Executives usually have a short list of companies they admire. When we ask supply chain business teams to name the best-performing companies in supply chain management, the most frequent responses are Amazon.com Inc., Procter & Gamble Co. (P&G), and Wal-Mart Stores Inc. While we agree that these companies are leaders that have made significant contributions to the practice of supply chain management, we do not find that they are outperforming their peer groups on a balanced portfolio of metrics. (The portfolio of metrics that we look at includes: market capitalization, price to tangible book value, growth, operating margin, inventory turns, and return on invested capital.) In other words, the court of public opinion is often out of sync with balance-sheet performance.
I have long maintained that supply chain excellence is easier to talk about than to define. But having a clear definition is important. Why? The answer makes or breaks a supply chain leader's career and defines corporate value.
To analyze supply chain excellence more holistically, my company, Supply Chain Insights, created the "Supply Chains to Admire" methodology four years ago. The goal of this work is threefold:
1) to help supply chain leaders set realistic supply chain goals;
2) to provide industry benchmarks to gauge progress; and
3) to recognize those companies that have achieved high levels of supply chain excellence.
We started the analysis to guide our own research and began sharing it with the industry in 2013.
We start the process in March, when full-year reporting is available for the prior year. This analysis is a study of companies' improvement, value, and performance against an industry peer group. This year, we analyzed 495 companies in 31 industries. The 24 winners for 2017 are shown in Figure 1. You can find the full report and a summary slide deck about the winners here.
What can we learn from the 2017 analysis? Here are some of our main findings:
- Performance varies greatly by industry peer group. The charts in the report show stark differences among peer groups. For this reason, it's foolish to put companies from different industries in a spreadsheet, shake them up, and then declare a winner. The chemical company BASF cannot be compared to P&G. Instead, it needs to be compared within its own industry peer group.
- Sustaining performance year-over-year is difficult. The 2017 list is different than last year's, which was different from the year before that. However, a true leader has the ability not only to drive higher levels of performance but also to sustain competitive advantage over time. Using the Supply Chains to Admire analysis, three companies—the technology company Apple Inc., the engine company Cummins Corp., and the semiconductor company TSMC Ltd.—are winners for two consecutive years. The retailer Dollar Tree Inc. and cosmetics company L'Oréal are winners for the past three years. Technology conglomerate Cisco Systems Inc. is a consistent top performer, having made the winners list for the past four years.
- Very few companies are performance leaders. There are no companies outperforming their peer group in 16 of the 31 industries studied. Likewise, of the 459 companies studied, only 24 are outperforming their peers.
- Driving improvement is slow going for high-performing companies. The greater the performance level, the harder it is to drive further improvement. Improvement is much slower for high performers.
- Balanced portfolios drive higher levels of value. Most companies tend to focus on single metrics tied to their company culture. When companies focus on managing the entire portfolio, however, the organization creates higher levels of value.
- Efficient silos do not create effective supply chains. While the traditional focus for supply chain excellence is on creating efficient silos within the organization, Supply Chains to Admire winners show that truly excellent supply chains focus on cross-functional alignment and strong horizontal processes.
- Discrete companies are making more progress than process-based companies. Our research shows that companies in process industries, such as chemicals and petrochemicals, are stuck to a larger degree than those involved in discrete manufacturing. We are not sure why. Is it because they are larger? More global? More traditional? We will investigate this in our future research.
The Supply Chains to Admire analysis is part of a larger study to understand how the choices companies make impact their balance sheets and income-statement performance. Using "big data" mining techniques, this larger study will include the Supply Chains to Admire analysis, over 7,000 quantitative survey responses collected over the past five years from supply chain leaders, and relevant market indices. The focus will be on understanding which of the choices companies made over the last decade have improved corporate value through improvements in supply chain excellence. Stay tuned!
