WALTHAM, Mass.--(BUSINESS WIRE)--Aug. 11, 1999--

PMG's survey of 110 organizations in five major manufacturing sectors worldwide reveals financial accountability is being emphasized in the

supply chain

The Performance Measurement Group, LLC (PMG), a subsidiary of management consultants PRTM, released results of the first survey in its 1999-2000 online Supply-Chain Management Benchmarking Series. Covering the overall business performance of a company's supply chain, the survey is based on "Level 1" metrics from the industry standard framework, SCOR (Supply-Chain Operations Reference-model), co-developed by PRTM in collaboration with the Supply-Chain Council (www.supply-chain.org). These process performance measures have wide-ranging strategic significance to organizations.

In this survey, PMG examines best-in-class industry performance of customer-facing measures and internal-facing measures in supply-chain management. Customer-facing measures, such as upside production flexibility and delivery performance to request, quantify how well a supply chain delivers products to the customer. Internal-facing measures, including total supply-chain management cost and cash-to-cash cycle time, quantify how effectively an organization uses resources in creating value for the customer, or how efficiently a supply chain operates. These measures help companies evaluate the full scope of their supply-chain performance against best-in-class performers. The overall business performance survey is the first in PMG's Supply-Chain Management Benchmarking Series. Subsequent surveys focus specifically on the processes for planning, sourcing, making, and delivering products.

Results from PMG's survey are based on data from 110 subscriber organizations from North America, Europe, and Asia in the chemical and pharmaceuticals, computers and electronic equipment, defense and industrial, telecommunications equipment, and consumer packaged goods sectors. Subsequent releases of data will include over 175 organizations. The participant pool includes blue-chip companies such as Johnson & Johnson, Bayer, Dow Chemical, IBM, Mobil, AT&T Wireless, Colgate-Palmolive, Honeywell, Lipton/Unilever, AlliedSignal, and Raytheon and winners of the Malcolm Baldrige National Quality Award. PMG's survey also includes a four-year historic view, comprising data from companies that participated in supply-chain management studies conducted by PRTM in 1995, 1996, and 1997.

"Strong improvements in all industries indicate that while companies are driving to be more flexible, they are doing so without the added expense of idle inventory or runaway capital investments. Balance in all aspects of the supply chain and financial accountability are being emphasized," says Stephen Geary, Chief Analyst and Senior Product Manager of the series. "Results show that manufacturers are more accurately adjusting forecasts and production cycles to respond to rapid changes in demand. Best-in-class performers now operate with less than 40 days of inventory throughout the supply chain. Overall, top companies are reaping the benefits of integrated supply chains and delivering products in ever-shorter timeframes," he says.

PMG finds a strong statistical correlation in its sample between market leadership and significant financial benefit, with market leaders earning 75% higher profits. PMG's survey indicates market leadership is achieved in part by aligning supply-chain strategy to competitive strategy, focusing on improvement of specific supply-chain attributes as a key to differentiation.

Total Supply-Chain Management Cost

A major finding of PMG's survey reveals that leading companies have cut their total supply-chain management costs to between 4% and 5% of sales, spending 5%- 6% less on supply-chain management as a percentage of sales than median performers. The difference in this performance means that a best-in-class company with $500 million in sales per year has a $25 - $30 million cost advantage every year. Geary underscores, "If you want to be best-in-class, your total supply-chain management cost will be less than 5% of sales."

According to PMG's historic data, companies are achieving breakthroughs in efficiency: Best-in-class performance in total supply-chain management costs is 27% below 1995 levels. "Before 1996, best-in-class companies scored between 6% and 7% in total supply-chain management costs due to dislocation that occurred during the mid-90s as ERP and APS systems were implemented in conjunction with process improvement," says Geary. "Our data show that the companies now sustaining superior financial performance have focused their supply-chain initiatives for competitive advantage. Improvements in total supply-chain management cost performance can be the path to best-in-class performance, providing a source of funds to finance initiatives throughout the supply chain or other areas of the organization. A company with strong supply-chain management performance is likely to have 60% -100% better asset utilization, which frees up cash to use on investment opportunities or reduce debt," says Geary.

Jon McKay, a director in the supply-chain practice of PRTM notes, "Companies are adopting innovative practices such as exploiting the Internet to integrate scattered information and decision-making around the globe or deploying customer direct-marketing strategies over the web, bypassing traditional distribution channels in the supply chain." He emphasizes, "Not until companies deploy new practices properly will they serve to improve agility and produce cost savings throughout the supply chain."

Cash-to-Cash Cycle Time

Best-in-class companies reduced cash-to-cash cycle time 18% between 1995 and 1998. Cash-to-cash cycle time for best-in-class companies is less than 30 days. For median performers cash-to-cash cycle time can be up to 100 days. "If companies want to be best-in-class, they must strive to reduce cash-to-cash cycle time to less than a month. Companies need to pay their suppliers quickly, collect from their customers just as quickly, and move inventory continuously," says Geary.

PMG subscriber Chuck Palmeter, Vice President of Total Quality Management, Packard Bell/NEC, says, "We believe one of the best competitive weapons is speed. The shorter the whole cash-to-cash cycle time is, the smaller the inventory is, and the lower the risk is." As with other subscribers to PMG's Supply-Chain Management Benchmarking Series, Packard Bell/NEC is monitoring its supply-chain performance through PMG as part of continuous improvement efforts to determine how its company compares in key metrics against its competition and relative to other industries.

