Advancing E2E Agile Resiliency In Supply Chains

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Advancing E2EAgile ResiliencyinSupply ChainsJANUARY 2021A PROACTIVE APPROACH TO CREATING VALUEDURING GLOBAL SUPPLY CHAIN DISRUPTIONSThis leadership guide offers practical and contemporaryinsights on adding E2E Agile Resiliency Capabilities intoyour supply chain design requirementsAUTHORSDavid Demers and Brian KolekEDITORShay Scott, PhDSPONSORED BY

Sponsored byBush Brothers and Companymanaging risk in the global supply chain1CREATING A TRANSPARENT SUPPLY CHAINBEST PRACTICESHOW TO ENHANCE SUSTAINABLE SUPPLY CHAIN EFFORTS THROUGH TRANSPARENCYA WHITE PAPER BY THE UNIVERSITY OF TENNESSEE, KNOXVILLE,HASLAM COLLEGE OF BUSINESS SUPPLY CHAIN MANAGEMENT FACULTYNOVEMBER 2016The Global Supply Chain Institute in the HaslamCollege of Business at the University of Tennessee,Sponsored byKnoxville has published more than 25 white papersGLOBAL SUPPLY CHAIN INSTITUTEMANAGING RISK IN THE GLOBAL SUPPLY CHAINNUMBER THREE IN THE SERIES INNOVATIONS IN SUPPLY CHAIN1with industry partners, extending relationships andengagement with industry and shaping the future ofsupply chain management. These papers reveal supplyMANAGING CYBER RISKS IN GLOBAL SUPPLY CHAINS:THE FOUR FUNDAMENTALSchain’s best practices and help address the industry’sAPRIL 2020greatest challenges. Research from these white papershas appeared in publications such as Supply ChainManagement Review, DC Logistics, Harvard BusinessReview, the Wall Street Journal, Forbes, and more.The entire white paper libraryis available for download ersGLOBAL SUPPLY CHAIN INSTITUTESponsored byNUMBER THREE IN THE SERIES TECHNOLOGY IN THE SUPPLY CHAIN1FUTURE TRENDS SHAPINGTRANSPORTATIONSPONSORED BYA WHITE PAPER BY THE GLOBAL SUPPLY CHAIN INSTITUTEBYMARY HOLCOMBMARY LONGALAN AMLINGTHEODORE STANK, CONTRIBUTING EDITORAdvAnced demAnd/SupplyIntegrAtIon (dSI) beSt prActIceSnumber one inthe Supply chAInStrAtegy SerIeSWhy S&OP haS largely nOt been effective in laSt fOur decadeSApril 2018A white pAper by the globAl Supply chAin inStituteAdvancing E2E Agile Resiliency in Supply Chains2

Tableof ContentsExecutive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Tying Agile Resiliency to Value Creation. . . . . . . . . . . . . . . . . . . . . . . . . 8Performance Diamond. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Agile Resiliency Leadership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Leadership Assessment Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Implementing Agile Resiliency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Agile Resiliency Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Leadership & Cross-Enterprise Teaming . . . . . . . . . . . . . . . . . . . . 26Command Center. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Agile-Resilient Workflow Design. . . . . . . . . . . . . . . . . . . . . . . . . . . 28Disruption Response Tools And Methods. . . . . . . . . . . . . . . . . . . 29Disruption Event Readiness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Agile-Resilient Supply Chain Network Designs. . . . . . . . . . . . . . . 31Dynamic Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32E2E Trading Partner Alignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33E2E One Team Readiness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Case Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Agile Resiliency Enablement Blueprint. . . . . . . . . . . . . . . . . . . . . . . . . . 41Collaboration Models That Drive Agile Resiliency. . . . . . . . . . . . . . . . 44Closing Thoughts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Advancing E2E Agile Resiliency in Supply Chains3

