Does supply chain matter? I think so.
In this blog, I want to convince you that it does.
In preparation for writing the book Bricks Matter, my co-author, Charlie Chase, and I interviewed 75 supply chain leaders. When asked, Who does supply chain best? Procter & Gamble got the most mentions. P&G was mentioned 38% of the time, Apple was mentioned 21% of the time, and Dell was mentioned in 17% of the interviews.
I am a firm believer that you cannot determine supply chain excellence by putting all industries into a spreadsheet and shaking them up or by only looking at one year snapshots. I believe that it takes at least three years to make a substantial change in the supply chain and that supply chains can only be compared within peer groups. <As a result, I strongly disagree with some of the methodologies in the market.>
To make the story in the book compelling, we wanted to tie supply chain excellence to balance sheet performance. We worked to get financial data over the past 20 years. We tried to look at correlations of different sets of supply chain balance sheet metrics to supply chain maturity, economic factors and market valuations. We could not find a correlation. <While I think that there is a correlation there, I think that I need more data. This is future work; but for right now, I have to get this book to press.>
In essence, with the data that we have, the results of supply chain leaders are masked by higher impact results from R&D and marketing. We have not been able to find a way to isolate the impact of supply chain leadership as a primary driver on the market value of the company.
However, as I was scrubbing and analyzing the numbers, a quote by Keith Harrison, leader of Global Product Supply at P&G ran through my head. P&G was an early leader in the design of the supply chain organization. In 1985, the company moved source, make and deliver teams to a single reporting relationship through one common organization globally. Keith led the Global Product Supply Group during the period of 2001-2011. The largest team at P&G was product supply. Keith stated in the interview that, “As technology matured, the possible span of control of a manager increased. …technology enabled the effective management of larger teams.”
Currently, 78,000 of the 127,000 employees in the P&G Company work across the Product Supply organization. While they are ultimately
accountable to the Product Supply Organization, they report in a matrix’d organization to the Business leaders in the region. In his prior position, Keith presided over the strategy development, identification of breakthrough objectives and talent development/rotation. He has now retired.
I have run a number of charts on the companies in this chart over the course of the last 20 years: revenue/employee, Earnings before Interest and Taxes/employee, IT investment, and overlaid other metrics and compared the performance of these consumer products leaders to leaders in the chemical industry, pulp and paper, and high tech and electronics. Bottom line: I cannot find another industry where an industry leader was able to pace themselves so far ahead of their peers in year over year results on revenue/employee or EBIT/employee.
P&G’s story does not end there. Their success was not 2-dimensional. Their leaders were primarily engineers. In conversations, they clearly understood that the supply chain was a system and that there were innate trade-offs resulting from supply chain decisions. They pushed the effective frontier of their supply chain on many fronts. The many graphs that I could show of P&G versus their competitors in this industry show that in this period of time, P&G outperformed their peer group on successful new product introductions (Nielsen and Symphony IRI data), retailer ratings of supply chain satisfaction (Cannondale ratings on Supply Chain Satisfaction by Retailers (now Kantor Retail)) , days of inventory (DOI) and Days of Working Capital (DWC). Bottomline. I think that supply chain does matter and that P&G led the way for the development of many practices like demand-driven value networks, open innovation, top-to-top meetings and corporate social responsibility. No, they are not perfect, but as I end my analysis for my book, I have to tip my hat to the P&G team as being the best example that I can find of why supply chain matters.
These are complex organizations, and each defined their supply chain organizations differently. I have worked for over seven years with these four companies. While many of the stories are sealed in NDAs and promises of confidentiality, here I share public domain insights surrounding this graph, that I think made a difference:
- Definition of Global: In this period, companies within the Consumer Products industry defined the term GLOBAL very differently. They were not aware of their choices. For many it just evolved. P&G moved quickly to build a global organization with a strong vision of global planning for local execution. They defined a matrix’d organization where global teams set standards and teams were trained to a common set of standards. While other companies had a global product footprint, and put strong energies into opening global channels, the organizational design for the supply chain team was quite different. For companies like Colgate, Johnson & Johnson (J&J) and Unilever, the organization had a strong regional bias. In these companies, the regional teams had a strong amount of autonomy. Kimberly-Clark was slow to create a global organization; and when they did, it was primarily regional (North America and Europe).
- Supply Chain Organization Definition: P&G was an early mover to consolidate make, source and deliver into a common organization. In all of the other organizations, in the chart above, there was strong functional and regional autonomy. During the period of 1985-2008, they were the only organization on the chart to have these supply functions reporting to one common global leader.
- Technology Selection: Each of the companies also selected and adopted technology differently. While Colgate consolidated on a SAP strategy, Unilever allowed the regions to select their own technologies. Unilever had lots of small projects with each region doing their own thing. In this period, Procter & Gamble was consistently an early adopter of technology. They funded corporate development efforts and often worked with small vendors to drive innovation.
It is late…time to finish the book.
There are more snippets to come in the next couple of weeks as I get ready to push the manuscript to the printer. I think supply chain matters. Have I convinced you?
Tomorrow, I will be writing about S&OP HANA product release and my upcoming trip to the SAP Insider Conference in Orlando. Will I see you there?