If it seems like the Supply Chain Index work has been going on forever, that's because it has been. This is a brand new realm of research and we have had many stops and starts over the past two years as we aim to connect the worlds of supply chain and finance. Long time readers will remember the Supply Chain Index work that spanned last summer as we began to study the relationship between supply chain excellence and market capitalization. The goal was to create a simple equation connecting supply chain ratios as independent variables helping to explain stock market performance.
After a brief respite, we are back at it and have enlisted the assistance of Dr. George Runger of Arizona State University along with PhD student Bahar Azarnoush. I spent a bit of time speaking with Dr. Runger last week as he explained his background and summarized the newest work on the Supply Chain Index.
Abby: Hi Dr. Runger, let's start with the basics. Tell us a bit about yourself.
Dr. Runger: Sure, I am a Professor in the School of Computing, Informatics and Decision Systems Engineering at Arizona State University. My research is on real-time monitoring and machine learning methods with a focus on large, complex data sets with applications. I hold degrees in industrial engineering and statistics. In addition to academic work, I was a senior engineer at IBM.
Abby: Great. Can you briefly summarize the work we are doing so that it is accessible to the general supply chain audience?
Dr. Runger: The first task is to understand how consistently a supply chain operates over time. A scatter plot of operating margins and inventory turns quarterly (or yearly) for some companies is quite compact, while for others it is not. Compactness indicates that the supply chain is more consistent or stable over time. In order to compare companies and industries, a measure of compactness is useful. Several measures were considered and evaluated. The total of the distances between all pairs of points in the scatterplot of a company was selected as a simple, but effective measure. The following work is to compare this measure between companies, between industries, and over time to detect trends in the stability of the corresponding supply chains.
Abby: That's right. We're trying to understand the compactness of the pattern of inventory turns and operating margin. Many folks will be familiar with what we call orbit charts that look like the one below.
In this chart, we're looking at two companies, CVS & Walgreen, and their performance on inventory turns and operating margin over the past decade. As you'll see, the Walgreen pattern (orange) is much tighter than CVS which has jumped around a lot over the past decade. We have done a lot of manual pattern recognition, but are now moving to the next level and looking for a numerical way to measure and rank those patterns based upon tightness.
Abby: So, Dr. Runger, we've been looking at this together for just about a month now. What has surprised you the most in our work together?
Dr. Runger: After Supply Chain Insights described their thoughts on supply chain stability, and the related measures of compactness, there was a lot of interest on everyone’s part to calculate the measures, summarize the measures, and generate ideas for additional analyses.
Abby: Yes, this is definitely exploratory work. For every question we answer, we come up with what seems like five new avenues of discovery. Finally, what do you find most important to remember when doing new research projects?
Dr. Runger: Communications are always important. Questions and particularly results need to be communicated clearly. As groups work together, they learn the most important elements and results from an analysis, and that is already occurring, but this always involves good communications.
Abby: Awesome. I agree that communication is key and it can be especially challenging (and thus critical) when combining people with different backgrounds and skills sets. We're glad to be partnered with you and be able to use your expertise to continue our work on the Supply Chain Index.
Readers, what other questions do you have for Dr. Runger? I'll be sure to pass them along and keep you updated as our work continues on the Supply Chain Index.