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May 28 , 2021
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This Week in SCDigest

bullet Understanding the Gartner Top 25 Supply Chain 2021 bullet SCDigest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet New Stock Index
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Surprisingly, US eCommerce Share of Retail is Flat
Grocery Delivery Start Up Gorillas to Enter US Market
Chinese Manganese Cartel Sending Prices Soaring
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Dan Gilmore

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TRIVIA QUESTION

DHL disastrously acquired what US parcel carrier in 2003?

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Understanding the Gartner Top 25 Supply Chain 2021

My question this time each year: What are the best supply chains in the world?

The reality is there is no way to determine that, absent an incredibly detailed study of leading candidates that would even then lead to potentially dubious results and certainly be obsolete by the time the research was finished. Or, we could look at the Gartner top 25 supply chains list.

That famous ranking is usually released at a dinner the Gartner Supply Chain Executive Conference that has always been in May in Phoenix, but as in 2020 this year's event was rescheduled for late fall. But the top 25 report has just been issued here in May anyways, so let's take a look.

GILMORE SAYS:


WHAT DO YOU SAY?'

Is the process perfect? Certainly not. The unstated assumption is, for example, that stellar financial results equals supply chain excellence.

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The former AMR Research brilliantly came up with the top 25 idea in 2004. Gartner then acquired AMR in 2010. Over the last few years, the concept has been extended, so that we now have a "Next 25," plus the top 25 healthcare, industrial, and consumer goods supply chains, etc.

At previous Gartner conferences, when asking around a bit, I found - not surprisingly - that very few supply chain practitioners have any real idea how the list is determined. They only know if they are in or they are out, and that's about all that matters.

This year Cisco Systems came out on top for the second year in a row - sort of

I put it that way because again in 2021, Apple, Procter & Gamble, Amazon, McDonald's and Unilever were left off the formal top 25, as those five companies have been placed in a separate relatively category called "supply chain masters," a sort of supply chain hall of fame. To get there, Gartner says a company needs to have attained top-five composite scores for at least seven out of the last 10 years.

 

In fact, it appears four of these companies - the exception being McDonald's - would have been the top five for 2021, meaning Cisco might really be rated as anywhere from the first to fifth best supply chain.

Why does Gartner do this? It frankly may have to do with in effect getting more companies in the top 25 plus the new masters category combined - Gartner clients like that recognition, of course. It may also allow the top 25 list to appear a bit more dynamic.

As I have said before, I find the masters list idea a little goofy, but so be it.

With Amazon, Apple, P&G, McDonald’s and Unilever withdrawn from the competition, the rest of the top 10 after Cisco was (2) Colgate-Palmolive; (3) Johnson & Johnson; (4) Schneider Electric; (5) Nestle; (6) Intel; (7) PepsiCo; (8) Walmart; (9) L'Oreal and (10) Alibaba.

For what I am pretty sure is the first time, spots 1 to 5 did not change this year versus 2020.

Five new companies made the Supply Chain Top 25 this year versus 2020, those being: Dell (now again as a public company); Pfizer; General Mills; and Bristol Myers.

Falling out of the top 25 were H&M; Reckitt Benckiser (Lysol); Biogen; and Kimbley Clark, which always comes in and out of the list.

Below is a chart of this year's Top 5, also with a link to the full list, and where each company placed in the previous two years (NA means not in the top 25 that year).

 

 

See Full Top 25

 

So, you ask, how on earth is the top 25 determined?

Gartner said it starts with the Fortune 500 list of top US companies by revenue and the Forbes global 2000 list that basically does the same thing on a worldwide basis. It then eliminates a lot of those companies because they do not much operate what most of us would think of as a real physical supply chain - companies in banking, insurance, software, and many more.

What's more, the minimum revenue to be included in the final evaluation list was again an amazing $12 billion. The end result is about 300 candidates.


