence is defined by performance which is
balanced across a metrics portfolio, shows strong results, and is resilient with a pattern of continuous
improvement. In evaluating performance we see it takes time. Driving supply chain improvement
takes at least three years.
The journey has no guarantees. Often we see a company hitting a plateau and then regressing. On
the journey we also see companies throwing the system out balance. A focus on project excellence,
functional metrics, or singular metrics will shatter the equilibrium. As a result, we often see leaders
able to only drive progress on a single metric, not the entire metrics portfolio. Why is it important to
focus on a balanced metrics portfolio? In the research we find it has a higher correlation to value-
based metrics of either market capitalization or Price to Tangible Book Value (PTBV).
To build this report series our goal was to select a portfolio which would be meaningful across all
industries. It is important to note the maximization of market capitalization requires the management
of a balanced portfolio on the effective frontier of growth, cost, cycles and complexity. We believe that
in driving performance, supply chain leaders improve a balanced portfolio of metrics.

We call this balanced portfolio of metrics The Supply Chain Effective Frontier1
.
Figure 1. The Supply Chain Effective Frontier™
In our writing, the image in Figure 1 is deliberately not called the ‘Efficient Frontier’—a term used in
economic theory. Why? Quite simply it is because the term ‘efficiency’ in supply chain processes is
usually linked to the lowest cost or the best revenue per employee, and the efficient supply chain is
usually not the most effective. The concepts of the Effective Frontier are based on the balance of
growth agendas with cost, cycle metrics (a focus on inventory), and complexity. We use Return on
Invested Capital as a proxy for complexity.
Across all industries we find that 88% of companies are stalled at the intersection of two important
metrics--inventory turns and operating margin—at the center of the Effective Frontier model. While
some companies made no improvement over time, most companies were able to either improve
inventory turns, or cost, but not both together. The reasons? One is unchecked complexity. The
second is the focus on functional metrics to the detriment of corporate performance. The third is a
focus on projects. As will be seen in this report, unchecked complexity throws the supply chain out of
balance. Improvement of a balanced portfolio requires a focus on a clear and holistic strategy.
Driving Profitability
The Retail industry is a story of innovation and customer centricity. Over the course of the last decade
companies adapted processes to embrace cross-channel shopping, the rise of e-commerce, mobile
applications, the Internet of Things, and the shift of power to the end-consumer.
Today with globalization, commodity price volatility, and an increase in regulatory compliance, strong
supply chains are necessary to compete. In our analysis for this report we use operating margin as
the measure of profitability. The methodology is equally applicable to EBITDA, but does not work well
using the metric of cost of goods sold (COGS).
1
Conquering the Supply Chain Effective Frontier, Supply Chain Insights, July 4, 2016,

Improving Cycles
When it comes to managing cash-to-cash cycles, a small number is better than a large one. The
question in the boardroom is, “How small can supply chain working capital cycles be managed to
pump cash into the organization?” There is seldom the question of, “How low can we go in working
capital cycles before we put the supply chain at risk?” Cash-to-cash is a composite metric of days of
receivables, days of inventory, and days of payables. (We find it is difficult to place a compound
metric in the balanced scorecard. The reason? It is hard to track root cause.)
In our analysis we use inventory turns as our measure of supply chain cycles. While companies want
a smaller number for days of inventory, they want to turn inventory faster. The higher the inventory
turn value, the stronger the results.
There are two primary ways to calculate inventory turns (Revenue/Inventory, and Cost of Goods
Sold/Inventory. We detail the impact of the different methodologies in the appendix.) In this report we
measure inventory turns as:
Inventory Turns = Cost of Goods Sold/Inventory
In the prior three years’ analyses we used the Revenue/Inventory calculation. We changed the
measurement this year to enable a more consistent view across industries.
Managing Complexity
While there are many measurements of asset effectiveness, i.e. Return on Assets (ROA), Return on
Net Assets (RONA) and Return on Invested Capital, in this analysis we use ROIC as a metric to
analyze asset utilization. Return on Invested Capital is a less well-known metric compared to Return
on Assets.
The reasoning? Return on Assets has a narrower focus. Our research indicates ROIC has a better
correlation with stock market capitalization, and provides a broad perspective on cash flow generation
and profitability based on shareholder equity. Companies with a singular focus on ROA will throw the
supply chain out of balance. The formula used for ROIC is:
ROIC is a measurement of the company’s use of capital. The goal of the measurement is for the firm
to drive higher returns than the market rate of the cost of capital. However, used alone as a singular
http://supplychaininsights.com/?s=supply+chain+effective+frontier

metric it will retard growth. As will be seen in this report, for many companies, maintaining high levels
of ROIC is a struggle.
A Closer Look at Value
Traditionally the supply chain team’s focus was a cost agenda. Increasingly the organization is asking
the supply chain team to focus on value. However, to guide this journey there has to be a clear
definition of value. There is no industry-standard definition.
To help, we started this undertaking with an analysis between supply chain performance and market
capitalization. In 2012 we calculated the correlation of seven years of financial ratios (based on
quarterly reporting) to market capitalization (the number of outstanding shares multiplied by the share
price) on a quarterly basis.
The results of this initial study on the correlation to market capitalization are presented in Table 2.
Table 2. Correlation of Supply Chain Financial Ratios to Market Capitalization

The relationships of the metrics for the consumer value chain industries are depicted in Table 3.
Table 3. Summary of Supply Chain Metrics That Matter within the Consumer Value Chain for 2006-2015
The first number in the table represents the average value for the period of 2006-2015, while the
second number shows the percentage change when the full year of 2006 is compared to the full-year
period of 2015 (reflecting pre- and post-recessionary impacts for the reader). As an example, the
average growth in the Mass Merchant Retail Sector for the period of 2006-2015 was 6%, but when
the full year of 2006 is compared to 2015, growth is down 16%. In fact, growth, margin, and Return on
Invested Capital fell with the rise of e-commerce which is twice as profitable and grew at much faster
rates.
Driving Value
Traditionally the supply chain leader drove a cost-reduction agenda. Within the firm, 60-80% of total
costs are controlled by the supply chain team, and the management of total costs was essential to the
evolution of the firm. Today there is a shift from cost to value. Each industry operates within a value
chain, and each value network is driven by market shifts. As a result, a singular focus on costs is

insufficient. The supply chain needs to be responsive and an engine for growth. Increasingly,
companies are asking supply chain leaders to focus on value. The question most have is, “What
defines value?” Here we answer this question.
In this report we measure value by computing Price to Tangible Book Value (PTBV). While market
capitalization was first used in our analysis, we find that market capitalization is often driven by
economic cycles. We find Price to Tangible Book Value is a more disciplined look at value.
Price to Tangible Book Value is calculated by dividing the share price of a public company by its
tangible book value per share. For example, let's assume Company XYZ has 10,000,000 shares
outstanding which are trading at $3 per share. Let’s also assume that the same company’s tangible
book value was $15,000,000 last year.
The calculation would be:
Price to Tangible Book Value = $3 / ($15,000,000/10,000,000) = 2.0
The PTBV ratio excludes intangibles: intellectual property, patents, goodwill and other intangible
assets. It is a representation of what debtholders or investors would receive if the company liquidated
all its physical assets. We feel this is a measure which supply chain leaders can impact. In this report
we use the metrics which have the highest correlation to market capitalization, and also evaluate
which companies have driven the greatest improvement on Price to Tangible Book Value.
Supply Chain Index: A Measurement of Supply Chain
Improvement
The Supply Chain Index™ is the measurement of improvement used in this report2
. This methodology
was defined by Supply Chain Insights in 2012. The foundation of the Supply Chain Index starts with
understanding the resulting pattern when two supply chain metrics (generally ratios) are plotted over
time on an orbit chart. In each figure, the best scenario is notated in the upper right-hand corner.
(Note that the scale of these charts varies considerably. Please keep this in mind as you compare the
results chart by chart.)
The Orbit Chart for three retailers is shown in Figure 2a. Known as legacy supply chain leaders, with
strong analytic capabilities and organizational design, the Target and Walmart teams struggled to
maintain balance at the intersection of operating margin and inventory turns with the rise of Amazon.
To understand the orbit chart methodology, start with the year 2006 and track year-over-year
2
The Supply Chain Index, Supply Chain Insights, July 4, 2016, http://supplychaininsights.com/the-supply-chain-index/

progress over time at the intersection of these two important metrics. The average values for the two
financial ratios of operating margin and inventory turns are shown in the center boxes, and the annual
year-over-year progress is shown as points on the chart. For the period, Amazon had an average
operating margin of 3% and operated with 12.7 inventory turns. Since 2010 the company has lost
ground on operating margin. In parallel, Walmart operated with 6% margins and 11.2 turns while
Target operated at 8% margins with 9.3 turns. Note that the pattern for Walmart is more resilient, i.e.
it has a tighter pattern.
Figure 2a. Orbit Chart for Three Retailers Showing Inventory Turns and Operating Margin for 2006-2015
Due to the complexity of the orbit charts, and the intricacy of the patterns, our first challenge in the
creation of a methodology for The Supply Chains to Admire™ analysis was to define ‘Supply Chain
Improvement’. This was our goal in building the Supply Chain Index. We wanted to develop a means
to analyze improvement across a variety of industries, with applicability to an entire peer group. The
analysis enables comparison of companies with different levels of revenue, and at different levels of
supply chain maturity. With each chart we measure three factors--balance, strength and resilience in
performance metrics within a peer group—to gauge improvement in the metrics portfolio of the
Supply Chain Metrics That Matter. To ensure we are looking at a balanced portfolio, we closely
analyze the intersection of growth and ROIC, and operating margins and inventory turns.

