Over the course of the last two years, we at put into a spreadsheet and compared across industries is meaningless.
In this blog, we share an interview with Dave Biegger, SVP of Campbell Soup. Dave will be speaking on his journey along with other supply chain leaders at the Supply Chain Insights Global Summit in Scottsdale, Arizona on September 10th and 11th. These interviews of supply chain leaders will be collated into our fourth book on supply chain excellence which will publish at our conference in September 2015.
Related: The Supply Chain Index – Improving Strength, Balance and Resiliency
Background on the Supply Chain Index
During the period of 2006-2012, Campbell Soup Company outperformed its peer group on the Supply Chain Index. The Index is a methodology developed by Supply Chain Insights LLC, in cooperation with the Operations Research Team at Arizona State University (ASU), to gauge supply chain improvement. In the Index, corporate progress is calculated on balance, strength and resiliency improvements. The balance factor tracks progress on both year-over-year growth and Return on Invested Capital (ROIC), and the strength factor is based upon improvement in both operating margin and inventory turns. Resiliency is the tightness of the pattern, or the reliability of operating margin and inventory turns results. Together, the three factors form the Supply Chain Index.
The Supply Chain Index methodology is based on three principles. The first is that the supply chain is a complex system that has increasing complexity. It needs to be managed holistically as a system. The second principle is that the supply chain needs to be managed cross-functionally, end-to-end, from the customer’s customer to the supplier’s supplier; and as such, it cannot be viewed as just another function. The third principle is that the supply chain is a significant contributor to corporate performance, and that supply chain improvement can be tracked and measured based upon public financial statements.
Figure 1. Food and Beverage Company Performance on the Supply Chain Index for the Period of 2006-2012
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2012
On July 24th, I interviewed the Campbell team –under the leadership of Dave Biegger, SVP of Global Supply Chain, to gain insights on the Index, and their journey. Dave joined Campbell Soup Company in 2005 after a 24-year career in product supply at Procter & Gamble. Dave asked his team to join him for the discussion. Here are the notes from that discussion:
Through our common platform/postponement initiative, we simplified product designs by eliminating non-value-added flavors or ingredient dice sizes. This also improved the consistency of our product quality, reduced costs and inventory, and enabled improved reliability through the resulting simplified process. This is challenging work because it is highly dependent on cross-functional collaboration. We would not have succeeded without a team effort across R&D, the business leaders, and SC disciplines of engineering, procurement, and manufacturing. This dedicated team of 20, a majority being R&D resources, was self-funded due to its ability to quickly drive savings. Most important about this effort was that we were clear on our principles that quality was more important to us than cost. This meant that every change we made had to result in equal or better quality at equal or lower cost.
In addition to quality, we’ve created capabilities that will support improved customer solutions and enable growth for the business. Flexibility is not just about asset rationalization, but also about unleashing growth in different product formats, packaging sizes, etc. It’s not just flexibility within the line, but across the entire production system. After five years, we’ve nearly completed implementation of our simplification effort, Soup Common Platform, which consisted of three phases:
We started these improvement efforts in the center of the supply chain with an emphasis on building manufacturing capability, reliability and flexibility. We now have the ability to focus more on materials management and suppliers upstream, and distribution and customer solutions downstream, to drive optimization. While we are nearing the end of our work on the Soup Common Platform, we continue to focus on strengthening relationships and ensuring greater cooperation with our suppliers and customers.
Were there any improvement efforts that did not go well?
One of our opportunity areas was to improve our planning processes and make the proper investment in Advanced Planning Systems. We needed to make the investment because our system was aging and we wanted to invest in a way that supported our demand-driven agenda. However, we simply attempted to do too much too fast, expecting we could quickly move ahead with integrated planning. S&OP also presented challenges, but we have since changed to a more structured approach to drive greater business ownership. While the implementation was a challenge overall, we’ve moved beyond it.
Over the last year, we focused on ensuring that our systems and tools were delivering as expected. On the S&OP side, we haven’t done anything that’s drastically different from all the textbooks. Where we’ve put particular emphasis and made a step change was in adapting the culture to have a shared understanding of how we run the business. S&OP success depends on a strong culture that supports a cross-functional process. We have a good cooperative effort and understanding from marketing, sales and supply chain on how to make decisions that ensure the success of S&OP. We continually reinforce this within our culture, as well as maintain ongoing process improvement.
