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Supply Chain Rising: A New Star in the C-Suite

Do companies recognize the importance of supply chain more today than they did 10 years ago? Have they become more sophisticated in their supply chain thinking over that period? The Supply Chain Management Institute at the University of Wisconsin-Milwaukee's Lubar School of Business set out to answer those questions.

Supply Chain Rising: A New Star in the C-Suite

The good news is that the short answer to both questions is "yes." This article highlights the sectors that recognize the importance of supply chain. Then we dig deeper and explore the companies that are placing more of an emphasis on supply chain today than they did 10 years ago. We'l highlight the steps some of these top companies seem to have taken to improve their supply chains and conclude with companies that describe their supply chain as a competitive advantage.

Methodology

The annual reports for the S&P 500 companies over the last 10 years provide the basis for this study. SCMI Researchers discovered that more than 700 different companies have been a member of the S&P 500 during the last 10 years. Some companies departed the S&P 500 due to mergers and acquisitions and others due to market cap decline.

From the annual reports of each of these 700 companies, sentences containing the phrase “supply chain” were counted (as a mention) and recorded for each company. To assess the quality of each "supply chain" mention, a scoring system categorized each phrase as either a Basic, Transforming or Advanced "supply chain" mention. Examples are shown in Figure 1.

S&P 500 Analysis

Simply counting the "supply chain" mentions shows an increasing trend over the last 10 years from 860 mentions in 2005 to 1,663 mentions in 2015 (Figure 2). The mentions took a slight dip in the few years following The Great Recession, but then recovered and have been increasing ever since.

If we look at only the Transforming and Advanced "supply chain" mentions in Figure 3, we see a similar trend to the total number of supply chain mentions. Not only did total supply chain mentions almost double over the last 10 years, but the more sophisticated and strategic supply chain mentions almost doubled as well. 

Sector Analysis

The data was then segmented based on the Global Industry Classification Standard (GICS) sector code for each company in the data set. Figure 4 shows the S&P 500 makeup over the 10-year period. This baseline was then compared to the percentage of supply chain mentions for each sector in Figure 5. 

Although Consumer Staples makes up 7 percent of the total companies, it accounts for 22 percent of the total supply chain mentions. Top-scoring companies in the Consumer Staples sector were SUPERVALU, Hershey and Dean Foods with an average of 55, 33 and 29 mentions per year, respectively. Likewise, Industrials makes up 11 percent of the total companies, but accounts for 20 percent of the total supply chain mentions. Top-scoring companies in the Industrials sector were United Parcel Service and Ryder with an average of 72 and 53 mentions per year, respectively. Sectors such as Financials and Utilities showed a smaller percentage of supply chain mentions relative to their representation in the S&P 500.

The sector showing the greatest increase in number of supply chain mentions over the last 10 years was the Consumer Staples sector, with the average company making 3.4 more supply chain mentions in 2015 than it did back in 2005 (Figure 6). In 2005, only 54 percent of the Consumer Staples companies mentioned supply chain, led by SUPERVALU and Sysco. But in 2015, 89 percent of the Consumer Staples companies referred to supply chain in their annual report.

Healthcare was the second-fastest-growing sector with the average company making 3.3 more supply chain mentions in 2015 than it did back in 2005. In 2005, only 30 percent of the Healthcare companies mentioned supply chain, but 10 years later 82 percent mention supply chain at least once in their annual report.

Top Three Companies

We now turn our focus to the individual companies in the S&P 500. Package delivery provider United Parcel Service tops the list with an average of 71.7 supply chain mentions in its annual reports over the last 10 years (Figure 7). UPS is followed by grocery store chain SUPERVALU and transportation and supply chain management provider Ryder with 55.4 and 53.0 average mentions, respectively.

Mentions of UPS's "Supply Chain & Freight reporting segment" appeared throughout its annual reports. UPS also stated that outsourcing supply chain management is becoming more prevalent and it expects the outsourcing of supply chain management will continue as customers seek ways to make their supply chains more efficient. Other frequent mentions throughout UPS's annual reports related to its breadth of supply chain solutions in more than 175 countries, a portfolio of more than 60 supply chain services, the company's ability to offer "visibility of customers' inventories and supply chains" and actions that "improve the efficiency of the supply chain management process."

SUPERVALU, similar to UPS, has a "supply chain services" business that was mentioned often throughout its annual reports. Among the other frequently mentioned items in SUPERVALU's annual reports were that the "company’s retail food and supply chain services businesses are highly competitive," concerns that adverse climate conditions could impact the grocery supply chain, and the impact of industry consolidation and acquisitions on SUPERVALU's supply chain.

Ryder also has a "Supply Chain Solutions (SCS)" business segment that was mentioned frequently throughout its annual reports. Ryder stated that it is a "global leader in transportation and supply chain management solutions" and worked with customers that have complex and elaborate supply chains to "design a strategically focused supply chain solution."

Strategic Supply Chains

When we looked at only the Transforming and Advanced supply chain mentions, food and beverage company Dean Foods topped the list with an average of 12.1 mentions per report (Figure 8). Dean Foods ranked seventh in total supply chain mentions per report, but first in Transforming and Advanced supply chain mentions. Consumer goods company Hanesbrands came in second with 11.0 Transforming and Advanced mentions and UPS came in third with an average of 10.8.

