It's that time of year again, when fourth-quarter earnings announcements hit full stride and we get insights into complete fiscal-year performance. As with any other year, there were some big winners mixed with other big misses. One thing caught my eye in several announcements: CEOs talking supply chain. As I read through messages in the statements, supply chain appeared as a key enabler of performance and strategy. Here are a couple examples:
• Michael Dell upon record 2011 results: "Our strategy around the efficient enterprise and flexible supply chain continues. Client profitability improved notably in the second half of the year, driven by solid supply chain performance, lower input costs and improved product quality."
• Ecolab after record fourth-quarter results: "Major initiatives include ... significant realignment of the supply chain, including repositioning of the warehousing networks, better leveraged purchasing capabilities, formula and packaging simplification, manufacturing consolidation and streamlined support functions."
• On an earnings call with Raytheon's CEO William H. Swanson: "From our standpoint, we see plenty of opportunities in the company. There's a lot of effort going on in our supply chain side of the business .... What we're going to be working on [is giving] our suppliers better visibility into what we're doing ... where they can align their investments with our investments to make sure we continue to deliver the best value to our customers."
Although a focus on operations to drive efficiency is nothing new, it's both interesting and exciting to see CEOs saying supply chain is a direct enabler of top-level corporate strategy - just where I think it should be. And it's also a key premise of the annual AMR Supply Chain Top 25. As a former employee of a consistent Top 5 player, I was quite familiar with the results before joining Gartner. But I've learned even more about it as an analyst.
So I thought it would be fun to sit down to informally interview Debra Hofman, who runs the annual research, on the details of how it's done, how innovation plays a role and what she's learned over the years. Here's the transcript from our chat:
Q: Matt: Can you provide some quick context on the AMR Supply Chain Top 25 for those who may be unfamiliar with it? What is it? How is it used?
A: Debra: The AMR Supply Chain Top 25 is Gartner's annual ranking of the best supply chains among manufacturers and retailers in the Fortune Global 500. This is the seventh year of the ranking, and we'll publish the 2011 list at the beginning of June. The basic goal of the ranking is to highlight leadership in something we call the demand-driven value network: which companies are farthest along toward being demand-driven.
We're very transparent about the way we come up with the ranking. Every company on the list (224 last year) gets a composite score that's made up of three financial metrics (e.g., return on assets [ROA], inventory turns and revenue growth) and two voting pools. One voting pool is our supply chain analysts and the other a peer panel made up of supply chain executives from across a spectrum of industries (last year, we had 154 peer voters). The peer vote, which represents 25% of each company's composite score, is a key component in that it reflects the opinion of the supply chain community. It's open to supply chain professionals at any manufacturer, distributor or retailer. We allow one vote per company, and the vote itself is a simple Web form that takes about 15 minutes.
Q: Matt: What do you think about CEOs talking supply chain at earnings announcements? Is this new?
A: Debra: It's an exciting trend we're starting to see more and more - not just the use of the term "supply chain" at the highest levels, but the recognition that being good at it drives shareholder value. A few years ago when we started doing this, we used to get asked all the time for proof of the connection between supply chain and company performance, and we could point to some studies and data that supported it. We don't get asked that question as much anymore. I think we'll see this recognition continue to grow - recognition at the highest levels that the combination of operational excellence and innovation excellence is the signal to Wall Street that these are the companies with more robust growth engines and higher earning capacity.
Q: Matt: Is the AMR Supply Chain Top 25 global?
A: Debra: It is global. We compile the list of companies from the Fortune Global 500, which is a global list of companies. It's different from the Fortune 500, which is just U.S. companies. But we often hear from supply chain communities around the world that the list looks very U.S.-centric, and that's true. A big part of the reason for that is actually the composition of the voting community; the peer voters have been predominantly based in the U.S. That's not our preference. We would love to ratchet up worldwide representation. In fact, we've seen increasing excitement and interest in the ranking from the European, Asian and Latin American supply chain communities. So, if you're a supply chain executive at a manufacturer, retailer or distributor in any of those regions, we welcome your involvement and encourage you to add your perspective and make your voice heard. (Register to vote by contacting firstname.lastname@example.org).
Q: Matt: So what supply chain innovations caught your eye this year?
A: Debra: Every company in the AMR Supply Chain Top 25 has its own vision and strategy and is focused on its own set of key initiatives, whether it's improving their forecasting capabilities, strengthening their sales and operations planning (S&OP) process or segmenting their supply chains. But there are a few themes that we see consistently across the leaders: outside-in thinking, embedded innovation, the use of metrics to drive trade-offs and balanced excellence, a focus on building and retaining a killer pool of supply chain talent, and, most importantly, a culture that's obsessive about always taking it to the next level. Another interesting thing: The consumer and high-tech industries have typically gotten a lot of attention, but we're seeing companies in the industrial value chains - the more traditional, asset-intensive industries, such as chemicals, mining and heavy equipment manufacturers - catching up and, in some cases, moving beyond.
Q: Matt: What's been the biggest thing you've learned over the years working on the AMR Supply Chain Top 25?
A: Debra: That the definition of "excellence" is a complex topic. There's much more to it than meets the eye. We all feel like we know it when we see it, but generating debate of what it really means to be a leader is what the Top 25 is all about.
Q: Matt: Anything else we should know?
A: Debra: We hope the AMR Supply Chain Top 25 is a platform that helps highlight best practices, and drives a lively flow of ideas, debate and innovation across the worldwide supply chain community. We welcome feedback, thoughts and suggestions on the methodology, the ranking and what supply chain leadership is all about.
You can reach Matt Davis at email@example.com.
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