Top-performing supply chains: Tires

When most people speak of supply chain excellence, they do not ordinarily think of an industrial commodity like tires. However, in our analysis for our second annual Supply Chains to Admire listing, we found that this industry segment is making improvements at a faster rate than other industries.

This analysis is based on a methodology that we developed to measure supply chain excellence. While it sounds simple, supply chain excellence is not easy to define. It is even harder to compare companies across industries. In 2014, Supply Chain Insights developed the Supply Chain Index to quantify, in a meaningful and objective manner, not just supply chain excellence but also supply chain improvement. We found that improvement (defined as the rate of change) when coupled with performance (current capabilities) and compared within a peer group was a good measurement of supply chain excellence.

To build the Supply Chain Index and the Supply Chains to Admire methodology, we studied balance-sheet patterns for over 2,000 public companies and shared those results with more than 150 executive teams. The metrics we selected are based on correlation to market capitalization: growth, inventory turns, operating margin, and return on invested capital (ROIC). We believe supply chain excellence is based on the ability to improve across this entire portfolio of metrics. (For more details about the Supply Chain Index and its associated metrics, see "The Supply Chain Index: A new way to measure value" in the Q3/2014 issue of CSCMP's Supply Chain Quarterly.)

While no company from the tire industry made our list of the Supply Chains to Admire for 2015, we want to recognize the progress of the entire industry segment. In Figure 1, we analyze companies in the tire industry for the period 2006-2014.

As the figure shows, there is no one company that outperforms all others in the industry. Instead, what we see is that the industry overall is improving in the areas of operating margin and ROIC. Bridgestone is driving the most improvement but has yet to beat the average for ROIC in the metrics portfolio. Instead, as can be seen in the orbit chart in Figure 2, the race for excellence is on between Bridgestone and Goodyear.

What can we learn about the tire industry from this analysis? While there is no a clear leader within the industry, supply chain performance overall is definitely improving due in large part to new leadership teams focused on improving supply chain metrics. As a result, the competitive stakes are getting higher, and supply chain excellence is becoming increasingly important when it comes to financial success.