Executive SummarySupply chain leaders have become accustomed to tumultuous conditions anddisruptions brought on by trade wars, digital innovation, and rapidly changingcustomer preferences. However, the unexpected appearance of a virus seeminglyuninhibited by time zones, global distance, public health containment efforts,and even temporary economic closures has further stress-tested global supplychains. While vaccines might soon surmount the initial disruption, the loss to valuecreation and other secondary effects will remain for years to come. It’s an extremetest of global supply chains, but it also indicates a rising class of disruptions thatcan and will wreak havoc upon populations, stakeholder interests, and the verysurvival of enterprises.How vulnerable is your supply chain to disruption? It’s no longer a questionof avoiding and surviving periodic crises. Real resiliency involves growing andprotecting the value creation capabilities of our supply chains during and outsideof any disruption. We cannot accomplish that with work-around solutions orincremental continuous improvements. Industry leaders are adopting a newsupply chain design that embraces the best attributes of supply chain agility andresiliency readiness: an end-to-end (E2E), agile resiliency in supply chain design.Our research for this white paper examined how supply chains are faringacross multiple industries during the pandemic and how SC leaders can begindeveloping more agile-resilient supply chains in the months and years to come.We built a starter kit of core agile resiliency design considerations based onquantitative analysis and discussions with executives from 22 leading supply chainorganizations.IndustryLeadersare adopting a new supply chain designthat embraces the best attributes of supply chain agility andresiliency readiness: an end-to-end (E2E), agile resiliency insupply chain design.Advancing E2E Agile Resiliency in Supply Chains4

TYING AGILERESILIENCY TOVALUE CREATIONIn our first section, “Tying Agile Resiliency to Value Creation,” we apply ourproprietary Diamond Analysis to the top 16-24 firms in three industries: ConsumerPackaged Goods (CPG), Medical Devices, and Industrial Machinery. Our analysisleverages the same critical metrics that analysts reference on quarterly earningscalls and year-end reviews, following their same standards and data sources. Ourplatform helps visualize value gains or losses, trends over 24 months, macro shiftsin median industry performance, and micro views of competitor moves.AGILERESILIENCYLEADERSHIPWe applied this methodology comparing performance before and duringCOVID-19 to understand COVID-19’s impact across industries and betweenenterprises. The results were both predictable and shocking. Although someindustries were harder hit than others, in all three industries COVID-19 exposedpreexisting stress points in supply chain designs. Our analysis contextualizes thesequantitative findings with discussion from our supply chain leaders and providesIMPLEMENTINGAGILERESILIENCYguidance moving forward.Strong supply chain leadership is key to implementing an agile-resilient supplychain model, as it requires cross-enterprise partnerships and collaboration to beeffective. Our study cohort identified a leadership assessment and model as theirtop need for building agile resiliency, and we dedicated an entire section of thepaper to this purpose. We provide a series of questions, along with feedback fromCASESTUDYour cohort of SCM leaders, to help you assess whether your leadership is ready foragile resiliency and help you develop the right leadership model to guide this effort.We also provide tools for assessing and building agile resiliency as a coreenterprise capability in the section on implementing agile resiliency. Workingwith supply chain leaders, we identified the Top 10 Critical Capabilities for AgileResiliency and an Agile Resiliency Implementation Model for each.AGILE RESILIENCYENABLEMENTBLUEPRINTCOLLABORATIONMODELS THATDRIVE AGILERESILIENCYTop 10 Critical Capabilities for Agile ResiliencyAgile ResiliencyMetricsLeadership andCross-Enterprise TeamingCommandCenterAgile-ResilientWorkflow DesignDisruption ResponseTools and MethodsDisruption EventReadinessAgile-Resilient SupplyChain Network DesignsE2E Trading PartnerAlignmentDynamicResponseE2E One TeamReadinessAdvancing E2E Agile Resiliency in Supply Chains5

