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Focus: Manufacturing

Feature Article from Our Supply Chain Trends and Issues Subject Area - See All

From SCDigest's On-Target E-Magazine

Aug. 17, 2011

Supply Chain News: Gartner Names Top 10 Industrial Supply Chains


Emerson Electric Comes Out on Top, but Industrial Companies Score Fairly Low Overall; Do Industry Dynamics Mean its Supply Chains aren't as Good?


SCDigest Editorial Staff

AMR Research began announcing a Top 25 supply chains list a number of years ago, a practice continued and expanded under Gartner after the company acquired the Boston-based AMR is early 2010.

That has included developing extensions to the core top 25 list by announcing top supply chains in specific sectors, such as consumer goods.

SCDigest Says:


The reason industrial companies may rank low overall may just have to do with the nature of this sector, which could for example require lots of assets and space parts, which would impact their ROA and inventory turns numbers.

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Last week, Gartner extended the concept further with its announcement of what it sees as the Top 10 industrial company supply chains. Though not providing a clear definition of what "industrial" means, the names on this year's list are characterized by what are generally viewed as discrete industrial products companies, including several conglomerates that operate across multiple industries.

The companies were rated based on a series of financial metrics (meaning private companies were not considered for the list). Those metrics are return on assets, inventory turns, and revenue growth, based on 2010 fiscal year results. Also factored in the formula that leads to a composite score that determines the final rankings is "peer opinion," which presumably includes some subjective ratings from Gartner analysts, though this is not really explained in the report.

The final composite score is thus determined by this formula:

Composite Score = (peer opinion * 25%) + (Gartner opinion * 25%) + (ROA * 25%) + (inventory turns * 15%) + (revenue growth * 10%)


Emerson Comes Out on Top

Based on this analysis, St. Louis-based Emerson, a $21 billion maker of a wide variety of electrical and power equipment, and generally very well-respected as a company overall, came out on top. Emerson was followed by Hyundai Heavy Industries (a ship builder), Caterpillar, and John Deere, as shown in the table below.

Interestingly, as seen in the table, these top industrial supply chains were rated relatively low in terms of the overall top rankings. For example, top ranked Emerson came out only number 34 across all companies, well out of the top 25.



Source: Gartner


But this can simply be a reflection of industry dynamics, notes SCDigest editor Dan Gilmore, who worked at analyst firm META Group in the late 1990s (META itself was later acquired by Gartner).

"I applaud Gartner for both calling out industrial supply chains, which tend to not get much exposure, and also for using a mostly objective methodology in determining the top performers," Gilmore said."But the reason industrial companies may rank low overall may just have to do with the nature of this sector, which could for example require lots of assets and space parts, which would impact their ROA and inventory turns numbers. A sector's revenue growth also comes in to play. Does this mean their supply chains are not as good as say a company in consumer packaged goods? Not necessarily."

(Manufacturing article continued below)




Gilmore added: "Does that mean these supply chains aren't as good as those in other sectors? Not necessarily. But the fun is in the debate, and that's what these kinds of lists stir up."

Gartner says key characteristics of top industrial supply chains include:

Integrated global strategies: Organizations are increasing their focus on strategic links between global strategy, R&D and local/regional supply chain organizations.

Segmented business strategies: Companies are increasing alignment of supply chains with product and customer segmentation.

Insight into emerging technology trends: Many industrials are focusing on nascent technology development, but, like renewable energy, these developments bring risks before the technology becomes dominant. This requires organizations to understand the trade-offs, and demonstrate flexibility to integrate portfolio management and business development.

Sustainable performance and the business of sustainability: Leaders are increasingly focused on being good global citizens, achieving efficiencies, transforming the business through sustainability efforts and developing sustainability as the new business. Highly ranked industrial companies see sustainability as more than a compliance exercise. They view it as a way of improving their operations and overall businesses as a part of the broader environment.

Relationship-driven supply chain: Leaders are increasing collaboration between consumers, dealers, employees, suppliers, universities and other associations across the supply chain.

What do you think of Gartner's top 10 industrial supply chains list? Can companies be fairly rated using this approach? Any other industrial company you think should be added to the list? Let us know your thoughts at the Feedback button below.

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