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 Supply Chain Trends and Issues: Our Weekly Feature Article on Important Trends and Developments in Supply Chain Strategy, Research, Best Practices, Technology and Other Supply Chain and Logistics Issues |
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| by SCDigest Editorial Staff |
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Over the last two weeks, SCDigest editor Dan Gilmore has written his annual analysis of US inventory performance across sectors, based on data from REL (a Hackett Group Company) that looks at overall working capital performance for 2012.
Inventory is one of the three components that impact a company's level of working capital (the other two are Days Sales Outstanding - how fast a company gets paid by its customers - and Days Payables Outstanding - how fast or slow a company pays its suppliers).
Consistent with that, REL uses the metric Days Inventory Outstanding, or DIO, to measure inventory performance, 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.
In part 1, Gilmore primarily looked at inventory performance by sector from 2011 to 2012 (see
Inventory Performance 2013). In part 2, he took a longer term view of inventory performance by sector since 2006 (see Inventory Performance 2013 Part 2.)
As promised in those columns, some additional and data and insight here this week.
First, below is a list of some of the companies that showed strong inventory performance in 2012 over 2011. Obviously, one year's results to not make a trend, and in some cases inventory reduction in a given year could come at the cost of reduced customer service. Nevertheless, with that caveat, below is a list of some companies that were able to sharply reduce their DIO in 2012 - that includes many names you have heard, and probably a few you have not:
Inventory appears to have been a focus area for many in the apparel sector: Hanesbrands, Under Amour and VF Corp. reduced DIO by 24%, 21% and 19% respectively.
Vertex Pharmaceuticals somehow reduced DIO from 29 to 7, a decrease of 75%. We suspect there was something unusual going on, but that is the number.
Westlake Chemicals saw a drop of 18%, while many others in the sector saw rising DIO.
Apple saw its DIO fall 29% in 2012 - not clear to us why that would be. That was from about 3 days to 2, we'll note.
Mining equipment maker Joy Global saw DIO fall 17%, partially countering the upward trend for years in that sector.
Procter & Gamble saw DIO fall 12%, while most in the consumer packaged goods sector were flat or up. P&G has touted recently its success with Inventory Optimization software.
Packaging materials maker Rock-Tenn saw DIO fall 42%. In the same sector, DIO at Sealed Air fell 31% last year.
Contract manufacturer Benchmark Electronics dropped DIO 24%.
Motor and machinery maker Regal Beloit decreased DIO 24%, while electronics manufacturer Trimnle Navigation reduce DIO 16%.
Nutrition products maker Mead Johnson reduced its DIO 23%, and Green Mountain Coffer lowered DIO 21%. Dole Food saw DIO plunge 67%, again leading us to wonder if something odd was going on there.
Scale and equipment maker Mettler-Toledo dropped DIO 19%; medical equipment producer Res Med lowered its DIO number 21%.
Good inventory year for the folks over at Schnitzer Steel, where DIO was 24% lower. Same for Kapstone Paper, where DIO was down 23%.
Pharmaceutical company Forest Labs saw a steep 36% drop in DIO. Convenience store chain Casey's General Stores saw a nice 14% drop in DIO, whereas its competitors were flat in 2012, but that still leaves Casey's with a higher DIO than the others.
The Dollar Tree chain was able to reduce DIO 4%, not much in absolute terms, but DIO in 2012 was up at Dollar General (2%) and Dollar Stores (13%).
When most other grocers were flat or up, Kroger's dropped DIO 4%, and Whole Foods 5%.
Paint retailer Sherwin-Williams took 10% out of inventory, while apparel retailer Limited Brands also saw DIO fall 10%.
Finally, chip maker Xillinx dropped DIO 18%, while electronics distributor Tech Data saw a 25% fall in DIO.
There are many other companies that we could have cited. This is just some of the more notable 2012 performers.
Below, we offer an expanded sector chart from 2006 to 2012.
(Supply Chain Trends and Issues Article - Continued Below)
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The table below is an expanded version of the chart Gilmore included in his second column. It offers DIO data for about three dozen sectors, sorted by the change in DIO for the group from 2006 to 2012. Next to that column, however, is the change from 2006 to the average of 2011 and 2012, which might smooth out some one year anomalies.