Our quantitative analysis helped us identify an organization with remarkableagile resiliency adoption, and the shareholder performance to demonstrate itsinvestment value. In our case study, we detail this firm’s key performance metricsand recount how it leveraged each of the critical capabilities for agile resiliencyduring COVID-19.Because each firm must create its own design, rate of speed, and path to achievingagile resiliency, we provide an Agile Resiliency Enablement Blueprint process toguide your organization through the steps of creating the pathway for adoption.It includes five key steps to take along the way, and suggested approaches andvalidation for each.Lastly, it is important to note that, much like leadership, E2E collaboration is aprecursor to agile resiliency adoption. Many firms are still early in their E2E journeyand may need to focus there before they can begin making significant stridesto manage disruption. To address this potential need, we provide some ideas forbreakthrough Collaboration Models That Drive Agile Resiliency and partneringopportunities for firms that need assistance implementing them.Advancing E2E Agile Resiliency in Supply Chains6

IntroductionEnd-to-end, agile supply chain designs are now critical to enterpriseperformance. But with an agile global network comes challenges like operational93%of SupplyChain Leadersintend to take furtheractions to strengthenresiliency in their supplychains.complexity, distance-related cycle time constraints, and the threat of globaldisruptions. As COVID-19 has shown in the extreme, agility must be balancedwith resiliency to provide durable success. A recent McKinsey study found that93 percent of supply chain leaders intend to take further actions to strengthenresiliency in their supply chains1.Quick-fix, crisis-response solutions – perhaps the core capability of all supplychains – have now drawn concerns in boardroom and shareholder communities.The greater frequency and extended duration of disruptions implore organizationsto build systemic readiness to grow and protect shareholder value.Supply chain leaders must step beyond traditional supply chain design andtemper their operating models with resiliency capabilities. Doing this successfullyrequires working outside a single enterprise. It means raising the bar across theE2E supply chain. Interdependencies must be aligned carefully and more tightlysynchronized to achieve competitive advantage, as was highlighted in our recentGSCI whitepaper, “End-to-End Supply Chain Synchronization.”2 Modern supplychain resiliency requires a systemic change far beyond short-term solutions thathave been the backbone of disruption response strategies in the past.Our research addresses this re-balancing of agility and resiliency considerations,and we refer to the resulting approach as agile resiliency in supply chain design.We leveraged a group of 22 supply chain leaders from a diverse set of industriesas our think tank and sounding board for this research, and it is our hope that thiswork will help supply chain leaders accelerate their supply chains’ transformationaljourneys post-COVID-19 in our rapidly changing world.Susan Lund, James Manyika, Jonathan Woetzel, Edward Barriball, Mekala Krishnan, KnutAlicke, Michael Birshan, Katy George, Sven Smit, Daniel Swan, and Kyle Hutzler, “Risk,resilience, and rebalancing in global value chains” (report, McKinsey Global Institute, 2020).1Dan Pellathy, Mike Burnette, Scott Meline, and Ted Stank, “End-to-End Supply ChainSynchronization” (Global Supply Chain Institute, 2020).2Advancing E2E Agile Resiliency in Supply Chains7

