As they say in Mississippi, “Talk doesn’t cook the rice.” The essence of this colloquialism is that words have to be converted to action.
It seems like yesterday that I transitioned to become an industry analyst. I have worked for Gartner Group, AMR Research, Altimeter Group and now my own company, Supply Chain Insights. I have now been an industry analyst in the supply chain management space for ten years. In this time, I have worked with over 500 companies. I have heard presentation after presentation on supply chain excellence, and I have heard industry leaders wax eloquently on how their supply chain objectives have improved value. I was surprised as I have evaluated balance sheet progress of these leaders over the course of the last year. For many, I am afraid that these words never get converted to action. I am afraid for many it has been just talk.
This month, I am proud that the Supply Chain Insights team will announce the Supply Chain Index. The Supply Chain Index is a formulaic representation of supply chain excellence based on market valuations. It will be launched during a webinar on April 25, 2013 and through a series of reports that will run in our May newsletter and throughout the summer. Here, I would like to share some background information on the Index and how I intend to use it in developing a higher level of research.
How was it developed? Over the course of the last year, Abby Mayer (@indexgirl) worked with the Supply Chain Insights team to build a database of 20 years of information with over 50 supply chain financial ratios. To understand supply chain excellence, Abby and I have been studying pattern recognition for industry peer groups at the intersection of the metrics in the Supply Chain Effective Frontier of growth, profitability, cycles and complexity. (Based on inquiry, we do this analysis free of charge for members of our Supply Chain Insights Community.)
We have performed over 50 analyses for companies. Each time that we run a new evaluation, we learn more. As a result, we have built a database of how companies have made trade-offs on financial ratios over the last decade. This analysis has been fun and insightful. However, we have found that only a few companies are improving the potential of their supply chain to balance supply chain metrics.
How is the Supply Chain Index different from the Supply Chain Effective Frontier? Last month, we decided that it was time to take this analysis to the next level. We feel that it is not sufficient to just plot the patterns at the intersection of the Supply Chain Effective Frontier (the balance between growth, profitability, cycles and complexity). But instead, a additional need existed to build a formulaic representation of market valuation. We are using data from ycharts.com based on Morningstar sectors to build a formulaic representation of market valuation for over 35 industry peer groups. We find that each peer group has a unique equation based upon what drives value in their specific value chain. While we have known this empirically, it is fascinating to see the differences between industries and across value networks. (A value network is a group of companies that trade together to satisfy a market need. An example is retail/consumer products/chemical/transportation or hospital/pharmaceutical companies/medical device companies/medical distributors.)
How does the methodology compare to the Gartner Top 25. Why do we need a new Index? This methodology differs in a number of critical ways. We hope that it provides new and critical insights for the supply chain leader. We believe that the Gartner Top 25 is flawed in three primary ways:
- Value chains are not created equally: You cannot put all companies in a spreadsheet and shake them up. Each company and value chain has a different value proposition. The Gartner Top 25 methodology, by definition, is biased to reward the high-tech and electronics industry. As a result, asset intensive companies or service providers will never do well via this methodology. We believe that companies need to be compared within their peer groups.
- A long-term view of leadership is needed: We believe that the data needs to be based on a longer time horizon than three years. Supply chain excellence happens over the course of many years, and the relative positions of companies, and the movement over the past decade, is just as interesting as the index itself.
- Objectivity: We are correlating the formula based on quarterly stock market valuation data. We want to understand the differences between industries, and across value chains, to help teams better align and to improve collaboration between trading partners.
- A fit for all companies: The Gartner 25 is limited to analysis of only large companies (Fortune 1000). This new analysis allows us to compare all companies.
How will we use it? It is our goal to use the Supply Chain Index in four different ways. It will become one of the cornerstones of our research.
- Discovery: It is our goal to tie financial balance sheet data together to quantitative surveys and do a deep analysis on supply chain excellence. We are busy trying to figure out what practices and technologies drive supply chain excellence. So after we announce the Index, all publicly held companies will be given an index factor, based on annual performance, and grouped into segments based upon maturity. We will then use this as a comparison table to understand the processes and technologies used by more mature companies.
- Selection of our Global Summit speakers: On September 11-12, 2013, we will be holding our first Global Summit. The companies that have performed the best on the Supply Chain Index will be selected to be our speakers.
- Supply Chain Strategy Sessions. The sharing of performance on the Supply Chain Effective Frontier helps companies to understand their performance against their peer group and the overall trends of the market. Similarly, the Supply Chain Index allows companies to better prioritize strategies.
- Publication of our next book. We plan to release two epublications this year; one on Supply Chain Metrics that Matter, and the other covering the Supply Chain Effective Frontier and the Supply Chain Index. They will be digitally shared through Amazon, iTunes and other sources.
How can you and your teams gain benefit from this research? We hope that it can help you better define supply chain excellence, and articulate why supply chain matters.
We would love to hear your feedback and we hope to see you on our webinar to discuss the Index on Thursday, April 25, 2013. If you are interested please register for the webinar.
This month we are also completing three studies. We are continuing our practice of “If you give us 10 minutes, we will give you an hour.” In short, if you fill out our surveys, we will share the results with you and your team on a one-hour call. These new studies will be the first where we will be able to complete the financial analysis and tie the Supply Chain Index to the quantitative analysis in each study. We would love to have you participate. The links are listed below:
S&OP: A State of the Union. Does S&OP improve agility? Improve the ability of the company to better compete. Understand where you are on maturity and how S&OP improvements can help your company.
Alignment: Where are we on supply chain functional alignment? For leaders in corporate finance, Information Technology, corporate sustainability and Supply Chain. Understand where you are against peer groups on supply chain alignment.
Healthcare: How Do We Heal the Healthcare Value Chain. For manufacturers and distributors of pharmaceuticals, medical device components, healthcare providers and consultants in healthcare. A look across the value chain on how companies can align to improve patient outcomes.
In closing, I want to thank you for your support of our Open Content research model. We look forward to sharing more with you on the Index and why supply chain excellence matters to balance sheet results. After all, we all know that it take more than words “to cook the rice.”