We also added the list of companies in each sector (the same exact companies in 20006, 2011 and 2012), and the company with the best DIO change and the worst. Of course, there could be many reasons why inventory would increase at a company. For example, Dell saw its DIO rise from 4 days in 2006 to 8 in 2012, an increase of 100%, but that we expect is largely due to the fact that Dell entered the retail channel in 2009, expanding from its "build-to-order" strategy, and that strategic shift inevitably increased inventory.
Similarly, drug store chain CVS's sharp drop in DIO since 2006 is clearly the result of acquiring pharmacy benefits manager Caremark in 2008, which brought in lots of revenue and not much inventory.
US Inventory Performance by Sector 2006 to 2012
| Sector |
Companies in Sector for Entire Period |
DIO 2006 |
DIO 2011 |
DIO 2012 |
Change 2006-2012 |
Change 2006-2011-12 Average |
Best 2006 to 2012 |
Worst 2006 to 2012 |
| Personal Care Products |
Revlon, Avon, Estée Lauder, Herbalife Ltd., Nu Skin Enterprises |
37.8 |
31.4 |
31.6 |
-16.4% |
-16.7% |
Revlon:
-43.1% |
Herbalife: 7.1% |
| Retail - Drug Stores |
CVS, Walgreen's, Rite-Aide |
51.7 |
47.0 |
45.7 |
-11.6% |
-10.3% |
CVS: -45.8% |
Rite-Aide: 20.4% |
| Retail - Office Products |
OfficeMax, Home Depot, Staples |
43.3 |
38.0 |
38.3 |
-11.5% |
-11.9% |
Office Depot:
-23.4% |
OfficeMax:
-2.3% |
| Pharmaceuticals |
Johnson & Johnson, Bristol-Myers Squibb, Forest Laboratories, Hospira , Pfizer, Eli Lilly & Co., Merck & Co. |
52.6 |
44.6 |
46.9 |
-10.9% |
-13.0% |
Forest Labs:
-70.% |
Merck: 72.4% |
| Retail - Dollar Stores |
Family Dollar, Dollar Tree, Dollar General |
57.3 |
50 |
52 |
-9.3% |
-11.0% |
Dollar Tree:
-14.3% |
Family Dollar:
-5.1% |
| Retail - Specialty Apparel |
GAP, TJX, Limited Brands, Men's Warehouse, American Eagle |
55.4 |
49.4 |
50.4 |
-9.0% |
-9.9% |
Limited Brands:
-42.6% |
American Eagle: 25.6% |
| Consumer Packaged Goods |
Procter & Gamble, Colgate-Palmolive, Energizer, Clorox, Church & Dwight Co. Inc., Kimberly-Clark Corp. |
39 |
36 |
36.2 |
-7.3% |
-7.5% |
Energizer:
-18.2% |
Corox: 21.7% |
| Network and Communications Equipment |
Cisco, Qualcomm, Harris Corp. |
26.3 |
27.0 |
24.7 |
-6.3% |
-1.9% |
Cisco: -27.8% |
Qualcomm: 66.7% |
| Wholesale - Pharma/Medical |
Henry Schein, Owens & Minor, Cardinal Health, AmerisourceBergen, McKesson |
35.2 |
32.4 |
33.8 |
-4.0% |
-6.0% |
Cardinal Health:
-22.9% |
Henry Schein: 19.5% |
| Wholesalers - Electronics |
Tech Data, Avnet, Ingram Micro, Arrow Electronics, ScanSource |
39.2 |
39.4 |
37.8 |
-3.6% |
-1.5% |
Arrow Electronics:
-178% |
Ingram Micro: 12.9% |
| Semiconductors |
Intel, Broadcom Corp., ON Semiconductor, Advanced Micro Devices, LSI Logic, Texas Instruments, Fairchild Semiconductor, NVIDIA, Xilinx |
42.5 |
39.3 |
41.4 |
-2.4% |
-4.9% |
Intel: -28.9% |
ON Semiconductor: 43.1% |
| Mass Merchants, Dept. Stores, Clubs |