Tying Agile Resiliencyto Value CreationE2E supply chain management drives value creation in all enterprises. Leadingfirms have leveraged advancements in their supply chain models to:Crush customer response time while approaching perfect order fulfillmentExpand EBITDA by reducing cost of goods sold and selling, general, and administrativeexpenseRelease critical working and fixed capitalAccelerate cash-to-cash cycle timesDrive market share and revenue growth through service and valueThis approach to supply chain management has helped enterprises achievecompetitive advantages in price earnings ratios and share price valuation growth. Ithas become an expected set of enterprise outcomes for shareholders, customers,employees, and suppliers. But the efficiencies gained in E2E agile supply chainscan also leave enterprises vulnerable to disruption.As the most severe supply chain disruption to date, COVID-19 poses a uniqueopportunity to examine how firms are executing the tenuous balance betweenstaying on the bleeding edge of innovation and managing risk. The assumption isthat a disruption’s impact on value creation correlates with design decisions thatfirms make, like E2E network design, vertical integration, new product designs, anddemand variability controls. Our analysis attempts to quantify these assumptions.With our proprietary Diamond Analysis, we assessed COVID-19’s impact on thevalue that E2E supply chains create. The analysis uses competitive financialbenchmarking that identifies firms’ value creation gains or losses and ranks the top16-24 firms in selected industries by performance during the disruption.The Diamond Analysiswill help organizationsconnect their E2Esupply chain design efficacytokey financialmetrics.Supply Chain Performance Diamond Analysis MethodThe Diamond Analysis will help organizations connect their E2E supply chaindesign efficacy to key financial metrics. Firms fall into one of four quartiles on thediamond based on their performance in metrics relating to four interdependentand critical E2E value creation areas: customer, cost, capital, and growth (seeFigure 1.1).Advancing E2E Agile Resiliency in Supply Chains8

DefinitionsEquations&Agile Resiliency – An approach tosupply chain design that embracesthe best attributes of both agilityand resiliency. Characterizedby responsiveness to changingconditions, adaptability to disruption,coordination across the E2E supplychain, speed, flexibility and abalanced approach to growing andprotecting value creation.CostCOGS – Cost of Goods Sold (COGSexpenditures/net operating revenue)SG&A – Sales, General &Administration (SG&A expenditures/net operating revenue)EBITDA – Earnings Before Interest,Depreciation and Amortization(EBITDA/net operating revenue)CapitalWe leverage the same critical metrics that analysts reference on quarterly earningscalls and year-end reviews, following their same standards and data sources. Wepull this data through a proprietary platform to help us visualize value gains orlosses, trends over 24 months, macro shifts in median industry performance, andmicro views of competitor moves. Most of these metrics (EBIDTA, C2C, SG&A,IDS) will be familiar to supply chain leaders, but we have provided our specificdefinitions and equations for clarity.It’s important to note that we calculate many of these metrics as a percent of netoperating revenue (NOR). Doing so better demonstrates how business processesreact to changes in revenue (i.e., whether the organization can scale down COGSand SG&A as revenue decreases or maintain stability in IDS and C2C during timesof revenue growth). A perfect model of agile resiliency would show the metricsbased on internal workflows (COGS, SG&A, IDS, DSO, C2C) remaining neutralas the firm scales them up or down alongside revenue changes. That is neitherpossible nor always preferable in the real world, and different industries will havedifferent acceptable ranges of tolerance in performance variability for each metricas well as timeframes to correct metrics outside their tolerance. We provide theseinsights to help SCM leaders develop performance goals for their organizations,but we believe more standard thresholds that shareholders will use to assessCapitalperformance are on the horizon.IDS – Inventory Days of Supply, speedat which inventory can be convertedto salesOne relatively new metric that illustrates supply chain performance is ReturnDSO – Days Sales Outstanding,velocity at which sales can beconverted into cash through accountsreceivableC2C – Cash to Cash, the time it takesfor 1 to complete the procurement,shipment, and collection processes(IDS DSO-Days PayableOutstanding)GrowthRevenue – Compares the last fourquarter with the previous fourquartersROSCA – Return on Supply ChainAssets, measures EBITDA return onworking capital (EBITDA/CombinedInventory and Receivable ReportedValue)on Supply Chain Assets (ROSCA). ROSCA measures EBITDA return on workingcapital. Positive ROSCA despite revenue retraction is possible, as our data reflects,and this is a clear indicator of agile resiliency. For example, a leading firm inthe Industrial Machinery industry had a revenue reduction of 5.1 percent, whilesimultaneously improving ROSCA performance by 2.6 percent. They accomplishedthis outcome through agile resiliency efforts despite the complexity of their E2Esupply chain and a high SKU count.We present these metrics in the context of their respective industries todemonstrate how individual firms fare compared to their peers given similardisruption constraints. Competitive benchmarking using publicly traded firmdatabases provides a critical reference perspective and ongoing monitoring toolfor our research. Note, however, customer performance data is not as robust orreliable as shareholder data from publicly traded firms. We therefore excludedcustomer performance metrics from the analysis.PE Ratio – Price Earnings Ratio, Priceof a share of stock at the end of thelast quarter/earnings per shareAdvancing E2E Agile Resiliency in Supply Chains9

