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2013

I've been writing about the grocery retail industry all day and I'm afraid I've had several more snacks than usual due to the fact that I'm always thinking about all kinds of goodies available at the grocery store. Nevertheless, we shall soldier on until dinner time. In this post, we look at two companies competing in the same industry for the same market share experiencing very different performance on two common financial metrics. It's Safeway versus Supervalu in the Battle of the Grocers. If you haven't already checked out Lora Cecere's post Unilever and Colgate: Two Bookends, I would encourage you to. In it, she takes a similar approach to understanding the CPG space.

 

Here we turn our attention to the grocery industry focusing on five of the largest global players profiled in the table below.

 

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In a typical Supply Chain Insights research report, we systematically work through the four categories we believe matter most when understanding supply chain performance: growth, performance, cycle and complexity. Here, we'll take an abridged version looking briefly at two metrics that especially contrast the performance of Safeway and Supervalu.

 

Here, perhaps, it is important to insert a little disclaimer. We believe that our understanding of supply chain excellence is evolving. As a relatively young discipline, we have evolving, not best practices. Furthermore, the leaders today are not necessarily destined to be the leaders next year. In fact, sometimes leaders stumble and other companies are able to learn from their mistakes without having to repeat the mistakes themselves. Thus, our analysis is not meant to be finger-pointing, but rather a unique look at financial performance that is rarely exposed.


Peer-Group Performance

 

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The table above illustrates average financial performance for the grocery retailers since 2000. The trend is clear: the cash-to-cash cycle is declining, as is operating margin, and revenue per employee is increasing. Although these trends are not truly universal, the majority of companies above demonstrate these patterns. Safeway is the only company to exhibit a growing operating margin; similarly, Supervalu is the only company to report decreasing revenue per employee over the decade. Interestingly, Supervalu also reports the highest average year-over-year growth at 8%. This relationship is examined further in the following section centered upon the growth metric.


Year-over-Year Growth

 

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This level of detail illuminates a clearer story that escaped us previously. Supervalu does have the highest average growth, but demonstrates a high level of fluctuation going from negative growth to double-digit growth and then back to single-digit. Safeway, meanwhile, demonstrates a stable 4% rate, but a decreasing trend from 9% at the beginning of the decade to -3% at the end. I'm not sure either of these patterns is truly enviable. Decreasing growth sure isn't good, but I don't envision many supply chain managers aspiring to wide fluctuations.


Days of Inventory

 

Inventory is another meaningful metric that might help bring more clarity to the grocery situation. The results are shown below.

 

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Overall, the grocery industry seems to be making slow but steady steps in the right direction, reducing inventory in sustainable quantities without large oscillations. Interestingly, Supervalu demonstrates the lowest average over the period, but a climbing trend. Safeway on the other hand has cut 10 days on average out of their inventory. Who would you rather be? Would you like to see increasing inventory at a low starting level or decreasing values from a high point? I'm going to wager a guess most would hope for an improving supply chain (decreasing inventory) regardless of where they started.

 

I know there's much more to the grocery retail story and especially the relationship between Safeway and Supervalu than I've been able to illuminate here. However, I still find the financial conversation enlightening. What lessons do you see in the comparison of Supervalu and Safeway? I'd love to hear from you. You can reach me on Twitter (@indexgirl) or email me directly (abby.mayer@supplychaininsights.com). 

Revenue per employee is one of the most universally meaningful metrics across industry lines. While cross-industry comparison can be full of pitfalls, revenue per employee is a valuable metric cross-industry to understand how different industries do on managing and utilizing their perpetually limited manpower. The graphic below illustrates the rise in revenue per employee across several industries during the rise of supply chain management from its beginnings to the present day.

 

 

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This graphic illustrates the evolution of supply chain management from its hard hat beginning in the 1980s to the present world of social, mobile and big data applications. Along with the technology evolution presented in the figures above, we can also see steadily climbing revenue per employee metrics across the chemical, consumer electronics, consumer packaged goods and food industries.

 

Our research indicates that revenue per employee is a valuable proxy measure for Enterprise Resource Planning (ERP), Advanced Planning Systems (APS) as well as other technology investments that companies have made over the preceding decade. However, these technology investments no longer offer the level of differentiation and process improvement they have in the past. ERP and APS are foundational systems for successful supply chains, but they don't offer the cutting edge analytics packages that will drive success in the next decades. This leads me to wonder if rising revenue per employee is a thing of the past. What do you think?

 

On the other hand, one might argue that increasing robot and automation technology as well as the rise of manufacturing outsourcing, especially in the tech industry will enable ever more increases in revenue per employee. In the figure above, we can see that consumer electronics comprising Apple, Dell, Intel and Motorola records the second highest revenue per employee performance in the most recent time period (2010-2012) driving revenue of $720,000 per employee.

 

What do you think? Have we reached our limits in deriving more performance from our limited employees? Or will companies continue to find ways to grow their performance in revenue per employee? Finally, if everyone's improving at something does it make it less meaningful? Do you think the metric has lost some of its power because of the cross-industry trends of steady growth? Or do the different rates of increase provide valuable lessons at an industry level into the best supply chain practices? I'd love to hear your thoughts.

Supply chain excellence is a common conversation point for supply chain professionals, but I am inclined to say there is little agreement on what the heck we actually mean by "supply chain excellence." Ask 10 people if supply chain excellence is important to their company and they'll say (I hope) "yes," but ask them to each define what they mean by supply chain excellence and I would suggest you won't get one clear, succinct definition.

 

At Supply Chain Insights we are interested in the industry's understanding of supply chain excellence. In both our quantitative survey research as well as our financial metric analysis, we are focused on understanding how different individuals, companies and industries define supply chain excellence.


Survey Results

 

In our annual Voice of the Supply Chain survey, we ask respondents to identify which of the following definitions encompasses their understanding of supply chain excellence. The results from two waves (Spring and Fall 2012) are presented below.

 

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First, it's important to note that our methodology changed during the time period so while respondents were allowed multiple definitions in the spring, they were confined to the one "best" definition in the fall. Regardless of this change, we see that most people understand supply chain excellence as "Right product, right place, right time at the right cost."

 

We believe the most mature definition of supply chain excellence is "A responsive supply chain that can adapt as markets change." As you will see above, this definition garners some votes, but represents a smaller portion of the general population. It will be interesting to see how the understanding of supply chain excellence changes over time.

 

Furthermore, my textbooks in graduate school always defined supply chain excellence in terms of the "rights"- right place, right time, right customer, right cost, etc. I sense that while that definition is still the most popular, the tide is slowly changing towards a more reactive, proactive and non-static supply chain. Do you agree?


Financial Results


Another part of understanding supply chain excellence is the role of financial metrics. I believe that more advanced and mature supply chains consider a different set of financial metrics for measuring their supply chain than a less advanced company. I am still in the midst of the thought process of trying to understand which financial metrics match with which definition of supply chain excellence.


For example, I would suggest that metrics such as on-time delivery or out-of-stocks are closely aligned with the "rights" definition. The cash-to-cash cycle or days of inventory might match with a more flexible and agile definition of supply chain excellence. This is an ongoing project for us and I would love your input. What is your definition of supply chain excellence (in words and in financial metrics)? Do you have any suggestions for matching metrics with word definitions? Where does operating margin or revenue per employee fit in? Let me know.