Balance
Balance in the supply chain is a constant struggle. Growth requires an increase
in inventory. Forecasting and managing a new product launch is difficult.
Excessively long Days of Payables leads to weakened supplier health. The
examples are endless. The two metrics which comprise our balance measure
are Revenue Growth and Return on Invested Capital.
The balance measure in the Supply Chain Index is a mathematical calculation
of the vector trajectory of the pattern between Revenue Growth and ROIC for the periods of 2006-
2015 and 2009-2015.To understand this measurement, imagine a four quadrant grid with Revenue
Growth and ROIC on the two axes. In our calculation, the overall trajectory of this vector from Year 0
(2006) to Year 9 (2015) is simplified into a single value which represents the company’s ability to
balance Growth while improving ROIC.
Companies that were able to drive improvement in both metrics scored the best, while companies
that deteriorated in both metrics scored the worst. The companies are then stack ranked based on
factor ratings
The balance factor comprises 1/3 of the total Supply Chain Index calculation. Sustained improvement
in both year-over-year Growth and ROIC indicates a balanced supply chain and is reflected in a high
balance score.
With the decline in growth, retailers struggled to maintain asset efficiency of stores and logistics
assets. The chart in Figure 2b shows a declining vector at the intersection of growth and asset
utilization, as measured by ROIC for Walmart. This chart depicts the retail struggle of the last decade
with the rise of e-commerce. Clicks versus Bricks dramatically redefined asset strategies. In this
transformation the role of the store dramatically changed. The rise of e-commerce pure-plays and the
“Amazon Effect” placed pressure on asset strategies. In this report we focus on traditional retailers;
and as will be seen, most scrambled to catch up and realign asset strategies in the face of change.

Figure 2b. Orbit Chart for Walmart Showing Growth and Return on Invested Capital for 2006-2015
Strength
A successful supply chain is strong and reliable. Supply chain leaders strive to
deliver year-over-year improvements in both cost and inventory management.
Our research on pattern recognition has uncovered a rich relationship between
operating margin and inventory turns. For most supply chain leaders, these are
some of the most important measures of their performance. Not only are they
important, they are more directly influenced by day-to-day supply chain
decisions than other, and more broadly used, corporate metrics. It is for this reason they are the two
components of our strength factor in the Supply Chain Index.
The strength measure in the Supply Chain Index is a mathematical calculation of the vector trajectory
of the pattern between inventory turns and operating margin for the periods of 2006-2015 and 2009-
2015. Like the balance factor calculation, the work starts with understanding the orbit chart pattern.
To understand the calculation, imagine a plot—an orbit chart—of inventory turns and operating
margin. In this report, performance is graphed on an annual basis from an origination point
representing performance on the two metrics at Year 0. In the 2006-2015 Index analysis, the overall
trajectory of this vector from Year 0 (2006) to Year 9 (2015) is simplified into a single value which

represents strength. Improvement on both metrics simultaneously is graphically shown as movement
to the upper-right quadrant, with increasing values for both inventory turns and operating margin over
the period. The strength ranking is 1/3 of the Supply Chain Index.
Resiliency
Resiliency is an adjective easily tossed around as one of the important qualities
of a successful supply chain in today’s volatile world. However, the concept of
resiliency is difficult to define, and there is rarely clarity among stakeholders as
to what resiliency is or should be.
As we plotted orbit chart after orbit chart, we could see that some supply chains
had very tight patterns at the intersection of operating margin and inventory
turns, while other companies had wild swings.
We wanted to find a way to measure the variation, so we turned to the experts at ASU. After
evaluating several methods to determine the pattern in the orbit chart, we settled upon the Euclidean
Mean Distance between the points.
These results were published in our March 2014 report, Supply Chain Metrics That Matter: Improving
Supply Chain Resiliency, where we define resiliency as the tightness of the pattern at the intersection
of inventory turns and operating margin. (The calculation is outlined in the Appendix of this report.)
These metrics, both critical for any supply chain, are components of both the strength and resiliency
metrics in our Supply Chain Index model.
The Euclidean Mean Distance indicates the ability of a supply chain to maintain a tight, consistent
pattern across these two metrics as the business environment shifts and changes over a ten year
period (currently from 2006 through 2015). As shown in Table 4, supply chain resiliency varies
considerably by industry during the period of 2000-2013. The Medical Device industry is more
resilient than Consumer Electronics. Likewise, the Consumer Electronics industry is more resilient
than Contract Manufacturing. We know from our orbit chart studies that Retailers are more resilient
than Manufacturers.

Table 4. Supply Chain Resiliency by Industry
The resiliency metric is similar to the cash-to-cash cycle in that a smaller number is better. A lower
number for resiliency is an indicator of a tighter pattern, and greater reliability in results over the time
period. To drive resiliency requires a focus on the customer, an empowerment of the workforce, and a
focus on the Supply Chain Metrics That Matter. Process excellence needs to be aligned on corporate
outcomes, which is challenging for a traditional functionally-siloed organization.
Calculating the Supply Chain Index
After the three factors are calculated, we then ask the question “Did the supply chain drive
improvement higher than the peer group average for the period of 2006-2015?” To calculate
improvement, we use the Supply Chain Index as a measurement. Each of the factors—balance,
strength and resiliency—as defined above, comprises 1/3 of the total score.

Table 5. Supply Chain Index – Mass Merchant Retail Companies for 2006-2009, 2010-2015 and 2006-2015
Note the rate of improvement in the Do-It-Yourself store formats of Lowe’s and The Home Depot.
These competitors dramatically improved operations in this period.

In Table 6 we share the Supply Chain Index, or relative improvement, for the grocery retail industry.
Kroger and Whole Foods Market drove significant improvement through supply chain initiatives while
Sainsbury’s and Tesco regressed.
Table 6. Supply Chain Index – Grocery Retail Industry for 2006-2009, 2010-2015 and 2006-2015
In general, the non-grocery retailers drove greater improvement against the Supply Chain Metrics
That Matter than the grocery retailers. This is especially true when the retailer innovated on in-store
format and omnichannel strategies.
Use caution as you look at these charts. Companies that are underperforming their peer group can
drive supply chain improvement faster than higher-performing companies. It is analogous to the
storyline on the TV Show “The Biggest Loser.” The company with the most “fat” or opportunity will
make improvement the fastest, whereas a strong supply chain performer, like Walmart, will hit a
plateau and fail to drive improvement at the level of the peer group. As a result, performance and
improvement need to be viewed together. For the Supply Chains to Admire analysis we take
companies in the upper 2/3 of their peer group on improvement while disqualifying the lower 1/3 from
the analysis.