Figure 1.1Performance DiamondCUSTOMERConnecting Agile Resiliency to Value CreationPerfect OrderAchieving Quartile One Performance WhileSimultaneously Balancing All Four OutcomesRequires Winning Supply Chain DNAInventory Days of SupplyDays Sales 3ARTILE4*COGS, SG&A, EBITDA, ROSCA shown as a percentageof net revenueBALANCECash to CashCOGSSG AEBITDAGROWTHRevenue GrowthReturn On Supply Chain AssetsPrice Earnings RatioCOVID-19 Performance Impact Diamond AnalysisFor our COVID-19 impact analysis, we compared enterprise performance duringthe first two quarters of COVID-19 to a parallel pre-disruption period in three16-24Our analysis of each industryincluded the toprevenue producingmultinational companieslisted on the U.S. andEuropean Exchangesindustries: consumer packaged goods, medical devices, and industrial machinery.Our analysis of each industry included the top 16-24 revenue producingmultinational companies listed on the U.S. and European Exchanges. The COVID-19performance perspective is currently constrained to six months (reporting periodsspanning April through September 2020). But the data provides a critical first viewinto trends.We coupled this data with discussion from the supply chain leaders in ourstudy cohort to assess what supply chain capabilities underline value growth orconstraint. Among our key findings were that COVID-19’s impact was significantlyuneven - creating both loss and gains – within industries, and that the rangebetween loss and gain appears connected to the level of agile resiliency practicedin the firm.Advancing E2E Agile Resiliency in Supply Chains10

SIGNIFICANTLY ADVANTAGED PERFORMERSWhile upside and downside demand variability ranged widely in the early daysof COVID-19, significantly advantaged firms were better able to address theirhighest priority customer needs amid constrained supply through a combinationof segmentation and allocation. They also prioritized service above cost to protectand grow market share. In both the CPG and Medical Device industries, thisranking category captured revenue growth opportunities without a significantbuild of inventory days of supply and days sales outstanding, which in turn helpedthem improve their ROSCA performance and gain deeper competitive advantageduring the disruption periods. They supported higher customer satisfaction bydynamically shifting production to meet demand within their customer’s actuallead-time window.Significantly advantaged firms’ EBITDA performance in both CPG and MedicalDevice industries during COVID-19 as compared to significantly disadvantagedfirms reflects their ability to manage upside and downside flexibility with morelimited cost impact on COGS and SG&A (as a percentage of net operatingrevenue), while managing increased volume. Clearly, the payback on agileresiliency capability investments produced strong competitive advantage for thesetop-performing firms.SIGNIFICANTLY DISADVANTAGED PERFORMERSSignificantly disadvantaged organizations faced a strong headwind from lost salesand had difficulty changing their operating models to meet demand downsidewithout incurring non-value-added costs and inventory. The red metrics in thiscategory across all three industries demonstrate this group’s agility barriers.InventoryDays of Supply*Significantly disadvantaged firms saw marked underperformance relatingCPG: 8.0%Medical Devices: 12.1%Industrial Machinery: 6.2%disadvantaged performers tied up cash in each industry that would offer muchAmount of CashHeld in InventoryIncreases*The financial metrics suggest a favorable return on capital employed for agileCPG: 116M to 278MMedical Devices: 42M to 483MIndustrial Machinery: 70M to 2.2B*Metrics are averages for significantlydisadvantaged firmsto inventory. Inventory days of supply grew in spite of decreasing revenuesfor disadvantaged firms in each industry. Inventory increases for significantlyneeded capital if released (see left).resiliency investments, and the silver lining for the significantly disadvantagedgroup is clear metrics that bring a heightened awareness in the boardroom of theneed for change. Assessing agile resiliency constraints in core workflows and theirrelated impact on performance would be a critical diagnostic step to improve SCperformance in negatively impacted groups. Our case study offers further insightsinto best practices that can be coupled with the Top Ten Critical Capabilities forAgile Resiliency to diagnose and improve on these constraints.Advancing E2E Agile Resiliency in Supply Chains11

