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 icandidates 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 used to be released at a dinner the Gartner Supply Chain Executive Conference in May (now called the Supply Chain Symposium), but this year it was released in a webinar two weeks after the conference.
Let's take a look.
Gilmore Says.... |
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Is the process perfect? Certainly not. The unstated assumption is, for example, that stellar financial results equals supply chain excellence.
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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.
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 Schneider Electric came out on top for the second straight year - sort of.
I put it that way because again in 2024, Apple, Procter & Gamble, Amazon, and Unilever were left off the formal top 25, as those four 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.
This means Schneider might really be rated as anywhere from the first to 5th best supply chain, if the Master companies were included.
By the way, long time Master McDonald's was for the second year not a member in 2025, for reasons not clear. Last year it was still in the top 25, but dropped out entirely this year.
Why does Gartner do this? It frankly may have to do with in effect getting more companies in the top 25 plus the 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, and Unilever withdrawn from the competition, the rest of the top 10 after Schneider Electric were: (2) Cisco; (3) Colgate-Palmolive; (4) Microsoft; (5) Johnson & Johnson; (6) Diageo; (7) NVIDEA; (8) Coca-Cola (9) Walmart; and (10) Lenova.
Those top three are a repeat from last year.
Four new companies made the Supply Chain Top 25 this year versus 2023, those being: NVIDIA, Danone, Heineken and JD.com, while NIKE and BMW both returned to the Top 25 after a one-year's absence in 2023.
Falling out of the top 25 this were Tesla, McDonald's (as noted above), Alibaba, AB-InBev, GSK, and Dow.
Below is a chart of this year's Top 25, also with where each company placed in the previous two years (NA means not in the top 25 that year).
So, you ask, how on earth is the top 25 determined?
Gartner says it starts with the Fortune 500 list of top public 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 $15 billion, up from the $12 billion threshold seen for nine years.
Importantly, new this year: companies must have a minimum “S&P Global ESG Score” for inclusion in the company list at the start of the process.
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. You must also have a high ESG score.
The end result is usually about 300 candidate companies.
From that culled list, Gartner analyzes publicly available financial data, specifically looking at four metrics from 2023 financial reports:
Return on physical assets (ROPA): Net income / total physical assets
Change in ROPA: Year-over-year
Inventory turns: Cost of goods sold / inventory levels
Revenue growth: Change in revenue from prior year
Revenue growth and ROPA 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).
In addition, from an "objective" data perspective, Gartner uses mostly external rating data to calculate a score for ESG (Environmental, Social, and Governance), but starting last year including some kind of analyst input. There were some other changes this year in the ESG scoring, too complex to deal with here, but suffice it to say ESG continues to grow in importance in the total score, and this year Gartner made it more difficult to get a top score.
The four financial metrics together account for 30% of the total score. The ESG score gets a weighting of 20%, bringing the share of “business metrics” to 50%.
This formula gives a tremendous advantage to some companies, such as Amazon given its huge usual revenue growth or McDonald's and its 175 or so inventory turns per year (though it didn't get them in the top 25 for 2024).
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 part why we see only three such industrial companies (Schneider Electric, Siemens and BMW) in the top 25.
Another 25% of the final rankings come from so-called "peer opinion." For 2024, this consisted of an un-specified number 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.
As a note, you must apply to be one of these supply chain voters, and be a supply chain professional, not a consultant, but in 2022 academics were allowed.
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 an unknown 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 supply chain 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) do the same with the ESG ratings; (3) take advantage of the opportunity to request to participate in the Gartner Top 25 Supply Chain Research Information
Packet (SCRIP) and Company Briefing process, up to the first week of March or so each year, to share details of your key initiatives with Gartner experts before they vote and (4) encourage others outside your organization to participate in the peer review process and rate you highly.
And speak at the Gartner 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.
What do you think of the Gartner Top 25 2024 supply chain list and methodology? How could it be done better? Let us know your thought at the Feedback section below.
Your Comments/Feedback
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Peter
Retired, NA |
Posted on: Jul, 16 2024 |
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I agree with your comments. The process is far from perfect.
My concerns:
1. The title is a misnomer... they are not rating SCs, they are rating individual companies. Yes, they are part of a SC but they are not THE SC.
2. With the changes they made this year to the 'technical' rating part, my worry is they are assessing the 'wokeness' of an organisation more than its SC performance. ESG has been raised to 20% weighting this year for example.
3. There are NO customer measures. I find this the greatest flaw with their method.
4. The only real SC measure they have is inventory turn. What about delivery performance, lead-times, SC flexibility, SC responsiveness to changing customer requirements, time to market for new products and services, and total SC costs?
5. With the use of internal raters and external raters, I wonder how much doubling up of rating is going on. I.e., how many 'SC' performance outcomes or performance dimensions are being rated multiple tmes?
I suggest that the rating process they use needs a professional review.
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