Supply Chain

dave biegger headshot

Over the course of the last two years, we at Supply Chain Insights have worked on a methodology to gauge supply chain improvement. We named it the Supply Chain Index. We have found that supply chain metrics are gnarly and complicated. During the last two months, we have been interviewing supply chain leaders to get their views on the methodology.

We believe that a supply chain leader is defined by both the level of performance on the Effective Frontier (balance of growth, Return on Invested Capital, Profitability and Inventory Turns) and driving supply chain improvement. We think that it requires a focus on both total performance and measured supply chain improvement. We also believe that it needs to be based upon their peer group. Supply Chain Excellence as defined by a methodology where all companies are put into a spreadsheet and compared across industries is meaningless.

In this blog, we share an interview with Dave Biegger, SVP of Campbell Soup. Dave will be speaking on his journey along with other supply chain leaders at the Supply Chain Insights Global Summit in Scottsdale, Arizona on September 10th and 11th These interviews of supply chain leaders will be collated into our fourth book on supply chain excellence which will publish at our conference in September 2015.

Background on the Supply Chain Index

During the period of 2006-2012, Campbell Soup Company outperformed its peer group on the Supply Chain Index. The Index is a methodology developed by Supply Chain Insights LLC, in cooperation with the Operations Research Team at Arizona State University (ASU), to gauge supply chain improvement. In the Index, corporate progress is calculated on balance, strength and resiliency improvements. The balance factor tracks progress on both year-over-year growth and Return on Invested Capital (ROIC), and the strength factor is based upon improvement in both operating margin and inventory turns. Resiliency is the tightness of the pattern, or the reliability of operating margin and inventory turns results. Together, the three factors form the Supply Chain Index.

The Supply Chain Index methodology is based on three principles. The first is that the supply chain is a complex system that has increasing complexity. It needs to be managed holistically as a system. The second principle is that the supply chain needs to be managed cross-functionally, end-to-end, from the customer’s customer to the supplier’s supplier; and as such, it cannot be viewed as just another function. The third principle is that the supply chain is a significant contributor to corporate performance, and that supply chain improvement can be tracked and measured based upon public financial statements.

Figure 1. Food and Beverage Company Performance on the Supply Chain Index for the Period of 2006-2012

On July 24th, I interviewed the Campbell team –under the leadership of Dave Biegger, SVP of Global Supply Chain, to gain insights on the Index, and their journey. Dave joined Campbell Soup Company in 2005 after a 24-year career in product supply at Procter & Gamble.  Dave asked his team to join him for the discussion. Here are the notes from that discussion:

What has Campbell done to demonstrate such strong performance over the last 6-year measured period?

Eight years ago, we started with a focus on Total Delivered Cost (TDC) and elevating our cost savings program performance, as well as eliminating sub-optimized cost efforts that might have helped in one specific area, but hurt our overall performance. We took a holistic approach to accomplish this goal by developing training programs and tools to ensure that all employees had an accurate picture of total cost and how to drive improvements. We built these into continuous improvement programs such as Lean Six Sigma, while also setting goals to drive breakthrough cost savings to supplement continuous improvement savings.

I strongly believe diversity of experience and thought leads to improved performance. This is why our next step was focused on building an effective supply chain team by developing people and leveraging their talent. We wanted to create the best mix of people with the right skills and experiences and put them into the right positions. The key was to build upon the tremendous experience that already existed within Campbell, as well as attract great talent from other world-class companies and supply chain organizations. That blend has been key in helping us to make significant improvements.

Any time you make a significant change or improvement, it’s essential to understand the culture of your organization when developing an approach. At the beginning of this journey, we tended to behave more in silos in parts of the company, both across the plant network and across functions. This obviously made it more challenging to implement new concepts in a standardized way and to reapply great solutions.  It became clear at the time that starting small with pilots to prove concepts was an important way to build support and alignment at Campbell. We began with a focus on operational reliability; making products right the first time with no waste in a reliable manner. We needed to ensure that we had a strong and predictable base capability to build upon. This work was organized under an Operations Excellence program, a pillared approach supported with clear leadership and matrix teams.  Our next focus was to introduce produce-to-demand as an operating strategy, or the implementation of demand-driven concepts. We’ve made great progress, and I am proud of how well the organization now works together through improved communication and shared resources. We simplified our SC strategy and communicated in a straightforward, one-page document that laid out primary goal areas.  Our intention was to maintain constancy of purpose and continuity. These strategy areas remain important today, while our priorities and tactics evolve as we make progress.

