sc digest
August 4, 2016 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet Inventory Performance 2016 bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Continues bullet Trivia      bullet Feedback
bullet Expert Insight Columns bullet New On Demand Videocast

first thought


Supply Chain Graphic of the Week
Barriers to Supplier Integration


Walmart to Make Huge eCommerce Acquisition?

Uber Packs it Up in China
US Truckload Carriers have Tough Q2
California Plans to Remake Freight Transportation


Supplier Integration in an Outsourced World Benchmark Study 2016

Trends, Opportunities and Next Generation Solutions

Prefer to view the results instead? Watch the on-demand version of the Videocast summarizing the survey results:


Week of July 11, 2016 Contest

See The Full-Sized Cartoon and Send In Your Entry Today!

Holste's Blog: Three Key Factors for Implementing a Profitable Returns Capability

Weekly On-Target Newsletter:
August 3, 2016 Edition

Cartoon, Truckload Q2, Gigafactory Impact, Global Trade Slowing and more

The Expanded World of Supply Chain: Taking on Supplier and Customer Relations

by Dan Reeve
Director of Sales and
Business Development

The "-abilities" of Global Trade Management: Are Your Digital Platform Capabilities Ready to Challenge Business as Usual?

 by Nathan Pieri
Chief Product Officer
Amber Road


Rank CPG companies P&G, Kimberly-Clark, Colgate-Palmolive and Clorox in terms of DIO (best to worst).

Answer Found at the
Bottom of the Page

Inventory Performance 2016

Since 2005, I have been doing reporting and analysis on company and sector inventory levels based on the annual Working Capital scorecard that is compiled by REL, a division of the The Hackett Group.

It is always one of our most popular columns of the year.


Among the 584 product companies SCDigest analyzed, average DIO was up in 2015, at 87.4 days, versus 83.0 in 2014, for an increase of 5.3%.


Send us your
Feedback here

Once again this year, REL has been kind enough to send me the data set for some further analysis. The just released 2016 data is based on year-end 2015 financials from some 1000 US public companies.

It is great stuff, but the big value-add SCDigest performs here is to re-sort individual companies into new categories, so the categories and comparisons in our view are more usable for supply chain thinking. For example, in the original REL data, home builders like Toll Brothers are mixed in the household durables category with companies like Whirlpool. That is one of the most blatant "apples and oranges" combinations, but there were a number of others that don't jive, at least from a supply chain perspective. Metal producers such as US Steel were in the same category as miners, while "spirits" beverage companies are in the same category as soft drink companies, when the inventory dynamics of each group are dramatically different, in two of many other examples.

So, we do the (really) hard work of first eliminating sectors that aren't useful for the supply chain (e.g., bankers, etc.), and then redefining and populating the categories in a way that makes more sense for comparisons. As another example, rather than having one giant category of all specialty retail, we break that down into apparel, department stores, auto parts, etc. It really does take a lot of time.

It is far from perfect. Should Johnson & Johnson be placed in the pharma group, the medical device category, or consumer packaged goods, as it is in all those segments? Is Honeywell in the aerospace or automotive sector, or one of the "industrial conglomerates" like GE or 3M? That's where we put it again this year. There are many such examples where the call is not obvious.

In the end, we simply made choices, including looking up more details on a number of companies with which we were not familiar so they could be placed appropriately.

The other thing we do is add in companies that for whatever reason are left out of the REL data set. Mysteriously, for example, retail giant Lowes is left out of the data every year. We go to Yahoo Finance, collect the data and do our own calculations for Lowes and about 30 other companies in total we think are worth adding in, including Nike, Dillard's, Conagra, Energizer and many more.

The full report and data set looks at three components working capital, changes in which of course directly determine overall cash flow: Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO), and Days Payables Outstanding (DPO). Here, we are going to focus on just the inventory component.

Until last year, REL calculated DIO relative to how many days of sales a company held in inventory. That generated many complaints from readers, as the divisor in the formula was a day's worth of revenue, not a day's worth of cost of goods sold.  As I said each year, that's how REL reported the data, and that's how thus had to deal with it.

But starting last year with the data for 2014, the DIO calculation was changed to:


End of Year Inventory Level/[Total Cost of Goods Sold/365]

So, you calculate the average cost of goods sold for one day, and then see how many of those COGS days you keep in inventory (based on year end balance sheet numbers).

As such, DIO is sort of the reverse of inventory turns, in that a higher DIO, all things being equal, means poorer inventory management performance, while a lower number signals improvement. You are being more efficient with inventory versus a given level of COGS.

So, let's take an example. Nike had cost of goods sold of about $17.4 billion in 2015, and had year ending inventories of about $4.8 billion. So:


$4.8 billion/($17.4 billion/365)=DIO of 101.4 days


Apple, by contrast, has a DIO of just 6.5, while consumer products giant Procter & Gamble has a 2015 DIO of 56.7; medical device and supplies maker Baxter Int'l had a DIO of 114.8.