Evaluating Supply Chain Excellence:
Putting It All Together
In the overall analysis for the Supply Chains to Admire, each company is judged by their own
potential to make progress. While the average values of a
company’s performance may be higher, in the Supply Chain
Index we are evaluating companies on their ability to drive
year-over-year improvement and reliable progress on the
metrics that we believe matter.
The companies that are above the industry peer group on this balanced portfolio, and have driven
supply chain improvement, are given a “Supply Chains to Admire” award. This recognition award is
now in its third year. The 2016 winners are shown in Figure 3.
Figure 3. The 2016 Supply Chains to Admire Award Winners

To meet the criteria for The Supply Chains to Admire for 2016, companies needed to score better
than their peer group average for performance metrics, while driving a higher level of improvement
than 2/3 of their industry peer group.
The calculation process is:
 Supply Chain Index. The Supply Chain Index is calculated for the peer group. A ranking in
the top 2/3 of the peer group qualifies a company for further analysis. A company in the lower
1/3 for the period is eliminated from consideration.
 Price to Tangible Book Value. This analysis determines which companies are driving the
greatest value. We first throw out the outliers in the PTBVi
calculation. After the elimination of
outliers, we include companies that are at or above the PTBV value (allowing for no more than
5% below the mean for the peer group to account for rounding errors).
Companies passing these two tests are then analyzed against the performance factors for 2009-
2015:
 Growth. Higher percentage growth than the industry average.
 Operating Margin. Greater margin performance than the industry average for the peer group
for the period studied.
 Inventory Turns. Better performance in inventory turns than the peer group average for the
period studied.
 Return on Invested Capital (ROIC). Higher performance on ROIC than the average for their
peer group for the period.
In the analysis of the performance factors, companies are divided into two classifications:
 Supply Chains to Admire Winners: In the analysis of the performance factors of growth,
operating margin, inventory turns, and Return on Invested Capital, companies scoring at or
above the industry peer group average for all four of the factors are listed as Supply Chains to
Admire winners. (Must be within 5% of the mean of the peer group to account for rounding.)
 Supply Chains to Admire Finalists. Companies meeting the Supply Chain Index and the
PTBV criteria, but falling below the peer group averages on the performance factors, are
ranked as finalists if they are no more than 10% below the industry average for three out of
four of the performance factors, and no more than 25% below on any single performance
factor.

After doing this comparative analysis of the performance factors, we form a short list of companies.
The methodology is not limited to the best company in the peer group. Within a peer group there can
be multiple winners.
For the retail industry, the winners and finalists are:
Winners: CVS Pharmacy; Dollar Tree, Inc.; Target Corporation; Wal-Mart Stores, Inc.; and
Whole Foods Market, Inc.
Finalists: Lowe’s Companies, Inc. and The TJX Companies, Inc.

Executive Overview
During the Great Recession retailers faced strong declines in spending. It was a critical time, but for
many it was an opportunity to emerge stronger. Those who redefined their stores for the dollar-
conscious customer (Costco, Dollar Tree, Dollar General, or Lowe’s), or built new and innovative
formats (CVS Pharmacy and Whole Foods Market) while driving supply chain innovation, drove
strong balance sheet results. Others like Delhaize, Sainsbury’s and Tesco learned that doing
traditional retail more efficiently was not enough. In addition, J.C. Penney, Macy’s and Sears learned
the hard way that the consumer had radically changed, and their traditional definition of retail was not
sufficient. In this industry there are strong supply chain lessons for all.
While the retail segment has traditionally lagged other industries, this is no longer the case. E-
commerce forced the redesign of the supply chain to “pick the each,” and forced retailers to get
serious about warehouse management, inventory decisions, and the management of distribution
centers. Retail excellence was no longer isolated to merchandising. These new business models
drove success and forced the redesign of the supply chain.
The Race for Growth
The last decade was turbulent. In the period of 2007-2009 the world economy experienced a major
recession, in 2010-2012 global economies rebounded from the recession, and in 2013-2015 there
was a resurgence in demand. However, this was not the case for bricks-and-mortar retail. Post-
recessionary growth for the mass merchant and grocery retail declined.
Growth rates for the pre-recession retailer were 12% as compared to 2% in the post-recessionary
period. Only companies like Costco, CVS Pharmacy, Dollar Tree, Dollar General, The Home Depot,
Lowe’s and Walmart managed to hold their own, while traditional companies like Sears transitioned
from a 36% to a -9% growth rate, and Bon-Ton’s went from a 39% to a -1% growth rate.
The secret was innovation in store formats to provide excitement for the shopper. Why? Shoppers
became more dollar conscience. The shopper shifted from bricks-and-mortar shopping in traditional
formats to specialty retailers augmented by online purchases through Amazon. This data is shared in
Table 7.

Table 7. Mass Merchant Retail Growth Rates with a Comparison to the Supply Chain Index
In contrast, the impact of falling demand, as shown in Figure 8, is not as severe. There are no strong
losers. Instead, it is a more evenly spread reduction. Pre-recession, the growth rate in grocery retail
was 10% while post- recession growth rates were 2%. The growth winners in grocery retail were
Dairy Farms, PriceSmart, and Whole Foods Market.

Table 8. Grocery Retail Growth Rates with Comparison to the Supply Chain Index

What Is Value?
The focus of the traditional supply chain leader was cost. The shift in focus today is to drive value.
However, there is a dilemma. While companies want to improve value, across industries there is no
standard definition of supply chain value. In this series of reports we are trying to define a
methodology, to help the supply chain leader shift from a focus on costs, to drive value for
shareholders.
Here we use Price to Tangible Book Value (PTBV) as the proxy metric for value. As noted in Tables 9
and 10, over the period of 2006-2015 most companies in this value chain improved value. Despite the
decline in growth, retailers were successful in improving PTBV. In the tables we also showcase the
differences between results in Market Capitalization, Price to Book, and PTBV. We encourage
companies to use the tables to drive a discussion of what drives value for your company.
Table 9. Mass Merchant Comparison of Market Cap, Price to Book, & Price to Tangible Book Value

Table 10. Grocery Retail Comparison of Market Cap, Price to Book, & Price to Tangible Book Value
`
Judging Supply Chain Performance
When it comes to overall supply chain performance industry averages, Tables 11 and 12 show the
performance and improvement trends of the industry. As growth slowed, the mass merchant segment
was successful in maintaining margins, inventory turns, and ROIC. This was largely due to
automation. With investments in technologies, companies were able to maintain margin and inventory
levels while improving asset utilization.
 Growth. With the slowing of growth, supply chain core competencies matter more than ever.
Retailers started the last decade as supply chain laggards and have slowly improved operations.
 Inventory Turns. With a strong focus on working capital many companies invested in inventory
processes and technologies; however, despite this investment, inventory turns in both segments
remain unchanged. The rise in complexity is offsetting the improvement gains through technology.
 Operating Margin. Companies fought through volatile times and declining volumes to protect
margins.
 Asset Utilization. Asset utilization shifted little with the downturn of growth due to the
rationalization of distribution centers and store asset strategies.

Table 11. Performance and Improvement – Mass Merchants During 2009-2015, 2011-2015 & 2006-2015

Table 12. Performance and Improvement – Grocery Retail During 2009-2015, 2011-2015 & 2006-2015

Managing Cash-To-Cash Cycles
When it comes to managing cash-to-cash cycles, a smaller number is better. The question in the
boardroom is “How small can supply chain cash-to-cash cycles be managed before we put the supply
chain at risk?” The supply chain operating strategy is the primary determinate of working capital
requirements.
By definition, the turnover of cash is essential for retail profitability. While grocery retailers operating
on a negative cash-to-cash cycle, mass retailers cash-to-cash cycles are 5-6X longer. In contrast, a
consumer packaged goods manufacturer operates at 3X the margin of a grocery retailer; yet the
grocery retailer has a cash flow that is 4X faster. These business basics—recognition of the very
different rhythms and cycles of the two very different industries-- are often missed in consumer
products/retail discussions on collaboration.
As growth slowed, many of the mass merchant companies studied, i.e. Bon-Ton, J.C. Penney and
Sears, struggled to manage inventories. Days of inventory ballooned with an adverse impact on cash-
to-cash cycles.
Cash-to-Cash is a composite metric of days of receivables, days of inventory, and days of payables.
Cash-to-Cash Cycle= Days of Receivables + Days of Inventory- Days of Payables
Table 12. Comparison of Cash-To-Cash Components for Mass Merchants
Table 13. Comparison of Cash-To-Cash Components for Grocery Retailers
In the two time periods studied, CVS Pharmacy, Dollar Tree, Dollar General and Target made
significant reductions in cash-to-cash cycles.