How did you approach your cost savings program?

As with all supply chain organizations, when we focus on big cost opportunities, we normally deliver savings in those areas. But we created a model to ensure that we were systemic and structured in how we approached cost savings. To drive the sustainable savings program at a best-in-class level, and to ensure that we could reduce costs faster than the cost of inflation, we implemented specific standards. In our program, cost avoidance, while desirable, does not count towards the metric. In addition, a one-time cost savings does not count either. As a team, we agreed to count only recurring savings that offset inflation. Our aim was to maintain a 3 to 3.5 percent savings as a percent of year-over-year total deliver costs. We set a goal that 50% of our target would come from continuous improvement and the other half would come from breakthrough innovation and thinking. We’ve developed a clear model with specific accountabilities to ensure success in delivering strong cost savings performance year after year. Our approach simply breaks accountabilities and goals across the areas of Manufacturing, Logistics/Network Optimization and Ingredients/Packaging.

What have you learned?

It’s important to recognize the interdependencies of capabilities and programs. Each focus area alone is important and can bring great value; but, if key focus areas and programs are managed together holistically versus independently, the opportunity becomes much greater. Campbell’s programs included Operations Excellence to build a strong base, Network Optimization, Product and Process Simplification, Visibility/Orchestration of the SC network (including S&OP), and implementing an Operating Strategy consistent with Demand-Driven Supply Network capabilities. As we improve in each of these areas, we also open up opportunities in the remaining areas.

As we became more efficient with our assets and began building more flexibility into our plants, we improved cost and service results, along with creating an opportunity to streamline operations, which fell under our Network Optimization program. This has led to almost a 50% reduction in the number of plants across Campbell’s global footprint, and although each decision has been difficult, the cost impact has been significant and important.

Through our common platform/postponement initiative, we simplified product designs by eliminating non-value-added flavors or ingredient dice sizes. This also improved the consistency of our product quality, reduced costs and inventory, and enabled improved reliability through the resulting simplified process. This is challenging work because it is highly dependent on cross-functional collaboration. We would not have succeeded without a team effort across R&D, the business leaders, and SC disciplines of engineering, procurement, and manufacturing. This dedicated team of 20, a majority being R&D resources, was self-funded due to its ability to quickly drive savings. Most important about this effort was that we were clear on our principles that quality was more important to us than cost. This meant that every change we made had to result in equal or better quality at equal or lower cost.

In addition to quality, we’ve created capabilities that will support improved customer solutions and enable growth for the business. Flexibility is not just about asset rationalization, but also about unleashing growth in different product formats, packaging sizes, etc. It’s not just flexibility within the line, but across the entire production system. After five years, we’ve nearly completed implementation of our simplification effort, Soup Common Platform, which consisted of three phases:

  1. Start with formula (recipe) simplification.
  2. Focus on process simplification (We were able to eliminate unnecessary processes, which not only made it easier and more cost effective to make the product, but also improved quality by minimizing the impact on ingredients through the process).
  3. Equipment and plant design (Our focus was on the plant of the future. We reduced 40 percent of assets and still make the same amount of product with greater flexibility. Our final implementation of this program is happening next year).

We started these improvement efforts in the center of the supply chain with an emphasis on building manufacturing capability, reliability and flexibility. We now have the ability to focus more on materials management and suppliers upstream, and distribution and customer solutions downstream, to drive optimization. While we are nearing the end of our work on the Soup Common Platform, we continue to focus on strengthening relationships and ensuring greater cooperation with our suppliers and customers.

Were there any improvement efforts that did not go well?

One of our opportunity areas was to improve our planning processes and make the proper investment in Advanced Planning Systems. We needed to make the investment because our system was aging and we wanted to invest in a way that supported our demand-driven agenda. However, we simply attempted to do too much too fast, expecting we could quickly move ahead with integrated planning. S&OP also presented challenges, but we have since changed to a more structured approach to drive greater business ownership. While the implementation was a challenge overall, we’ve moved beyond it.

Over the last year, we focused on ensuring that our systems and tools were delivering as expected. On the S&OP side, we haven’t done anything that’s drastically different from all the textbooks. Where we’ve put particular emphasis and made a step change was in adapting the culture to have a shared understanding of how we run the business. S&OP success depends on a strong culture that supports a cross-functional process. We have a good cooperative effort and understanding from marketing, sales and supply chain on how to make decisions that ensure the success of S&OP. We continually reinforce this within our culture, as well as maintain ongoing process improvement.

