Mirror, Mirror on the Wall….

by Lora Cecere on June 30, 2010 · 3 comments

 In the movie Snow White, the Queen possesses a magical mirror that answers any question, to which she often asks: “Mirror, mirror on the wall, who in the land is fairest of all?” …to which the mirror always replies “You, my queen, are fairest of all.”


Companies want to know “who has the best supply chain?”  Unfortunately, there is no supply chain magic mirror;  however, each June we can get summarized financial data.  While not a perfect mirror, it is a partial reflection. It is definately more accurate than mistakenly believing that each supply chain is as good as it gets (e.g. the Queen’s magic mirror in Snow White).

The normal cycle of financial reporting makes June a perfect month to review the past year.  So just as students gather around bulletin boards at the end of the school term and check their grades, in June, I scour websites to understand how supply chains stack up. Luckily, two articles –the CFO Magazine’s Working Capital Survey ( and the CSCMP Annual State of Logistics Report (– are published in June to serve as year-over-year guideposts to answer the question, who does supply chain best?

2009. A Year in Review

2009 was a true litmus test.  It was the height of the recession. Aggregate volume declined 23% and fundamental demand shifted.  Despite investments in technology, in aggregate, the supply chain response was slower in this recession than in the prior 2001 recession.  There is a growing gap between leaders—companies that really understand and practice the concepts of supply chain management—and laggards.  Companies that excelled at supply chain management sensed demand changes 5X faster  and realigned network decisions than their peer groups (

For many, 2009 was a working capital hangover as companies reeled in the recession aftershocks.  It was the worst year ever, in this writer’s history, for working capital management.  For 68% of the Fortune 1000 companies, Days of Working Capital (DWC) grew. Facing new market obstacles in collections, payables and inventory management, companies buckled their belts and scrambled for cash. As inventory levels climbed during the first part of 2009, tension grew in supply chain discussions.  This was the most problematic –even desperate– for companies when high asset utilization was mistakenly defined as supply chain excellence. 

 Source: CFO Magazine 2010 Working Capital Survey of Fortune 1000 Companies

The tightening of credit through 2010 put the spotlight on inventory management (even for companies that had never cared about inventory before). The bloated inventories of 2008 through early 2009, sent a shock wave through executive discussions; and even though business inventories dropped for the first three quarters of 2009 and rebounded in the fourth quarter below pre-recessionary levels, executive teams remain on edge.  As the curtain rises for the last half of 2010, the links in the supply chain are weakened. Capacity is tightening and prices will rise.  The terms demand sensing, demand shaping, and demand orchestration have a new meaning for battle-weary supply chain veterans. 

2009: How did we do?

The good met the test.  The average and poor supply chain processes were not equal and succumbed.  What made a difference?  Companies focused on traditional supply chain planning and tight integration of planning processes to Enterprise Resource Management (ERP) did the poorest.  Companies with an outward-focus on market drivers and building strong what-if analysis to understand demand uncertainty did the best. Leaders have the right stuff. Laggards have a new respect for supply chain excellence.

Let me preface this analysis with a caveat.  I do not believe that you can throw all industries in a spreadsheet and declare a supply chain victor. Since value drivers within each industry are different; I think that true supply chain leadership can ONLY be seen when you compare companies within peer groups. 

In this downturn, supply chains experienced a seismic shift.  Using the earthquake analogy, it was an eight or nine on the rector scale.  As I thumbed through the CFO magazine results, I considered many; but settled on three stories:

Containers & Packaging:

Suppliers, at the end of the supply chain, are whipped hard by economic downturns.  When it comes to fighting this bullwhip effect, supply chain excellence matters.  Contrast the stories of Sonoco Products and Owens Illinois. Sonoco Products, a 3.6 billion dollar company, located in South Carolina, manufacturers packaging film for the consumer products industry.  The company has been on a four-year journey to become more demand driven with a strong focus on S&OP.  Owens Illinois (OI), a manufacturer of glass containers with US headquarters in Ohio, has been more focused on transactional efficiency, procurement and IT standardization.  Sonoco has outpaced OI in learning how to be a supply chain leader. Their 2009 numbers speak for themselves.