Figure 8. Cash-To-Cash Cycles of Mass Merchants for the Period 2006-2010
Figure 9. Cash-To-Cash Cycles of Mass Merchants for the Period 2011-2015

Figure 10. Grocery Retail Cash-To-Cash Cycles for the Period of 2006-2010
The European retailers are Sainsbury’s and Tesco operate with the highest Days Payables. Whole
Foods made the greatest overall improvement between the two time periods.
Figure 11. Grocery Retail Cash-To-Cash Cycles for the Period of 2011-2015

Industry Focus
The retail supply chain is largely regional with a focus on localization and cash turnover. With the shift
of power from the manufacturer to the shopper, significant new brands were created and store
innovation drove retail brand loyalty. New formats (like dollar and club stores) and customer-centricity
(online shopping and cross-channel formats) defined retail success stories. Annual report write-ups
reflect the essence of programs for the years studied. In this section we give context to the financial
data by sharing relevant quotes from the annual reports of 2010-2015. These direct quotes give color
and background information on supply chain strategies for the period.
Retail Report Public Statements 2010
CVS Pharmacy
We opened 285 new or relocated stores in 2010. Factoring in closings, net units increased by 152 stores,
which equates to 2.9 percent retail square footage growth. Over the next three years, we expect to add
approximately 150 net new stores annually. That would increase our retail square footage growth each year by
2 to 3 percent. CVS/pharmacy® entered nine new markets over the past two years, and results have exceeded
our expectations. In 2010 alone, we opened our first stores in Memphis, Omaha, St. Louis, and Puerto Rico.3
We are currently developing some new customized store layouts based on our research and have already
recon-figured several locations. In our “urban cluster” stores, where the front end can exceed 40 percent of
sales, we have added assisted self-checkouts to improve checkout speed and expanded certain categories
such as baby and grocery. We have converted more than 200 such stores to date. The early results are
promising, with trips, sales, and margins all up significantly. We are in testing phase with two additional
clusters and look forward to sharing more information on our results as we delve further into this opportunity for
future growth.4
Dollar General Corporation
Our stores are supported by nine distribution centers located strategically throughout our geographic footprint.
Of these nine, we own six and lease the other three. We lease additional temporary warehouse space as
necessary to support our distribution needs. To support our growth, we are in the process of constructing our
tenth distribution center near Birmingham, Alabama. We expect this new distribution center to be operational in
2012. Over the past few years we have made significant investments in facilities, technological improvements
and upgrades, and we continue to improve work processes, all of which increase our efficiency and ability to
support our merchandising and operations initiatives as well as our new store growth. We continually analyze
and rebalance the network to ensure that it remains efficient and provides the service our stores require. See
‘‘—Properties’’ for additional information pertaining to our distribution centers. Most of our merchandise flows
3
CVS Annual Report, February 2011, p. 16, http://investors.cvshealth.com/~/media/Files/C/CVS-IR-v3/reports/cvs-ar-2010.pdf,
accessed August 3 2016.
4
accessed August 3, 2016.

through our distributions centers and is delivered to our stores by third-party trucking firms, utilizing our trailers.
Our agreements with these trucking firms are based on estimated costs of diesel fuel, with the difference in
estimated and current market fuel costs passed through to us. The costs of diesel fuel are significantly
influenced by international, political and economic circumstances, and have risen in recent months, including
considerable increases in early 2011. If such increased prices remain in effect, or if further price increases
were to arise for any reason, including fuel supply shortages or unusual price volatility, the resulting higher fuel
prices could materially increase our transportation costs. In addition, we believe that there remains opportunity
to improve our inventory turns. Initiatives in process include operational efforts to optimize presentation levels
and decrease excess quantities shipped to our stores. We continue to focus on SKU optimization in an attempt
to ensure that we can meet our customers’ demands for our most popular products as well as for product
assortment. We are also in the early stages of implementing an improved supply chain solution to assist in
ordering, monitoring and tracking inventory from purchase order to receipt to maintain efficient levels of
inventory. We turned our inventory approximately 5.2 times over the most recent four quarters.5
Target Corporation
We’re creating industry-leading mobile applications and web strategies—including the upcoming launch of our
new Target.com site this summer—offering a Target experience that fits guests’ lives and shopping styles,
whether in store, at home or on the go. In addition to our initiatives to drive sales and gain share in existing
markets, we’re looking to grow our guest base and enter new markets through a dynamic growth portfolio. In
January 2011 we announced an important step in our company’s history as we outlined plans to extend our
brand beyond the United States for the first time by opening 100 to 150 Target stores in Canada in 2013 and
2014. Domestically, we continue to expand our presence by opening strategically and financially attractive
stores using our traditional formats, while also pursuing opportunities for a smaller-format store in dense urban
markets. 6
Our newest growth initiative, CityTarget, will allow us to serve Target guests in densely populated urban areas
with an assortment tailored to their needs. We expect to open our first small urban-format stores in Seattle, Los
Angeles, Chicago and San Francisco in 2012. We are also planning to extend our Target brand beyond the
United States. Through the purchase of the leasehold interests in up to 220 sites currently operated by Zellers
Inc., a subsidiary of the Hudson’s Bay Company, we expect to open 100 to 150 Target stores throughout
Canada in 2013 and
2014. We’re also enhancing our online and mobile capabilities, giving guests the convenience to shop their
Target anywhere, at any time.7
Wal-Mart Stores, Inc.
We are committed throughout the organization to leverage expenses and improve productivity. Our goal
remains very clear: we will grow operating expenses slower than sales and grow operating income faster than
sales. By lowering expenses, passing those savings on to customers, bringing more customers in our doors,
and selling more merchandise, we’re reenergizing the “productivity loop” that’s been so vital to Walmart
throughout our history. We will do even more to leverage the scale, expenses and expertise of our total
5
Dollar General Annual Report, 2011, p. 88, http://files.shareholder.com/downloads/DOLLAR/2584311210x0x456457/A2D0511D-
483B-40C3-8106-5C6DA4D8C70B/DG_combo.AR.NPS.pdf, accessed August 3, 2016.
6
Target Annual Report, 2011, p. 3, http://media.corporate-ir.net/media_files/irol/65/65828/Target_AnnualReport_2010.pdf,
7
Target Annual Report, 2011, p.4, http://media.corporate-ir.net/media_files/irol/65/65828/Target_AnnualReport_2010.pdf,

company all around the world. We’ll continue to make investments in technology that are clearly driving greater
efficiency throughout our company. And we plan to move even quicker and be a more innovative company.8
we are focused on leveraging both operating expenses and our scale to improve performance and profitability.
Sharing our knowledge and best practices helps drive efficiencies and increase sales within the country and
across regions. We also recognize that one solution can’t meet the needs of every country, as customers trust
their local brands to be relevant to their needs. Adhering to the “productivity loop” – buying for less, operating
for less and selling for less –remains critical to our success. We closed the year by leveraging expenses as a
division on a constant currency basis, before the impact of our acquisition in Chile, and we are committed to
further improvements this year, including decreasing the inventory “days on hand.”9
We opened 625 new stores in 2011, opening our doors for the first time to customers in Connecticut, New
Hampshire and Nevada. In 2012, we plan to open an additional 625 new stores, including 50 in California,
expanding our presence from coast to coast. We opened 12 new Dollar General Market stores in 2011, our
first new Market stores since 2007, and we plan to add 40 more in 2012 in communities where we have the
opportunity to better serve our customers’ needs with expanded grocery options.10
Target Corporation
To reduce costs, drive profitability and gain greater control of the quality and freshness of the products we offer
our guests, we took over management of two food distribution centers we previously operated in partnership
with another grocer. Our expanded food assortment grew to more than half of our stores last year.11
Lowe’s Companies, Inc
We are working diligently to improve our performance over the long-term through the transformation we have
undertaken from a home improvement retailer to a home improvement company. This transformation to
seamless and simple home improvement experiences drove us to reevaluate our investment strategy,
rationalize our store expansion, improve employee experiences and upgrade our technology infrastructure.12
Beyond revitalizing our stores, we have taken bold steps to meet customers where they are—and where
they’re going—across all stages of the home improvement process. To do this, Lowe’s must be available
anytime and anywhere, seamlessly providing possibilities, support and value whether in store, online, by
phone, at the customer’s home, or place of business. In 2011 we implemented systems to share information
8
Wal-Mart Annual Report, 2011, p. 2, http://s2.q4cdn.com/056532643/files/doc_financials/2010/Annual/2010-annual-report-for-
walmart-stores-inc_130221021765802161.pdf, accessed August 3, 2016.
9
10
Dollar General Annual Report, 2012, p. 3, http://files.shareholder.com/downloads/DOLLAR/2584311210x0x557676/0BDE3B65-
7D1C-4A6B-8904-BACF416C5B38/Dollar_General__2011_AR_N_PS.pdf, accessed August 3, 2016.
11
Target Annual Report, 2012, p. 4, https://corporate.target.com/annual-
reports/2011/images/company/annual_report_2011/documents/Target_2011_Annual_Report.pdf, accessed August 3, 2016.
12
Lowe’s Annual Report, 2012, p. 2,
http://www.Lowe’s.com/AboutLowe’s/AnnualReports/annual_report_11/includes/pdfs/Lowe’s_2011_Annual_Report.pdf, accessed
August 3, 2016.

