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Apple's consumer-driven network again leads AMR's Top 25 supply chains

AMR Research sees a trend toward vertically integrated "value chains" as Apple again heads the firm's ranking of the top 25 supply chains.

Manufacturers should emulate Apple's supply chain best practices by creating a highly customer-driven, vertically integrated supply chain, AMR Research suggests in its sixth annual ranking of the top 25 supply chains. Apple leads the rankings for a third straight year.

The report lauded Apple for transforming its supply chain into a "value chain" by starting with the consumer experience, then building a supply network to serve that master. The company also excels at balancing operational and innovation excellence, said Debra Hofman, an AMR vice president and co-author of the report. "That requires a very tight connection between demand, supply and product," she said.

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AMR, a Gartner Inc. company, combs the Fortune Global 500 and similar lists for the largest manufacturing, retail and distribution companies and ranks them by such financial measures as return on assets and inventory turns, and the opinions of peers and AMR analysts.

This year, the top 25 companies excelled at creating value chains by embedding product and process innovation in their supply chain operations and consciously managing and shaping demand, according to the report.

The economic environment was much changed from the previous year, when companies were focused on surviving the recession. "You can tell that companies are starting to reinvest," Hofman said. "Everything last year was about cash. This year, it's not that that's not important, but companies are trying to get ahead of the anticipated upturn."

Dropped from the list was Toyota, whose widespread recalls and negative publicity hurt its financial ratings. The Publix grocery chain and electronics manufacturers Texas Instruments and Sony also fell off as their financial ratings took a hit in the recession, according to Hofman.

Meanwhile, fresh survey data confirms "that supply chain has grown up and the business has taken notice," she said. "Twenty years ago, a typical product company had supply chain reporting to manufacturing, with responsibility mainly for inbound materials management and outbound shipping. New data shows that supply chain reports to manufacturing in only 6% of companies surveyed, while 61% have the head of supply chain reporting directly to the CEO, general manager or president of the business."

Supply chain integration success stories

Second-place Procter & Gamble was the only company to make the top five in all six years, continuing its leadership in implementing demand-driven principles, according to AMR. "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% of its new product ideas," the report stated.

Climbing steadily for the fifth straight year was third-place Cisco, which AMR credited with leading the way in many areas of innovation, including risk management and multilevel demand planning. "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," the report stated.

Cisco, like Apple and 18th-place Intel, is especially good at aligning product development with supply and demand, Hofman said, in part by ensuring that designs are commercially viable. "It's not enough to just sense the demand," she said. "You have to translate that back to your supply chain. The companies in the top 25 are the ones that are pushing the envelope to make that happen."

Hofman said 12th-place Microsoft, like Apple, excels at vertical integration by controlling critical processes, such as product design and quality control, yet it manages to do so despite outsourcing its manufacturing. "They have extremely close relationships with those suppliers. It's sort of a 'virtual' vertical integration," she said. Microsoft may not own all of the components in the chain, "but they definitely control it."

Dell, the fourth manufacturer to reach the top five, maintained its strong ranking thanks to frequent inventory turns but struggled to stay profitable in the competitive PC market, the report said. Discount retailer Walmart benefitted from the tough economy while continuing to enhance its cost-conscious supply chain and broaden its supplier base in India.

Among four newcomers to the list was Research in Motion (RIM), maker of the BlackBerry. The report highlighted RIM's fast three-year growth in return on assets and a supply chain organization that borrowed others' best practices to create "long-term, multi-tiered collaborative relationships with bidirectional feedback" while never losing sight of its core value proposition for consumers. "They were planning huge growth, and one of the ways they decided to do that -- without them owning their own manufacturing facilities -- was to have partners for that all over the world," Hofman said. "They focus a lot of their efforts on those relationships."

Supply chain leaders using demand-driven SCM strategies

Several manufacturers were singled out for implementing demand-driven supply chains with many of the best practices and technologies that AMR recommends. The report said Samsung continues its effective use of IT for essential processes such as sales and operations planning (S&OP) and demand modeling, which has helped it increase market share in such highly competitive markets as mobile devices and memory chips. Johnson & Johnson has built an increasingly demand-driven supply chain by becoming more engaged with critical customers like CVS and large group purchasers. AMR also cited Colgate-Palmolive for accomplishing much with its ERP backbone, including global visibility, consistent data standards, and reliable transaction execution.

Hofman and co-author Kevin O'Marah wrote that, rather than focusing primarily on supply chain execution, leading companies worked on improving their ability to sense changes in their environments, which include demand, product design, and supplier risk. They also take pains to develop supply chain talent, which is especially important in maintaining relationships with partners and collaborating with product-design teams. Supply chain managers "have to know about the product and about the strategy to be able to add value," Hofman said.

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