Why do you think Campbell will fall on Index ratings in the future?
We had about seven consecutive years of constant improvement in our supply chain at Campbell, across virtually every result area. While I was surprised to see us at the top of the list for that period knowing there are so many strong supply chain organizations in our industry, it also matched what we had been experiencing with all of the results improvements we had delivered. Assuming the measure is generally effective at recognizing improvement, I have to assume we will fall on the list over the next few years. Some of the decline in ranking will be due to the issues I mentioned above with the planning system implementation and the impact that had on results. The bigger impact will come from a conscious choice we made. As part of our Network Optimization program, we consolidated our supply chain network in the U.S last year. While the driver for this move was excess capacity, as well as a compelling cost savings benefit, we also knew there would be a two-year hit on our inventory performance until the flexibility was created at other sites to allow the inventory levels to fall and resume the improvement trend we had been following. Finally, we all understand that margin is not fully controlled within supply chain. We have two things that have challenged margins recently at Campbell:
As we move past some of the challenges we had over the past year or two, and return to the inventory improvement path we had been delivering, I expect that we will see solid improvement in Index ratings.
If you had to do it all over again, what would you do differently?
We have enjoyed excellent results over most of the last several years, but there are a few things I would change if we could go back. We tried to do too much too fast. As a team, we committed to implementing demand planning and supply network planning all within the same year, followed by inventory optimization and demand sensing. We also underestimated the organizational investment it would take to achieve our desired results. In the end, we experienced important learnings, built critical capabilities, and will now be able to generate more results improvements in the future because of that effort. More broadly, we could have been more balanced in our approach to integrating an already aggressive supply chain agenda with a rapidly increasing product innovation agenda.
Despite some of our recent challenges, we feel very good about the contributions that the supply chain team has made at Campbell for a meaningful stretch of time. Without a longer-term vision, and a willingness to take risks by embracing big opportunities and committing to big results improvements, we would have only made incremental progress. If I had to simplify what has been most important for us, I would say the two keys have been people (leadership) and an integrated approach. It’s no surprise that strong leadership and great people make the difference, especially when the organization is engaged and collaborating both within the supply chain and across all other functions. The power of an integrated approach, connecting multiple complex improvement efforts, has clearly driven much stronger results progress than we would have seen from independently driven initiatives, even if all had been successful individually.
Conclusion:
Figure 2. Supply Chain Index Rankings for 2006-2013
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2013
As we can see in Figure 2, the impact of Campbell’s aggressive supply chain projects in 2012-2013, in conjunction with some changes in the business, as Dave predicted, had a deleterious impact on Campbell’s rankings on the Supply Chain Index.
The good news is that the team was aware of the results and feel that they have righted the ship in 2014. The lessons of the team in the trials and tribulation of building supply chain excellence apply to all. It takes many years to build a culture to improve supply chain excellence, and many well-intended technology or plant design projects can quickly take a supply chain team off guard. Luckily for Campbell, this supply chain team had the right stuff to self-correct and put the supply chain back on course.
We look forward to getting your thoughts on the Supply Chain Index.
Additionally, at our Supply Chain Insights Global Summit on September 10th and 11th, we will publish the results for all industries for the periods of 2006-2013 and 2009-2013 in a report, The Supply Chains That We Admire. The Supply Chains That We Admire report will have a detailed analysis, by industry, on supply chain performance on operating margin, inventory turns and ROIC, along with the analysis of year-over-year improvement. It will also include some analysis of companies like Campbell Soup that are willing to share their stories.
I have found it quite exciting to look deeply at the results of all public companies over these periods and reflect back on the work that I have done with many of them over my 12 years as an analyst. I firmly believe that supply chain matters to corporate performance, and I am proud that I can now tell the story. I had a call this morning with a group of financial investors that are adopting the Supply Chain Index in their rankings, and Supply Chain Management Review (and Supply Chain 24/7) in the fall will feature a monthly article on industry sector results. We look forward to connecting with you and your team as the concepts take hold.
About the Author
Lora Cecere is the Founder and CEO of Supply Chain Insights, the research firm that’s paving new directions in building thought-leading supply chain research. She is also the author of the enterprise software blog Supply Chain Shaman. The blog focuses on the use of enterprise applications to drive supply chain excellence. Her book, Bricks Matter, was published in December of 2012.