Kohl's, Walmart, Dillard's, Costco. Target, Macy's, JC Penney, Bon-Ton Stores, Sears |
59.4 |
58.9 |
58.9 |
-0.9% |
-0.9% |
Dillards:
-12.9% |
Target: 10.5% |
| Semiconductors Equipment |
Applied Materials, KLA-Tencor, Teradyne |
80.0 |
83.3 |
80.6 |
0.7% |
2.4% |
Applied Materials:
-5.4% |
Teradyne: 24% |
| Retail - Grocery |
The Kroger Co., SUPERVALU, Safeway, Village Super Market , Whole Foods Market, Spartan Stores |
19.5 |
20.2 |
19.8 |
1.7% |
2.6% |
Safeway:
-8.3% |
Village Spuermarkets: 27.3% |
| Biotechnology |
Amgen, Gilead, Biogen Idec Inc. |
50 |
47.7 |
51.3 |
2.7% |
-1.0% |
Biogen Idec:
-9.1% |
Amgen: 18.4% |
| Containers and Packaging |
Greif, Ball, Crown, Sealed Air, Bemis, Rock-Tenn Co.. Packaging Corp. of America, Owens-Illinois |
42.25 |
48.75 |
43.5 |
3.0% |
9.2% |
Ball: -15.4% |
Packaging Corp. of America: 30.3% |
| Household Durables |
Stanley Black & Decker, Whirlpool Corp., Newell Rubbermaid, Mohawk Industries, Tupperware Brands, Leggett & Platt, La-Z-Boy Incorporated |
51 |
52.4 |
52.6 |
3.1% |
2.9% |
Tupperware:
- 10.2% |
Mohawk Industries: 24.6% |
| Computers and Peripherals |
Dell, Apple , NCR, Diebold, Lexmark International , Hewlett-Packard, Western Digital Corp. |
26.6 |
27.7 |
27.4 |
3.2% |
3.8% |
Apple: -60% |
Western Digital: 105.9% |
| Soft Drinks |
PepsiCo, Coca-Cola Co., Coca-Cola Enterprises |
20 |
21 |
20.7 |
3.3% |
4.2% |
Pepsi, Coca-Cola: 0% |
Cocal-Cola Enteprises: 13.3% |
| Industrial Conglomerates |
Honeywell, Danaher, 3M |
40.3 |
42 |
42 |
4.1% |
4.1% |
Danaher:
-5.3% |
3M: 14.6% |
| Auo-Truck Related OEMs |
Ford, Oshkosh Corporation, Harley-Davidson Inc., Thor Industries Inc., Paccar Inc. |
28.6 |
29.2 |
29.8 |
4.2% |
3.1% |
Oshkosh:
-28.6% |
Harley-Davidson: 88.2% |
| Food Manufacturing |
Flowers Foods. Chiquita Brands, Campbell Soup, Kellogg Co.. Dean Foods, General Mills, Hormel Foods, HJ Heinz, J. M. Smucker, Hershey Co., McCormick & Co., |
36.4 |
39.9 |
38.1 |
4.7% |
7.1% |
ConAgra:
-23.9% |
Chiquita Brands: 55% |
| Medical Devices |
Baxter International, Zimmer Holdings, Stryker Corporation, Medtronic, St. Jude Medical, DENTSPLY Int’l, Becton Dickinson |
53.7 |
56.1 |
56.7 |
5.6% |
5.1% |
St. June:
- 20% |
Zimmer: 20.9% |
| Machinery |
Parker-Hannifin, Cummins, Flowserve, Timken Co., Illinois Tool Works, Lincoln Electric, Briggs & Stratton |
58.6 |
63.9 |
62.7 |
7.1% |
8.0% |
Lincoln Electric:
-13.8% |
FlowServe: 27.7% |
| Apparel and Shoe Manufacturers |
PVH, Quicksilver Inc., Wolverine World Wide, VF Corp., Coach, Ralph Lauren, Nike, Jones Apparel Group |
52.25 |
52.25 |
56 |
7.2% |
3.6% |
VF Corp:
-19.6% |
Wolverine: 83.1% |
| Retail - Auto/Truck Parts |
Genuine Parts (NAPA), Advance Auto Parts, O'Reilly Automotive Inc., Auto Zone, Pep Boys |
107 |
109.8 |
115.4 |
7.9% |
5.2% |
Auto Zone:
-1.8% |
Advance Auto Parts: 17.2% |
| Toy Manufacturing |
Mattel, Hasbro |
24.5 |
28 |
27 |
10.2% |