That DIO of 114.8 for Nike translates into about 3.6 inventory "turns," a more common measure in the supply chain (COGS/inventory) than DIO. With the change in the REL methodology last year, I can now translate all the DIO measures into turns, which was not possible before because using revenue not COGS each company's gross margin percentages were different. I will do the turns conversion next week.

In the US economy, overall inventory levels have been ticking up in recent years. As seen in the chart below from the Commerce Dept., the "inventory to sales" ratio (inventory levels divided by a month's worth of sales) spiked in late 2008/early 2009 as the recession caught companies with way more inventory than needed versus suddenly shrinking demand. But most companies cut away at that inventory ruthlessly, so that inventory was back on the longer term trend line by early 2010.

But since early 2012, inventory levels have headed slowly but consistently back up. The ITS of 1.40 recently is up about 12% from the 1.25 ratio seen at the start of 2012. The trend has been especially up in the retail sector, which has lately started to do something about it. As we reported recently, for example, Home Depot has plans to grow sales by 15% by 2018, and intends to do so keeping inventory levels where they are now, which would be a major change in how retailers have historically managed inventory versus sales growth.

Now, back to the REL data.

Among the 584 product companies SCDigest analyzed, average DIO was up in 2015, at 87.4 days, versus 83.0 in 2014, for an increase of 5.3%.

As a side comment, one thing that is really striking in doing this work across years is seeing how concentrated so many US business sectors have become. Office products retailers? We're went down to two a couple of years ago, after Office Depot swallowed OfficeMax, and that would have gone to one if the government had not blocked Staples from acquiring Office Depot this year. Molson Coors stands alone in the Beverages - Beer category, the only public US brewer left. Food distribution companies saw Spartan Foods acquire Nash Finch (now its SpartanNash) while again the government blocked the merger of Sysco with US Foods (the latter of which was taken private and is no longer in our list - same with Safeway, spirits maker Brown-Foreman, and more).


The companies per category simply shrinks every year - not good in my opinion.

So all that doesn't leave me much room here. Next week, I will publish the full analysis across about 65 sectors as SCDigest has defined them.

Below, some highlights:

Top 5 lowest DIO sectors: (1) fast food restaurants: 7.9; (2) retail convenience stores: 8.7; (3) airlines: 10.7; (4) hospital chains: 12.0; (5) other restaurants: 12.7

Top 5 highest: (1) biotech: 348.0; (2) tobacco products: 294.6; (3) retail auto parts: 235.8; (4) pharmaceuticals: 220.1; (5) beverages - spirits: 199.6

Other notable sectors:

• Food Manufacturing:58.5

• Chemicals and Gases: 79.2

• Apparel and Shoe Manufacturing: 122.4

• Mass Merchants and Dept. Stores: 87.5

• Consumer Packaged Goods: 66.2

• Computers and Peripherals: 66.0

I'll save the rest for next week, including what sectors have had the best improvement. Good stuff. Would love your thoughts.

Any reaction to this inventory data? Why have inventories been creeping up on the past 5 years? Let us know your thoughts at the Feedback button below.

View Web/Printable Version of this Column

New On Demand Videocast:

Supply Chain Software Trends and Opportunities 2016 Benchmark Report

Results from SCDigest's New Benchmark Study, Including a Special Focus on Cloud-Based Solutions

In this outstanding Videocast, we'll summarize important trends and developments on both the user and technology provider fronts, based in part on results from a new SCDigest survey on trends, opportunities, and practices in supply chain software.

Featuring  Dan GilmoreJohn Murphy, Senior Director, SCM Applications Product Marketing, Oracle and Jim Heatherington, Vice President, AVATA.

Available On Demand

On Demand Videocast:

Supply Chain Design as a Continuous Business Process - The Whirlpool Story

From Project to Process: Here's How to Get It Done

In this outstanding Videocast, we'll explore the changes needed to make supply chain design a continuous process, emerging new best practices in supply chain design, and how consumer products leader Whirlpool has successfully embraced this 360-degree approach.

Featuring Dan Gilmore, Editor, SCDigest, and Toby Brzoznowski, Executive Vice President, LLamasoft and Brian Streu, Manager, Supply Chain Design, Whirlpool

Now Available On Demand

On-Demand Videocast:

A Benchmark Study on Supplier Integration in an Outsourced World

Featuring Real World Experiences from DuPont, Honeywell and Acsis, Inc.

A new benchmark study of practitioners reveals the priorities, expectations and challenges of achieving real-time visibility into goods as they move through third-party production cycles.