Consumer Products GroupFigure 1.2: COVID-19’s Impact - Changes in Key Performance Metrics in the CPG IndustryBetween Q2-Q3 2019 and Q2-Q3 2020Quartile One:SignificantlyAdvantagedPerformersQuartile Two:AdvantagedPerformersRevenue Growth/(Loss)21.0%3.7%(4.5%)(17.2%)Return on SC Assets21.3%14.8%9.6%(27.7%)Inventory Days of Supply2.9%(3.3%)0.1%8.0%Cash-to-Cash Cycle Time(69.9%)(24.5%)0.5%(0.3%)COGS % of NOR4.0%4.7%(0.2%)(3.7%)SG&A % of NOR7.1%(1.3%)1.8%3.7%6.2%8.8%10.2%(22.8%)Key Metric AverageGain/Loss Impact as %EBITDA % of NORSample average value creation gains Quartile Three:DisdvantagedPerformersQuartile Four:SignificantlyDisadvantagedPerformersValue creation lossThe CPG industry offers a comparatively mature example of agile resiliencyadoption. Customer demands have incentivized deeper levels of E2E workflowcollaboration, and shareholders have rewarded industry leaders who canachieve ongoing value creation. CPG firms performing at our significantlyadvantaged status have landed in the top ranks of Gartner’s Supply ChainTop 25 Leaders. Even during COVID-19, they achieved remarkably negativeC2C cycle times and remarkable ROSCA improvements, using agility coupledwith resiliency to achieve these results. However, not all CPG firms deliveredconsistent value creation improvements.Revenues at firms that manufacture only discretionary spending items, such ascosmetic firms, were hardest hit by COVID-19, and we did not see any examplesof firms in the discretionary products segment that had the agile resiliency tomaintain ROSCA despite revenue losses. By contrast, companies with productsserving consumer necessities, such as Clorox and Procter & Gamble, sawrevenue growth. However, revenue surges during bullwhip demand peaks oftenwere capped by capacity constraints and related performance challenges,as we can see in Figure 1.2, where IDS, COGS, and SG&A increase. In suchcases, the decision to protect customer service level above incremental costinvestment to do so is the likely driver.Advancing E2E Agile Resiliency in Supply Chains12