12.2% |
Mattel: 4% |
Hasbro: 16.7% |
| Retail - Home Improvement |
Home Depot, Lowes, Sherwin-Williams |
49 |
57.7 |
54.7 |
11.6% |
14.6% |
Home Depot: 3.8% |
Sherwin-Williams: 25.6% |
| Retail - Electronics |
Best Buy, Radio Shack, GameStop |
48 |
51 |
54 |
12.5% |
9.4% |
Game Stop:
-6.5% |
Radio Shack: 36.8% |
| Auto Parts/Components |
Lear, Johnson Controls, Visteon, Exide Technologies, American Axle & Manufacturing Holdings Inc., Cooper Tire & Rubber Co., TRW Automotive Holdings Corp., Goodyear Tire & Rubber Co. |
30.6 |
36.75 |
34.5 |
12.7% |
16.3% |
Johnson Controls: 0% |
Lear: 50% |
| Restaurants |
Yum Brands, Brinker Int’l, Domino's Pizza, The Wendy's Co., Cheesecake Factory |
4.6 |
5.2 |
5.2 |
13.0% |
13.0% |
Wendy's:
-33.3% |
Yum Brands: 100% |
| Wholesale - Food |
Sysco, Nash-Finch, United Natural Foods |
26.3 |
30 |
31 |
17.7% |
15.8% |
Sysco: 5.6% |
Nash-Finch: 78.9% |
| Metals Manufacturing and Distribution |
Nucor Corporation, US Steel, Commercial Metals Company, AK Steel Holding, Reliance Steel & Aluminum, Alcoa, Kaiser Aluminum. Worthington Industries, Steel Dynamics |
47.8 |
55.4 |
57.1 |
19.5% |
17.8% |
Steel Dynamics:
-6.3% |
Nucor: 96.4% |
| Chemicals and Gases |
Dupont, A Schulman, Eastman Chemical, Praxair, Cabot, Ashland Inc., Dow Chemical Co., Olin Corp., PPG Industries Inc., HB Fuller Co., Air Products & Chemicals Inc.. Ecolab Inc., Valspar Corp. |
38.8 |
48.5 |
49.3 |
27.2% |
26.2% |
A Schulman:
-33.8% |
Eastman Chemical: 142.4% |
| Aerospace and Defense Components |
Hexcel Corp., Rockwell Collins, Teledyne Technologies, Curtiss-Wright Corp., Precision Castparts, Moog |
57.5 |
69.2 |
74.8 |
30.1% |
25.2% |
Moog: 1.3% |
Precision Castparts: 55.9% |
| Spirits |
Brown-Foreman, Constellation Brands |
116.5 |
135 |
156.5 |
34.3% |
25.1% |
Brown-Foreman: 27.8% |
Constellation: 39% |
| Building Products |
Owens-Corning, USG, Lennox International, Inc., Griffon Corporation, Universal Forest Products Inc. |
33 |
46.6 |
47.8 |
44.8% |
43.0% |
Universal Forest Products: 26.5% |
Lennox: 86.7% |
| Construction Equipment |
Joy Global, Caterpillar, Deere & Co. |
57.7 |
96.7 |
91.3 |
58.4% |
63.0% |
Joy Global: 37.9% |
Caterpillar: 89.3% |
Source: SCDigest, based on Data from REL
You can see some of the standout performers since 2006 for yourselves, but SCDigest will note Revlon (DIO down 43% since 2006) and ConAgra (down 23.9%), among a number of standouts.
In some sectors, the best performing company actually saw DIO rise, such as in construction equipment, where the leader was Joy Global, which saw DIO jump 38% since 2006. The laggard in that sector was Caterpillar, where DIO rose 89%.
So are we making inventory progress? From this data, it is not at all clear
Any reaction to this inventory data? Are we making inventory progress? Let us know your thoughts at the Feedback section below.
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