supply chain insights

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.


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….


by Lora Cecere on May 30, 2014 · 0 comments

Mush is a thick cornmeal pudding boiled in water or milk. It sits until the gel forms a semisolid state. In the United States, we lick it up with maple syrup or molasses, while in Eastern Europe it is served cold. It is a tasteless, innocuous food with little form or satisfaction.

Mush in the Real World

Last week, the Gartner Top 25 was announced with great fanfare. The announcement marks a decade of Gartner Top 25 annual lists. I hope that it is the last one. My reason? It is just mush. I find the Gartner Top 25 to be a muddled methodology that is boiled and allowed to congeal into a bland product with little use.

Here, I would like to share my thoughts…

The good thing about the Gartner Top 25 was that it highlighted the need for a measuring stick. Supply chain leaders are competitive and they want to measure their success. They want to do well, and they are eager to have an objective measure. However, here are my concerns:

1. Meaningless Comparison. The first, and my major issue with the Gartner Top 25 methodology, is that it attempts to compare all companies in a spreadsheet. I just don’t think the comparison of very different industries in a spreadsheet based on growth, inventory values, and Return on Assets (ROA) is meaningful.  The methodology unfairly favors companies that do not have assets. It is for this reason that the high-tech sector and franchise businesses do well on the methodology. The reason why? They have shed their assets. In many businesses, assets are a core part of the supply chain. Take the chemical industry. I like what BASF has accomplished, but they will never make the top listing on the Gartner Top 25. The reason is that as a chemical company, they must run assets, and the methodology penalizes companies with deep asset strategies. To be valid, I believe that companies must be compared within a peer group.

2. It Should Not Be a Beauty Pageant. For five of the past ten years, I voted on the Top 25 when I was an analyst at AMR Research (before the acquisition of AMR Research by Gartner). The more work that I do on trying to understand corporate balance sheet information and the connection to supply chain excellence, the more I realize how unqualified I was to vote.

Fifty percent of the Gartner ranking is based on opinion. It is both the opinion of analysts and peers. When I voted then, I never felt qualified. I am even more convinced now that my vote was irrelevant. The environment for the analyst is worse today. Over the past decade, companies have lobbied the Gartner analysts for higher scores. Public Relations firms have mounted campaigns. I think that the discussion on supply chain excellence should be a data-driven discussion.

3. It Should Be More Applicable. The Gartner Top 25 methodology is focused on very large companies. There is no methodology in the market today that applies to companies that do not qualify for the Global 1000. I feel that there needs to be a methodology that is applicable to the greater market.

4. The Supply Chain Is a Complex System with Increasing Complexity. As a result, the metrics have to be viewed together as a pattern over time. I think that the duration of time in the Gartner Top 25 is too short to measure tangible results. In summary, supply chain progress takes patience and discipline over many years. In the journey, the supply chain leader needs to improve the potential of a portfolio of metrics. The metrics of growth, Return on Invested Capital, Inventory Turns and Operating Margin have the highest correlation to market capitalization. I find value in looking at these metrics together. Managing the supply chain is about trade-offs. These metrics are inter-related and the relationships are not linear.

5. Can We Really Determine Who Does It Best? The methodology attempts to understand and identify the “best supply chain.” I question this as a goal. Instead, I think that our goal should be to measure improvement. I think that the “best supply chain” is based on business strategy and as such, cannot be measured. (e.g.,  What is good for one company may not be right for another.) However, I do think that we can measure supply chain improvement by looking at balance sheet data.

Let me give you an example to explain my point. I am training for a triathlon. It is a small one: an Olympic format in December where I will swim .7 miles, bike 22 miles,  and run a 10K. I am no spring chicken. As an overweight lady of sixty, I will never post the scores of a Lance Armstrong.  Yes, you got it. We are at very different levels of potential. His is very high and mine is very low.

Measurement is possible in athletic endeavors independent of performance level. I can measure if I am getting better, and Lance can measure if his training is making him better. We can measure the impact of our workouts on the output of heart rate recovery, calories burned, BMI, ratings on our power meter on the bike, and cadence. Day-by-day we both can see progress on strength, balance and endurance. I wanted to do the same thing for the supply chain leader.