across these channels. These included an upgrade to our store information technology infrastructure, better
tools and greater access to information for our contact center employees, and equipping our on-site selling
specialists with tools to help customers visualize a project, provide a real-time quote and tender a sale on site.
We also increased the “endless aisle” of products available on Lowes.com. This “endless aisle” is supported by
Flexible Fulfillment, which allows us to ship products from the most efficient location—whether store,
distribution center or vendor—directly to the customer’s home, usually within two days. Flexible Fulfillment
helps us optimize our store-by-store investment in inventory while providing customers access to the greater
depth and breadth of products offered across the company.13
Lowe’s uses market-specific data and assorting tools to ensure we have the right product in the right locations
to meet customers’ needs. If a product cannot be found in a store, we have an “endless aisle” of over 250,000
items available on Lowe’s.com, supported by Flexible Fulfillment capabilities that allow us to ship products
from the most efficient locations—whether store, distribution center or vendor—directly to the customer’s
home, usually within two days.14
Leveraging the local and global footprint and the scale of Walmart saves our customers money so they can live
better. Global sourcing efforts drive merchandise quality and uniqueness. Operational cost efficiencies and
various systems, processes and technologies allow us to lower the prices in our markets. The ability to choose
between local and global sourcing provides us with a significant competitive advantage in our markets.15
CVS Pharmacy
In the front of the store, our 3.4 percent rise in same store sales led the industry in 2012. We continue to use
our ExtraCare loyalty program to help deliver a more personalized experience to each customer. We have
been building, refining, and perfecting this industry-leading program for 15 years. Today, we have 70 million
active cardholders who accounted for 84 percent of front-store sales during the past year.
We leverage the insights gained from card use to support each of these customers with promotions targeted to
their specific tastes and needs. We’ll be taking our efforts to the next level in the coming year by, among other
things, personalizing the digital circular customers see when logging onto the ExtraCare page atCVS.com®
and by offering incentives that encourage customers to shop categories that are new to them. The insights
gleaned from ExtraCare also helped provide a foundation for the myCVS clustering initiative currently
underway. In brief, we’ve begun to tailor our merchandise mix and remodel store layouts to match the needs of
customers within certain trade areas. For example, we began rolling out what we call our “urban cluster” in
2011. Designed as a general store for dense trade areas, this concept increases our consumable offerings and
also features faster checkouts. We had 450 of these stores in place at the end of 2012, and they saw notable
13
Lowe’s Annual Report, 2012, p.4,
August 3, 2016.
14
Lowe’s Annual Report, 2012, p. 7,
August 3, 2016.
15

sales and margin gains. In 2013, we expect to convert another 85 stores to the urban format. Building upon the
success we’ve experienced with these urban cluster stores, we’re currently experimenting with other clusters to
better tailor our stores to match our customer base.16
Rite Aid Corporation
By successfully executing initiatives such as our wellness+ customer loyalty program, expanded pharmacy
service offerings and new Wellness store format, we have not only improved our business in fiscal 2012, but
have also positioned Rite Aid to better meet the changing needs of our customers and patients.
As a result, we have entered fiscal 2013 with positive momentum, and our goal is to build on this progress by
further improving our business while strengthening our reputation as a wellness destination. We will continue to
work diligently to achieve both of these goals so that we are in a position to deliver long-term value to our
customers and shareholders.17
Target Corporation
Meanwhile, in 2013, we will also undertake the largest, single-year store expansion in Target’s history. After
two years of exceptional dedication and hard work by our team, we’ve begun opening Target stores in Canada
and are on track to open 124 stores across all 10 provinces by year end. In addition, we’ll extend our new
CityTarget urban format to additional locations in Los Angeles and San Francisco, and, for the first time, to
Portland, Oregon.18
Throughout 2012, we accelerated our investment in our digital channels and began focusing on thoughtful
integration of our digital and store experiences to meet our guests’ ever-changing needs. For example, we
launched free Wi-Fi in all stores, making it easier for guests to access digital tools and services, like the Target
app and our QR code programs, to inform their in-store shopping decisions. We’re finding new ways for guests
to shop, through social shopping programs like Give With Friends, and we’re testing, and learning from,
innovative new technologies like our buzzed-about shoppable short film that brought our fall Marketing
campaign to life. Our continued enhancements to mobile technologies and in-store digital campaigns, like
Target’s Top Toys, earned us Mobile Marketer’s 2012 “Mobile Commerce Program of the Year,” and
underscore our commitment to deliver a seamless, relevant, personalized experience for our guests across all
channels.19
Lowe’s Companies, Inc.
We source our products from over 7,000 vendors worldwide with no single vendor accounting for more than
7% of total purchases. We believe that alternative and competitive suppliers are available for virtually all of our
products. Whenever possible, we purchase directly from manufacturers to provide savings for customers and
improve our gross margin. To efficiently move product from our vendors to our stores and maintain in-stock
16
17
RiteAide Annual Report, 2013, p. 1, https://content.riteaid.com/www.riteaid.com/w-
content/images/company/investors/2012_LetterInvestors.pdf, accessed August 3, 2016.
18
Target Annual Report, 2013, p. 1,
https://corporate.target.com/_media/TargetCorp/annualreports/content/download/pdf/Annual-Report.pdf?ext=.pdf, accessed
August 2016.
19
Target Annual Report, 2013, p. 3,
https://corporate.target.com/_media/TargetCorp/annualreports/content/download/pdf/Annual-Report.pdf?ext=.pdf, accessed
August 2016.

levels, we own and operate 14 highly automated RDCs in the United States, with a fifteenth RDC expected to
open in the first quarter of 2013. On average, each domestic RDC currently serves approximately 120 stores.
In addition, we lease and operate a distribution facility to serve our Canadian stores. We also operate 15
flatbed distribution centers to distribute merchandise that requires special handling due to size or type of
packaging such as lumber, boards, panel products, pipe, siding, ladders and building materials. Additionally,
we operate four facilities to support our import business and flexible fulfillment capabilities. We also utilize
three third-party transload facilities, which are the first point of receipt for imported products. The transload
facilities sort and allocate products to RDCs based on individual store demand and forecasts. On average, in
fiscal 2012, approximately 75% of the total dollar amount of stock merchandise we purchased was shipped
through our distribution network, while the remaining portion was shipped directly to our stores from vendors.20
E-commerce will become even more important to serving customers in the coming years. In the U.S. and the
U.K., we operate successful online businesses, and our Brazil and Canada e-commerce businesses are
growing rapidly. With a trusted brand operating more than 10,000 stores and serving 200 million customers
weekly, Walmart has the assets to build on and deliver a multichannel experience n all of our markets. We’re
investing in people and capabilities. Last year, we launched @WalmartLabs and acquired some strong talent
in social and mobile media. We plan to continue our investments to leverage additional opportunities in e-
commerce. This year, pending government approval, we plan to increase our investment to 51 percent in
Yihaodian, a fast-growing e-commerce website in China.21
CVS Pharmacy
Our digital offerings are seamlessly extending access to pharmacy services and in-store savings – day or
night. Whether it’s through a home computer or mobile device, we’re making it easier than ever to manage,
refill, and pick up medications. In fact, the proportion of overall traffic to CVS.com® from mobile devices
jumped from 30 percent in 2012 to more than 50 percent in 2013.22
We recently announced an exciting 10-year agreement with Cardinal Health to form the largest generic-
sourcing entity in the United States. We will collaborate with generic manufacturers to develop innovative
purchasing methodologies, improve supply chain efficiencies, and use our compelling scale to create attractive
offerings for these suppliers. The power of our integrated model has created a sustainable competitive
advantage for us. This is highlighted by the growth of CVS/pharmacy’s share of our own PBM’s retail network
claims. That figure has jumped from 19 percent in 2008 – just following our merger – to 30 percent in 2013.
This is a clear indicator that our channel-agnostic approach is better positioned to capture share over the long-
term, regardless of changes in payor mix, plan design strategies, or patient preferences.
Our 2013 acquisitions of Drogaria Onofre and NovoLogix, and of Coram, which closed in January 2014, offer
good examples of how we apply disciplined capital allocation practices to supplement existing assets and
bolster our offerings. Drogaria Onofre, a 46-store retail drugstore chain in Brazil, represents our first retail foray
20
Lowe’s Annual Report, 2013, p.3, http://www.Lowe’s.com/2012annual/pdf/Lowe’s-2012_AR.pdf, accessed August 3, 2016.
21
22
CVS Annual Report, February 2014, p.9, http://investors.cvshealth.com/~/media/Files/C/CVS-IR-v3/reports/cvs-ar-2013.pdf,

