400 Miles in the Desert: What happened to my Supply Chain Top 25 Picks?

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Supply Chain Conference

What a week we had at the Gartner Supply Chain Executive Conference in the wonderful venue of the JW Marriott Desert Ridge!

I missed the event at Palm Springs last year, so it was great to catch up with many old friends from my AMR Research days—from analysts to account leads to supply chain leaders. After the event, I drove back from Arizona to San Diego. Six hours in the desert brings clarity … or insanity … well, there’s a fine line between them. So, I’ll take the heat up front. I challenge you as a reader to respond…

“There needs to be a structural change to the Top 25 method”

Why? Well, six hours of staring at the desert made me reflect on my “Bold Predictions for the 2013 Top 25” blog post from a few weeks ago. I had Amazon at #1, Coca-Cola at #2 and Intel at #3. I had Dell falling out of the Top 10. At least I got the Dell pick correct J Intel did move up, but not to #3. They got #5. I was directionally correct. Intel has been out there speaking about their supply chain success, as well as creating end-to-end supply chain strategies with their partners. I’ll put some of the blame on my good friend Stan Aronow. Stan took the High Tech role I left at AMR, and my one piece of advice was to push his old company’s supply chain. I did that with Apple, and Stan is doing a bang up good job with Intel – he got them to #3 in the Gartner opinion vote. Coca-Cola was off. They came in at #9. Aside from Samsung, Apple, and Amazon, Coca-Cola had the highest 3-year weighted revenue growth for those above them, and the 4th highest peer opinion vote. I do think their strategy on the bottling model will improve their margins & ROA, so I expect them to finish above #9 in 2014. I would like to say something on Unilever at #4 and P&G at #6, but will leave that up to my buddy Roddy Martin’s blog J. Plus, while Roddy gave me a ton of insight, I forgot to bring a pen & notepad to the après Top 25 dinner gathering at the outside patio. Then comes Amazon. I had them at #1, but Amazon came in at #3. However, since they got 3,315 in peer opinion vs. McDonald’s 1,197, I think I’ll give a nod to my Amazon #1 pick. Wait you say … what about Apple at #1? Apple at #1 is exactly why I think the structure of the Top 25 Supply Chain model has to change. Apple received the highest peer opinion vote and the 6th highest Gartner opinion vote. I love Apple. Apple was one of the best companies I’ve ever worked for. I love their products - my wife and kids are addicts to the next release. But, supply chain knowledge of Apple? What did Foxconn say as a key supplier? I’d love to hear what the channels say. Have you been to the AT&T store a month after a release? They can’t tell you when they will have product available. Outside of a few suppliers, who has talked in depth with Apple executives —Jeff, Ber, Dierdre, Rita, Sabih— about their supply chain strategies? Ok, Ok, I’ll stop venting … all this dry heat from the desert…. Ultimately, the Top 25 model should change because the purpose has changed. AMR started the Top 25 to “raise the awareness” of supply chain in the company. Well, we got it. Most supply chains are part of the corporate discussion. Thanks, in part to the recession for shining the light on cost controls. There’s a new purpose I believe. And it came from Steve Steutermanns’ opening theme – FAST. Not in our Plan/Buy/Make/Deliver functional silos, but rather in the END-TO-END. Top 25 supply chains should be measured on their speed to control end-to-end processes. And in this measurement, there needs to be a unique set of people to validate this end-to-end speed. A side vent: leveraging one’s cash and market share position to force your suppliers and channels to jump should not be considered successful collaboration J The Voters Need to Change: I give great props to my friend Lora Cecere. She advocates doing a top supply chain by Industry. I think that’s a great concept. It would even make the Top 25 Dinner more interesting: something like a Top 10 by Industry. It would open up the possibility of having smaller companies be recognized. And, the most important part of this change would be to identify those key leaders in the Industry to vote. These leaders are more likely to know the inner workings of the companies for whom they are voting. Jake Barr is a great example for CPG. Roddy Martin is a great example for Food and Beverage. Dave Aquino is a great example for Apparel. Hussain Mooraj is a great example for Life Sciences. Angel Mendez is a great example for High Tech. They could come from any area: supply chain leader, vendor, analyst, etc.., but they would fit unbiased criteria, for example:

  • they know the end-to-end supply chain network in the respective industry;
  • they’ve “talked” with at least 25 companies in that industry in the past year;
  • they can speak to the talent and leadership of each company, and
  • can validate their end-to-end focus.
The Metrics Need to Change:

I understand the need to have “readily available, audited” numbers, and that’s why there is revenue growth, ROA and inventory turns. But, there’s got to be some better metrics to reflect Stage 4 & 5 (end-to-end success!). Otherwise, iTunes and french fries will keep crushing the “turns” competition…. If things were done by Industry, then ROA could be acceptable. Companies in Chemical, Semiconductor, and Life Sciences would be compared equally. I do agree with Lora that ROIC would be a better metric than ROA, as some companies are building assets to enable future growth. Look at Amazon’s ROA – 1.9%. That got them slotted behind McDonald’s, but that investment in Services and Cloud infrastructure is the right strategy. As well, depending on the life cycle of a drug, some Life Science supply chains may be great, but get low votes on ROA and revenue growth. Just wait until that drug hits the market …. My Solution: Make it a Top 10 by Industry. Have the #1 from each industry come up on stage at the Top Supply Chain Dinner and accept the award, and let them make a pitch for their supply chain success. Then, put all the #1’s from each industry on stage. Have everyone sitting at the dinner get on their mobile devices and have a live vote for the overall #1. It would make for a fun evening and an exciting conclusion. Make Four Key Metrics 1. End-to-End Focus:

  • Do they have an integrated end-to-end business planning process?
  • Can their outcomes be measured against value?
  • What is their speed in responding to change, and how many nodes can they accurately assess the impact?

2. Ability to Translate Demand into a Profitable Response

  • Measure of their marginal profitability – e.g.: what is their ability to achieve and maintain profit levels?
  • Market share – are they #1 or #2 in their market?

3. Leadership and Talent

  • This is a soft measure, but can be seen in a supply chain’s ability to reach out and learn. Do they engage externally with the academic world? Do they share their supply chain successes and strategies?

4. Agility in the Supply Chain Network

  • Ask their top 2 Suppliers to rate them on flexibility
  • Ask their top 2 Customers to rate them on flexibility

I’ve tested some parts of this model. One company that has nailed the end-to-end focus gets praises from their suppliers, engineering team & customers/install partners, and has one of the top leadership teams country is NCR. There’s been some papers written about NCR, but this is the classic example of a top tier supply chain that didn’t make the 2013 Top 25 and seriously should have. (I think it is because they are under $5B in revenue, and those “small” companies are not considered.) So, this is it. My new Top 25 Supply Chain Model. It’s going to take some adjustments and elbow grease, but let me know your thoughts, and I will take it to Oz and see what can be achieved! In Closing: We are past the challenge of making the CEO and the “Board” aware of supply chain. It’s time to redesign the structure. Steve Steuterman had it correct. “Fast”. There’s a foundational shift in supply chain. Gone are the days of functional excellence. Gartner calls it Stage 4 and Stage 5. I call it end-to-end engagement —knowing a LOT sooner, and acting a LOT faster – regardless of the functional tools, functional processes, and functional data. I’ve been doing this supply chain gig for 24 years, and I’m more excited today than ever about what’s happening. You can see those companies that are acting end-to-end. They have the ear of the CEO, and they are executing a new supply chain concept – the end-to-end value concept.  

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