Today, it is tough for a supply chain team to assess if they are getting better. They work hard, but the balance sheet data is so complicated, that it is hard to see if they are making progress.

It is for this reason that we are busy at work on the Supply Chain Index.

What is the Supply Chain Index?

Figure 1.


Figure 2.

It is our attempt at Supply Chain Insights to change the discussion to be a data-driven dialogue on supply chain improvement. For the last three years, we have been plotting corporate financial data and studying the trends. This culminated over the course of the last four months into a methodology that we developed along with the Operations Research team at Arizona State University. They applied the right mathematical techniques to read the patterns to see if supply chains are more balanced (greater progress at the intersection of growth and Return on Invested Capital), making improvements (getting stronger at the intersection of operating margin and inventory turns), and if they are resilient (a tight predictable pattern with reliable year-over-year results). The larger the value for balance and strength in the two tables the better, and the smaller the number on resiliency the better.

We have defined the Supply Chain Index methodology in a recent report, along with a separate report on Supply Chain Resiliency. Over the course of the summer, we will be taking a closer look at industries within each value chain. We will be plotting their progress for the period of 2006-2012.

In June, we will publish the results on the consumer value chain. Our focus in July will be on the healthcare value chain, and in August it will turn to the industrial value chain. In the preparation of the reports, we will be interviewing companies that are making more progress than their peers. After we finish all of the data collection and publish the reports, we will ask the members of the Shaman’s Circle to vote, and then we’ll publish the companies that we most admire based on their progress on improving performance. (The Shaman’s Circle votes will count 10% on the final rankings.)

Applying the Supply Chain Index 

For example, let’s take the food and beverage industry that is outlined in figure 1. Campbell’s Soup, Hershey, and General Mills rise to the top. (Compare the gaps between General Mills and Kellogg or Hershey and Kraft. No one can argue that they are making more progress.)

In general, we find that the trends within an industry are greater than we could have ever imagined, and that smaller companies are making progress at a faster rate than larger ones. Value networks that are less dependent on oil are making less progress than those that are oil dependent. Companies that adopt new business models are outpacing peers. In addition, companies with consistent leadership have a more positive trend.


So, as the blogs, tweets, and articles flow from the Gartner conference, I sit back and look at the meaningless mush.  I think that supply chain leaders need a more data-driven, meaningful and applicable methodology. I want to help. I would love to hear your thoughts on what we are doing.

As for the Gartner 25, I say, “Mush, Mush, Mush.”  This is a term that is used in sled dog races to run fast. I hope that it goes away quickly. Supply chain is too important to be measured simplistically.

To hear more about the Supply Chain Index, and the relative improvements of companies for the periods of 2000-2012, 2006-2012, and 2008-2012, join our summer webinar series:

  • June 12th at 11:00 AM on Consumer Value Chains to review the progress in retail, consumer packaged goods, food and beverage and chemical companies
  • July 17th at 11:00 AM on Healthcare Value Chains to review the progress in hospital, medical device, and pharmaceutical supply chains.
  • August 12th at 11:00 AM Industrial Value Chains the review of semi-conductor, industrial manufacturing, automotive supply chains, B2B communication equipment, and high-tech/electronics

Also, we are starting to tie quantitative data to financial data. One of our first attempts is to tie the quantitative data from the Supply Chain Planning survey to the progress on the Supply Chain Index. The gloves are off. We think that it is time to tie quantitative data to choices in corporate technology investments. Unlike other analyst firms, we can call a spade a spade. We are independent and data driven. We will be doing this for the first time in this survey. We would love your input.

As with all of our surveys, all responses are kept confidential. And, if you participate, we will be glad to give your team an one hour overview of the data with a custom cut of the Supply Chain Index. The summary results will be published in our June newsletter.

We want to help you and your team get to the next level of performance. We know that discipline and perseverance pays off. <I hope that it does for me also. Will I see you at the finish line at Key West when I finish my first Olympic triathlon?>