November 18, 2004

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Click here to see performance over the past week, month, quarter and year >>



What a difference a week makes. Only Peoplesoft (a $2.40 per share gainer last week) was a loser this week, down $.52 per share. i2 was flat at $.65 per share. All others posted decent gains. Ariba led the gainers, up $1.62 per share. After a gain of $1.37 last week, SAP is up another $1.21 this week. SAP is up more than 16% over the past year, by far the biggest gainer in this group. While the Ariba stock price is up more than 100% for the past quarter, the stock's price remains 20+% down from one year ago.

Seven of our Transportation and 3PL providers posted gains over the past week. Leading the group is FedEx, up $3.43 per share. Following are UPS (up $2.79), Prologis (up $2.15), Manhattan (up $1.58) and Ryder (up $1.43). The declining stocks, JB Hunt, Vastera and Descartes experienced losses of $.15 per share or less. Over the past year, the biggest gainer is Ryder, up more than 85%. Vastera, with a stock price decline of 66%, is the biggest 12 month loser in this group.

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Dan Gilmore

What makes a supply chain great?

The trigger for asking this question is a fresh report from AMR Research that lists what the Boston-based research firm identifies as the world’s top 25 supply chains. Their criteria? A combination of three key financial metrics (return on assets, inventory turns, and top line revenue growth), plus the input of their own analysts based on which companies were most aligned with its view of creating “demand-driven supply networks.”

At the top, the leaders were mostly the usual suspects, with the top five as follows (the full list is available at the link above):

1. Dell
2. Nokia
3. Procter & Gamble
4. IBM
5. Wal-Mart

Which got me thinking about how to define a great supply chain - and how you should really know if you’ve got one.

To help me with that question, I decided to ask a few expert friends in the industry. Ralph Drayer, former chief logistics officer at Procter & Gamble, agreed with AMR’s perspective that measuring perfect order performance is a key place to start. “The perfect order is really the best forensic we have to understand the supply chain,” Ralph said, “because it looks at performance from a customer perspective. You focus on that, then drive efficiencies back into the supply chain to enable the company to satisfy the customer at the lowest possible cost.” He believed that key metrics to consider include return on assets, total delivered costs, cycle time, and cash-to-cash cycle.

Dr. Jim Tompkins, of Tompkins Associates, focused on two dimensions of supply chain greatness: process and results. He suggests that process “health” is defined by such attributes as forecast accuracy, the level of visibility (minimizing surprises), having a truly global perspective, and continuous operational improvement. Key results or outputs include measures of customer satisfaction, increased return on assets, increased speed (increased responsiveness and reduced lead times), and increased profits (reduced costs).

Finally, I talked to Gene Tyndall, current partner at the consulting firm Supply Chain Executive Advisors and also a monthly SCDigest columnist. Gene believes the number one characteristic that defines a great supply chain is “the degree to which the supply chains are aligned with, and enable, the overall business strategies. When, for example, the executive agenda includes Profitable Growth, or penetration into new markets, or launching new products, etc., ... then the question must be how well the supply chains are enabling the attainment of these goals.” He adds that “While [various supply chain metrics] measure supply chain performance via processes, as AMR points out, there are other measures more intangible yet equally important, such as talent, innovation, and culture. Being "great" is more than metrics, it involves and translates into industry leadership, sometimes dominance, and above all, great places to work!” (Click here to see Gene Tyndall’s complete comments on this topic.)

Good thoughts from all. I do think that, as all three of our experts suggested to me, in addition to the traditional supply chain measures cited by AMR, a great supply chain has to be defined by customer satisfaction (for which perfect order is a useful but incomplete proxy), and the level of continuous improvement. We talked about the difference between customer service and true customer satisfaction on these pages a few weeks ago, (Click here for SCDigest archive) and as every supply chain has different structures and objectives that can make cross company comparisons difficult (for example, in general moving to an offshore model will reduce unit costs and hopefully total supply chain costs but decrease inventory turns), perhaps the best measure of a great supply chain is the level of improvement it can drive year after year. That’s one thing that certainly defines companies such as Dell and P&G.

What do you believe defines a great supply chain? What are the key metrics? What companies do you think should be on a “top 25” list?  Let us know your thoughts.

Best Buy Tries Aggressive Strategy to Segment Customers By Profitability

Supply Management and Financial Responsibility

Annual Study Finds Disconnects Between Supply Chain, Corporate Strategy

Summary and comment below.


Audio Interviews with Leading Supply Chain Experts

This Week's topic:

RFID in Manufacturing

  Guest:  John Hill, ESYNC

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The Five Keys to High Performance Global Commerce Management

By Ned Blinick, Vice President
Blinco Systems

Global Commerce Management (GCM) manages both Asset and Non-Asset based manufacturing and distribution across international boundaries to meet the demand and financial requirements of the organization.

GCM requires the ability to manage complex supply chain networks across multiple geographies, multiple locations and multiple manufacturing, distribution and logistics moves.

