I’ve been waiting for this time of year. Since a blog is about an opinion, and I spent two years running the AMR Research High Tech practice, I want to share my predictions on how the Gartner 2013 Supply Chain Top 25 will shake out.
Before I dive into my predictions, let’s first look at the voting process. For level setting, the voting is broken into the following:
- 50% Financial Metrics: Return on Assets, Inventory Turns and Revenue Growth
- 25% Peer Vote
- 25% Analyst Vote
Remember, if you aren’t on the Fortune 500 or global Forbes 2000, you are not even put in the bucket. Also, I am ok with eliminating insurance and banking. Hey, for what the banking industry has done in the past few years, they deserve it. It also doesn’t help that PNC Bank took 7 months to close on our California house! But, eliminating IBM and Microsoft because they are too software focused doesn’t seem right - especially with all the digital supply chain opportunities. And, this is coming from an ex Apple guy!
The financial metrics continue to reward the low asset, high turn companies. Therefore, it’s a tough road for those in aerospace, chemicals and automotive.
So, let’s focus on the voting aspect. Most of the analyst votes are unavoidably influenced by “soft” factors. For example, many companies make it a specific goal to be on the Top 25 list and will make a concerted effort to interact with the analysts leading up to voting. By default, the more the analysts know of a given company/supply chain, the better position the analysts are in to gauge their appropriateness for the list. Other “soft” factors include the changeover of analysts, as well as the differing perspectives they bring with them given previous experience. I believe there is a growing contingency of analysts with management consulting backgrounds as opposed to practitioner experience.
At the end of the day, the voting is based on opinions which, of course, will naturally include biases.
The peer voting is also a tough one to measure. Brand is certainly a huge factor. That’s why Apple gets a lot of votes, not FoxConn (Hon Hai). Voting by industry also makes a difference. If more high tech voters participate, then they are more likely to “know” about their peer’s supply chain. I also like to watch which companies are attending & presenting at the major supply chain conferences. Getting the word out at these events seems to correlate to peer voting.
2013 Supply Chain Top 25: Five Bold Predictions
1. After a three year run at #1, Apple will fall out of the top spot in 2013
- This is a tough one for me, being ex Apple. 2012 sales were up 45%, earnings up 59%. But, average employee salaries jumped from ~60k to ~72k. Share prices were down ~ 10%. There’s a good amount of peer talk about Apple’s product line being hit by the competition. Apple is expected to open 30-35 new retail stores in 2013, something that will impact their ROA. I also think the new product “halo” factor has been hit this past year due to product and management issues.
2. After placing 18th in 2010, 16th in 2011, and 7th in 2012, I predict Intel will be in the top 3 of the 2013 Top 25
- Intel has done a lot in 2012 to move up. In the Gartner “Supply Chain's Journey Through the Five Stages of DDVN Maturity”, they are the “Stage 5” case example. The new COO, who also is in charge of IT and HR, is putting a ton of focus on speed and agility, positioning him as a forerunner to CEO.
3. After placing 5th in 2010, 2nd in 2011, and 4th in 2012, Dell will fall out of the top 10
- Dell has one of the better supply chains, with a focus on operations as well as sustainability. However, their recent focus on services and acquisitions may impact their “Top 25” financial numbers. They announced a $1B investment in cloud data – opening 11 solution centers, 2 data centers, and increased R&D budget by 30%. Dell has been busy on the acquisition front as well – RNA Networks, Force10, AppAssure, SonicWal, Wyse Technology, Clerity, and Make Technologies.
- Recent news (i.e. just before voting started) will also impact peer votes. Dell posted a decline of 31% in 4th quarter profit and a 32% decline for the fiscal year. The leveraged buyout of shareholders may sway voters, and ultimately take Dell off the Top 25 list due to “readily available, audited public data”.
4. Don’t be surprised if Coca Cola (#13 in 2010, #11 in 2011, and #6 in 2012) places #2 in 2013
- This is one of those gut calls. Coca Cola has been rising in the Top 25 ranks. They’ve recently had good press for higher than expected profits. They announced a refranchise model, getting out of the capital intensive, low return business of delivery bottles & cans. That margin improvement plan helped their stock, and my gut says it will put a positive light on peer voting.
5. From #10 in 2010, to #5 in 2011, to #2 in 2012, Amazon will come in at the #1 spot in the 2013 Top 25 Supply Chains
- Amazon’s AWS (Amazon Web Services) is fast becoming the cloud computing platform of choice. Bernstein Research expects AWS to have an estimated $20B in revenues by the end of the decade. Peer voting will be influenced by Amazon’s cloud reach & success.
- Sales for 2012 were at an all-time high of $61B! a 27% increase from 2011. But, and this is a big but, 2012 net loss of $39M was a big swing from the 2011 net income of $631M. The investments in Kindle, digital content and global infrastructure impacts profit, but is the right strategic play for the multi-billion dollar e-books business.
Amazon brings me to my final point. Supply Chains are now considered part of business success, not just a needed function. New supply chain skills & techniques: consumer loyalty & trust, high touch service, social commerce, mobility, and predictive analytics, will be required. Most of these techniques will be delivered via the cloud. Cloud is an expense item, not on the COGS, and will greatly impact the Top 25 financial metrics of ROA and Inventory Turns. Amazon, and supply chains that integrate new business models (like social commerce and online consumer) will be the cutting edge supply chain leaders, and we will need to re-think demand driven vs. ROA/Turns. In the end, the Top 25 Supply Chains is mostly about bringing corporate awareness to the benefits of supply chain. I’d love to have innovation, agility, collaboration, service and profitability metrics. Aside from self-reporting, these are not readily available, audited, and comparable across industry. The best part about the Supply Chain Top 25 list is that supply chain is more than ever being seen as a key part of corporate success.