Table 2: Comparison of 2009 Results of Sonoco Products and Owens Illinios

Sonoco Products 43 31 38 37
Owens Illinois 67 49 45 71
Industry Average 42 42 31 63

High Tech & Electronics

When it comes to high tech & electronics, my favorite story of a company successfully navigating the downturn is Cisco  Systems.  Cisco took its bumps in the 2001 downturn, did a mea culpa with a 2.25 billion dollar inventory write-off and swore never again.  They redefined supply chain processes under the banner of Customer Value Chain Management (CVSM), successfully integrated 138 acquisitions over  15 years, and built systems to mitigate risks—simulation of 4300 inputs by a team of 10 people—and build supply chain resiliency in the supply chain from the outside-in.  Motorola, on the other hand, has focused more on IT standardization and procurement excellence.  The numbers speak for themselves.

Table 3: Comparison of 2009 Working Capital Results for Cisco and Motorola

Cisco 48 11 7 52
Motorola 65 22 40 46
Industry Average 57 23 27 53


Intel is my pick within the semiconductor industry.  Their focus on supply chain talent development and steadily improving supply chain capabilities helped them through the recession.  They made a conscious choice to not be aggressive on DPO to ensure a strong supplier base. This focus on supplier development built resiliency into the supply chain. Again, supply chain excellence matters. Contrast Intel with Fairchild Semiconductor.  Fairchild Semiconductor has a strong focus on IT systems, is building supply chain talent and is early in the execution of S&OP.  Likewise, while Texas Instruments has a deep legacy of supply chain planning excellence, their focus has been more vertical (source/make/deliver) than horizontal (e.g. Sales & Operations Planning, order to cash, etc).  Consider the working capital impact of three companies in the same industry at very different points in supply chain maturity.

Table 4: Comparison of Intel, Freescale Semiconductor and Texas Instruments

Intel 24 30 20 35
Fairchild Semiconductor 41 58 37 63
Texas Industries 45 42 18 69
Industry Average 50 44 33 61

What is next?

The only thing certain for 2010 is uncertainty.  The litmus test—2009 results at the height of the recession—supports that true supply chain excellence matters.  However, the best working capital numbers do not make the best supply chain.  It is about conscious choice.  Just as Intel made a choice about paying suppliers quicker to improve reliability, companies need to make similar choices about the alignment of working capital targets into supply chain strategy, setting targets for each and active management of the horizontal process that underlies each of the metrics. For leaders it is deliberate; for laggards it is largely uncontrolled.

These lessons are even more important as the recession hangs over us like a black cloud with the possibility of a double dip recession. No doubt about it, we are writing case studies in supply chain excellence. If only there was a magic mirror…. I hope that you do not become a supply chain casualty.

 What do you think?  Did I miss a great story in the data published by CFO magazine? Is there a story of supply chain excellence that you would like to share? Please share your thoughts with the over 2000 readers of this blog.


Definitions of Days of Working Capital (DWC), Days of Sales Outstanding (DSO), Days of Inventory Outstanding(DIO) and Days of Payables Outstanding (DPO) and the numbers contained in this article are sourced from CFO Magazine’s June 2010 article on Fortune 1000 company working capital performance.

The stories shared on these supply chain leaders are based on publically available information: investor calls, public presentations, and public forums.  While I have personally worked with all seven of the supply chain teams listed in the article; and there is much more to share on each of these stories, I have limited my comments to publically available information.

The names of specific technology providers are deliberately omitted from this article.

S&OP: Letter Perfect

by Lora Cecere on June 7, 2010 · 2 comments

Aluminum. Corrugated. Freight. Ocean cargo.  Labor in China. The surprise and dismay continues.  Supply is tightening, international currency is changing, prices are more volatile, and the future is less certain.  Supply chain leaders need to steer the course.  As a result, S&OP has risen in importance. If 2009 was about demand, 2010 will be all about supply. Are you ready?

It Matters.

Over the past six years, I have spoken to over 150 companies on Sales and Operations Planning (S&OP). When I started this research, less than 10% of companies had a well-defined S&OP organization and a focus on S&OP excellence. This has changed.  Today, three out of five projects for Supply Chain Planning (SCP) software are driven by a person with a S&OP-specific title; and in the next three months, I will attend three industry conferences dedicated to S&OP.  S&OP has risen in stature.