Effective GCM requires that organizations support people, process, and constraints - imposed by disparate supplier companies, cultural barriers, time zones, extended physical locations, customs and security concerns, currencies, modes of transportation - in a highly integrated and synchronized information environment. Mismanaging any of the processes or constraints impairs the organization’s financial objectives and its returns to its stakeholders ...

Click Here to view the full column.


While the manufacturing sector’s share of U.S. GDP has remained relatively constant between 1950 and today (varying between 16 and 19% of GDP), its share of employments has dropped dramatically. Guess what the percent of manufacturing-related workers was in 1950 and in 2002.   Answer below

Agree or Disagree? Have a Perspective to Share with Your Peers?

Feedback is coming in at a rate greater than we can publish it – thanks for your response.

We received relatively moderate feedback on our First Thoughts piece two weeks ago on “visibility” (Does Your Supply Chain Need Glasses?”). We were a little surprised the volume wasn’t greater on this provocative subject. Below, you’ll find our Feedback of the Week on supply chain visibility from Dr. Mark Barratt of Arizona St. University, as well as several other responses.

For more complete comments from readers, click here.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics.




Best Buy Uses New Customer Analysis and Segmentation Strategy

Fascinating article in the Wall Street Journal about how retail electronics giant Best Buy is adopting strategies based on research by a Columbia Business School professor that focus the merchant on catering to high profit customers – and “firing” customers that lose it money.

The notion of analyzing custom profitability and adopting strategies to either shed ones deemed unprofitable or change pricing, services or policies to improve their economics has been around for awhile – though few companies have had the guts to actually execute such strategies. Those that have, generally are manufacturers or distributors, who in most cases can simply cut off unprofitable customers/channels if they want. It’s quite another thing for a retailer to do so, given retail price transparency, generally homogeneous service policies, and open door access to all customers.

And what is an unprofitable retail customer anyways? Well, for Best Buy anyways, they are “devils” – defined as customers who “buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts. They load up on “loss leaders,” severely discounted merchandise designed to boost store traffic, then flip the goods at a profit on eBay. They slap down rock-bottom price quotes on Web sites and demand that Best Buy make good on its lowest-price pledge.”

Enter Best Buy CEO Brad Anderson, who was smitten by the theories of Columbia professor Larry Selden, whose research has shown unprofitable customers can wreak havoc on a customer’s bottom line and stock price. Despite resistance from his leadership team, CEO Anderson has forced through changes that cater to the most profitable customers and discourage the devils.

Five distinct highly profitable customer segments were identified (e.g., upper income men, suburban women, technology lovers), and pilot stores adopted specific merchandising strategies and sales associate training programs to cater to two of them, depending on the store’s local demographics. Meanwhile, Best Buy also started new restocking fees on returns, ended relationships with many shopping Web, started selling returned merchandise only over the web, not in the same store where it was returned, policies all designed to thwart the devils.

It’s a high-risk strategy, given the possibility for bad PR, loss of some chain-wide efficiencies, and overhead costs that run 1-2% higher at pilot stores. But, Best Buy is rolling out the strategy across the entire chain.

I should have been a more aggressive buyer of that flat screen TV last year.

As always, we can’t provide a direct link to Wall Street Journal articles, but will be happy to send a copy if you email us via the Feedback button below.

Is shedding unprofitable customers a winning strategy? Does your company know what customers are profitable or not, let alone do anything about it? What do you think of Best Buy’s strategy? Let us know your thoughts.

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Tips from ISM for Managing Supply Management with Fiscal Responsibility

View Full Article >>

Article in this month’s Journal of Supply Management on one of the Seven Principles for Social Responsibility published by the Institute for Supply Management earlier this year.

The article and the principle mostly focuses on common sense and basic good business practices, but we found a few observations and examples worth noting:

The single most important responsibility supply managers have is to align its efforts around the company’s overall strategic plans. It’s easy to lose sight of that on a day-to-day basis.

Remembering that the best price frequently does not equal the best value. Over focus on price can hurt the organization in the long run.
The example of copper producer Phelps Dodge, which recently revamped its supply chain processes. To begin, Phelps Dodge went to every location and reviewed how processes were actually being performed versus what was on paper – surprise! There was usually a big gap. The company ultimately standardized on process corporate wide, made supply management a key control mechanism of company operations, developed enhanced financial models for the financial supply chain (“what if” capability), and implemented highly visible “red bar charts” that measure a variety of supply chain metrics against corporate goals. As a Phelps Dodge supply chain executive said: “You are either above the bar or you are below it.”
The need for the supply chain organization and the finance organization to work together as true partners. “Finance can come in as the objective third party.”
Ensure vendors are also practicing financial responsibility. As one observer said: “If my supplier expects me to pay on time, surely I expect them to do the same right down the line.”

How many companies really have as simple but effective visible metrics as an “above the line/below the line” performance measurement system? Should more companies care about the financial responsibility of the suppliers? Let us know your thoughts.