From that culled list, Gartner analyzes publicly available financial data, specifically looking at three metrics from 2020 financial reports:

Return on physical assets (ROPA): Net income / total physical assets
Inventory turns: Cost of goods sold / inventory levels
Revenue growth: Change in revenue from prior year


Revenue growth uses a three-year weighted average, meaning the most recent year gets the most weight and the two prior years somewhat less. Inventory turns, smartly, uses the prior year's quarterly average (reducing impact of end of year games).

 

In addition, from an"objective" data perspective, Gartner uses mostly external rating data to calculate a score for "ESG" - Environmental, Social, and Governance.

 

The three financial metrics plus the ESG score combine to represent 50% of the total score. Unless I missed it, Gartner did not break down this year for the first time the weighting of those four areas within the 50% total.


Regardless, this formula gives a tremendous advantage to some companies, such as Amazon given its huge revenue growth or McDonald's and its 175 or so inventory turns per year. It also penalizes companies like a Home Depot or a Lowes, for example, which are only going to have turns in the mid-single digits at best, because of their need to stock every item under the sun to meet customer service targets, many of which are very slow movers.

In general, this approach also penalizes a company within a given sector that strategically decides on a higher service, lower turns strategy (even though we can all agree that inventory efficiency is a very important attribute of supply chain excellence). It also gives an advantage to companies that are aggressive acquirers in terms of the revenue growth factor.

Companies that have heavily outsourced production and distribution also have an inherent advantage. Why? Because they have chosen to shed assets, and that often drives their ROPA metric higher. While outsourcing can be a very smart thing for many reasons, it does not inherently improve a supply chain. This metric also discriminates against asset-intensive businesses, such as chemicals and automotive. That is in why we see only three such industrial companies (Schneider Electric, 3M and BMW) in the top 25.

 

So, at this point, you must be a very large and public company to be considered in the analysis. Private companies do not have the public financial data needed for this part of formula and cannot make the list.

 

Another 25% of the final rankings come from so-called "peer opinion." For 2021, this consisted of somewhere between 150 to 200 apparently very influential respondents who first select a group of 25 companies from the master list of about 300 that they believe are highest in terms of supply chain maturity. This is an impportant change - in recent years, the criteria was what companies were doing the best job of being a "demand-driven value network orchestrator" - not exactly a commonly understood concept.

 

As a note, you must apply to be on of these supply chain voters, and be a supply chain professional, not a consultant, etc.

From those selections, respondents are then asked to rank those companies from first to last, from which points are assigned to the companies selected based on how they are scored across respondents.

The final 25% of the composite score came from votes from unspecified number of Gartner's own supply chain analysts. They use the same tool and criteria that the peer group does in ranking company supply chains.

Take the financial rankings plus ESG scores, and the votes from the peer and Gartner analyst groups and voila, out spits the top 25 in something like a mathematical fashion.

Is the process perfect? Certainly not. The unstated assumption is, for example, that stellar financial results equals supply chain excellence. Only very large companies are considered. Who really knows how good/mature most other company supply chains are? And it seems clear to me that working with Gartner and even better speaking at the Executive Conference always has a beneficial effect on a company's placement.

So, with all that, here in general is the advice I give to companies hoping to crack the top 25: (1) understand the methodology, especially with regard to the financial data. Not much you can really do about that, but you can at least understand how it works and do some comparisons to key competitors; (2) encourage others outside your organization to participate in the peer review process and rate you highly; and (3) most important, if you are really serious about this, arrange "briefings" and/or written submissions to Gartner analysts touting what you are doing in supply chain in the same way that technology vendors do.

And speak at the conference.


The Gartner top 25 supply chains - it has many faults, but it is the best we've got. I look forward to it every year. It certainly stirs the pot – but there must be a better way. Or maybe not. More on this next week.

What do you think of the Gartner Top 25 2021 supply chain list and methodology? How could it be done better? Let us know your thought at the Feedback section below.



 

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If You Want a Successful WMS Project, You will Find the Blueprint in this Excellent Broadcast


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SUPPLY CHAIN TRIVIA ANSWER

Q: DHL disastrously acquired what US parcel carrier in 2003?

 

A: Airborne Express - It did not end well

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