Why do you think Campbell will fall on Index ratings in the future?

We had about seven consecutive years of constant improvement in our supply chain at Campbell, across virtually every result area. While I was surprised to see us at the top of the list for that period knowing there are so many strong supply chain organizations in our industry, it also matched what we had been experiencing with all of the results improvements we had delivered. Assuming the measure is generally effective at recognizing improvement, I have to assume we will fall on the list over the next few years. Some of the decline in ranking will be due to the issues I mentioned above with the planning system implementation and the impact that had on results. The bigger impact will come from a conscious choice we made. As part of our Network Optimization program, we consolidated our supply chain network in the U.S last year. While the driver for this move was excess capacity, as well as a compelling cost savings benefit, we also knew there would be a two-year hit on our inventory performance until the flexibility was created at other sites to allow the inventory levels to fall and resume the improvement trend we had been following. Finally, we all understand that margin is not fully controlled within supply chain. We have two things that have challenged margins recently at Campbell:

  1. Mix due to the addition of recently added high-growth business acquisitions that come with a lower margin rate
  2. Trade investments that will return to more historic levels in the future.

As we move past some of the challenges we had over the past year or two, and return to the inventory improvement path we had been delivering, I expect that we will see solid improvement in Index ratings.

If you had to do it all over again, what would you do differently?

We have enjoyed excellent results over most of the last several years, but there are a few things I would change if we could go back. We tried to do too much too fast. As a team, we committed to implementing demand planning and supply network planning all within the same year, followed by inventory optimization and demand sensing.  We also underestimated the organizational investment it would take to achieve our desired results. In the end, we experienced important learnings, built critical capabilities, and will now be able to generate more results improvements in the future because of that effort. More broadly, we could have been more balanced in our approach to integrating an already aggressive supply chain agenda with a rapidly increasing product innovation agenda.

Despite some of our recent challenges, we feel very good about the contributions that the supply chain team has made at Campbell for a meaningful stretch of time. Without a longer-term vision, and a willingness to take risks by embracing big opportunities and committing to big results improvements, we would have only made incremental progress. If I had to simplify what has been most important for us, I would say the two keys have been people (leadership) and an integrated approach. It’s no surprise that strong leadership and great people make the difference, especially when the organization is engaged and collaborating both within the supply chain and across all other functions. The power of an integrated approach, connecting multiple complex improvement efforts, has clearly driven much stronger results progress than we would have seen from independently driven initiatives, even if all had been successful individually.

Conclusion:

Figure 2. Supply Chain Index Rankings for 2006-2013

As we can see in Figure 2, the impact of Campbell’s aggressive supply chain projects in 2012-2013, in conjunction with some changes in the business, as Dave predicted, had a deleterious impact on Campbell’s rankings on the Supply Chain Index.

The good news is that the team was aware of the results and feel that they have righted the ship in 2014. The lessons of the team in the trials and tribulation of building supply chain excellence apply to all. It takes many years to build a culture to improve supply chain excellence, and many well-intended technology or plant design projects can quickly take a supply chain team off guard. Luckily for Campbell, this supply chain team had the right stuff to self-correct and put the supply chain back on course.

We look forward to getting your thoughts on the Supply Chain Index. To learn more, join us for our webinar on the Supply Chain Index for the Industrial Sectors of consumer electronics, automotive, automotive suppliers and semiconductor manufacturers August 12th at 11:00 EST. Additionally, at our Supply Chain Insights Global Summit on September 10th and 11th, we will publish the results for all industries for the periods of 2006-2013 and 2009-2013 in a report, The Supply Chains That We Admire. The Supply Chains That We Admire report will have a detailed analysis, by industry, on supply chain performance on operating margin, inventory turns and ROIC, along with the analysis of year-over-year improvement. It will also include some analysis of companies like Campbell Soup that are willing to share their stories.

I have found it quite exciting to look deeply at the results of all public companies over these periods and reflect back on the work that I have done with many of them over my 12 years as an analyst. I firmly believe that supply chain matters to corporate performance, and I am proud that I can now tell the story. I had a call this morning with a group of financial investors that are adopting the Supply Chain Index in their rankings, and Supply Chain Management Review in the fall will feature a monthly article on industry sector results. We look forward to connecting with you and your team as the concepts take hold.

