Zoning Out on What Makes a Good Supply Chain

Ignorance is bliss when it comes to ranking the world’s top supply chains.

In just about every episode of “The Twilight Zone,” there’s a moment when the protagonist gets one of those glassy-eyed looks when he/she realizes that their reality doesn’t match up with what everybody else is seeing. While looking at a new ranking of the world’s top supply chains, I keep hearing Rod Serling whispering in my ear, “You’re traveling through another dimension, one where the concepts of supply chain management are turned upside down. You search in vain for solid metrics and find instead a reality show popularity contest. You’ve just crossed over into... the Gartner Zone!”

Yes, it’s that time of the year again, when analyst firm Gartner (which inherited the rankings when it acquired AMR Research a year ago) releases a list of what its team of analysts—and a large group of industry experts and observers—consider the Top 25 supply chains. The stated goal of these rankings is admirable: to raise awareness of the supply chain discipline and how it impacts business. But somehow over the years, as the economy has worsened and the whole idea of supply chain management has evolved, the Gartner rankings have morphed into a list of the biggest and best known companies—primarily in the high-tech arena—with actual supply chain performance somewhat irrelevant to the discussion.

Part of the problem is the methodology itself, which is based on a point system that gives a disproportionate weight to popular opinion. Picture an “American Idol” type setup where you’re asked to vote for your favorite supply chain, and you’ll get the basic idea. So 25% of the total comes from Gartner analysts and another 25% comes from peers, which accounts for half of the tally. Another 25% comes from return on assets and 10% comes from revenue growth, both being primarily financial metrics. The only actual supply chain metric used is inventory turns, which as Gartner defines it plays to the strengths of high-tech companies and retailers; consumer packaged goods (CPG) companies, on the other hand, don’t fare nearly as well on that metric.

If you’re wondering how other industries do in the rankings, keep wondering. Every company on the top 25 falls into one of three categories: high-tech, retail or CPG. To be sure, a couple companies towards the bottom of the list are CPG-hybrids, such as pharmaceutical provider Johnson & Johnson or 3M, which develops products for numerous markets. But you’ll search in vain if you go looking for any aerospace, automotive, chemicals, industrial machinery, metals, paper, plastics or textile manufacturers. And curiously, companies that live and die based on their supply chain capabilities, such as shipping companies, package and freight haulers, pipelines, airlines and railroads, are deliberately omitted from contention.

So we’re left scratching our heads while trying to figure out how Amazon ends up with such a high ranking (No. 5), while the warehousing and transportation companies that make or break the e-tailer aren’t even worthy of consideration. We’re left clueless as to why Apple (No. 1), Dell (No. 2) and Hewlett-Packard (No. 17) get such high marks for their supply chains when much of their production is offshored to Chinese manufacturer Foxconn, a company notorious for an alarming number of suicides among its workers, as well as a recent combustible dust explosion that killed three employees (see p. 8). And we have no idea why Johnson & Johnson (No. 21), which had one of its production facilities shuttered by the FDA within the past year for various quality infractions, even made the list at all.

I would suggest that it’s time for Gartner to update its criteria to better reflect the nature of supply chains in 2011. Certainly, to exclude factors such as on-time delivery rates, safety records, sustainability efforts (e.g., reductions in energy consumption) and supplier scorecards is to ignore some of the defining characteristics of best-in-class supply chains.

Let’s give credit where credit is due; selling a ton of iPads is a great accomplishment for Apple’s marketing and R&D teams, but if those iPads are produced in an exploitative sweatshop environment, maybe we shouldn’t be quite so vigorous in applauding Apple’s supply chain practices. Pretending that companies aren’t responsible for managing their global suppliers completely misses the point of supply chain management.

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