Michigan State University Professor Morgan Swink has spent a lot of time looking at various numbers ranking supply chain management companies. His Michigan State University MBA Supply Chain Management rankings (2007- 2008) were compiled with information gathered from 20 different industry segments that identified the supply chain management leaders in those industries.
Speaking this May at the Supply Chain & Logistics Association Canada (SCL)/ CITA (Canadian Industrial Transportation) Association 43rd annual conference on Leading the Logistics of Change in Vaughan, Ont., Swink said that excellent SCM firms do consistently and significantly outperform their rivals.
In terms of operating expenses, these firms had 50% higher net margins, and 20% lower operating, sales, general and administration expenses. They also had 12% lower inventories and 30% less working capital/ sales.
The financials in excellent SCM firms also had a lot to reveal, said Swink. They had stock market recognition of their supply chain excellence.
"These firms had twice the return on assets, twice the return on equity, and 44% higher economic value-added. In terms of pure stock price, if you bought the top companies you would have had twice the returns on stock prices, and 2.4 times the risk-weighted stock returns. Not only were they a better but a more reliable and predictable investment," he said, noting there is a way to control for other factors and still determine the SCM advantages of these companies.
Some interesting surprises?
Many of the top performing SCM companies were different in ways not anticipated, said Swink.
For example, they were not better on sales growth, gross margin, and cash-to-cash cycle (60 days for top companies, 58 days for the "comparable" companies).
"But they pay their suppliers faster, and pay them either the same, or maybe even better, than the comparable companies. They also have a greater proportion of inventory as raw materials. Top companies also carry a significant amount of material in a raw state, so they're postponing more or have systems where they can hold inventories in a more generic state," he said.
They also have what is known as a lower "goodwill" expense.
"They have either done a better job of acquiring (other firms), or they are not depending on this for growth and are growing more organically," said Swink.
The top companies are also more variable in their cost structure.
Even in a down economy, noted Swink, relatively speaking, the top SCM firms did even better in terms of operating performance.
"They were able to maintain inventory - they had less committed, and less obsolete inventory. Presumably they are able to scale down faster. They are more adaptable," he said.
Ten competencies explain why some companies are leaders and some are not:
• Top companies have tighter connections between executive boardrooms and supply chain functions;
• They have strategic customer integration;
• They have strategic supplier integration;
• They have cross-functional internal integration;
• They have a response-based supply chain;
• They use supply chain segmentation;
• They optimize globally;
• They are good at planning process and technology;
• They manage risk; and
• They manage responses.
From laggards to leaders
Some 52% of the leading supply chain management firms have an executive supply chain officer, versus just 28% of the "laggard" firms. "Their levels of experience with different programs and technologies revealed that leaders were likely to be invested in programs and technology, and were 10 times more likely to use relationship management technologies," said Swink.
"If you look at the types of risk the leaders are concerned about, they are more concerned about long-term strategic things, having solved their inventory problems. In terms of investment, the primary reason the leaders are investing is for faster, more accurate, personalized order fulfillment, profitable sales growth, and streamlining fulfillment across multiple channels," he said.
"SCM excellence offers the promise of very significant financial gains, and greater resilience in turbulent times. Top companies use a different supply strategy, out sourcing to collaborative suppliers and treating them well, and focusing on organic growth," said Swink.
Growth in supply chain management competence seems to be reflected in these companies' focus on cost as well as on attempts to grow the top line, he added.
According to Nari Viswanathan of Aberdeen Group's supply chain management practice, and a keynote speaker at the SCL/ CITA conference, supply chain professionals identified growing organic revenue as one of the top business goals for 2010, versus profitability or margin growth.
Analytics and operational business intelligence, he noted, are enablers of visibility and responsiveness.
Based on a recent Aberdeen retailer survey, some 80% of companies service global retail supply chains and some 32% of 3PLs and freight forwarders in the survey indicated that they had international Transportation Management Systems and global trade capabilities in place today.
The top three strategies, in retail supply chain management, meanwhile, are to improve supply chain responsiveness, introduce labour efficiencies through automation, and improve the cost-to-serve initiative through SKU rationalization or optimization.
"Key takeaways are that the role of chief supply chain officer is fast becoming a reality. A lowered workforce is another reality - 63% of companies won't hire in 2010. But 38% do indicate an increase in technology spend in 2010," said Viswanathan.
He added that 50% of companies surveyed indicated that sustainability has been incorporated into some of the SCM processes and 25% indicate that it has been incorporated into all SCM processes.
The two top approaches towards more friendly supply chain management are improved energy management and changing transportation strategy.
A major part of empowering employees is to make them feel accountable for results, and to have policies and procedures seen as guidelines, rather than rules, said Dr. James Norrie, associate dean at the Ted Rogers School of Management at Ryerson University and another keynote speaker at the conference.
"Canada's productivity lags just about every other country in the G7 -our fundamentals are okay, but I'm not sure our leaders understand how we get to be more productive. Playing at the top of your game, with the intersection of people, process and technology, has been well-studied as driving performance," said Norrie.
While the process stuff is measurable, on the people and technology side, what could you measure?
Agility is important, but agility does not equal speed, said Norrie, citing the example of driving a race car.
"Hammer it on the straightaway, but be careful on the turns. Agility recognizes the need to take your foot off the gas sometimes. Really smart leaders go at the speed that's appropriate for their organization at the time," he said.
Their organizational agility equals the quality of insight plus the speed of execution.
He also cautioned that businesses should beware the word "creative."
"Unbridled creativity in business is dangerous. When you expect employees to be creative or innovative, it's hard work," he said.