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Colgate: A Closer Look at Supply Chain Excellence

by Lora Cecere on April 26, 2013 · 2 comments

Recently, I wrote a blog post that contrasted Colgate and Unilever. As a follow-up to this article, I wanted to talk one-on-one with the leadership teams of the two companies and get their insights on the ten-year comparison.  In this blog post, I share insights from Michael Corbo, the head of supply chain at Colgate.

Michael Corbo from Colgate-Palmolive

Tell me about your job as a leader at Colgate.  I am very impressed with your organization’s delivery of results over the last decade. What do you believe has driven this success?

We believe in consistency. My job starts with the shelf and service to the customer. I am responsible for the supply chain processes that deliver the goods and services to the shelf globally.  This is not a new mission for the supply chain organization. Over the last decade, we have had consistency in leadership and purpose. Eleven years ago we defined the supply chain organization to focus on improving processes from the customer’s customer to the supplier’s supplier.

As a team, we believe in funding the growth. We ask the organization to take out waste and invest it back into the business. 60% of our focus goes to business expansion or driving productivity. We partner with the business leaders.

In doing this, we want to leverage scale. We are data driven and hold ourselves accountable to the balance sheet. We realized, in this journey, that we needed to build systems to analyze data to drive better decisions. To do this, six years ago, we built a support group of supply chain finance to support our decisions. It is a parallel group to our corporate finance group that reports directly to me.

It is easier said than done. Our business is complex. We have worked hard to get good at understanding the financial levers of the supply chain. We are disciplined in making capital investment decisions. For example, we seldom outsource manufacturing. We take pride in our innovations in manufacturing.  Today 95% of manufacturing is directly managed by the Colgate team and we have taken steps to vertically integrate some of the operations. For example, we make the tubes for our toothpaste. This has allowed us to improve operating margin, and return on assets (ROA); but has hurt the revenue/employee productivity numbers in your analysis. This is a conscious choice.

updated_comparison_table Colgate vs Unilever including 2012

You are what you measure. We manage supply chain metrics. We pay attention from case fill to customers’ customer feedback, on-time deliveries, plant efficiencies and forecast accuracy. Success is never final.

Thanks Mike these are great insights. I have written a lot about supply chain talent, and I question if it is the true missing link of the supply chain.  What do you think? Do we have a talent crisis?

As an organization, we believe in building talent systems and hiring from within. I take my job as the leader of the 22,000 global members of the Colgate supply chain team seriously.  I oversee succession planning for the supply chain organization.  When it comes to talent management, it is a “single threaded needle.” While I am supported by an experienced and talented supply chain human resource team, managing talent is a large part of what I do.  It takes time. It is 30% of what I do on a day-to-day basis. As a result, the reward and feedback systems for talent development are very consistent. The leader of the supply chain team has led succession planning for the last twenty-five years.

When people come to see me and ask for career advice, I tell them to do their current job VERY well. My advice is to “get real good at something and drive value today.”  I believe that success is not always about moving up.  I encourage members of the team to take enrichment opportunities in other areas of the company or other geographies; but I don’t want them to just spend time, I want them to contribute and learn.  I believe that we should encourage people to move across the organization to get a greater understanding of the business. We do succession planning three times a year. I value cross-functional experiences.

I strongly believe that we cannot let regions operate as islands. We hire with the expectation that people will spend time in multiple regions and multiple functions.

How do you see Supply Chain 2020?

When we were starting to plan for Supply Chain 2020, the first thing that I asked my team to do was to imagine ourselves on a beach somewhere enjoying life.  We took ourselves out of the equation and imagined how we can pass on what we have built to this next generation. We want to continue the culture.

We have significant opportunity to strengthen inventory management. We know that corporate sustainability and enterprise risk management are going to play a larger role in our future vision. I believe that we have made great progress on the integration of corporate social responsibility programs into our continuous improvement efforts. I also believe that we are making good progress in the use of digital and mobile in the factories.  We want to continue these paths.

We are also trying to embrace change.  We are asking ourselves, “What is the role of ecommerce in our future vision?”  We are reconsidering the role of ecommerce (demand signals from others like Amazon or direct shipments to customers) on our supply chain. I asked my team to think harder about the management of end-to-end processes and our relationship with the shopper.

I am excited about the future with analytics.  We want to make data work for us. We want to better manage the present and shape the future. I think that the use of advanced analytics holds promise.

What advice do you have for ecosystem partners trying to help supply chain leaders move forward?

I would like for the community to work on improving the experience of using analytics. Our vision is that it is as simple as the application on a mobile phone  …or downloading a digital book from Amazon. Today, we are a long way away from applications that are this easy to use. I would like to see more work on a shared vision of how we can make data work for us.  We lose too much in the complexity.

Thanks Mike. I appreciate the interview.  For more on Colgate results and their role in driving supply chain excellence, check out their results in the Supply Chain Insights Report, Supply Chain Excellence, a Step Forward and a Step Back. Also see the previous blog post: Unilever and Colgate: Two Bookends?

Public Markets Reward Supply Chain Alignment

by Lora Cecere on April 25, 2013 · 0 comments

Today, I am proud to launch the Supply Chain Index. It is my hope that the readers of this blog will take time to either join us today to listen to the launch of the Supply Chain Index on our webinar or listen to the replay. (We will make the replay available on our website and in our community within 24 hours.)