into the international markets, while NovoLogix and Coram have broadened our already compelling specialty
solutions.23
We believe we continue to have significant opportunities to drive profitable growth by continuing to expand
upon our simple business model, which is largely focused on serving the needs of the low, low-middle and
fixed income consumer, a segment of the U.S. population that has continued to grow over the past several
years. We believe our four key operating priorities, initially established in 2008, remain critical to the long-term
growth and profitability of our company. These priorities are 1) drive productive sales growth; 2) increase, or
enhance, our gross profit rate; 3) leverage process improvements and information technology to reduce costs;
and 4) strengthen and expand Dollar General’s culture of serving others.24
In 2013, among other initiatives, we further expanded our perishables offerings and added tobacco products to
our stores, both of which contributed significantly to our same-store sales growth. We believe that selling
tobacco products and perishables drives more frequent shopping trips by our existing customers and attracts
new customers by making our stores more relevant to a broader customer base. We believe we have
opportunities to increase our store productivity in 2014 through continued improvements in store space
utilization, pricing and markdown optimization and additional merchandising initiatives. We also plan to
continue to remodel stores to update our appearance and relocate stores to increase square footage, where
needed, improve visibility and accessibility or to obtain more attractive lease terms.25
As we continue working hard to improve the customer experience in our 4,600 stores, we’re also focused on
providing enhanced digital resources that better reflect our brand of health and wellness. As a result, in March
we introduced our new and improved riteaid.com website, which provides easier navigation, a more
personalized web experience and enhanced e-commerce. We are also releasing quarterly updates for our
mobile app and have plans to introduce apps for the iPad and Passbook.26
We made significant reductions to our SG&A expense over the past few years through better control of store
labor and other costs in the stores, consolidation of our distribution center network, a centralized indirect
procurement function for all non-merchandise purchases and through initiatives aimed to simplify our
processes in the stores and at our Corporate office. We will continue to focus on controlling costs in fiscal 2014
so that we can maximize the benefits of our sales and customer service initiatives and capital investments.27
23
CVS Annual Report, February 2014, p.16, http://investors.cvshealth.com/~/media/Files/C/CVS-IR-v3/reports/cvs-ar-2013.pdf,
24
Dollar General Annual Report, 2014, p. 80, http://files.shareholder.com/downloads/DOLLAR/2584311210x0x741788/B625D92D-
5624-4841-B9F2-73CE1C753C00/Dollar_General_10K_AR_Proxy_print.pdf, Accessed August 5, 2016.
25
Dollar General Annual Report, 2014, p. 86, http://files.shareholder.com/downloads/DOLLAR/2584311210x0x741788/B625D92D-
5624-4841-B9F2-73CE1C753C00/Dollar_General_10K_AR_Proxy_print.pdf, Accessed August 5, 2016.
26
Rite Aid Annual Report, 2014, p. 5, https://content.riteaid.com/www.riteaid.com/w-
content/images/company/investors/anrpts/annual13.pdf, accessed August 5, 2016.
27

With more than 4,000 stores, unmatched logistical efficiency and innovative e-commerce solutions, we offer
millions of items to about 130 million weekly shoppers, with convenient and flexible delivery options. To
enhance our customers’ experience, we developed a new walmart.com search engine and delivered mobile
solutions to help customers plan their shopping trips, manage their budgets and find merchandise more
efficiently. Walmart offers a seamless shopping experience, both in our stores and online, to provide customers
with merchandise anytime, anywhere.28
CVS Pharmacy
Our focus on improving outcomes can be seen across CVS Health, from our decision to stop selling tobacco
products to our clinical programs, unique specialty capabilities, MinuteClinic locations, and our affiliations with
nearly 50 health systems. In specialty, we provide clinical support and drive superior outcomes through our
unparalleled capabilities to holistically manage the patient, not just the drug. Our innovative solutions work
together to support a better patient experience. Whether the patient chooses to receive a prescription by mail
or pick it up at a local CVS/pharmacy, we provide centralized clinical support from a CareTeam of pharmacists
and nurses that are disease-specific experts to help patients achieve optimal outcomes. Among our other
clinical programs, Pharmacy Advisor® has provided more than 10 million counseling interventions since its
inception. These interventions help identify adherence gaps and counsel patients to get them back on their
medications. Through our health system affiliations, we’re working to share information seamlessly and
electronically to improve patient care. We are also expanding our digital capabilities to create an integrated
pharmacy experience so customers can manage their prescription needs from anywhere and receive them
through their preferred channel.29
Our recent success has paved the way for a new strategy at Rite Aid, one that allows us to be more aggressive
as we make the transition from turnaround to growth. A great example is how we are approaching our store
development plan. In fiscal 2014, we completed our 1,200 the Wellness store remodel, which means that more
than a quarter of all Rite Aid stores are now Wellness stores. These remodeling projects will continue to be a
key part of our strategy over the next few years, including our plans to complete 450 remodels in fiscal 2015.
At the same time, we are building up our real estate pipeline for future relocations and new stores. Although it
will take several years to build our pipeline, this is an exciting step for Rite Aid that is laying the foundation for
future growth. By pursuing opportunities to build new stores, we can further develop underpenetrated markets
and enter adjacent markets that have positive demographics for our business, allowing us to deliver our unique
brand of health and wellness to new customers.30
28
Wal-Mart, 2014, p. 5, http://s2.q4cdn.com/056532643/files/doc_financials/2013/Annual/2013-annual-report-for-walmart-stores-
inc_130221024708579502.pdf, August 5, 2016.
29
CVS Annual Report, 2014, p.10, http://investors.cvshealth.com/~/media/Files/C/CVS-IR-v3/reports/cvs-ar-2014.pdf, accessed
August 5, 2016.
30
Rite-Aid Annual Report, 2015, p. 1, https://content.riteaid.com/www.riteaid.com/w-
content/images/company/investors/2014_LetterInvestors.pdf, accessed August 5, 2016.

Target Corporation
Our SG&A expense rate was 19.9 percent in 2014, 20.0 percent in 2013, and 19.1 percent in 2012. The
decrease in 2014 primarily related to company-wide expense optimization efforts, partially offset by
investments in technology and other initiatives, none of which were individually significant. The increase in
2013 resulted from a smaller contribution from our credit card portfolio, investments in technology and supply
chain in support of multichannel initiatives, changes in merchandise vendor contracts described above, and
other increases. Increases were partially offset by the benefit from our company-wide expense optimization
efforts and favorable incentive compensation and store hourly payroll.31
We remain focused on driving the productivity loop to leverage operating expenses. The most important way to
deliver against this objective is to increase sales. By operating and buying for less, we’re able to lower prices
that, in turn, prompt customers to make more purchases. We also foster an environment that leverages best
practices across the enterprise to drive process improvements. Operational excellence requires capital
discipline and efficiency, and our real estate and construction teams have made great progress in lowering the
cost of new stores and remodels. Our focus on capital efficiency also is top of mind with our e-commerce
capabilities. We’re more disciplined now in allocating capital to the right markets, the right formats and the right
digital capabilities.32
CVS Pharmacy
The expansion of CVS MinuteClinic continued in 2015, with the number of locations at year end totaling 1,135
in 33 states and Washington, D.C. That includes the 79 clinics we acquired from Target. More than 50 percent
of the U.S. population now lives within 10 miles of a MinuteClinic, and we operate more retail clinics than all
our competitors combined. CVS MinuteClinic plays an important, complementary role with traditional medical
practices. Through our 2015 implementation of the Epic electronic health record platform, we are now sharing
information with approximately 275 health systems and provider organizations. The Epic platform has also
allowed us to expand the CVS MinuteClinic scope of services to cover 28 of the 50 most common primary care
diagnoses.
CVS MinuteClinic has been exploring a number of transformative digital offerings, such as telehealth, to
improve access and convenience. This is just one of the many ways in which we have been working to
enhance our digital capabilities across the enterprise to strengthen engagement with patients and providers.
For example, we’ve added several features to the CVS Pharmacy app that have improved the customer
experience in the pharmacy as well as the front of the store. Benefits include improved adherence as well as
savings of both time and money.33
31
Target Annual Report, 2015, p.19, https://corporate.target.com/_media/TargetCorp/annualreports/2014/pdf/Target-2014-
Annual-Report.pdf?ext=.pdf, accessed August 5, 2016.
32
Wal-Mart Annual Report, 2015, p. 4, http://s2.q4cdn.com/056532643/files/doc_financials/2014/Annual/2014-annual-report.pdf,
33
CVS Annual Report, February 2016, p. 4-5, http://investors.cvshealth.com/~/media/Files/C/CVS-IR-v3/reports/2015-annual-
report.pdf, accessed August 5, 2016.

