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May 26, 2016 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet Understanding the 2016 Gartner Top 25 Supply Chain Rankings bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Winners Announced bullet Trivia      bullet Feedback
bullet New Supply Chain by Design and Keep It Moving bullet New Videocast and On Demand Videocasts
first thought


Supply Chain Graphic of the Week
The Gartner Top 25 from 2014-2016

US Retailers Awash in Inventory
Panama Canal Route to/from Asia will be Much Shorter
Nike Says it is Committed to Going Circular
Confusion about Meeting New Container Weight Rules

Supply Chain Software Trends and Opportunities Benchmark Report 2016

From the Search for Greater Agility to the Coming Era of Cloud Software, Where are Companies Headed?


Week of April 26, 2016 Contest

See Who Took Home the Prize!

Holste's Blog: Evaluating Goods-to-Person Order Fulfillment Solutions Part 1 of 2

Weekly On-Target Newsletter:
May 25, 2016 Edition

Last Chance Cartoon, Locus Robot, LTL Q1 Results, China Wants Kuka and more

The Report Compiles Valuable Findings From Respected Supply Chain Authorities

Two Big Reasons You Don't Want to Maximize Profit in your Supply Chain Model

by Dr. Michael Watson

Locus Robotics - An Independent Consultant's Review Part 1

by Marc Wulfraat
MWPVL International, Inc.

This eBook discusses lessons learned which include routine principles, as well as, ground-breaking insights and an introduction to the economic impact of forecast error.


How many different contract manufacturing sites does athletic gear giant Nike use globally?

Answer Found at the
Bottom of the Page

Understanding the 2016 Gartner Top 25 Supply Chain Rankings

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 chain list.

I spent two days at the Gartner Supply Chain Executive Conference last week in Phoenix (See Trip Report: Gartner 2016 Executive Conference) but left before the big dinner Wednesday night where the top 25 list has now become unveiled each year.


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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," top 25 healthcare, industrial, and consumer goods supply chains, etc.

So once again at the conference this year, I asked around a bit, and 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.


More on that in a second.

This year for the first time Unilever came out on top, replacing Amazon (link to full list a little later in this column).

Again this year, Apple and Procter & Gamble were left off the formal top 25, as both those companies have now been placed in a separate new 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.

Both Apple and Procter & Gamble have done just that, and each would have made the top 5 again here in 2016.

Why do this? It frankly may have to do with in effect getting more companies in the top 25 plus the new master's category combined - Gartner clients like that recognition, of course. It may also have been in part in in reaction to some criticism two years ago from an ex-AMR/Gartner executive Kevin O'Mara, who said the top 25 was becoming boring because it changed so little year to year.

I find the master's list idea a little goofy, but so be it.

With Apple and P&G withdrawn from the competition, the rest of the top 10 was number 2 McDonald's, followed by Amazon, Intel, apparel retailer H&M, Inditex (Zara), Cisco, Samsung, Coco-Cola, and Nestle.

Five new companies made the Supply Chain Top 25 this year versus 2015, with Schneider Electric, BASF and BMW joining the list for the first time, and the new HP and GlaxoSmithKline rejoining after several years' absence. Cummins, Home Depot, Qualcomm, Seagate, and Toyota fell out of the top 25.

Here is a quick visual of the top 5 for 2016, compared with 2015 and 2014 ratings, with a link to the full chart of all 25 companies:

So, how on earth is the top 25 determined?

Gartner 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 an amazing $12 billion.

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

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

ROA and revenue growth use 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). These three metrics together are given a full 40% of the total score weight (20% to ROA, 10% to turns, and 10% to revenue growth). Those percentage weightings are actually down 10 percentage points this, year, as I will explain in a moment.

Now keep in mind that this formula gives a tremendous advantage to some companies, such as Amazon given its huge revenue growth or McDonald's and its 156 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, 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 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 grow through acquisition.

Companies that have heavily outsourced production and distribution also have an inherent advantage. Why? Because they have chosen to shed assets, and that drives their ROA metric higher. While outsourcing can be a very smart thing for many reasons, it is not inherently a better supply chain move. This metric also inherently discriminates against asset-intensive businesses, such as chemicals and automotive. That no doubt why we see only four such companies (3M, Schneider Electric, BASF and BMW) in the top 25, towards the end of the list.

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.

New this year is a factor for corporate social responsibility, which now represents 10% of the total composite score. This score, entered in the end as a number between 1 and 10, comes from a combination of some publicly available 3rd party scores on this criteria (which you can trust as accurate or not). This is as much as I know at present, other than in can be impactful. Number 1 Unilever received a perfect 10 score on this factor.

Another 25% of the final rankings come from so-called "peer opinion." For 2016, this consisted of about 185 apparently very influential respondents who first select a group of 25 companies from the master list of about 300 that they believe are doing the best job of being a "demand-driven value network orchestrator." Sure, we all have that list in our heads.

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.

So, the reference point, in theory at least, is not "the best supply chain," but rather leadership in "DDVN orchestration." Are these the same things? I would say certainly not. But I suspect the panelists in the end are probably really voting based on their perceptions of which companies have the best supply chains, DDVN orchestrators or not. (And yes, being "demand-driven" is again certainly an attribute of supply chain excellence, all things being equal.)