We examined the competitive gaps in performance between significantlyadvantaged firms and significantly disadvantaged firms by calculating theactual median performance during the two COVID-19 quarters. The results,shown in Figure 1.3, illustrate a staggering gap across all metrics. As Wall StreetGrowing and protectingtheir value propositionswhile strengthening theircompetitive advantagecreates afavorablePE ratio andcorrespondinggrowth in market capvaluation for top performers.analysts and investors increasingly examine these comparisons, their valuationswill likely drive the identified gaps even further apart. Growing and protectingtheir value propositions while strengthening their competitive advantagecreates a favorable PE ratio and corresponding growth in market cap valuationfor top performers. Underperforming firms that are unable to realign theirsupply chain operating models and correct these dips quickly will likely beginto lose shareholder confidence.Figure 1.3: CPG Value Creation Performance Gaps Between Significantly Advantaged andSignificantly Disadvantaged GroupsKey Value Metrics:Median ScoresQuartile One FirmsQuartile Four FirmsROSCA86%IDSCTCof NORDays53(45)15%140140of NORDaysDaysDaysCOGS26%of NOR66%of NORSG&A17%of NOR66%of NOREBITDA28%of NOR11%of NORAgile Resiliency adoption contributes to the success of Quartile One performersbased on our research. The analysis and interviews also highlight the importantopportunities for firms currently listed in the underperforming quartiles. Bottomline: CPG is a bellwether indicator for supporting agile resiliency adoption as acritical strategic priority and opportunity in this industry.Medical Devices GroupThe Medical Device industry experienced a dramatic hit to revenue, with 71 percentof the firms in our study sample experiencing revenue declines. Firms struggledto realign their business models to the new revenue realities because of severalinherent hurdles in the industry, including:Rigid regulatory requirements that add to enterprise workflow complexityLong product lifecycle development processes that have higher riskComplex manufacturing and logistics control burdens such as serial number trackingand cold chain of custody requirementsHospital practices requiring prepositioned medical device inventories, housed in thehospital that only transfer title upon usePlacing decision making regarding brand of device in physicians’ hands, makingforecast accuracy problematic and pushing safety stock levels very high on all SKUsNumber of elective surgeries scheduled in flux with COVID-19’s hospitalization ratesAdvancing E2E Agile Resiliency in Supply Chains13

These conditions shed a light on why even the top performers in this industryexperienced value losses in IDS, C2C, and COGs, as depicted in Figure 1.4.Complexity and long cycle times slowed reactions across the E2E workflow. Yet,significantly advantaged firms demonstrated that agile resiliency can promotevalue creation amidst disruption even in industries where time-to-value captureis slower due to the process, information, costing, and capital engineering andorganizational complexities.Figure 1.4: COVID-19’s Impact - Changes in Key Performance Metrics in the Medical DeviceIndustry Between Q2-Q3 2019 and Q2-Q3 2020Key Metric AverageGain/Loss Impact as %Quartile Return on SC Assets8.7%(12.2%)(12.2%)(22.7%)Inventory Days of Supply6.1%11.0%9.2%12.1%Cash-to-Cash Cycle Time9.6%4.3%2.5%14.4%COGS % of NOR10.8%0.6%(4.0%)1.8%SG&A % of ple average value creation gains versusfor firms in thesignificantlydisadvantaged segment.Quartile TDA % of NOR74.79.7Quartile Three:DisdvantagedPerformers22.0%Revenue Growth/(Loss)High-performing firms heldmedian PE ratios ofQuartile Two:AdvantagedPerformersValue creation lossIn the Medical Device industry, firms ranked significantly advantaged were theonly segments to experience revenue, EBITDA, and ROSCA growth. Their lowerperformance with inventory build is likely due to the aforementioned complexity ofhospital VMI and inventory title transfer.The many red performance indicators in Figure 1.4 provide a clear business caseto elevate stakeholder discussions and align prioritization on agile resiliency.The differences in performance across each of the ranking segments also pointstoward varying levels of early adoption, which is already impacting shareholdervaluation. High-performing firms held median PE ratios of 74.7 versus medianPE ratios of 9.7 for firms in the significantly disadvantaged segment. Figure 1.5illustrates the actual gaps across all metrics that occurred during the two COVID-19operating periods.Advancing E2E Agile Resiliency in Supply Chains14

Figure 1.5: Medical Device Value Creation Performance Gaps Between SignificantlyAdvantaged and Significantly Disadvantaged GroupsKey Value Metrics:Median ScoresQuartile One FirmsQuartile Four FirmsROSCA52%of NOR21%of NORIDS79Days214DaysCTC99Days241DaysCOGS36%of NOR59%of NORSG&AEBITDA20%of

supply chain design that embraces the best attributes of supply chain agility and resiliency readiness: an end-to-end (E2E), agile resiliency in supply chain design. Our research for this white paper examined how suppl

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