The Top 25 show how it's done, from basic cost center to essential weapon.

Two thousand ten marks the sixth year AMR Research, a Gartner, Inc. company, has published its annual Supply Chain Top 25 report. The goal of this research has always been to raise awareness of the supply chain discipline and how it impacts business.

We firmly believe that underpinning the transformation of the discipline, from basic cost center to essential competitive weapon, is an inflection point in the connectivity and speed of the global supply chain.

The term ‘value chain,’ however, may actually be a better descriptor. By embedding product and process innovation in supply chain operations and consciously managing and shaping demand from a customer, production and fulfillment standpoint, the companies included in our Top 25 are doing a lot more than just shipping.

Twenty years ago, a typical product company had the supply chain organization reporting to manufacturing, with responsibility mainly for inbound materials management and outbound shipping. Now, new data shows supply chain reports to manufacturing in only 6 percent of companies, while in 61 percent of companies, the head of the supply chain position reports directly into the CEO, general manager, or president of the business. It’s very clear that supply chain has grown up, with the business taking notice.

Along with this change, evidence of the link between supply chain activities and financial results continues to build. A study by Dr. Alex Ellinger and a team of colleagues at the University of Alabama and Texas A&M found that the leading supply chain performers, as defined by the Supply Chain Top 25, are more financially successful than their competitors.

To get back to this year’s findings, the Supply Chain Top 25 has a three-time No. 1 company: Apple (see Figure 2). The digital-economy icon held the top spot again in 2010 after having been ranked No. 1 for the first time in 2008. We believe that Apple dominates because it consistently brings both operational and innovation excellence to bear in some of the most competitive markets in the world.

Consider first the revolutionary success of the iPhone. Although still a relatively small share of the overall mobile devices market, it has transformed the industry. From a supply chain perspective, the company’s ability to ramp volumes both in hardware and software while redefining what a mobile telephone is supposed to be has been impressive. Unwilling to rest, Apple has continued to push innovation with its launch of the iPad, which is another new platform product for digital content and a further extension of the brand.

Apple has broken new ground in the area of transforming its supply chain into a value chain, starting with the consumer experience and designing its network to serve that master first and foremost. This means demonstrating some of the behaviors we look for in Top 25 companies, including embedded innovation, networked supply and demand shaping. It’s also instructive that Apple, which most observers think of primarily as a design and software company, in reality has a vertically integrated value chain that reaches from logo-bearing, pure-play retail all the way back to superfast chipmaker Intrinsity, which was recently acquired by Apple to ‘steal a march’ on competitors looking to enhance the performance of mobile devices. Not shying away from any operational challenge, Apple’s value chain controls its most strategic nodes all the way from silicon to synapse.

At No. 2, we have one of the most respected supply chain leaders in the world, Procter & Gamble. P&G has occupied a top-five spot for six consecutive years and still commands tremendous respect among its peers. As one of the pioneers of demand-driven principles in supply chain, the company remains at the forefront of areas like specialized production operations in emerging markets and commodity hedging upstream for key inputs.

P&G has established new leadership footholds in other areas too, including its use of innovation networks to tap external expertise for at least 50 percent of its new product ideas. Perhaps most impressive is its relatively quiet but nonetheless thoughtful leadership in social and environmental responsibility. The company’s recently released supplier sustainability scorecard is a model of practical, but still ambitious, target setting for a supply base that impacts many key environmental resources, including water, energy, emissions and waste.

Cisco Systems has climbed steadily in our rankings for five straight years, moving up two slots to No. 3 this year. Many areas of supply chain innovation have borne Cisco’s mark, including supply chain risk management, multi-level demand-planning excellence and regionalized supply network architecture. The most prominent feature of Cisco’s leadership, though, is probably its explicit championing of the term ‘value chain’ as an organizational construct. By bringing together not only sourcing, production and logistics, but also customer service, quality and new product launch as hard-line reporting functions, Cisco’s Customer Value Chain Management organization may be a model for supply chain organizations of the future.

There were five companies that joined the Top 25 for the first time in 2010: Research In Motion (RIM), Amazon.com, McDonald’s, Microsoft, and Inditex, the Spanish company legendary among supply chain professionals for its integrated apparel manufacturer and retailer Zara, whose pioneering approach to product innovation is the prototype for rethinking an entire value chain to achieve breakthrough results.

Our Top 25 list is made up of an incredibly diverse set of organizations. What they have in common, however, is the ability to apply demand-driven principles to coordinate and integrate the functional areas of supply, demand and product management in order to better sense, shape and respond to changes in market demand. 

Many companies focus primarily on supply chain execution but with ever-increasing unpredictability of demand, leading organizations are also focusing on improving their ability to sense changes and patterns in their environment-changes in demand, design, supplier risk and more-earlier than their competition.

Figure 1 captures the organizational ideal of demand-driven principles as applied to the global supply chain. This model has three overlapping areas of responsibility:



•    Supply management - Manufacturing, logistics and sourcing

•    Demand management - Marketing, sales and service

•    Product management - R&D, engineering and product development



When these processes work together, the business can respond quickly and efficiently to opportunities arising from market or customer demand. Defining characteristics of supply chains built to this design include the ability to manage demand rather than just respond to it, a networked rather than linear approach to global supply and the ability to embed innovation in operations rather than keep it isolated in the laboratory.

Two basic dimensions of measurement capture the totality of the best-in-class, demand-driven, global supply chain: operational excellence and innovation excellence. To measure operations, including delivering as promised to customers and keeping costs under control, we would recommend a hierarchy of metrics, at the top of which are perfect order performance and total supply chain costs.

Of course, operational excellence has value only if customers want what’s being made and shipped. To address this, companies also need to look at innovation excellence. Although far harder to measure reliably, this dimension also can be managed with a hierarchy of metrics, in this case topped by time to value and return on new product development and launch (NPDL). It is our firm belief that companies that manage to balance leadership on both these dimensions over time not only satisfy their customers, but also earn better returns on capital invested in assets or R&D. wt

 

Kevin O’Marah is group vice president and Debra Hofman is research vice president at AMR Research.