Supply Chain Top 25
METHODOLOGY
By Debra Hofman, Research Director, Value Chain Strategies, AMR Research
AMR Research has been working for 20 years to understand how information technology changes the structure, strategy and tactics of managing manufacturing, distribution and retail businesses. In 2007, we published the "Supply Chain Top 25" list for the third time. The ranking focuses on large, public companies that lead the way in bringing information technology together with the principle we call a "demand driven value networks" to transform and shape the extended global supply chain (see Figure 1).
The ranking has two main components: financial and opinion. Public financial data gives us a view into how companies have performed in the past, while the opinion component provides an eye to future potential and reflects future expected leadership, a crucial characteristic. These two components are combined into a total composite score, with the financials accounting for 60 percent of the total score and the opinion piece accounting for 40 percent of the total score.
We start with a master list of companies derived from the latest publication of Fortune magazine's Global 500 ranking. We then pare the list down to the manufacturing and retail sectors, thus eliminating certain industries such as financial services and insurance. Some individual companies are eliminated because of unavailable financial data.
FINANCIAL COMPONENT
Three financial metrics are used in the ranking, as listed below. 2006 data was used where available. Where 2006 data was unavailable, latest available full-year data was used.
Financial data is taken primarily from companies' individual annual reports, with Hoover's online financials as a secondary source.
OPINION COMPONENT
The opinion component of the ranking, comprising 40 percent of the total score, is designed to provide a forward-looking view and to reflect the progress companies are making as they move toward the idealized DDSN blueprint. The 40 percent opinion weighting is equally divided between a peer panel of supply chain executives from manufacturers and retailers and the AMR Research Panel of supply chain industry analysts. Companies must receive votes from both panels to be included in the ranking. Therefore, a company whose composite score fell within the Top 25 solely based on the financial metrics would not be included in the Top 25 ranking. This year there were more than 70 peer panelists that voted on the Top 25.
COMPOSITE SCORE
All of the information discussed above -- the three financials and the two opinion votes -- are then normalized onto a 10-point scale, and aggregated using the weighting into a total composite score. The composite scores are then sorted in descending order to arrive at the final Top 25 ranking.
WHAT MAKES A LEADER?
By Roddy Martin, General Manager and Vice President Value Chain Strategies, AMR Research
For the AMR Research Top 25 supply chain leaders, there are two common themes: a focus on the customer and a demand-driven transformation.
THE CONSUMER CONNECTION
The common denominator for consumer products (CP) leaders is a focus on customers. For these companies, it is all about building extended value networks that are linked to shopper/consumer insights and demand sensing capabilities. The CP group was led by The Procter & Gamble Company and included brand leaders such as Anheuser-Busch, The Coca-Cola Company, Johnson & Johnson and PepsiCo. However, we see a focus on customer pervasive in all industries as characterized by retailers, like Wal-Mart Stores, Tesco and Publix Super Markets, and manufacturers, like GlaxoSmithKline and AstraZeneca.
DEMAND-DRIVEN TRANSFORMATION
Today, Consumer Products companies are under margin pressure and are trying to pursue a growth strategy. However, it does not work if they don't do a demand-driven transformation to embed innovation into the supply chain and focus on commercialization. If not careful, these companies find themselves with complex product portfolios with different profit velocities. As a result, the focus shifts from supply chain integration to value network optimization. To win, these companies must reduce demand uncertainty by getting closer to customers and consumers, sensing and analyzing demand and translating the outside-in view into business operations and trade offs.
These companies are in the process of transforming traditional inside-out orientated supply chain operation focused on optimizing cost and inventory silos into outside-in driven value networks focused on profitably delivering perfect orders. They must all deal with complexity of global operations and product portfolios and focus on optimizing "cost to service" rather than just optimizing the traditional "cost to deliver" perfect orders.
To achieve leadership, the focus is on joint value creation where demand insights and account level planning fuse into go-to-market plans with distributors, wholesalers and retailers.
CONSUMER PRODUCTS SUPPLY CHAIN LEADERS
By Lora Cecere, Research Director, Value Chain Strategies, AMR Research
As we end 2007, we find CP companies rebounding from M&A activities from previous years and focusing on growth strategies: growth in new markets and success in product innovation. They understand that they can only be successful if their brand is a positive force in the ever-changing ecosystem of the global economy. In evaluating the top performing CP companies (see Figure3), we find three organizational and process trends:
Success in global markets: One of the strongest trends differentiating the top performing CP supply chains leaders from competition is success in global markets. Of the top eight, seven have strong global supply chains with a focus on building operational excellence in all major continents. This focus on planning globally to execute regionally while listening and responding to regional customer opportunities is a core strength differentiating these global leaders from smaller, more focused regional players.
>Sustainabiity at the core: As a result of global presence, for these leaders, there is a greater awareness of global responsibility to operate a sustainable supply chain. We find that six of the eight companies have a focus on creating value through improving global economic and environmental issues. With thisfocus on sustainability, these companies are focused on labor policies in supplier development, environmental policies in the design of new products and the design and operation of a green supply chain. Multi-tier optimization: Six of the eight CP companies were early leaders in deployments of multi-tier inventory optimization technologies from Optiant, SmartOps and ToolsGroup. Demand sensing: Three of the eight deployed demand sensing technologies from Terra Technology to improve short-term forecasting for localized deployments. Demand Signal Repositories (DSR): Six of the eight were early adopters in building DSR strategies. While these early deployments were initially used for reporting and used by commercial teams, each now has active projects to deepen the use of downstream data and enrich it with shopper insights. These technologies include Teradata and Vision Chain. Manufacturing operations: Six of the eight focused on excellence in manufacturing operations with a focus on measurement, closed-loop planning and lean. For example, Groupe Danone has been a leader with ILOG in the development of a new generation manufacturing scheduling system to manage open code dating, cure and hold times and floating bottlenecks. Also, Unilever has built one of the most comprehensive global specification management systems that we have encountered. Product Lifecycle Management (PLM): Six of the eight have been product lifecycle management innovators with the deployments of UGS Team Center (now Siemens) and Prodika (now Oracle) solutions for R&D collaboration and global specifications management.
Focus on building organizational excellence: As a result, five of the eight CP leaders are actively building global organizations focused on supply chain centers of excellence, training and mentoring, and continuous improvement.
THE ROLE OF TECHNOLOGY
To fuel demand-driven transformations, CP leaders have focused on packaged applications, IT outsourcing and business intelligence strategies:
Package Applications: While all of these companies have some version of SAP for Enterprise Resource Planning (ERP), only one company on the list has executed an ERP same vendor wall-to-wall strategy. Instead, to fuel demand-driven transformations, most are early adopters of technologies. In most of these companies you will see build-it yourself strategies in combination with best-of-breed technologies layered on top of ERP:
IT Outsourcing: Additionally, these companies are early movers in business process outsourcing of IT assets with four of the eight taking steps in 2007 toward outsourcing. This radically changes the focus of IT to focus more on serving the line of business leaving day-to-day operations of IT to the business process outsourcer. We expect this trend to continue.
Business Intelligence: Six of the eight have strong business intelligence strategies, but while there is commonality in approach, there is not a consistently used toolset. As a result, we find little commonalty in technologies deployed for marketing analytics, demand management, scorecards and dashboards, and reporting.