The final 25% comes from votes from 38 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, the external CSR scores, and the votes from peer group and Gartner analyst group (again, 40%, 10%, 25%, and 25%, respectively), 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, very large companies are considered. I am not sure demand-driven orchestration should really be the evaluation framework. Who really knows how good most other company supply chains are? And it seems clear to me that working with Gartner and even better speaking at the Executive Conference (see Schneider Electric) always has a beneficial effect.

There are other mysteries: GlaxoSmith Klein has mediocre financial numbers and middling peer and analyst scores, but cracked the top 25, it appears due to its CSR score. Is it really a top 25 supply chain? (It is in the midst of totally revamping and outsourcing its logistics operations).

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" with Gartner analysts touting what you are doing in supply chain in the same way that software vendors do. Ladle on significant helpings of demand-driven orchestration-ness. (Shoot me an email if you would like to discuss any of this.) I talked with two companies at the conference which had done just that.

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.

Any reaction to this year's Gartner Top 25 or methodology? Do you see any ways it could be improved? Let us know your thoughts at the Feedback button below.

View Web/Printable Version of this Column

New June Videocast:

Supply Chain Design as a Continuous Business Process - The Whirlpool Story

From Project to Process: Here's How to Get It Done

In this outstanding Videocast, we’ll explore the changes needed to make supply chain design a continuous process, emerging new best practices in supply chain design, and how consumer products leader Whirlpool has successfully embraced this 360-degree approach.

Featuring Dan Gilmore, Editor, SCDigest, and Toby Brzoznowski, Executive Vice President, LLamasoft and Brian Streu, Manager, Supply Chain Design, Whirlpool

Thursday, June 23, 2016

On Demand Videocast:

Now is Finally the Time for WMS in the Cloud

As Supply Chain Software Moves to the Cloud, Barriers to Warehouse Management Joining the Party have All Fallen Away

What has changed, and what WMS technology developments are fueling this transition. We'll cover all that and more in this detailed, fast-paced broadcast.

Featuring SCDigest editor Dan Gilmore and Dinesh Dongre, VP Product Strategy, Softeon

Available On Demand

On-Demand Videocast:

Trends and Issues Global Sourcing and Trade Management

Results from SCDigest's New Benchmark Study on Practices and Technology in Global Trade

You'll learn the results of the survey, unveiled in a new report launched with this Videocast. Not to be missed by anyone interested in global sourcing, global trade management and supply chain visibility.

Featuring SCDigest editor Dan Gilmore, Gary Barraco, Senior Director of Supply Chain Solutions at Amber Road, and Dan Gardner, President of Trade Facilitators Inc.

Available On Demand


More this week from the many excellent Feedbacks stemming from our columns on Lessons from Finish Line's Distribution Disaster. Note we mixed up the names and Feedbacks on two emails last week, which we have corrected below, plus some new ones.

Feedback on Lessons from Finish Line's Distribution Disaster:


As always, you have a knack for finding the sensitive point - like an acupressure point.

System go-live testing. Damned while you do it, damned if you don't do it.

You rightly point out that a really robust test plan can really save your bacon before you "flip the switch." The embarrassment of a delay is so much better than the debacle you describe above.

The systems implementation veterans have learned these lessons the hard way, and they will make sure the test plan is rigorous and complete. It would seem that none of the parties involved had one of them in the implementation team.

I learned this the hard way at a client, and now every new client will benefit from the experience of my very near miss. In my case, I had a veteran looking over my shoulder, and he kept me out of trouble. God bless Ray Healy and may he bask in the gratitude of the many younger staff he helped develop and grow!

Nick Seiersen


Finish Line most likely encountered the tendency to customize systems to accommodate familiar practices utilized within their operations. These practices are often considered "unique" to their business and are the result of legacy processes created to work around the shortfall in the capabilities of their obsolete systems. Folks working with these systems are comfortable with the processes and seek to re-create them in the new system rather than adopt what are considered standard or best practices in the industry on which the new WMS and DOM are based.

Strong operational leadership needs to be exercised during any WMS or DOM implementation to prevent or minimize customization by evaluating the current processes and making changes to fit accepted standard industry practices. Change is difficult for many who are wed to doing things the same way because that way is "unique" to the business. Leadership must educate the team on the need to change and persuade the majority to embrace it.

Rich Marshall


As they say, the highway to success in Project Management is littered with failures due to underestimating the risk. Rule number one - Never, never turn on a new system during Q4 or your prime business quarter. Rule number two - Validate all processes at full scale. Sure there are many "rules" you could point too but these two are key. Add to his the need to benchmark the solution providers successes and failures.

One might say it is hard to find this out - it is not. Due diligence is an expertise that requires background checks on the solution provider's customers and a review of the good, the bad and the ugly. And if they say they have no ugly they are not truthful. Not all implementations go well. Some due to the solution provider, some due to the customer being ill prepared to take on a major project. Lastly, with a project of this magnitude, trial runs and simulations of the full blown system should be presented to the CEO and staff before the system is green lighted!!

Tom Dadmun
Retired VP, Supply Chain



Q: How many different contract manufacturing sites does athletic gear giant Nike use globally?

A: 692 at the end of 2015, according to the company's just released sustainability report, down from 785 factories 2013, as it wants to work with fewer contract manufacturers more in-tune with its sustain ability and social responsibility principles.

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