This Week in SCDigest

Inventory Performance 2013 Part 2

I hope it is worth the effort.

Last week, we had our annual analysis of 2012 inventory performance by sector, based as always data REL has been kind enough to send me. The just released 2013 data is based on year-end 2012 financials from 1000 US public companies. (See Inventory Performance 2013.)

That includes data on Days Inventory Outstanding, or DIO, which calculates how many days of sales a company is holding in inventory, and which REL defines as:

End of Year Inventory Level/[total revenue/365]

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 sales.

The main value-add I perform is to re-organize the companies in the list into more granular categories such that the DIO data can be more accurately be compared. It is quite an effort, actually. And for this week, my goal was to show changes in DIO over time, using 2004, 2006, 2011 and 2012 for my data set. But to keep the data perfectly comparable, I wanted to cull the list of 2012 companies down so that the exact same companies were in each of the sample years.

In other words, I didn't want companies coming in and out of a sector perhaps causing the changes in the sector's performance - hope that makes sense.

It was quadruple the effort I expected, for a number of reasons. One, the early data sets were smaller (the early data came from REL's then partnership with CFO magazine and what was available was not as extensive as what I receive now.) Second, the number of mergers, acquisitions, private equity deals, etc. make this list quite dynamic and hard to pin down for many sectors. It was quite an eye-opener to see the number of companies in the 2004 list that are no longer independent firms.

In the end, I could not get 2004 to work. I was able to have the exact same firms (number varies of course by sector) for 2006, 2011, and 2012. Some but not all of our sectors are shown in the table below, sorted by biggest drop in DIO (a good thing) to the largest rise from 2006 to 2012.

Any reaction to this year's inventory numbers? What other analysis would you like to see? Let us know your thoughts at the Feedback section below.

I was present at the press conference, front row, and took notes of the Q&A session after.

The opening question focused on the significant challenges each of the panel saw in 2012, and was the outlook optimistic or pessimistic:

Marc Althen (president of Penske Logistics) said Penske saw an upturn as more shippers looked for 3PL services to help adjust for greater complexity in the networks: he is optimistic.

Brent Beabout (Senior Vice President, Supply Chain for Office Depot ) said that the B to B business is not recovering quickly, and they continue to see pressure to improve operations by serving omni-channel demand through the same network. Cautious optimism.

Steven Bobb (exec VP at BNSF) said BNSF structural changes in demand volume shifted from coal and grain to intermodal, oil and oil related industrial movements. Cautious optimism.

Beth Ford (chief supply chain officer at Land O'Lakes) reported that her company saw robust growth in food commodity movements, more on a global scale. She is optimistic.

Paul Svindlands (COO of Pacer) said that Pacer is cautious about its optimism, that while there will be growth, it will not be exciting growth. Paul is new at Pacer - and did not really comment about 2012.

The most interesting questions and answers:

HOS Impacts:

Paul - Dray carriers will not be impacted anywhere like regional and long haul carriers. What kills the dray carriers productivity is the time at the ocean terminals. Rail ramps are efficient and drivers do not see the 2 - 3 hours delays that drivers see in LA or Newark.

Marc - Penske expects a 3% hit to productivity.

Driver Shortage:

The panel all comments. Roz pointed out that the opportunity to pick up the young drivers is when they get out of High School, but they can't get a CDL until they are 21. By that time the kids are already down a different path and not likely to change careers. Beth - the Daughter of a Truck Driver - said that the changes in the industry, and the options, makes driving less attractive.

Biggest concern for 2013:

Marc - Human Capital. Beth chimed in on this later, and it worked in with more driver shortage comments. Beth spoke about "The War for Talent" where she goes to colleges and finds it difficult to get the business school students excited about supply chain and logistics. She talked about a need to "change the dynamic of how people look at the career, and the impact logistics has on many parts of the organization." She went on to talk about finding people that could communicate and collaborate, not only internally, but to help "educate the front of the house to understand what the back of the house does."

On the Human Capital issue, Steve had one of the best quotes:

"For our front line supervision, as a railroad we are an outdoor sport. So we turn to the military to look for the front line leaders we need to put in the field."

On the question about conversion from road to rail, the specific question asked about the length of haul where it makes sense to convert.

Steve commented that it is more of a structural issue, that BNSF network is a long haul railroad, so by design the distances are longer than in the East. "We have ample opportunities with the structure we have, so we will focus to increase our take of what our current network supports."

David K. Schneider
David K Schneider & Company, LLC

You raise a very interesting question regarding inflections points. I think the major change is the depth of involvement that Wal Mart appears to be taking. I just wonder how much cost can be absorbed before it finds its way into the consumer's cost. I also think that many consumers might be ok with paying more to avoid future tragedies even in countries far removed from the U.S.

I don't see the investment piece as a major change in the same way. Companies have been investing in their supply chain partners for years. It's the nature of this investment that is really new.

Herb Shields
HCS Consulting