The rate of pharmacy sales growth in the United States has slowed in recent years, driven by a decline in new
blockbuster drugs, a longer FDA approval process, drug safety concerns, higher copays, and an increase in
the use of generic (non-brand name) drugs, which are less expensive but generate higher gross margins.
However, we expect prescription usage to grow in the coming years due to the aging U.S. population,
increased life expectancy, ‘‘baby boomers’’ becoming eligible for the federally funded Medicare prescription
program and new drug therapies. Furthermore, we expect that the
Patient Protection and Affordable Care Act will continue to have a positive impact on our business as more
Americans gain health insurance and prescription drug coverage. Additionally, rising U.S. healthcare costs and
the shortage of primary care physicians are creating opportunities for pharmacists and drugstores to play a
more active role in driving positive health outcomes for patients. Services such as immunizations, medication
therapy management, chronic condition management, clinics, health coaching and medication compliance
counseling extend our efforts well beyond filling prescriptions. We believe that offerings such as these will gain
additional momentum in a rapidly changing healthcare environment.34
Target Corporation
Target.com & mobile– what’s clear from talking to our guests is that the easier we make it to shop across all of
Target – physical and digital – the happier they are. We’re focused on offering a rich digital experience that
deepens engagement in stores and online, and we’ll continue to invest in digital capabilities that enable our
guests to seamlessly experience Target.35
Lowe’s Companies, Inc.
In an effort to drive expense productivity during 2015, we effectively managed payroll hours on solid
comparable sales growth and improved productivity in advertising through targeted spend. We increased the
efficiency and effectiveness of our marketing spend through optimized media allocation, presence in targeted
digital advertising, expanded social media presence, and reduced print advertising, all while maintaining our
customer reach and improving exposure. In addition to payroll and marketing expenses, we remain committed
to identifying and implementing additional expense efficiencies by leveraging our scale to achieve cost savings
on indirect spend, which improves the flow through of sales dollars to operating profit. We also continued to
enhance our omni-channel capabilities in 2015. Online, we have enhanced our customer experience and
presentation through Lowe’s.com, including improved product search, integrated and upgraded product videos,
enhanced product presentation, and simplified product groupings to make it easy for customers to make their
selections. Our in- home selling networks, including both interior and exterior project specialists, continued to
expand with exterior specialists available across all US stores and interior specialists expected in all stores by
the end of fiscal year 2016.36
34
35
Target Annual Report, 2016, p. 3, https://corporate.target.com/_media/TargetCorp/annualreports/2015/pdfs/Target-2015-
Annual-Report.pdf, accessed August 5, 2016.
36
Lowe’s Annual Report, 2016, p. 17, http://phx.corporate-ir.net/phoenix.zhtml?c=95223&p=irol-reportsannual, accessed August 5,
2016.

Given the breadth of our business, strategic clarity is really important. We’re thinking about the future through
the lens of the customer. Customers are channel agnostic – shopping in stores, online or with their phones is
more seamless than it used to be. We’re thinking the same way. Walmart possesses unique assets and
capabilities to serve customers with our stores, clubs, global supply chain, data and great associates. We want
to enable customers to find what they want, at a value, in a convenient, enjoyable way, regardless of how they
shop. Our customer proposition is focused on four areas – price, access, assortment and experience. Each
dimension is important, and we take a holistic view to how they integrate with each other. Our plan provides a
framework to ignite, energize and accelerate change, as we make decisions and investments.37
I’m encouraged that Walmart’s fiscal 2015 revenue grew by more than $9 billion to nearly $486 billion and
earnings per share were $4.99, a nearly 3 percent increase from the prior year. But, we have higher
expectations. Our priority is to run great stores, clubs and e-commerce everywhere we operate to grow the
business. Walmart U.S. delivered net sales of $288 billion, a more than 3 percent increase, and improved its
sales and operating income trends each consecutive quarter during the year. I’m pleased by the positive comp
sales growth, especially the strong performance from Neighborhood Markets, but we’re not satisfied. The
Walmart U.S. team is implementing a broad range of initiatives focused on strengthening our assortment
(especially the fresh offering), driving the integration of e-commerce with our stores, and improving the
customer experience. For example, in February, we announced a $1 billion investment in our U.S. hourly
associates to provide higher wages, more training and increased opportunities to build a career with Walmart.
These are strategic investments in our people to reignite the sense of ownership they have in our stores and
foster an improved customer experience to drive sales growth. 38
37
Wal-Mart Annual Report, 2016, p. 1, http://s2.q4cdn.com/056532643/files/doc_financials/2015/annual/2015-annual-report.pdf,
38
Wal-Mart Annual Report, 2016, p. 2, http://s2.q4cdn.com/056532643/files/doc_financials/2015/annual/2015-annual-report.pdf,

Recommendations
In supply chain benchmarking it is important to look at performance and improvement of peer
companies over time. The two need to be analyzed together. In this report, we look critically at two
industry segments of retail. In these industry segments, there are strong examples of supply chain
performance with a higher percentage of retail companies making the 2016 Supply Chains to Admire
report than in prior years. Retailers’ supply chain strategies and investments in automation are
improving balance sheet results.
As companies read this report, and analyze their own corporate performance, we recommend that
they:
1) Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data. To drive
improvement organizations should benchmark companies within an industry. Each industry has
unique rhythms and cycles. As a result, supply chain excellence analysis needs to be within a
specific industry. In the retail, the rise of the dollar conscious shopper shifted retail brand loyalty.
The shopper voted with their feet to shop in a store format that met their needs. It is a story of
strong winners and losers. Tesco failed with the roll-out of Fresh and Easy while Whole Foods won
through the definition of a brand for healthy eating..
2) Understand Supply Chain Potential and Orchestrate Trade-offs on the Effective Frontier.
Supply chain leadership teams should analyze the total portfolio of metrics and study progress at
the intersections of the Effective Frontier. Companies with higher performance are using more
advanced analytics to plan outcomes and are actively designing the supply chain to customize
formats and do localized assortment effectively.
3) Apply Systems Theory. Improving supply chain performance takes time. As a result, teams should
evaluate performance over time to understand improvement, while realizing they are managing a
complex system. The functions should be aligned to a balanced portfolio of metrics representing
the Effective Frontier, while functional metrics should be focused on improving reliability. Evaluate
time over a period of at least three years.
4) Focus on Building Value Networks. Retailers gained power in the last decade. Those that used it
to drive value for the shopper experienced exponential returns. This orchestration needs to move
from the customer’s customer to the supplier’s supplier while orchestrating price, margin and
complexity to better serve markets. There are excellent examples—CVS, Lowe’s and Walmart—in
this industry that collaborated with suppliers to build value chain improvement.
5) Learn from Other Industries. Use a Steady Hand/Focused Leadership to Drive Improvement.
In the last decade, with a focus on cost mitigation and M&A, a company’s focus on efficiency and
continuous improvement were not adequate. There was a need to drive a redesign. To make the

necessary improvements, companies today must move past an inside-out view to an outside-in
view. The retailer must quickly retool to drive a digital experience for path to purchase. There is
heightened pressure to innovate quickly.
Conclusion
The shifts in retail over the last decade redefined the landscape of winners and losers. The general
all-purpose shopping experience was defined by innovative formats, mobility, e-commerce and
localized assortment. This required redefining the supply chain for better inventory management,
warehouse and assortment planning and in-store innovation. While companies like Sainsbury’s and
Tesco plc lost ground, Whole Foods Market, Inc. made great gains. Similarly, while CVS Pharmacy,
Costco Wholesale Corporation, Lowe’s Companies, Inc., Target Corporation and Wal-Mart Stores,
Inc. made improvements and out-performed peers, Sears Holding Corporation, Dillard’s, Inc., Macy’s,
Inc. and Bon-Ton Stores, Inc. lost market share and failed to manage cash-to-cash cycles through the
market downturns resulting in massive store closings. In retail, the consumer is always boss. Those
who serve the consumer with the most effective supply chain while driving innovation win. The last
decade ups the ante for retail supply chain performance.

