TORONTO — Companies with high-performing supply chains routinely outperform their rivals, even more so in bad times, says a professor from Michigan State University.
Speaking at SCL’s annual conference in Toronto this week, Dr. Morgan Swink offered a flood of data to support his conclusion.
He stressed that his research is ongoing and many details have yet to be fully worked out. However, the data suggest that in both the stable economy of 2005 to 2007, and the economic recession (Q1 2008 to Q3 2009), supply chain leaders outperformed their closest competitors in operating expenses, financials, and stock returns.
"They actually did better in the down economy, relatively speaking," he told the audience of supply chain professionals.
Select companies that had strong standings on several supply chain rankings lists were compared with their closest rivals, to answer the question, ‘Do excellent supply chain leaders outperform their rivals in financial terms and also stock market return?’
"The answer is they do," Swink said. "Here’s the bottom line: on average the top companies have 50% higher net margins. That’s huge."
He found that top supply chain companies had:
Twenty percent lower operating costs and sales and other administration expenses; 12 percent lower average inventories (measured by days of sales); twice the return on assets and double the return on equity; and 44 percent higher economic value added.
"Does the stock market recognize this kind of performance? Does it appreciate supply chain excellence?" he asked. "Again the answer is yes."
Companies with high-performing supply chains earned twice the returns on stock prices, 2.4 times the risk-weighted stock returns, and 46 percent greater market-value-to-assets ratio.
"It may be no surprise that excellent supply chain companies outperformed their rivals but I was surprised at the magnitude of difference," he said.
"My conclusion is you get what you pay for. These top companies are outsourcing with some of the better suppliers and they’re willing to pay market rates to these suppliers, and they’re actually paying them faster than their competitors are paying," he said.
"They’re investing in their suppliers and they’re getting back the kind of collaborative efforts that reduce their transaction costs, and innovation costs."
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