The basis of our Supply Chain Index work, as well our benchmarking, lies in financial metrics.The raw data is pulled from annual reports and 10-Ks for all public companies. From the raw data, we calculate ratios which we then utilize in our research efforts. Ratios enable us to compare a wide variety of companies on a level playing field. We consider companies of all different sizes (as measured by both revenue and employee). Ratios allow us to easily work across different currencies.

 

Over the past two and a half years, we have refined our methodology to focus on financial metrics, and more specifically ratios. While we believe objective financial measures provide a superior jumping-off point for supply chain leaders to understand performance, it is not perfect. In fact, there are several problems which deserve some attention.


Seasonality

 

Different companies define fiscal years differently. One company's version of FY 2014 may be very different from another. For example, many companies operate from January 1 to December 31. Others may operate from April 1 to March 31 or October 1 to September 30. Thus, FY 2014 does not always include the same time period for all companies. A natural disaster that occurs in March may fall in two different FYs for competing companies. Comparison of the impact of those sorts of events can be difficult.

 

In addition, quarterly reports indicate the state of the business at four different points in time. The reality of operations between reporting dates may vary significantly from what is recorded on the page.


Revisions

 

Revisions are a reality. Many companies will adjust their reporting numbers and release revised results in a future quarter that more accurately portray the financial reality. It is important to go back and catch revisions as often as we can to get a more accurate picture of the company's performance.

 

What other problems do you see with a methodology based on financial results? Unfortunately, it is imperfect; but for the time being, I think it's the best we have. Let me know what you think.