Chain Reactions

The Top 25 Supply Chains of 2012


It’s that time of year again, when analyst firm Gartner reveals the winners of its supply chain popularity contest, and once again, not surprisingly, the most popular company in the world is also the Top Supply Chain: Apple. This despite the fact that Apple got hammered over the past year for any number of reasons, not the least of which is its somewhat sloppy management of its global suppliers, particularly Foxconn, which is as well known for worker suicides, fatal explosions and sweatshop conditions as it is for assembling Apple’s iPads and iPhones.

Besides making extremely popular products, what Apple does well is inventory turns. With a turn rate of 74.1, Apple did at least twice as good as its next-closest competitor (Dell, at 35.6), with no other company hitting even 20… except for one company, which actually has a turn rate almost twice as aggressive as Apple’s, namely McDonald’s (142.4). That’s a lot of burgers, no doubt about it, but Gartner’s analyst team of Debra Hofman and Stan Aronow also point to the launch and expansion of Mickey D’s McCafe product line. Could be someday we’ll see new signs under the golden arches proclaiming how many billions of coffee drinks have been sold.

McDonald’s was number 3 on the list and Dell was number 4, but somewhat surprisingly, the number 2 company on the Gartner Top 25 is Amazon. The online retailer had a relatively modest inventory turn rate of 10.0, and an almost microscopic three-year weighted return on asset rate of 4.4% (the lowest ROA out of the Top 25). Where Amazon does particularly well, though, is on the popularity side, since the company finished second only to Apple in peer opinion votes.

Gartner cites Amazon for such things as its “intraday delivery for major markets and use of pickup lockers at selected 7-Eleven stores, all requiring robust demand management and supply delivery capabilities.” You could also add in Amazon’s commitment to material handling and automated warehousing, exemplified in its recent acquisition of Kiva Systems. But what I find curious is Gartner (and the voters) giving credit to Amazon for supply chain tasks that are in fact largely accomplished by transportation and logistics companies. Shouldn’t UPS, after all, be acknowledged for enabling Amazon’s first-rate delivery capabilities? And why aren’t UPS, FedEx and other supply chain specialists considered as candidates for the Gartner rankings?

According to Hofman, the rankings begin with the Fortune Global 500 and Forbes Global 2000, with the cutoff being annual revenues of $10 billion in size. But it doesn’t stop there – only companies in manufacturing, retail and distribution are considered because they have “physical supply chains.” However, Gartner doesn’t define what it means by “manufacturing, retail and distribution.” Consider, for instance, that IBM no longer qualifies for contention as one of the Top 25 Supply Chains, apparently because it’s gotten so successful with its service offerings – this despite the fact, as Gartner admits, that IBM makes more in its hardware business alone than many Fortune Global 500 companies. Consider that, using the same questionable criteria, Microsoft is also no longer eligible to be ranked as a top supply chain, despite the fact its Xbox and related accessories are some of the best-selling products on the planet. Consider as well that “distribution” does not include mail, package and freight delivery companies, or airlines, or railroads, or shipping. In other words, any company that excels at managing the physical distribution of products is automatically excluded from the list. Only on the Bizarro World could that kind of logic make sense.

So all told, after all that whittling down, only 298 companies worldwide are eligible for the Top 25 list, so if a company makes the initial cut, they’ve got better than an 8% chance of making the Top 25, assuming everything else is equal (which of course it isn’t, since the vast majority of companies in the final list are household names). As Gartner admits, the list of companies that make the Top 25 are mostly consumer goods and high-tech companies. Industrial manufacturers in particular have a tough time cracking the list, and not a single automotive firm is on the list. The three industrials that made the list all crowd into the bottom of the list: Caterpillar at number 20, 3M at number 21 and Cummins at number 23.

I continue to be confounded as to who exactly keeps voting for Johnson & Johnson every year. Gartner cites J&J for “its use of global, integrated category management teams” and its “supply chain center of excellence.” I’m not sure which of those groups should be held accountable for the hundreds of millions of products J&J has recalled over the past couple years, or for the production facility that the FDA ordered the company to shut down in 2011. Maybe none of the voters realize that McNeil s is a J&J company?

It’s also difficult to figure out how Research in Motion (aka Blackberry) made the list, especially since it didn’t really do all that well with the voters.

On the bright side, Gartner has done a good job in recent years of opening up the voting to people outside of the United States, which accounts for a Swedish apparel company, H&M, debuting on the list this year at number 17. According to Gartner, H&M’s success is due to “a proprietary distribution network of centrally controlled stores, efficient management of production and logistics, and short lead times for quick response to market trends.”

Another newcomer to the list is Kimberly-Clark, and I’m not sure why they never made the list before. The consumer goods company certainly excels in numerous areas of supply chain management.

According to Gartner, the three trends that all supply chains had to deal with over the past year, and that the best companies dealt with better than most, were resiliency (particularly dealing with the Japanese earthquake and tsunami), simplification (i.e., reducing complexity in product design) and the shift to multilocal operations.

I’ll let Debra Hofman have the last word: “Last year, we noted that companies were starting to invest in resources and assets again, reflecting a newly recovering economy. This year, that trend continues even more strongly, with many companies investing for growth. The global economic recovery has been uneven and halting in some cases, but on balance, the result has been expansionary for companies’ bottom lines and outlooks.”

In the best tradition of Casey Kasem’s countdowns, here are the Top 25 Supply Chains of 2012, in reverse order:

25. Kimberly-Clark
24. Hewlett-Packard
23. Cummins
22. Johnson & Johnson
21. 3M
20. Caterpillar
19. Research in Motion
18. Nestl
17. H&M
16. Starbucks
15. Inditex
14. Nike
13. Samsung
12. PepsiCo
11. Colgate-Palmolive
10. Unilever
9. Wal-Mart Stores
8. Cisco Systems
7. Intel
6. Coca-Cola
5. Procter & Gamble
4. Dell
3. McDonald’s
2. Amazon
1. Apple

Here are links to the Top 25 Supply Chains from previous years:

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This would be valid if only colleagues could interact. I have seen many workplaces in large organizations where only management can interact. All infomation must flow through managers. To make it worse the work layout does not support interactions. ... If you want the benefits of co-location you have to have the right management structure and the right physical structure!!!

on Feb. 26, 2013
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