Upside Production Flexibility

PMG quantifies upside production flexibility as the number of days required to achieve an unplanned, sustainable 20% increase in production. Best-in-class upside production flexibility has dipped below two weeks and in some industries it is less than a week. PMG's data reveal an interesting development: Best-in-class flexibility for labor and internal manufacturing capacity is typically zero days. Geary expands on this point: "Our data show that labor and internal manufacturing no longer represent significant limitation for manufacturers. The real, remaining constraint is now on material availability."

"While a financial focus on asset utilization and cost reduction drives flexibility to zero, flexibility is the design parameter that is easiest to overlook, because hidden capacity is nobody's responsibility until the day it is available. Well-managed companies design supply chains capable of rapidly identifying and removing material, labor, and capacity constraints in short order, while still achieving financial targets," says Steve Palagyi, a director in PRTM's supply-chain practice. "A key issue confronting managers is how to continue to reduce material constraints without increasing on-hand inventory. Best-in-class companies are working to streamline pipelines and synchronize operations across companies to reduce ramp time, cost, and uncertainty."

Delivery Performance to Request

Other results from the survey indicate that companies operating at the level of best-in-class delivery performance are meeting the customer request date at least 94% of the time. In some industries, best-in-class delivery performance to request (DPTR) approaches 100% compared with the median, ranging between 69% and 81%. DPTR levels for best-in-class performance have remained essentially unchanged since 1995.

"Surprisingly, a large number of companies do not track performance against customer request date, and many track performance against their commitment to customers, rather than the customer's actual request. Yet the most fundamental measure of customer satisfaction is the frequency with which companies can meet request dates," says Geary. "This measure shows how well a supply chain is configured to meet customer expectations, which is a key indicator of agility to senior management. In the past decade, companies have made huge strides in reducing available days of supply and finished-goods inventory. Companies must now focus on more flexible processes and reliable execution in order to adjust to specific changes in orders and still meet high delivery performance targets."

BEST-IN-CLASS DEFINITION: The Performance Measurement Group selects the top 20% of a population and averages the results to calculate the best-in-class measure. According to PMG, no organization can be best-in-class in all categories. Leaders must focus on points of competitive leverage and relegate other aspects of strategy to reasonable but not necessarily superior performance levels. Frequently, the same companies are best-in-class for a series of metrics, however, a company never dominates all performance categories.

METRICS DEFINITIONS:

Total Supply-Chain Management Cost: Total cost to manage order processing, acquire materials, manage inventory, and manage supply-chain finance, planning, and MIS costs.

Cash-to-Cash Cycle Time: The number of days between paying for raw materials and getting paid for product, as calculated by inventory days of supply plus days of sales outstanding minus average payment period for material.

Upside Production Flexibility: The number of days required to achieve an unplanned, sustainable 20% increase in production.

Delivery Performance to Request: The percentage of orders that are fulfilled on or before the customer's requested date.

For details on industry-specific performance of these key supply-chain performance metrics or for an electronic copy of the enclosed chart, contact: -0-

Jennifer Edmond, Public Relations Manager, PRTM
1050 Winter Street, Weston, MA 02451
Tel: 781-434-1279  Fax: 781-647-2804  e-mail: jedmond@prtm.com
Also media contact for The Performance Measurement Group

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About PMG

The Performance Measurement Group, LLC, a subsidiary of global management consultants PRTM, offers a pioneering, online benchmarking service in the areas of product development and supply-chain management. The service gives subscribers confidential, customized benchmarking analysis online, 24 hours a day, seven days a week. The two initial benchmarking series are built on PRTM's leading thinking and work in core business process management. PRTM has been conducting benchmarking studies in the areas of product development and supply-chain management for over a decade. The Performance Measurement Group is now accepting subscribers for its Supply-Chain Management Benchmarking Series and Product Development Benchmarking Series. Companies can subscribe to one or both series. Other series in customer service and support and marketing and sales will be offered in later years. Visit PMG's web site at www.pmgbenchmarking.com.

About PRTM

Founded in 1976, Pittiglio Rabin Todd & McGrath (PRTM) is a global management consultancy to technology-based business. The firm specializes in helping companies integrate their business strategy into world-class management processes for competitiveness, profitability, and growth. PRTM is internationally recognized for its leading methodologies and frameworks for continuous improvement. PACE(R) (Product And Cycle-time Excellence(R)) has been used by hundreds of high-tech companies over the past decade to accelerate time-to-market. PRTM's Supply Chain Operations Reference-model (SCOR) has been adopted by the 450-member-strong Supply-Chain Council as an industry-standard "toolkit" for upgrading supply chains for strategic advantage. PRTM operates 13 offices around the world. U.S. offices are in Costa Mesa, Calif; Mountain View, Calif; Irving, Tex.; Rosemont, Ill.; Southfield, Mich; Stamford, Conn., Waltham, Mass.; and Washington, D.C. European offices are in Oxford, Glasgow, Paris, and Frankfurt. PRTM's Asian office is in Hong Kong. Visit PRTM's web sites at www.prtm.com and www.hightechgateway.com.