The Supply Chain Index has been two years in the making. The genesis started with the writing of the book Bricks Matter.  As I sat at my kitchen table, I reviewed spreadsheet after spreadsheet of corporate performance data on supply chain financial ratios. The relationship between corporate financial performance and supply chain metrics was complex; and in my first attempts, I was unable to derive a correlation. However, as many of you know, I am stubborn. I wanted to know more. I hungered to know the patterns. I was driven to find out which supply chain financial ratios really mattered to corporate performance and stock market valuations.

Why did I care?  The year 2012 marked the 30th anniversary of the use of supply chain management as a cross-functional process for source, make and deliver in the commercial sector.  I wanted the book to be a critical look at what we have accomplished as supply chain professionals during that 30-year period.  I feel that there is too little primary research in the area of supply chain management. I believe that there is more hype than substance in most supply chain writing, and that we have not held ourselves accountable enough to financial balance sheet performance.

When I started writing the book, I believed that supply chain process improvements had reduced costs, improved customer service, and increased invetnory turns.  Sadly, while writing the book, I found that this was not the case.  What I found was that we have improved employee productivity through the investment in processes and technology, but that most industries were stuck in their ability to manage the trade-offs between growth, profitability, cycles and complexity. I termed this concept the Supply Chain Effective Frontier. As I wrote about this concept, and worked with Abby Mayer (@indexgirl) to write the Supply Chain Metrics that Matter series of reports, I discovered more on the depth of the complexity. It has taken us eighteen months to build the database of supply chain financial ratios and find the patterns and start building the formulas.

My goal was to help corporate financial and supply chain teams align. I believed that supply chain excellence could not be generalized from industry to industry. I strongly believed that it varied by industry sector and that it was a series of complex relationships. I wanted to build a useful tool that could help companies irrespective of size or geographic location.  As a result, I commissioned work to try to build a formulaic representation of supply chain metrics (financial ratios) to tie corporate market valuation to the definition of supply chain excellence. I wanted to better understand which metrics truly mattered. This work has been in progress for the past year, and it is far from done.

The launch today of the Supply Chain Index is a start, and should not be viewed as an end point. Today, we will start to socialize the concepts. We are on a journey. This work will continue throughout the summer and culminate in the release of the Supply Chain Index for 36 Industry Sectors at our Supply Chain Insights Global Summit at the Phoenician in Scottsdale, Arizona on September 11-12, 2013.  Over the summer, we will be sharing the insights of this work through a series of webinars and reports.

As we progress, we will ask for supply chain leaders everywhere to join the discussion in our Supply Chain Insights Community. We want to get it right. We want to hear your voice. My goal is to help supply chain leaders everywhere to better align the metrics that matter to define supply chain excellence and its relation to corporate performance.

Definitions

To understand the concepts, let’s start with the definitions:

•Supply Chain Index: A formulaic representation of supply chain financial ratios correlated to stock market capitalization.
•Supply Chain Effective Frontier: The balance of growth, profitability, cycle and complexity metrics to deliver a supply chain strategy.  It may or may not maximize the company’s market valuation. (This should be a conscious choice.)
•Supply Chain Excellence: The behavior of companies working to maximize value through the setting of targets for supply chain financial ratios, and aligning metrics that matter, which are tied to value chain strategy.

What We Know Today

The Metrics That Matter Are Different by Industry Sector. The correlation of supply chain financial ratios to corporate stock performance varies by industry. The concepts of supply chain excellence cannot be generalized. As shown in table 1, and in figure 1 outlining the consumer value network, industry sectors within a value network are rewarded by performance on very different metrics. For each supply chain it is the management of a system, but the levers for each industry are very different. I firmly believe that you cannot put all industries in a spreadsheet and shake them up.

Public Markets Reward Alignment and Balance. What is common for each industry is the management of trade-offs on the effective frontier.  While the formulas are different and the supply chain financial ratio correlations vary, there is a strong trend for balance  and alignment (management of Days of Inventory and Payables). I am also struck by the need for cross-functional alignment to perform against these metrics. These type of performance cannot be achieved through a focus on functional metrics.

Supply Chain Performance Matters. The term supply chain should be easy to define; but sadly, I find that it is a politically charged term within organizations.  I define the term as the processes that align the processes of sell, deliver, make and source outside-in from the customer’s customer to the supplier’s supplier.  When I go to a  software conference, the term supply chain is often very narrowly defined as supply chain planning and supply chain execution software. The technology vendors talk in three-letter acronyms about pieces of the software that drive supply chain performance. Conversely, when I speak to many organizations, the term supply chain is very narrowly defined as a supply chain function often limited to logistics, distribution and customer service. It is only in enlightened organizations that I find a holistic definition that spans end-to-end processes.

There is No Substitute for Leadership.  As I go through balance sheet after balance sheet, and spreadsheet after spreadsheet, I associate the numbers with the names of the leaders and the faces of the teams that I have worked with over the last decade. I remember the discussions on the choices on the selection of technology and organizational design. In the numbers, I see that some companies that have made clear and conscious choices. The work has taken many years. I also see that companies with a focus on end-t0-end process management are outperforming peers. Supply chain excellence matters.

Next Steps

We will be tying the results of cross-functional alignment in supply chain metrics to organizational  and process design through our quantitative survey on alignment. If you would like a customized assessment based on your company’s Supply Chain Index, please have three or more functions within your company fill out this assessment. Share this link with members of your Information Technology (IT), financial, corporate social responsibility, sales and supply chain teams. The link to share within your organization to take the study is http://tinyurl.com/sci-ali-lc 

We look forward to hearing from you! Let us know what you think.

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