Less than 40% of the 18 companies profiled in our recent Supply Chain Metrics That Matter report had improved their operating margin performance in 2012 compared to their performance in 2000. Operating margins vary widely across companies and also across industry lines, but the overwhelming conclusion is that we are stuck. Here are some tidbits from the full report:
* Some industries including chemical, automotive, contract manufacturing and 3PLs struggle with an industry structure that creates very low single digit operating margins below 0.10. In these industries, supply chain excellence matters even more. There is no room for error.
*On the other end of the spectrum are industries such as pharmaceutical or medical device manufacturers which have historically enjoyed very high operating margins, above 0.20. These industries have not had the need to optimize their supply chain operations, but times are changing. Significant changes are occurring in the healthcare industries both domestically and abroad and margins are shrinking. Companies in these industries should look to their peers who have long operated with tighter margins and resolve to improve supply chain operations.
* It’s not only operating margin as a stand alone metric that companies should be measuring. One of the most insightful pairs of metrics we have studied is the intersection of operating margin and inventory turns.The best companies (and they are rare) have successfully improved both operating margin and inventory turn performance over a span of several consecutive years. It is difficult to do this for two consecutive years and the percentages get significantly lower for three or four consecutive year spans.
*Operating margin goals should not be established in a vacuum. By aligning supply chain metrics with supply chain strategy and larger business strategy and corporate goals, the odds of success can be magnified. Make sure that what you are measuring makes sense within the larger goals of the organization. For most companies that will likely include operating margin, but for others it may not.
For more analysis on operating margin and our take on five separate case studies, be sure to check out the full report available here.