Dean Foods' Transforming and Advanced supply chain mentions centered around three main themes. First, was the company’s strategy to be the "lowest cost, national extended shelf life dairy supply chain in the industry." Second, there was frequent discussion of the company’s initiatives to "align leadership teams and supply chain initiatives around our two lines of business." Finally, "optimizing our supply chain for growth" was cited as key to Dean Foods’ strategy.

The Transforming and Advanced supply chain mentions Hanesbrands used touted its "low-cost global supply chain" as a competitive strength. The company planned to "leverage our supply chain in order to drive further economies of scale." In 2015, an increase in gross profit was "attributable to supply chain efficiencies and our Innovate-to-Elevate strategy." Finally, the phrase "Our global supply chain enables us to expand and leverage our production scale as we balance our supply chain across hemispheres, thereby diversifying our production risks" showed how supply chain is viewed strategically at Hanesbrands.

With the third-most Transforming and Advanced supply chain mentions, UPS positioned itself as a "global leader in supply chain management" that provided "highly customizable supply chain control and visibility" for its customers. Through these actions UPS declared that it helped these customers "create supply chain efficiencies, better serve their customers and improve their cash flows." This phrase from UPS's 2015 annual report probably sums up UPS best: "We are a global leader in logistics, and we create value for our customers through solutions that lower costs, improve service and provide highly customizable supply chain control and visibility."

Increased Focus on Supply Chain

As shown in Figure 9, general merchandise retailer Target grew from one "supply chain" mention in 2005 to 13 mentions in 2015; enterprise storage and software provider EMC Corp. showed a 12-fold increase; and supplier to consumer products companies International Flavors & Fragrances showed a 9-fold increase.

Target's single supply chain mention in 2005 actually stated that its "ability to deliver a shopping experience that is preferred by our guests is supported by" among other things, its "strong supply chain." Ten years later, Target stated that smaller and non-standard stores "require changes to our supply chain practice" and the company will continue to make investments that "evolve our supply chain and our inventory management systems."

EMC's only supply chain mention in 2005 recognized that "certain competitors may have advantages due to vertical integration of their supply chain." Ten years later, EMC stated that "environmental and social responsibility within our supply chain is central to our ability to drive change." The annual report described its Supply Chain Social and Environmental Responsibility (“SER”) program, how EMC was "engaging with suppliers to reduce emissions in the supply chain" and was working with suppliers "to build a 'conflict-free' mineral supply chain."

In 2005 International Flavors & Fragrances' only mention was that "operations are responsible for the customer supply chain." Ten years later, the company declared it had "an integrated supply chain" and would "use a variety of strategies, methodologies and tools" to "assess relative risks in our supply chain that can impact product integrity." Finally, in developing markets, International Flavors & Fragrances’ supply chain initiatives are "focused on increasing capacity and investments in key technologies."

Most Strategic Supply Chains in 2015

In 2015 the companies that had the most number of Transforming and Advanced supply chain mentions were Campbell's Soup and Home Depot, both with 16. Interestingly, neither company mentioned "supply chain" in its 2005 annual report. Fast forward 10 years and Home Depot mentioned supply chain a total of 32 times and Campbell's Soup 21 times (Figure 10).

The supply chain transformation at Home Depot was an interesting one to follow through its annual reports. Figure 11 shows some key phrases taken from Home Depot’s annual reports. In 2006 the company began an effort to increase automation in its supply chain functions. These new supply chain systems resulted in Home Depot proclaiming it has built "best-in-class competitive advantages in information technology and supply chain" in its 2012 annual report. Three years later, its 2015 annual report stated that the company is "committed to leveraging our supply chain capabilities."



Supply Chain as a Competitive Advantage

Some companies over the last 10 years described the competitive or strategic advantage their supply chain provided. Specialty glass, ceramics, and materials company Corning stated that it "seeks to maintain competitive advantages by emphasizing" among other things, "supply chain efficiency." Beverage company Coca-Cola is building a supply chain network that leverages its size and scale to gain a competitive advantage.

Athletic footwear, apparel, equipment, and accessories manufacturer Nike pointed to its "operational discipline and excellence" that made its supply chain a competitive advantage. Restaurant conglomerate Darden Restaurants asserted that "inventory ownership and dedicated operations in select environments" enhanced its supply chain's competitive advantage.

Technology products, services and solutions retailer Best Buy's supply chain gained a competitive advantage through "strategically located distribution centers and the recently launched ship-from-store capabilities." Finally, information technology products and services provider IBM provided a different view of its supply chain as a strategic advantage. As the company "continues to derive business value from its own globally integrated supply chain," it provided a "strategic advantage for the company to create value for clients."

Conclusion

It is clear that many S&P 500 companies are focused on supply chain more today than they were 10 years ago. Furthermore, the manner in which companies are describing, analyzing and improving their supply chain is increasing in its sophistication. This trend shows no sign of slowing down.

The Supply Chain Management Institute at the University of Wisconsin-Milwaukee continues to research the presence of "supply chain" in company annual reports. To view the 2016 numbers, visit Supply Chain Management Institute and select Research.

Mark Kosfeld is associate director of the Supply Chain Management Institute at the University of Wisconsin-Milwaukee. Anthony Ross is the director of the institute.

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