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June 1, 2017 - Supply Chain Flagship Newsletter
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This Week in SCDigest

bullet Understanding the 2017 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 Continues bullet Trivia      bullet Feedback
bullet Supply Chain by Design and Expert Column bullet On Demand Videocasts
  FEATURED PUBLICATION  
 
 


The Retail Vendor Performance Management Bulletin


May 2017 Issue

 
 

This Month:

 

• Greg Holder on Vendor Compliance and eCommerce

Auburn University's Brian Gibson on Driving Vendor ASN Performance

Walmart, Sainsbury's Both Demand Big Savings from Vendors

Sears CEO Battles with Suppliers as Shares Continue Downward Spiral

 

• Amazon Courting Major Consumer Goods Brands to Sell Direct

 
     
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SUPPLY CHAIN NEWS BITES


Supply Chain Graphic of the Week
Carrier Operating Performance by Mode for Q1 2017


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Japan, Germany Need Robots to Deal Aging Populations

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eFulfillment Wars have Come to Pizza Delivery
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MIT Breakthrough in Pasta Delivery?
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UPS Joint Venture to Power China to US Air Shipments
   

CARTOON CAPTION CONTEST CONTINUES

May 15, 2017 Contest


See The Full-Sized Cartoon and Send In Your Entry Today!


GARTNER SUPPLY CHAIN EXECUTIVE CONF 2017 VIDEO REVIEW AND COMMENTS



Day 1 Day 2

Holste's Blog: What Is The Correct Level Of DC Automation?
 
The Retail Vendor Performance Management Bulletin

May 2017 Issue

ONTARGET e-MAGAZINE
Weekly On-Target Newsletter:
May 31, 2017 Edition


Cartoon. Peak Oil Demand, DC Automation Questions, New RFID Sensor Tag and more

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This White Paper Discusses the Big Five Elements for Sourcing: Production Facilities, Raw Material Sources, Labor Pool, Logistics and Export Capabilities and Infrastructure.


SUPPLY CHAIN BY DESIGN
What Toyota, Schneider National, PayPal, and Palantir Got Right



by Dr. Michael Watson

EXPERT COLUMN
The China Factor: Global Trade's Big Hub



by Gary M. Barraco
Director,
Global Product Marketing
Amber Road

The acronym GMROI refers to what popular supply chain metric?

Answer Found at the
Bottom of the Page


Understanding the 2017 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 2017 Executive Conference) but left before the big dinner Wednesday night where the top 25 list has now become unveiled each year.

GILMORE SAYS:


The minimum revenue to be included in the final evaluation list was again an amazing $12 billion.

WHAT DO YOU SAY?

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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.

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 Unilever came out on top for the second year in a row (link to the 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 relatively 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.

Now, Amazon has also joined this masters list, after having ranked number 3 in 2016.

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.

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

With Amazon, Apple, P&G withdrawn from the competition, the rest of the top 10 was number 2 McDonald's, followed Inditex (Zara), Cisco, H&M, Intel, Nestle, Nike, Colgate-Palmolive and Starbucks.

Just two new companies made the Supply Chain Top 25 this year versus 2016, that being phone maker Nokia and spirits maker Diageo. With Amazon being promoted, just one company fell out of the top 25, that being drug maker GlaxoSmithKline.

Here is a quick visual of the top 5 for 2017, compared with 2016 and 2015 ratings, with a link below to the full chart of all 25 companies:


So, you ask, 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 again an amazing $12 billion.

From that culled list, Gartner analyzes publicly available financial data, specifically looking at three metrics from 2016 financial reports:

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 again 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 175 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 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 does not inherently improve a supply chain move. This metric also inherently discriminates against asset-intensive businesses, such as chemicals and automotive. That no doubt why we see only three such companies (Schneider Electric, BASF and BMW) in the top 25, generally 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.

For the second year in a row, a new corporate social responsibility factor was added, which now represents 10% of the total composite score. This factor, entered in the end as a number between 1 and 10, comes from a combination of publicly available 3rd party scores on this criteria (which you can trust as accurate or not). Number 1 Unilever again received a perfect 10 score on this measure, as did a number of others. Gartner says that metric was tweaked a bit for 2017, though exactly how is not detailed in the Top 25 document.

Another 25% of the final rankings come from so-called "peer opinion." For 2017, this consisted of about 169 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. Gartner defines DDVN orchestration as is being "characterized by an understanding of customer value with processes and metrics that enable business trade-offs to deliver products and services profitably. Companies that work toward the DDVN ideal use demand management as a key differentiating capability, so they can plan, sense and shape in a way that brings profitable balance to the business."

The final 25% of the composite score 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 last year and Johnson & Johnson this year) always has a beneficial effect on a company's placement.

There are other mysteries: the scores from the peer and Gartner analyst ratings are often quite different, with this year for example Walmart being rated relatively highly by the peer group and low by Gartner; looking at the detail numbers for all the factors, it is impossible to really understand how the rankings came out as they did.

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.)

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
   

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How DOM and WMS Work Together to Power Omnichannel Supply Chains

Experts from Tompkins International and Softeon Set the Record Straight in Fast Paced, Q&A Format

This discussion will be based on an outstanding new "Executive Brief" on this same topic, developed jointly by Kevin Hume of Tompkins International and Satish Kumar, a vice president at Softeon.


Featuring SCDigest editor Dan Gilmore, Kevin Hume of well-known consulting firm Tompkins International and Satish Kumar, a vice president at Softeon.

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Featuring  Dan Gilmore, Editor, along with Mark Hawksley and Bruno Dubreuil of TECSYS, a leading provider of WMS solutions.

