Logistically Speaking: Fame Is Fickle in the Supply Chain Arena

June 11, 2013
The rankings for the Top Supply Chains list exposes one reality: You're only as good as your latest hot product.

There once was a company so well regarded for its ability to develop and produce high-tech gadgets that it was named one of the Top 10 Supply Chains of the year. The company was celebrated as a supply chain pioneer for its ability to collaborate with its customers, its sustainability initiatives, its new product development processes, its talent management programs and its global distribution network. This company was outstanding when it came to inventory turns, fabulous in its ability to grow revenues and tremendous for its return on assets. While it's hard to find a consensus on anything these days, the cognoscenti agreed that this company was a standard bearer for supply chain management.

The company I'm describing isn't actually a company at all, but a composite of several well known high-tech manufacturers that have all appeared in analyst firm Gartner's list of the Top 25 Supply Chains in recent years, but not a single one of them made this year's rankings (see our slideshow analyzing all of the Top 25). Somehow, all of these companies—household names, everyone of them—managed to get themselves tossed off the list. I've created my own list of the also-rans, with their highest position since 2007 noted below:

  • Hewlett-Packard (#15, 2010)

  • Motorola (#12, 2007)

  • Nokia (#1, 2007)

  • Research in Motion (#4, 2011)

  • Sony Ericsson (#16, 2008)

  • Texas Instruments (#17, 2007)

What in the world could have happened to bump all of these companies off the rankings so quickly? First, you have to understand that the Gartner rankings are primarily a popularity contest, involving a relatively small group of companies. Only public companies with sales of at least $10 billion are considered, so that winnows the field significantly right at the start. 

Top 10 Supply Chains of 2013

1.  Apple
2.  McDonald's
3.  Amazon
4.  Unilever
5.  Intel
6.  Procter & Gamble
7.  Cisco
8.  Samsung
9.  Coca-Cola
10. Colgate-Palmolive
Source:  Gartner

Also, Gartner omits some companies for reasons that don't necessarily make much sense. For instance, some of the companies who are the very best at supply chain management are, paradoxically, eliminated from consideration because their metrics apparently don't line up well with Gartner's methodology. Imagine a list of top supply chains that doesn't include a single airline, railroad, trucking company, oil or energy company, construction, mining, steel or shipbuilding company, and you'll start to understand how narrow the universe is that the Top 25 occupies. 

So you would think, then, that would make it easier for the companies remaining (mostly manufacturers and retailers) to stay on the list, since the competition isn't particularly fierce, but that's not how it works. Companies are ranked on five criteria: Gartner analyst opinion, peer opinion, three-year weighted return on assets, inventory turns, and three-year weighted revenue growth. Since the Gartner and peer opinions add up to 50% of the total score, it basically comes down to an elimination contest, a la "American Idol" or "The Voice," based as much on perception as reality. (In the interests of full disclosure, I should point out that I am one of the peer opinion voters.)

Hence, companies that are category killers for a couple years, like Research in Motion, are celebrated not so much because of their supply chains, but because their products are wildly popular. And no product category is more prone to "what have you done for me lately?" fickleness than cellphones/smartphones. For high-tech companies, new product development is the be-all and end-all of their world, so their proficiency in core supply chain processes like material handling and logistics isn't really part of the equation at all. It's all about inventory turns, and about how quickly the current model can become obsolete to the extent that the next version is a must-have.

The value of the Gartner list isn't that it provides an accurate ranking of the best supply chains, because of course it's not set up to do that. What the list does, though, is it gets people talking about supply chains of various shapes and sizes, in a number of different industries, with one common theme shining through: The best companies in the world have the best supply chains in the world. And that message never gets old.

Follow me on Twitter @supplychaindave.

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