Industryweek 1977 Apple

The Changing Face of the Supply Chain

June 16, 2010
Apple leads the evolution toward digital supply chains.

What exactly does a supply chain look like, and how do you know a good one when you see one? For the past several years, analyst firm AMR Research has attempted to rank the most successful supply chains in the world, balancing out the opinions of supply chain experts and AMR analysts with solid metrics (inventory turns, return on assets and revenue growth). Taking all of those factors into account, AMR then produces an annual list of the top supply chains, and for the third year in a row, Apple took the No. 1 slot.

Apple's status as a top supply chain company comes both from its product innovations, such as the new iPhone 4G (shown here), as well as its ability to generate billions of dollars from digital products.Although Apple makes most of its revenues from assembled products, like its popular iPad and iPod devices, in 2009 the company also made roughly $2 billion selling products that required no material sourcing, no production, no transportation and no warehousing, via its iTunes and App Stores. In fact, Apple is at the vanguard of what"s come to be known as the "digital supply chain," where products are delivered electronically to the end consumer rather than physically warehoused and transported.

"Many companies focus primarily on supply chain execution," says Debra Hofman, research vice president at AMR. "With ever-increasing unpredictability of demand, leaders also focus on improving their ability to sense changes and patterns in their environment -- changes in demand, design, supplier risk and more -- earlier than their competition."

In determining its list of nominations for the Top Supply Chains of 2010, AMR widened the field by considering companies it previously excluded. Fast food giant McDonald's, for instance, was added to the list because, as AMR explains, "not only do McDonald's sourcing decisions impact upstream agricultural markets nearly as heavily as Mother Nature, but its promotional tie-ins, toy and packaging development, and complex logistics networks play huge roles downstream in the consumer value chain." Mickey D's ended up at No. 11.

Another company new to the rankings in 2010 is Microsoft, which used to be excluded (as other software companies are) because of its lack of a "traditional, physical product supply chain." AMR softened its stance against software, at least in this case, due to Microsoft's popular Xbox gaming device, as well as peripherals and shrink-wrapped software products.

Since the methodology for compiling the rankings relies heavily on input from AMR analysts as well as supply chain experts, there's a margin of error involved when it comes to the impact of negative publicity. Case in point: A year ago, Toyota was ranked at No. 10, largely due to its status as a lean pioneer as well as its strong supplier relationships. In 2010, though, with its reputation severely pummeled by Congressional investigations, millions of recalls and a perception that some of its cars are unsafe to drive, the automaker plummeted to No. 49 on the AMR list.

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