Featuring Dan Gilmore, Editor, SCDigest, and John Dipalo,Chief Strategy Officer, ACSIS, Peter Musser, IT Services Delivery Specialist, DUPONT and Bruce Stubbs, Director, Industry Marketing Honeywell Scanning & Mobility

Available On Demand


Catching up on a variety of Feedback this week, starting with an older response from Marc Wulfraat of MWPVL International on why truck trailers that we hadn't placed here yet that we thought was worth publishing, plus several others on various topics.

Feedback on Why Amazon is Acquiring Truck Trailers


Our interpretation of Amazon's acquisition of trailers is:


1) The company is seeking to improve how it moves merchandise between its internal network of distribution centers (replenishment center to fulfillment center; fulfillment center to fulfillment center; and fulfillment center to sortation center).

2) The purchase of trailers allows Amazon to stage trailers at these facilities to allow flexibility in terms of timing of loading operations similar to having a drop trailer program with a supplier. It enables Amazon to secure trailer capacity within its own network which implies a greater degree of control as opposed to relying on third party carriers. Bottom line it provides more control over transportation operations.

3) There is likely a modest cost savings associated with this move. Amazon is not buying tractors and therefore does not carry the burden of having the insurance obligations that a trucking company pays for.

4) There is a side benefit in that the trailers serve as giant moving marketing billboards so free advertising doesn't hurt the cause.

5) Perhaps the most important benefit is one that has nothing to do with transportation and everything with Amazon Prime Now. There is a possibility that some of these trailers can be used as “warehouses on wheels”. Companies who sell off the back of a truck understand how this works. The trailer is loaded up with hyper-fast SKUs that are frequently ordered from fulfillment centers. The trailers are loaded in such a way that the driver can access the goods from inside the trailer. Trailer parks in a staging location near an urban center.

Orders are picked off the truck and delivered by localized resources to consumer doorstep in under 60 minutes. Think of this as extending the Amazon Prime Now network without having the Prime Now buildings in every location that needs to be served. This could be a Trojan horse that enables 60 minute service levels to many smaller and midsize cities that make up a substantial portion of the population. Amazon is famous for thinking out of the box so call me crazy but could this be yet another way to move goods to market?

Marc Wulfraat
MWPVL International Inc.



Feedback on Understanding the Gartner Top 25 Supply Chain List


In regards to the Gartner Top 25, I think it is the gold standard that all companies desire to be aspire to. I have participated in the voting for many years and think the methodology includes many factors, some Supply chain centric, some not.

An enhancement would be to add additional Supply Chain KPIs Key Performance Indicators. There are plenty to choose from, but adding more of these critical measurements would truly indicate the real performance of a company's Supply chain expertise. And that is what the Top 25 is all about.

Tom Dadmun
Supply Chain VP, retired




The metrics used are inward facing. I suggest that Gartner should also use customer facing metrics like on time shipment or Perfect Order fulfillment (both SCOR metrics)

Blair Williams CFPIM, CSCP

Editor's Note: The challenge is Gartner gets its performance measures, such as ROA or inventory turns, through public filings. The metrics suggested in these two feedbacks, which would be great if possible, are not available in those filings and would have to be self-reported by companies.

In addition, most companies on the list have multiple divisions/SBUs, etc., so the question would be how to come up with a single number, which usually isn't calculated across these units.


Feedback on Risk Management

One of my colleagues from Cranfield University used to conclude her half-day session on the management of risk, resilience and vulnerability in the supply chain with the following conclusions:

• No system is invulnerable
Risk, a problem to resolve, but never solve
Identify what you can and take a position
Manage or mitigate as appropriate
Beware the strategic disconnect
Forewarned is forearmed
A case for the rehabilitation of ‘slack'
Creeping crises were systemic risk in action
Dialogue between industry & policy makers helps
Political and commercial aims often diverge


Bearing in mind the context that the audience was defense and military related and therefore focused on capability rather than availability I found her conclusions both pragmatic and intellectually challenging. In particular the remark concerning "slack" struck home because as a former logistics practitioner and an industrial engineer I had wavered between always having a little spare capacity up my sleeve and an almost genetic disposition to cut out waste.

As an academic she was posing the question: should we not make a case for slack (although recognizing that the term itself was not really sufficient to fully explain the concept)? Events in recent years would support this view. The question is how should one program in slack in such a way that it is not redundant.

What is the mix of physical assets, human resources, systems flexibility, etc., that is required to reduce vulnerability and ensure resilience. How does one convince a line manager, senior VP, CFO, of the merits of such a seeming heresy in these days of austerity and short termism?

I think that this is an issue worth debating and finding solutions - SCDigest would seem a possible forum.

I hope this gives you a little more background without going into it in too much depth. I happy to answer more questions as and when you have them.

David Macleod
Learn Logistics Limited



Q: Rank CPG companies P&G, Kimberly-Clark, Colgate-Palmolive and Clorox in terms of DIO (best to worst).

A: 1. Clorox: 46; 2. P&G: 57; 3. Kimberly-Clark: 62; 4. Colgate: 69.

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