The Gartner Supply Chain Top 25 for 2016 - … Gartner Supply Chain Top 25 for 2016 ... Metrics for Operational Excellence and Innovation Excellence ... In 2015, the CEO's focus

25This research unveils the 12th annual global Supply Chain Top 25, identifying global supply chain leaders and highlighting their best practices for heads of supply chain and strategy organizations.

The Gartner Supply Chain Top 25 for 2016

Gartner delivers world-class objective research and advice to help supply chain leaders design and execute a demand-driven supply network that is profitable, flexible and predictable.

We provide actionable insights you can’t get anywhere else on executing the right supply chain strategies to deliver excellent customer service amid demand fluctuations while maximizing productivity, minimizing risk and enabling product innovation.

Our trusted research, analysis and advice will help you:

• Advance your initiatives through partnering with experts• Design and execute a roadmap for success• Run a world-class supply chain organization• Learn from industry leaders, and connect with valuable peers

For more information on how Gartner can help you transform your supply chain, contact your account executive or email [email protected].

G00295801

The Gartner Supply Chain Top 25 for 2016Published: 18 May 2016

Analyst(s): Stan Aronow, Michael Burkett, Kimberly Nilles, Jim Romano

This research unveils the 12th annual global Supply Chain Top 25,identifying supply chain leaders and highlighting their best practices forheads of supply chain and strategy organizations.

Key Findings■ Three key trends emerged among the leaders: closer, customer-driven partner integration,

further adoption of advanced analytics and a strong focus on corporate social responsibility.

■ In recognition that running an ethical and sustainable supply chain is a key aspect of leadership,Gartner has added a quantitative measure of corporate social responsibility to the Supply ChainTop 25 methodology.

■ For the first time, Unilever topped the ranking, followed by McDonald's, Amazon, Intel and anewcomer to the top group, H&M. Apple and P&G continued to qualify for the Masters categoryrecognizing sustained leadership over the last 10 years.

■ Five new companies made the list this year. Schneider Electric, BASF and BMW joined the listfor the first time, and two companies rejoined this year after a hiatus: HP and GlaxoSmithKline.

Recommendations■ Build closer integration with suppliers, partners and customers in support of more value-added

end-user solutions.

■ Invest in advanced analytics capabilities to make step-function improvements in performancewithin and across supply chain functions.

■ Link corporate strategy and social responsibility-focused efforts within supply chain. Describehow you are capitalizing on opportunities or mitigating risks to drive your company'scompetitive advantage.

Table of Contents

Analysis..................................................................................................................................................3

The Notable Trends.......................................................................................................................... 3

Customer-Driven Partner Integration...........................................................................................4

Adoption of Advanced Analytics................................................................................................. 4

Increasing Emphasis on Corporate Social Responsibility.............................................................5

Inside the Numbers.......................................................................................................................... 6

Return of the Supply Chain "Masters".........................................................................................6

The Top Five............................................................................................................................. 11

Movers and Shakers: No. 6 Through No. 15.............................................................................13

Rounding Out the List: No. 16 Through No. 25.........................................................................16

Honorable Mentions................................................................................................................. 19

What Is Demand-Driven Excellence?.............................................................................................. 20

Operational Excellence and Innovation Excellence.......................................................................... 22

Measuring Demand-Driven Excellence............................................................................................22

The Metrics We Wish We Had.................................................................................................. 22

Supply Chain Top 25 Methodology................................................................................................. 26

Business Data.......................................................................................................................... 27

Opinion Component................................................................................................................. 28

Polling Procedure..................................................................................................................... 32

Composite Score......................................................................................................................32

Looking Ahead............................................................................................................................... 33

Gartner Recommended Reading.......................................................................................................... 33

List of Tables

Table 1. The Gartner Supply Chain Top 25 for 2016 ...............................................................................8

Table 2. Metrics for Operational Excellence and Innovation Excellence..................................................23

Table 3. Industries Not Included in the Supply Chain Top 25 ................................................................26

List of Figures

Figure 1. Gartner Supply Chain Masters for 2016................................................................................... 6

Figure 2. The DDVN Maturity Journey...................................................................................................21

Figure 3. The Hierarchy of Supply Chain Metrics: Operational Excellence............................................. 24

Figure 4. The Hierarchy of Product Metrics: Innovation Excellence........................................................25

Figure 5. 2016 Peer Opinion Panel Composition: Region......................................................................29

Figure 6. 2016 Peer Opinion Panel Composition: Industry.................................................................... 30

Page 2 of 35 Gartner, Inc. | G00295801

Figure 7. 2016 Peer Opinion Panel Composition: Function................................................................... 30

Figure 8. 2016 Peer Opinion Panel Composition: Role..........................................................................31

Figure 9. 2016 Peer Opinion Panel Composition: Revenue................................................................... 31

AnalysisIn our 12th edition of the Supply Chain Top 25, we have several longtime leaders with new lessonsto share and a number of more recent entrants from the high tech, industrial, chemical, auto and lifescience sectors.

A key aspect of the Supply Chain Top 25 ranking is the demonstration of demand-driven leadership.We've been researching and writing about demand-driven practices since 2003, highlighting thejourney companies are taking — from inward-focused supply management functions to supplychains that orchestrate a profitable response to demand. This year we are also elevating corporatesocial responsibility (CSR) as a critical element of supply chain leadership by incorporating a newquantitative measure into our methodology.

Through this research we seek to foster the celebration and sharing of best practices as a way toraise the bar of performance for everyone. Another objective of the Supply Chain Top 25 is tohighlight and elevate the importance of the supply chain function and profession across ourcommunity, within corporate boardrooms and for the investment community, at large.