This important horizontal process makes a major difference in a company’s performance.  Companies with strong S&OP processes sensed the recessionary downturn and corrected supply chains five times faster than those with less mature processes. As we wobble through the swings of the recovery, companies are realizing that cross-functional alignment matters more than ever.  The greatest opportunity for profit and risk will happen in the economic rebound. The risks and the rewards will be greater.  They want to be ready. As a result, S&OP has become main stream.

Letter Perfect

Last week, I counted 52. Tomorrow, it could be over 60.  In the back of a well-worn notebook, I keep track of the different names I hear for S&OP.  Company after company feels that they need a UNIQUE name for S&OP.

Letter perfect means correct to the last detail. I believe that the term S&OP is letter perfect. The practices are imperfect. The embellishment of the standard S&OP acronym is a current fad. The list of names–SIOP, DDS&OP, DDBS, IDDSP, IBM, and IBP –goes on and on.  The danger is that as we rename and embellish S&OP initiatives, we lose the essence and the meaning of this important process. The real issue is that due to bad practices, and the lack of understanding, the term S&OP has become tainted.  The letters, when understood stand strong on their own:

-S: The S in S&OP is about selling strategies and market drivers.  Effective processes focus on go-to-market strategies. It is often confused to be about sales.  What is the difference?  Let’s contrast the difference it through a case study:

In 2006, Del Monte transitioned from asking sales what they were going to sell to focus on market drivers.  They stopped their process of collecting sales data at the item level through laborious spreadsheets to focus on sensing demand, understanding market drivers and using the information to shape how they go to market.  The new process focuses on shopper insights:  who is buying what, where they are buying and why they are buying.  It focuses on how to best shape demand in these sectors (the right combination of assortment, price, promotion, trade deals, and sales incentives) to drive profitable demand.  Del Monte found that the right data to collect from sales is clarity on the market drivers: the number of new accounts taking new products, competitive activity in the market, success on past promotions, and retail channel insights.

Contrast this type of approach—a focus on market drivers—by a company like Del Monte to a focus on sales—what does sales forecast that they are going to sell—by Campbell’s Soup.  In  figure 1, the stock price of the two companies is contrasted through the recent recession.  While I cannot attribute all of the difference to S&OP, it was a contributing factor.

Figure 1:  Stock performance of Del Monte (red) and Campbell Soup (blue) against the Dow (brown)

-&: And, what?  The and in the S&OP process represents the cross-functional coordination/alignment required to meet the strategic goal of the process. For example, if the goal is to be demand-driven, the focus is on outside-in market sensing. The demand plan is an input into the financial plan and the organization is tasked with determining:

  • The best working capital plan:  determining the right form and function of inventory versus constraining inventory or focusing on just inventory levels
  • Trade-offs: The alignment of the value chain to balance growth initiatives with the trade-offs between sustainability, corporate social responsibility, tax efficiency, speed to market, and costs.
  • Network design:  Based on demand and supply variability, and market conditions, what is the best network design to minimize risks and maximize the market opportunities?

At Cisco, the supply chain organization is called the Customer Value Chain Management organization (CVCM) for a reason.  The company runs a risk management engine of 4300 inputs with over 1000 simulations by 10 planners a months.  Intel calculates the effective frontier between service and costs. Del Monte runs weekly Monte Carlo simulation models to translate demand volatility to orchestrate demand horizontally (promotions and pricing moves are based on the simulation of market demand with commodity market fluctuations.)

To do this, companies need to start with the goal in mind, and work backwards.  A starting point is determining how many supply chains you have, the goal of each supply chain against the corporate strategy, the trade-offs for each to make these goals, and how to mitigate the supply chain risks.

-OP: OP is about operations. It is not just about the factory or the enterprise.  It is about the network: making the right trade-offs in the network across the processes of deliver, make, and source.   When done right, S&OP planning is also tied to execution.  For example, at a recent WAM Systems conference, Celanese spoke on the translation of trade-offs in S&OP to optimize the manufacturing rhythm wheel (product sequencing) for each of their plants.

A common mistake made in S&OP is to focus only on operations.  Companies that have fallen in this trap feel the greatest need to embellish.

Yes, here we have it.  S&OP:  Letter perfect.  Practice imperfect.

As we see at Cisco and Del Monte, what a difference a few changes can make in improving performance.

This week, I am in New York at the Consumer Goods Technology (CGT) conference and then off to UConnect to moderate a panel on why standards matter.

I look forward to networking with you in my travels.