Do You Have a “Top 25” Supply Chain?

Last week, Gartner announced its annual Supply Chain Top 25 rankings, and like every year, it sparked a lot of commentary and debate about the methodology, along with software vendors and others using the results for marketing purposes.

Almost everyone can agree on one thing: anything that gets people talking about supply chain management is a good thing.

But does Apple really have the best supply chain in the world? Does Gartner’s methodology truly reflect supply chain excellence? What, if anything, do companies learn from this report that helps them improve their own supply chains?

Go ahead, post a comment and share your thoughts; I’m sure your responses will be all over the map.

The reality is that you can view supply chain excellence through many lenses. And that numbers, whether they’re financial or operational in nature, without context — such as a company’s business processes or strategic objectives — are just that: numbers.

Is your supply chain best-in-class? There are many ways to approach this question, but here is my quick 1-Question Assessment Test, which I borrowed from a presentation Bindiya Vakil, founder of Resilinc and a supply chain risk management expert, gave a few years ago at a CSCMP New England Roundtable event:

Can you complete the following email within four hours of a supply chain disruption?

At 9:05am today, an earthquake of magnitude 7.0 struck Vietnam. N suppliers have manufacturing sites in a X mile radius of the epicenter. Within X hours of the event, we contacted all of these suppliers and determined that X supplier has shop floor damage. This will take N weeks to repair and clean up, and an additional N weeks to ramp and clear backlog. N single sourced parts with revenue impact $X-$YM each are manufactured at this facility. They are used in critical product lines Alpha and Gamma.

We have N weeks of component supply on hand and have secured additional N weeks of inventory from the broker market. The supplier has an alternate facility in X which can build this part. A 4 person team will deploy tomorrow to the alternate facility to support the supplier with an initial build. The alternate site should be up within N weeks. Communications with the supplier are streamlined and updates are posted every N hours.

At this time, we have no reason to believe that our manufacturing lines will be shut down due to this event.

The ability to compose that email implies that you have mapped your supply chain, that you have timely, accurate, and complete visibility of what’s happening in your supply chain, and that you communicate and collaborate effectively with your suppliers and trading partners  — which, in my book, are all fundamental attributes of supply chain excellence. From this, everything else follows: financial performance, market share, and customer satisfaction and loyalty.

Can Apple or any of the other companies on Gartner’s Supply Chain Top 25 list write that email today within four hours of a supply chain disruption? I don’t know for sure, but based on all the research available, I’m willing to bet the vast majority can’t.

Can you write that email today? A question worth discussing at your next supply chain leadership meeting — and a goal worth pursuing in the weeks and months ahead.

Comments

  1. Adrian – This list has always been somewhat irking to me. While Apple may have a wonderful, innovative and flexible supply chain, the methodology employed by Gartner to identify and rank organizations leaves something to be desired. In my humble opinion, their analysis does nothing but provide a rear view mirror look at a corporation’s financial performance, as measured by its stock price with a sprinkling of supply chain conventional wisdom mixed in, thereby giving it a feel of accuracy when perusing their list.

    My chief complaint lies in how Gartner scores supply chain capabilities. 50% of the ranking is pure opinion (25% peers opinions and 25% Gartner personnel opinion) with no quantitative data to back up why these organizations rank so high.

    Another 10% is revenue growth weighted over the past three years. Revenue is certainly an important indicator of corporate health, but how well does it correlate to the quality of an organization’s supply chain and doesn’t it, by definition, favor organizations that service high growth segments of the economy?

    To validate (or invalidate) my thinking that this ranking is pure bunk, after I saw last year’s ranking, I went back and looked at the “Best Supply Chains” from 2004 as defined by AMR (AMR was acquired by Gartner in 2009). As noted above, my hypothesis is that the rankings are really a combination of conventional wisdom and recent stock performance and not truly an indicator of overall supply chain capability. To do so, I measured the stock performance of the Top 10 supply chains in the years preceding the rankings.

    Findings:
    * Average stock return of the top 10 companies was 52% in the 3 years preceding the Ranking (Nov 2001 to Nov 2004).
    * S&P 500 return for that same time period was 6%.

    As you can see, the top supply chains organizations did MUCH better than the average company in the years preceding the rankings. Of course, you could say that the strong supply chains of these organizations contributed to the increased share price. However, the facts don’t back this up. As we all know, supply chain strategies and practices are difficult to build and refine, but once you have them, they do become a long-term competitive advantage to the organization. The capabilities become embedded in the DNA and culture and therefore, are not quickly gained or lost. So, if an organization had a world class supply chain in 2004, shouldn’t that be reflected in the company’s share price over the past 8 years? Shouldn’t these top performing companies outperform the S&P 500 over a long term period?

    Well – they don’t.
    * The average total stock return for the top 10 companies over the last 8 years is negative 1.4%. In other words, if you bought a basket of the companies AMR identified as best in class for supply chain in 2004 and held them until today, you would have 1.4% less money than you started with.
    * During the same period, the S&P500 increased by 16.5%.

    To be completely clear, I believe that strong supply chains are important, provide competitive differentiation and will enhance financial performance, but I am not convinced that strong financial performance necessarily indicates a great supply chain.

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