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Innovation in Shipper-3PL Relationships Benchmark Study Results

New Research will be Unveiled from SCDigest and JDA On This Increasingly Important Topic

In this outstanding broadcast, SCDigest and JDA recently completed new research study on innovation in shipper-3PL relationships, with the goal of obtaining the perspectives of both shippers and service providers on this increasingly important topic. All registrants will be sent a copy of the report will all the data shortly after the Videocast.


Featuring SCDigest editor Dan Gilmore and Danny Halim and Lori Harner of JDA.

 

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YOUR FEEDBACKS

Some of the many emails we received on SCDigest Editor Dan Gilmore's column on Irrational Shipping Prices and the Demise of Brick and Mortar Retail and Reader Respond - Irrational Shipping Prices and the Demise of Brick and Mortar Retail.

More soon.

Feedback on Irrational Shipping Prices and the Demise of Brick and Mortar Retail Parts 1 and 2

comma

Great article by Dan Gilmore, I think he's spot on with his commentary. The state of brick & mortar retailers is hard to watch from a consumer's standpoint versus and investor standpoint. When it comes to apparel, for the most part I personally I have to feel it, touch it, and try it on. Certain on-line purchases make sense and are extremely convenient. I guess it comes down to comfort level and how tech savvy the consumer tends to be with technology.

It will interesting to see how things play out with Amazon and their quest to dominate the world's global supply chain. When does it stop or does it ever stop? Will the success/failure continue to be investor driven, consumer driven or both?

I look forward to reading Dan's future columns and appreciate the opportunity to provide feedback. Wishing SC Digest much continued success in 2017 and beyond.

John L. Antonucci
VP Corporate Accounts
721 Logistics LLC


comma

While I see the truth in what you are saying generally, I think you are being a bit too broad. Retail is surely suffering in some places, and some malls are having tough times. But I think it is tied more to the geo and the forward thinking of retailers. Most should have joined the on-line bandwagon sooner rather than worrying about B&M operations losing out. Most should have figured out how to incorporate the stores (kiosks, store pickup, etc.). I love that I can order from Walmart (and others) online and pick my order up at the store 1 mile away in 2 hours or less. Most should have figured out the Gen X and Millennials a long time ago.

On the subject of malls and geo. Consumers like the trick, new thing. Upgrade your mall (and your thinking) and you may find a real winner.

I live in the Salt Lake City area - a pretty tech savvy place (Ogden, Salt Lake, Provo). Recently the LDS church opened a new downtown (City Creek) mall to rave reviews and lots of business. There is a suburban mall (Fashion Place) which is almost too busy to visit with a soon to open, very large Macy's plus Nordstrom, Dillard's (replaced Sears), Crate & Barrel and many other high end stores. Fashion Place has been around for 50 years and has recently been revitalized to focus on a more selective (high income, young) market.

Another recent success is the Valley Fair Mall - which has been revitalized. Another downtown mall that was extremely popular until City Creek opened was the Gateway. Gateway (an open outdoor type mall) is going through modernization (although it is less than 20 years old) to better compete with City Creek.

A common feature of the successful locations seems to be the Apple Store. Hip, young (or young at heart) shoppers seem to enjoy good shopping, good food and features that appeal to them. Apple was at Gateway until City Creek opened.

Older malls and retail need to take notice.

Steven R. Murray
Supply Chain Visions

Editor's Note:

I think you are missing a few critical few points:

What would happen to ecommerce sales if appropriate pick pack and ship costs were charged?

Items in store should actually be priced lower than online products, because the costs are way lower - but they are not.

Because these things, brick and mortar woes, and the unbelievable change ecommerce is bringing, is happening much faster than it should.

Someday, these costs will have o be charged. They simply must be.

Dan Gilmore



 

comma


 

comma

Great article, really interesting perspective on how Amazon may be accelerating the penetration of ecommerce.

I would contest one statement you make about the price of typical goods, and that in most cases they should be priced cheaper than ecommerce. I understand the point you are making, that shipping costs are built into the in-store price but are not being built into the ecommerce prices yet; however, there are other brick and mortar costs (facilities, rent, equipment, labour, etc) that need to be built into an in-store price - many of these represent costs that ecommerce avoid completely. To me, these costs are material, and comprise the basic essence of why ecommerce is winning.


Mark Johnston


 

comma

I do agree with Gilmore!

On this track, I read not so long ago that about 90% of new business strategies fail. Further, that it is typical to find that there's something that will work arising out of the failure, thus it is wise to maintain resources in reserve to apply in support of that successful element going forward. There are many stories of massive all-in, bet-the-farm commercial disasters. The other salient observation offered was that long term success was more often achieved by strategies that started small and achieved profitability early and then leveraged to gain share vs. those that stressed rapidly building market share at a loss from the start while striving to cross some far off break-even tipping point.

By appearances, Amazon's journey seems like it falls prey to the considerations above. Maybe they made some money early on when they only sold books. Since then, my sense is that it's been 2% or less profit or losses, and should revenue growth sputter- look out?

Meanwhile Mass Merchants and other retail leaders are dealing with the disruption, and from what I can tell, are mighty worried and not just a little grumpy about dealing with all the challenges associated with Omni channel.

Meanwhile, the ‘music continues to play'.

Tom Miralia
Distribution Technology



comma


SUPPLY CHAIN TRIVIA ANSWER

Q: The acronym GMROI refers to what popular supply chain metric?

A: Gross Margin Return on Inventory, a measure of inventory effectiveness.

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