 

 

 

 

 

This week, I will speak at Llamasoft’s conference on improving supply chain network design. I am also busy this Saturday writing reports for our Tuesday newsletter. One of the reports that I am writing is on the state of Supply Chain Planning (SCP). While other analysts may put the vendors into a four-square evaluation model and declare it magic, I think that this approach does a disservice to the industry. Why do I feel this way?  The SCP market is a fruit basket of vendors with very different capabilities. It cannot be adequately equated in a four-box model. The capabilities are just too different. (Bear with me on this rant. This old gal has built hundreds of four-box models in her decade of being an analyst.)

By and large, no one is happy with SCP as it exists today. In the recent study of the Voice of the Supply Chain Leader, we find that the gaps are large, and growing. As shown in Figure 1, the gaps with the major categories of supply chain planning are great. I recently presented this slide to a group of consultants, and a person that I love in the audience raised his hand and said, “Lora, let’s just face it. No one likes what we have today. This slide supports that what we have today just sucks. What can we do about it?”

Figure 1.

My advice to him, and to all my readers, is to focus on what drives value. The gaps in our technologies are a barrier, but should not stop us from redesigning to improve performance.

While innovation has slowed in Enterprise Resource Plannning (ERP) and Supply Chain Planning, I am bullish about some of the innovation coming from the supply chain network design technology providers like JDA, Llamasoft and Solvoyo. These tools are now enabling new capabilities to make trade-offs between volume and cost while helping companies to redesign flows and decoupling points. I also think that Quintiq’s leadership in concurrent planning to solve new problems is promising, especially in the design of transportation and inventory flows.

Interview of a Supply Chain Leader: Redesigning for Value

While technology is both an enabler and a current barrier, for me, the journey is less about technology and more about leadership. One of my favorite interviews on this topic, that I recently completed for my upcoming book Metrics That Matter, was with Amway’s Chief Supply Chain Officer George Calvert. He is the head of operations for the direct-selling leader of health, beauty and home care products. They had just implemented a number of changes, and were proud of their progress.

Here are some excerpts from the interview:

Tell me about yourself.

My path into managing operations is different than most because of my background in chemistry. The path I took came through R&D where I had many different roles including R&D management and quality assurance. When my boss retired, I took over the combined functions of R&D and supply chain operations. You don’t often see R&D and operations together, but for me it is a perfect fit.

My skill set is really more focused on pattern recognition, and operations is a numbers-based business, making that easy to do in Supply Chain. I look at patterns to construct business models to deliver both on efficiency and effectiveness.

What have you learned?

Before we took on the supply chain redesign, we had a whole series of ideas that we thought we should be doing. When we started, we developed this big list of ideas on things that we could do. Turns out many of the ideas were wrong because they were not based in fact, just perceptions.

It wasn’t that easy. In researching the ideas, like moving a business to the point of sale, we discovered that the base numbers of the business revealed new strategies. For example, we discovered that transportation and duties are 5x the expense of labor and overhead. This is a very different mix of inputs than the garment industry where labor would be a major driver. The opportunity was in reducing the transportation and duty cost, not in moving to low-cost labor markets.

In prestige beauty and nutritional supplements, the cost to ship the product is minuscule. The product is light, compact, and high value.  However, this is a different story in home care where an item is mostly water. As a result, we had to analyze what the drivers were of the supply chain cost. And what the opportunities were by business line that were unique to our model.

We found that in addition to each country’s nuances, each business line had specific requirements. For example, people want prestige beauty from the US, Europe or Japan. Customers are not looking for prestige beauty from the emerging economies. Take another example – few people know where their TV was made, but the buyer cares greatly about the reliability of that product. Product reliability, in the case of durable goods, is the driving factor for product satisfaction. So, when you are designing your supply chain, it is just as important to analyze distribution costs, material variability, and the costs of labor, along with the perception that the consumer has with the country of origin. Through this analysis, you are able to develop an effective and efficient supply chain.

How did you redesign to improve value?

It took six to nine months to look at the numbers. To do this, great modeling is critical. The strength of your decisions is directly dependent on having accurate data going in. For example, we produce in Vietnam and China. We produce there because the regulations say that you need to manufacture there to sell there. Vietnam is a low-cost market to produce products. Our factory is efficient; yet, it costs us more to manufacture the product in Vietnam because of a lack of local raw materials – compared to manufacturing it in the US, shipping it, and paying duties on a landed basis. You have to have a model that helps you to see the interrelationships. Free Trade agreements also matter. In our business, there is not one lever, there are 20 levers.

