Supply chain excellence is not easy to define. At Supply Chain Insights, our goal was to do it in a meaningful and objective manner. After three years of research, in 2014 we developed the Supply Chain Index to quantify 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 to a peer group was a good measurement of supply chain excellence.

To test the model, we studied balance sheet patterns for over 2,000 public companies and shared those results with over 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). (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.)

We believe supply chain excellence is based on the ability to improve that portfolio of metrics. To help the reader, we have applied the model to different industries; this article looks at the consumer packaged goods market. While many consider consumer packaged goods to be the leading industry when it comes to supply chain excellence, over the past five years, companies we tracked in this category actually made less progress as a group than did high-tech and electronics manufacturers and distributors. The reason? The many mergers and acquisitions among companies in this category have slowed progress in achieving supply chain excellence as we define it.

In the consumer packaged goods market, the leader—that is, the company with the best metrics—is Colgate. The greatest improvement, however, is being made by Unilever. Procter & Gamble (P&G), often touted as the de facto industry leader in supply chain excellence, is stuck at the intersection of inventory turns and operating margin. The company has made great progress in inventory but has lost ground in operating margin.

For all companies in this category, the precipitous rise in the number of products and stock-keeping units (SKUs), and the impact of that product complexity, is creating a barrier to improvement. One reason is that in this industry, there typically is a greater gap in alignment between the commercial and operational teams than there is in other industries we study. This is because the traditional marketing approaches that defined market excellence in the 1990s are slowly giving way to "outside-in" processes that are market-driven and are based on the implementation of online "path to purchase" strategies and aligning with the voice of the consumer. As a result, the tensions between marketing and other functions within consumer packaged goods have become significant.