I interviewed Abby Mayer who discussed Using Financial Metrics in Your Supply Chain
Hi. Thank you, Dustin. My name is Abby Mayer, and I am currently at DSC Logistics, working as a senior supply chain analyst in the Solutions Group. I'll start first by telling you a little bit about myself and my background and really sort of how I got into supply chain.
So, during the summer of 2010, I was working at an internship for a company in the powder [inaudible 00:00:30] in Gillette Wyoming at a coal mining company. I went out to lunch one day with a co-worker, and he informed me that it was a big day at work. We had just signed a large contract with a group of Indian power plants, and we would now be supplying coal to India.
And this was one of the coolest things I had ever heard. So, I tried to ask him more to understand the process, and he didn't know much about it, but he explained that we were mining the coal in Wyoming. We put it on the rail. It went up to the port at Vancouver, and then it would go across to India. And to me, it was so interesting to think about the fact that that was the most cost effective way to obtain electricity in India was coming out of rural Wyoming.
So, out of that experience, I didn't know what that was called at that point, but I knew that that's what I want the to do. So, I did some research. I ended up applying for... I was accepted for a master’s program in the UK. So, I did a 12-month masters in supply chain management from over in England. Then I worked for about two and half years as a research associate with a company called Supply Chain Insight, and I've been with the DSC now in the Solutions Group for about a year and a half.
So, that's a little bit about who I am, where I've been, and how I really got into supply chain.
I think today we really wanted to focus on understanding the metrics, and this is something that I've worked a lot with in both of my jobs, both at Supply Chain Insights and at the DSC. So, I'll talk a little bit about how I've used them in those two different roles and organizations.
At Supply Chain Insights, we were developing something called the supply chain index. And this was our attempt... We wanted to understand how we could measure supply chains using financial metrics. So, looking at financial metrics, in an annual report, you might find... From a pure financial perspective, looking at return on investment, return on invested capital, there's the inventory, you have the payables. And current ratio... So, really, finance-focused metrics.And we wanted to understand if we could compare companies' supply chains based on those financial metrics.
And so, there was a lot of learning involved in this process, something that really had never been done before. But we were looking at these metrics, and then we were trying to see if there was a correlation to market capitalization, and then trying to understand how we could compare.
So, a lot of time was spent trying to delineate, first of all, the right metrics, the meaningful metrics. And then, second of all, the right comparison. So, finding... Proctor and Gamble might be a company. And Proctor and Gamble, we needed to have the right peers, so we needed to look at Unilever or Colgate. So, a company that had a similar background, a similar product mix, a similar size, and try to make those right comparisons, to be able to do an apples to apples comparison.
So, that was really how I was using financial metrics at Supply Chain Insights, primarily the development of the supply chain index.
At DSC, I'm using metrics a little bit differently. So, within the Solutions Group, there are two main projects that we work on. One of those would be network modeling, and the other would be RSP. And so, DSC, we operate about 62 warehouses spread around the US, and we're constantly bidding on new business for companies that are trying to outsource either their warehousing or their transportation component of their business.
And so, as a part of working on those RSPs, we'll develop a solution, we'll develop the pricing, the operational profile, and then we need to do internal gut checks to make sure that we have the right solution designed. And so, we might use some productivity benchmarks to understand if this profile is coming in 100% pallet, and then being put away, what is the right productivity to assume that's going to help us get to the head count, that's going to help us get to the price for that operation.
And so, that's really how we're using metrics within DSC.
I think another piece, a smaller project that I'm involved in is sustainability at DSC. And so, we'll also use metrics there. We track five metrics for each warehouse. Electricity, natural gas, propane, water, and waste tonnage.And so, trying to drive continuous improvement every year, that we're replacing light bulbs, that we're using less electricity, or we're making better decisions about landscaping, and so we're reducing our water consumption. So, that's another piece of where I'm really using metrics in my current role.
In terms of why do I think metrics are important, I think so often, it's really important to first of all measure what's going on in the supply chain. And then second of all, it's important to have a comparison point. If you look at a company, and maybe they're focused on, let's say, inventory management. And so, they start a new project. They have dated inventory at 25 on hand. And through rationalization, through changing ordering patterns, there are able to reduce that down to 12. And that's a pretty drastic improvement.
So, from the outside, that might look like a clear home run. We reduced our inventory by half. We freed up cash within our supply chain. But the thing is, that company may want to compare to what are their competitors holding in terms of inventory? Because if all of the other competitors are holding something closer to 20, and they're having less split orders, they're better able to fulfill those orders when they come in because they have a little more inventory on hand, actually that reduction to 12 is sort of a liability.
And so I really think that it's important to use metrics not only for internal measurement and to track improvement, but also for external benchmarking purposes and comparison. So, it's not just about measuring within a vacuum. You first have to measure and then you have to have a comparison.
In terms of where I've seen the best results, I think in both of my roles, so at both Supply Chain Insights and at DSC, you really have to get that comparison point right. And so, what I mean by that is, for example, and maybe I'll use days of payables here. A lot of companies have been focused recently on the cash to cash cycle. And so, this pre-levers that you can really use to affect your cash-to-cash cycle would be days of inventory, days of payables, and days of receivables. And the larger days of inventory that is, that increases your cash to cash. Some with days of receivables.And days of payables works in the opposite way.
So, if you can get the days of payables longer, you're actually reducing your cash to cash. You're holding on to cash longer, because you're not paying your suppliers.
And so that is important to understand and it can also be dangerous, because it feels like holding payment too long... If you're going from 60 to 75 to 90 days, you're really squeezing your supplies. And especially if they're smaller organizations who don't have a lot of access to liquidity, you're making it difficult for them to do business.
So, if you're only focused on what can I do to improve my cash to cash versus what can I do to improve my supply chain... Because sometimes that might mean holding a lower days of payables and understand that that improves the health of all of your suppliers.
So, I think it's really understand the holistic look, and it's also understanding, like I've mentioned before, I think I'll just say it again, but having the right comparison point. So, if you are a healthcare company, and medical device company, that's doing a lot of case pick in the operation, a lot of each pick in the operation, sending out small LTL and parcel packages, we would never try to compare that operational profile to a food manufacturer that's supplying distribution centers and that's 100% pallet in and 100% pallet out.
So, finding that right comparison point is equally as important as making the measurement.So, tracking the metrics.
I think finally I would just say that I think metrics are very important. Like I said, in both of my roles I've used them a lot. It's a constant process of refining the measurements, making sure everyone is on the same page. So, I think... I was telling a coworker a couple of days ago, when we all use the word inventory turns, we assume that everyone is seeing the same thing, but actually sometimes people have different understandings. So, really the first step is getting on the same page.
So, starting with a pretty basic conversation of, "This is what I mean when I say this word. What do you mean?" Then, starting that measuring.So, starting to measure performance.And then finally the third level really is being able to use those metrics for comparison purposes against applicable peer groups.
I just want to thank you again for inviting me on to participate. And again, my name is Abby Mayer. I'm a senior analyst in the Solutions Group at DSC Logistics. Thank you very much. Bye-bye.
About Abby Mayer
Senior Analyst, Supply Chain Solutions