Our operations serve the globe. We are in 100 countries and territories around the world. Our activities are broad. We are engaged in everything from raising crops to making home deliveries.

Service level is our most important metric. If someone is building an Amway business, they may choose to primarily focus on selling water treatment systems.  If we do not have them in stock and available, that Amway Business Owner is out of business. We must be responsive to demand, and be diligent to reduce demand interruptions. We must also have a consistent supply of quality product. As a result, our focus is to make it right the first time. Reliability in both of these metrics is critical.

Most companies inherit supply chains. To a great extent, we inherited the supply chain that we had. When we got into it, some things did not make sense. If you are not going to add value, why do it yourself? The question we always asked was,  “Why?” For example, we made our own corrugated packaging. The equipment was 20 years old. It did not make sense, so we outsourced it and focused our efforts on what we are good at – nutrition, beauty and home/personal care products.

We invested, where it made sense. We grow and process many of our own crops. Our investment focus shifted to getting the right seed, controlling the planting, and ensuring quality conversion all the way through finished products. We have three large-scale farms heavily invested in the production of botanicals and an ongoing $332 million manufacturing expansion supporting the many new nutrition plants needed to support our growth.

What suggestions do you have for others?

Communication to the work teams is critical. Go slow and be clear. Don’t expect that something that took you nine months to figure out is going to be effectively communicated in one meeting. It has to be communicated in the right way. Our restructuring of operations meant a lot of communication. We believe in transparency, and we told people why we were making the decision, and shared the drivers. We were going to invest where it made sense.

My second suggestion to other supply chain leaders is to seek to understand your model and the fundamental drivers of your supply chain. Find out what it is. Is it labor? Is it duties, or is it transportation? Actively define both efficiency and effectiveness.

We started with consultants, but we kicked them out after a few days. I trusted my team to know the business. Collecting the data is not easy. I suspect that many companies have great capabilities to get data, but we did not. We spent the time to overcome our data challenges. We made better decisions doing it ourselves because we know the business. We were not impatient. We asked ourselves hard questions. I think that our results are better because of it.

Summary

I love George’s wisdom in this interview. I especially value his quote, “Communication to the work teams is critical. Go slow and be clear. Don’t expect that something that took you nine months to figure out is going to be effectively communicated in one meeting.” When he said that in the interview, I softly whispered, “Amen” under my breath.

In closing, I want to thank all of my readers for their help during my 2 1/2  year journey as the founder of Supply Chain Insights. On this Saturday, I will write our 45th report, and ready all of our blogs for our monthly newsletter. It is a monthly cadence of working on what we hope you believe is insightful research. It is never pay-for-play, and it is always available for you, and your teams, in front of the firewall. We believe that research should be actionable, independent, and accessible.

It is a process where you give to us and we give back to you. In the process, we keep all of our responses and contacts confidential. Interviews like this one with George Calvert are based on a detailed process of interviews, edits and approvals. We do not take this process lightly. We value the input and support of supply chain leaders. We want to give supply chain leaders a voice through our webcasts, blogs and podcasts. (We now have 95 podcasts available through iTunes and Stitcher.)

We are on countdown for our Global Summit of 230 supply chain leaders that is limited to 15% attendance of technology and consulting providers. It is designed for supply chain leaders to network with supply chain leaders. It is deliberately located at the Phoenician to enable the networking in a beautiful place where you can hike, golf and even complete a 5K with other supply chain leaders.

During the countdown for the Summit, we are completing research studies on Big Data Analytics, Supply Chain Talent, Supply Chain Planning, and Digital Manufacturing. If you complete one of our surveys, we will share the results with you and your team in a one hour call.

We are also releasing the work that we are doing on the Supply Chain Index in a series of reports and webinars. It is a methodology that is applicable to all public companies to judge supply chain improvement against peers. We think that the definition of a measuring stick is important. In the countdown for the summer, we will be getting your input to understand which supply chains have made the most progress for the period of 2009-2012. In the spirit of open research, as we learn, we share it with you. We would love to hear from you on the methodology.

This week, I will be in Chicago on Monday and Ann Arbor at the end of the week. Next week, it will be time in New York. I would love to catch up and hear your thoughts on what we are doing. Until next time….