No Trash Talk Allowed

February 17, 2014
9:13 pm

Definition of Asset

A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

Definition of Trash

Worthless or discarded material or objects, refuse or rubbish.

In the last year of my Wharton MBA program, the professor wrote on the board that “finance is the art of money passing hands until nothing is left.” I have found this to be a sad reality. In contrast, economic value is derived from making or growing things to be sold.

In the process of making things, companies have to account for assets. While all leaders can agree that they want more assets and less trash, there is confusion about the best metric.

There are a number of ways that companies can account for assets and align them for value. Recently, we have been studying the trends on three different measures of asset effectiveness. These three simple definitions have very different implications with far-reaching impacts. It is the goal of this blog post to explain the differences and help link you to the most impactful measurement to drive shareholder value.

ROA: The return on assets is equal to net income/total assets. It can vary substantially across industries and should only be used to compare a company within an industry peer group. The assets are based on both debt and equity.
RONA: If you ask my friends at DuPont for the best asset measure, they will advocate Return on Net Assets (RONA). It is different from ROA in that it is equal to Net Income/(Fixed Assets + Net Working Capital). Fixed assets are tangible property and working capital is a measurement of current assets minus current liabilities. It is a longer-term perspective than ROA.
ROIC: Colgate and other consumer products companies swear by the Return on Invested Capital (ROIC) metric. It is a good measure of the company’s ability to generate a profitable outcome from investments. ROIC should be greater than the market value of capital. It is equal to net income-dividends/total capital. It can also be calculated as (net operating profit after taxation)/(invested capital).

When we correlate these three metrics to market capitalization, ROIC correlates in 85% of the industries, and RONA and ROA in 25% of industries. Most supply chain leaders measure themselves by ROA. The more work that I do on metrics, the more I become a fan of ROIC.

To prove the point, let’s look closely at the numbers for the food industry. Note how different the numbers are. ROIC is not only a measurement of assets, but also the use of capital. Sadly, several of these companies don’t look bad when you look at ROA, but when you look at ROIC, it is clear that they are operating at a level below the market cost of capital.

For me this is not trash talk. Instead, it is about supply chain leaders delivering value. If the cost of capital is 18% (a good average), then the top performance would go to Campbells, and many companies should be having the discussion of why they are under performing to market.

And, of course, the supply chain is a complex system with increasing complexity. Asset metrics should not be viewed in isolation to declare a supply chain winner. There are metric dependencies, but I like the inclusion of ROIC in the basket portfolio of metrics. What do you think? What do you think is the best measurement?

Navigating Supply Chain Economic Downturns

August 30, 2026 5:28 pm

In 2007, the average company took six months to sense market shifts and adapt its supply chain. My estimate, based on work with clients, is that if a downturn happened today, the average company would take 20-30% more time to adjust than in 2007. Here I give insights on preparedness.

Warning: Sidestep the Narrative of the Misguided Goldiggers

August 10, 2026 4:58 pm

Ten years ago, I started writing a book titled Stories of the Misguided Gold Diggers. The book was a collection of stories from two decades of stories of technology leaders perpetuating the myth of integrated end-to-end supply chain planning.

I dusted off the manuscript on Saturday. I think that we have a new chapter. Companies focused on putting Artificial Intelligence (AI) on top of existing architectures are putting AI Stupid on steroids.

The Myth of End-to-End Planning

July 31, 2026 9:14 pm

Supply chain planning, supply management, supply chain execution, network design, and transportation/logistics management operate in silos. Not much has changed over four decades. The connections flow back through transactional systems: order-to-cash and procure-to-pay. There is a myth that companies can buy an end-to-end supply chain management solution. This is largely a myth. Here we explain.

Lead Time: A Broken Gossamer

July 16, 2026 6:38 pm

If you are struggling with supply chain planning, dancing in the light of shiny objects, and scratching your head, please read on. My goal is to help you.

Please do not AI Stupid. What do I mean? AI Stupid is putting agents and agentics on top of existing architectures believing that making them faster and hands free add value. To me, this is fools play.

I love AI. I am excited about new technologies. To this end, I want to shine a light on how new technologies can help address the black holes and inconsistencies in today’s supply chain, which largely stem from the limitations of the first generation of supply chain planning and execution technologies. In this blog, I give you three places to start.

Do You Need a Supply Chain Coach?

July 9, 2026 5:27 pm

Supply chain is where the rubber hits the road. For a public company, over 40% of market capitalization is tied to the trade-offs between growth, operating margin, inventory management, and Return on Capital Employed.

The road for supply chain improvement is fraught with issues. Here we share some and offer some advice.

Is your Supply Chain AI Ready?

June 11, 2026 2:39 pm

A simple quiz to assess an organization’s AI readiness.

The pace of change is fast and furious. Every day, technology advances faster than we can digest. A great challenge to have.

Determining whether a supply chain is “AI-ready” is less about technology and more about the gray matter between the ears of supply chain leaders. Leadership, alignment, and clarity of goals matter.

Too few companies are clear on the definition of supply chain excellence. Measuring and rewarding functional metrics reduces the firm’s value. Putting agentics on top of today’s processes can make bad practices run faster, reducing value.

The toughest job for the supply chain leader is challenging existing supply chain paradigms that were defined by the limitations of decades of supply chain technologies. As the curtain lifts on the potential of new forms of technology, process redefinition is our opportunity, but only if we are clear on what drives value. (Here, I link to the Supply Chains to Admire reports to help you define value. The next report will be published on June 23rd, along with my Dynamic Benchmarking Product, to help you define value in the face of your AI readiness. More information about the launch is at the bottom of this blog.)

Supply Chain Shaman