Prior Reports in This Series
Over the course of the last four years our methodology has changed and matured. These reports,
and additional information on the Supply Chain Metrics That Matter methodology, are available at our
Supply Chain Insights website and in the Beet Fusion community.
Our recent reports on supply chain performance include:
Direct Materials: The Supply Chain’s Missing Link for Performance Improvement
Published in January 2017
Supply Chains To Admire-2016
Published in July 2016
Supply Chain Metrics that Matter: A Focus on Chemical and Oil & Gas Industries-2016
Published by Supply Chain Insights in August 2016
Supply Chain Metrics That Mater: A Focus on Household Products and Beauty Companies-2016
Published by Supply Chain Insights in August 2016
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies-2016
Published by Supply Chain Insights in June 2016
Supply Chain Metrics That Matter: A Focus on Medical Device Companies – 2016
Published by Supply Chain Insights in May 2016
Supply Chain Metrics That Matter: A Focus on Pharmaceutical Companies – 2016
Published by Supply Chain Insights in May 2016
Supply Chain Metrics That Matter: A Focus on the High-Tech Industry – 2015
Published by Supply Chain Insights in January 2016

Appendix
In this section, we share more data to help the reader understand the math behind this report. We
start with a deeper understanding of the methodology, share the formulas and then end with a
detailed discussion of ratios. Our goal in sharing the methodology is to allow all companies to model
their supply chain capabilities within their company. It is our hope that through this sharing that
companies will analyze performance of each division over time.
Methodology: Understanding the Math and Ratios
Throughout this report we reference a number of commonly used financial ratios. Each company has
a unique potential. The potential is based on the size of the company and the drivers within the
industry. As shown in Figure A, each has a major impact on the company’s potential on the Effective
Frontier.
Here is a summary of the definitions of the ratios used in this report.
Figure A. Measurement Definitions

Supply Chain Index Methodology: Formulas and
Calculations
Supply chain leaders are competitive. Each wants to drive performance improvement faster than the
peer group. To gauge improvement, companies need to compare and benchmark. To make this
easier, we developed the Supply Chain Index. In the building of the Index, we used financial ratios
versus absolute numbers. The use of ratios allowed us to compare companies regardless of size, and
also compare companies across currencies.
The Index has three factors: balance, strength and resiliency. In this report, the three factors were
calculated for the periods of 2006-2009, 2010-2015 and 2006-2015. Our goal was to understand pre-
recession and post-recession trends while also looking at progress over the longer-term view. The
companies within the industry are stack ranked based on performance within each factor and given a
ranking. The rankings are then built into an index based on overall performance of the three factors.
The math behind the Index is defined below. This methodology was built in cooperation with the
Operations Research faculty at Arizona State University (ASU) in the spring of 2014.
Balance
To develop the balance factor used in the Index, we evaluated a scatter plot of revenue growth and
Return on Invested Capital (ROIC) for a specific company. The balance factor (B) is the proportional
difference of points on an orbit chart for the period of 2006-2012 at the intersection of revenue growth
and Return on Invested Capital. To calculate the balance factor, let iREV denote the revenue growth
of the ith
time period, iROIC denote the return on invested capital of the ith
time period and n denote
the total number of periods under consideration. Thus the balance factor is defined as:





 




1
1
1
1
1
1
ROIC
ROICROIC
REV
REVREV
n
B nn
.
Strength
Strength factor is a similar calculation to balance factor, but with a focus on the intersection of
operating margin and inventory turns. For this analysis, we used a scatter plot of operating margin
and inventory turns on an orbit chart for a specific company. Let iOM denote the operating margin of
the ith
time period (e.g. ith
year), iIT denote the inventory turns of the ith
time period and n denote the
total number of periods under consideration.

The strength measure (S) is defined as:





 




1
1
1
1
1
1
IT
ITIT
OM
OMOM
n
S nn
The denominator reflects that there are n-1 differences between n time periods. Figure B depicts the
intersection of operating margin and inventory turns for an example company. The difference in
operating margin and inventory turns between the first and last time period is shown.
Figure B. Inventory Turns and Operating Margin Intersection for an Example Company
Resiliency
The resiliency factor is a measurement of the tightness of the pattern at the intersection of operating
margin and inventory turns for a given company. For companies that did well, and had a tight pattern,
the value will be lower than companies that lacked reliablity for the period. To develop the value, we
considered a scatter plot of operating margin and inventory turns for a specific company.

Let dij denote the Euclidean distance between a pair of points i and j and let m denote the total
number of pairs. The resiliency measure (R) is defined as the mean distance of all possible pairs of
points at the intesection.
That is:


i ij
ijd
m
R
1
A Closer Look at Inventory Turns:
An Important Measurement
In an ideal world, companies want to turn inventory faster. The faster the turns, the faster the cash
turnover, and the greater contribution to market valuation.
There are two primary measurements for inventory turns. Both are used in the industry. Often they
are used without clarity of the underlying definition. The results are very different.
One is based on inventory turnover as a ratio based on revenue, and the other measures the
inventory turnover ratio based on cost of goods sold. In the period of 2013-2014, at Supply Chain
Insights, when calculating the Supply Chain Index rankings, we used financial information from
YCharts. The methodology used by YCharts is to calculate inventory turns as:
Inventory Turnover = Revenue / Average Inventory
where Average Inventory is equal to the average of the last two reported inventory levels of the
specified frequency. However, in this report, and the subsequent series of industry-specific reports,
we will be using the cost of goods sold formula:
Inventory Turnover = Cost of Goods Sold/Inventory
As can be seen in Tables A and B, the two calculations yield very different results. The larger the
margin in the industry, the greater the difference. With operating margins of 22%, the difference in the
measurement is especially relevant for High-Tech companies. Consider the differences between
Table A and Table B. When viewed as a ratio based on revenue, the inventory turns value for the
industry for the period of 2006-2015 is 8.44 versus 2.43 for the same period when measured based
on cost of goods sold.

It is for this reason that in the calculation of the Supply Chain Index methodology in this, and
subsequent reports in this series, we are using the cost of goods sold method in the calculation of
inventory turns.
Table A. Inventory Turns Analysis for All Industries Using Revenue/Average Inventory
.

Table B. Inventory Turns Analysis for All Industries Using Cost of Goods/Inventory Analysis
In our countdown for the Supply Chain Insights Global Summit, we will be publishing a series of
reports on the Supply Chain Metrics That Matter by industry. In this series we will use the cost of
goods definition for inventory turns.

Corporate Overview Data
In looking at the data it is useful to understand the size and scope of the company. The larger the
company the more difficult it is to drive year-over-year improvement. As can be seen in the analysis it
is difficult to gain economies of scale and maintain the competitive position. To help the reader, better
understand the analysis, here we share some overarching corporate data.
Table C. Mass Merchant, Drug and Club Store Overview

Table D. Grocery Retail

About Supply Chain Insights LLC
Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is beginning its sixth year of
operation. The Company’s mission is to deliver independent, actionable, and objective advice for
supply chain leaders. If you need to know which practices and technologies make the biggest
difference to corporate performance, we want you to turn to us. We are a company dedicated to this
research. Our goal is to help leaders understand supply chain trends, evolving technologies and
which metrics matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 5,000 supply chain professionals. She also writes as a Linkedin Influencer and
is a a contributor for Forbes. She has written five books. The first book, Bricks
Matter, (co-authored with Charlie Chase) published in 2012. The second book, The
Shaman’s Journal 2014, published in September 2014; the third book, Supply
Chain Metrics That Matter, published in December 2014; the fourth book, The
Shaman’s Journal 2015, published in September 2015 while the fifth book, The Shaman’s Journal
2016, published in July 2016.
With over 13 years as a research analyst with AMR Research, Altimeter Group, and Gartner Group
and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has worked
with over 600 companies on their supply chain strategy and speaks at over 50 conferences a year on
the evolution of supply chain processes and technologies. Her research is designed for the early
adopter seeking first mover advantage.

Endnote
i
How to Find Outliers, July 4, 2016, http://www.varsitytutors.com/ap_statistics-help/how-to-find-outliers

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