Supply Chain Metrics That Matter: Improving Supply Chain Resiliency

Ask any supply chain leader which metrics are the most important to deliver, and the most common answers are operating margin, inventory turns, and revenue growth.

In our plotting of industry results for the Supply Chain Metrics That Matter reports, we could see that certain industries had greater variation at the intersection of operating margin and inventory turns than others. We wanted to know why.

The supply chain is a complex system. It is growing even more so. Supply chain leaders are charged to deliver reliable results on The Effective Frontier for costs and inventory cycles. Failure to do so can result in termination.

The Effective Frontier is represented by Growth, Profitability, Cycle, and Complexity.

It is a juggling act. There are finite trade-offs and the metrics are interrelated. Each company is operating at a different potential. A new technology can elevate the frontier and improve the company’s ability to operate at a higher level of performance. Often when companies attempt to drive down costs they will elevate inventory. When complexity increases, it can have an adverse effect on both operating margin and inventory turns. It is a continuous balancing act which has been made easier through the evolution of Advanced Planning Systems (APS).

Research Overview

• Report Details: This report is based on analysis of financial balance sheet and income statement data for the period of 2000-2013 as available and cooperative research conducted with Arizona State University.
• Objective: To determine a resiliency ranking for companies based upon their performance balancing inventory turns and operating margin over the period 2000-2013 as available.
• Hypothesis: The resiliency ranking explains the tightness of the pattern of performance at the intersection of inventory turns and operating margin. Companies with lower values display a tighter pattern and more resiliency and consistency in results. Companies should take a long term perspective on managing performance of their resiliency ranking at the intersection of inventory turns and operating margin.