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Study Finds Linking of Supply Chain with Corporate Strategy, Collaboration are Weak Links

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Supply Chain Management Review and Computer Sciences Corp. (CSC) just released its second annual “Survey of Supply Chain Progress,” based on responses from over 200 companies across the globe.

There’s not a lot of commentary or insight here, mostly just the survey results. Here are some of the most interesting data points:

Very few companies rated their results from any supply chain initiative (among a wide variety of choices) as being “highly successful.”

No surprise, but the two most important factors cited for the success of supply chain initiatives were senior management support, and the alignment of project metrics and desired outcomes.
Only 12% of respondents said they had supply chain strategies shared and in common with trading partners.
Only 25% said their supply chain strategy was integrated into their company’s business strategy.
21% said their company was a supply chain leader; 36% said they were laggards.
The number one area for supply chain investment over the next three years was logistics, transportation and distribution. Manufacturing was the lowest area cited.
The top two areas for supply chain improvement were collaboration with trading partners and internal collaboration.

The report summary concludes: “Perhaps the most important insight from the survey is that the real business benefit of advanced supply chain management remains untapped.” Think that is hard to argue with, despite great progress by many.

What percentage of supply chain projects do you think are “highly successful?” Why is the percentage so low? What does it take to well integrate supply chain strategy with business strategy? Let us know your thoughts.

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Feedback of the Week - On "supply chain visibility":

I think you are absolutely spot on with your comment that visibility is so often talked about and yet is so little understood. To my way of thinking - visibility is having knowledge of customer demand, inventory levels, customer and supplier decisions and processes. Now I don’t think that we will ever get complete visibility because companies in the supply chain are worried about their customer gaining visibility of their cost structures.

The focus here in academia has been almost exclusively on how and whether visibility (from information sharing) can overcome the "Bullwhip" or "Forrester" effect (1957). What we seem to lack is an understanding of how companies gain visibility and once they have it how they use it to improve their own performance, either in better service performance or cost reduction. I believe that one route to visibility is through collaboration, but this is obviously a concept that we still understand so little about. Too often I hear executives talking about a lack of trust and that is more apparent within their own organizations.

So we have two major challenges in terms of benefiting from visibility: (1) Information sharing is great and needs to be encouraged, but can only happen when there is collaboration and trust building; and (2) We need to understand what information should/could be shared - too often the information shared is not useable or in a format that negates its benefit.

Dr. Mark Barratt, BA PhD MILT
Department of Supply Chain Management
Arizona State University

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More On "supply chain visibility":

Interestingly, I was asked that question just this morning by students in a supply chain introduction class at the FedEx School of Supply Chain Management at the University of Memphis.

I think you answered the larger question regarding definition with your closing thoughts that I have refined as follows and used in practice and teaching for several years and responded to them as follows:

Visibility is all about providing actionable information in a timely manner that enables both suppliers and users of supply chains to make improved decisions for the mutual benefit of the enterprise.

I went on to talk about the fact that, in actual practice it is hugely more complex, but let’s at least start with the simpler purpose or definition so we know where we are going and track our progress to the goal.

James Nelson
Advanced Logistics Solutions

In response to supply chain visibility and whether there are service or ROI benefits...there can clearly be both, but only if the visibility leads to improved forecasting and shorter cycle times. This has a real
payoff in hard cash and improved service.

Imagine retailer, manufacturer, supplier, and 3PL provider (warehouse and transportation) all working from the same real time consumer and inventory data. As an analogy, think about delays at traffic lights today. The light turns green and one car at a time starts up and travels through the intersection, waiting for the car in front of them to start. Imagine if everyone saw the light turn green at the same time, reacted to the information, and slowly started their cars forward simultaneously. The result would be a vast improvement in "throughput" through the intersection ROI), with fewer frustrated drivers (service).

Net, if consumer movement and total supply chain inventory data were completely visible to all supply network partners, and all partners acted upon the data...both ROI and service improvements are possible.

Lamar Johnson
Director North America Customer/Services Logistics
P&G (Retired)

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On the transportation crunch:

Your list of ways to manage the transportation crunch missed an important opportunity: to get more on the trucks that are shipped. Simply put, lots of companies are not filling up trucks. A recent analysis of some very well run companies identified opportunities to increase shipment sizes from 5% and 25%. These increases were quickly realized on shipments from suppliers to plants and plants to DC's. Customer shipments will ultimately be increased as terms of sale are changed.

Of course, it becomes harder to load heavier shipments and still get the axle weights right. And fitting more cubic feet of product can be a complex jigsaw puzzle -- sometimes hampered by poorly stacked mixed pallets. Smart companies are looking to software to guide the pickers and loaders to make loads legal, safe and damage free.

Thomas A. Moore
Warehouse Optimization

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While the manufacturing sector’s share of U.S. GDP has remained relatively constant between 1950 and today (varying between 16 and 19% of GDP), its share of employments has dropped dramatically. Guess what the percent of manufacturing-related workers was in 1950 and in 2002.


1950 – 32% of all workers (includes white collar), 2002 – 11.5%, according to the U.S. Department of Commerce.

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