In 2015, the CEO's focus continued to be on jumpstarting growth,1 organically and through record

levels of merger and acquisition (M&A). Supply chain did its part to enable and help lead thischarge. The global economy stumbled through another mixed year, facing headwinds ranging froma downshift in the Chinese economy, stagnation and/or decline in many other major markets.Moderate growth in the U.S. was enough to strengthen the dollar and impact trade flows andcorporate earnings, particularly in consumer products (CP). The oil price shock that started inmid-2014 continued dramatically throughout 2015, eventually leading to a slowdown that decimatedearnings in related industries, offsetting some of the gains from lower consumer energy prices.

The approximately 300 large corporations we track in our survey delivered an average annualrevenue growth rate of 2.5% in 2015, down from 5.9% the year prior, even when higher recent M&Aactivity was included. Sometimes, necessity is the mother of invention and, in this challengingeconomic environment, companies continued to increase the pace of innovation in supply chain.

The Notable Trends

Each year, our analysts research the supply chains of hundreds of companies. Through this work,we note the trends: What are the leaders focusing on, where are they investing time and effort, andwhat can be applied broadly? Three key trends stand out this year for these leaders that areaccelerating their capabilities and further separating them from the rest of the pack.

Gartner, Inc. | G00295801 Page 3 of 35

Customer-Driven Partner Integration

Gartner's supply chain research is centered on the concept of running a demand-driven valuenetwork (DDVN). While customer centricity is a natural extension and enabler of DDVN, in the pastyear, some companies and ecosystems have raised the bar in terms of what this means.

For instance, a popular trend in leading consumer product companies is to centralize customerservice and other customer-facing functions in more cost-effective regional hubs. This allows forstandardization of best practices and economies of scale, with the ability to stay relatively close toindividual customers. One leading CP company has piloted having supplier representatives sit side-by-side with their supply chain support counterparts in these service centers to speed upcollaboration cycles and, ultimately, the response to customer requests, issues and priorities. This isa deeper level of integration than we've seen to date and bodes well for the long-term satisfactionof customers in this industry.

Meanwhile in high tech, there are dynamic federations of hardware, software and service providerscoming together for the sole purpose of bringing solutions to customer's requirements. Thiscollaboration is sometimes for extended periods of time and, in other cases, it is a one-time projectto deliver a tailored response to customer needs. We're particularly seeing this type of arrangementin the delivery of Internet of Things (IoT)-based solutions. Consider a solution that allows for theremote monitoring and management of refrigerated cases holding beverages in a large number ofdistributed locations. The solution is comprised of sensor chips, gateway devices, embeddedsoftware and an analytics platform for tracking inventory replenishment requirements, casetemperature failures and other performance parameters. There is also a service component formaintenance of the solution hardware and software. The orchestrator of the group is situation-specific. It could be an equipment OEM, a chipmaker, an electronics distributor, a contractmanufacturer, an integration partner or otherwise. The rules surrounding who owns the intellectualproperty (IP) and who bears the risks for the broader integrated solution are still unclear in some ofthese arrangements. Despite the uncertainty in this brave new world, the end result is thatcustomer's underlying challenges are being solved.

More broadly, digital business has emerged as a key enabler of tighter integration across valuechains. Leading companies in the process and industrial discrete manufacturing industries are notonly getting better visibility into their own manufacturing and outbound transportation networks, butalso integrating that visibility with similar data from upstream partners to provide a holistic view ofsupply to their customers and to sense and respond to potential disrupters earlier than they have inthe past.

Adoption of Advanced Analytics

Another trend we see at leading supply chains is the use of advanced analytics to aid in runningmultiple parts of their operations, spanning the entire end-to-end supply chain. Consider anequipment manufacturer mining historical CRM and sales data and using machine learningalgorithms to predict which deals in the pipeline have the highest probability of converting into realdemand and which are at risk, requiring intervention. Some CP companies have enabledpermission-based auto-replenishment of their products based on signals from internet-connectedsmart sensors embedded in the products at consumers' homes. The usage data captured as part of


this process is used to generate better demand forecasts based on usage personas and to informthe design of new products entering the pipeline.

On the product side, leaders in various discrete manufacturing industries are using artificialintelligence to analyze digital photographs of their products from source through manufacturing anddelivery. They are matching this information up with customer complaint data to spot negativepatterns and identify quality problems sooner. A high-tech company is piloting real-time use of bigdata analytics to tailor test scripts executed based on the most current risk-profile of individualcircuit boards. Component-test performance data from suppliers and customer productperformance data from the field provide a holistic view of product quality that is factored into whichscripts are executed on products as they progress through the testing line.

One process manufacturer is consolidating near-real-time information from customers, internalmanufacturing and distribution nodes, suppliers, logistics partners, and complementary third-partysources. It then applies data analytics combined with business rules to generate prescriptiverecommendations and support daily decision making, business optimization, and long-termplanning of network capacity and capabilities.

In each case, the value for these companies is in the algorithms that convert disparate data pointsinto operational insights. In most cases, the output is predictive of a future outcome or prescriptiveof what the supply chain planner or operator should do about it. In some domains, this capabilitywill be an interim step in a longer journey toward running autonomous supply chain functions.

Increasing Emphasis on Corporate Social Responsibility

Running socially responsible supply chains aligns with what investors, customers, employees andthe general public expect from companies today. Our research shows that mainstream institutionalinvestors are paying greater attention to a company's nonfinancial performance indicators, includingits handling of environmental, social and governance (ESG) factors. Supply chain executives shouldexpect their organizations to become a bigger part of their company's investor relations story asthese stakeholders expand their awareness of ESG issues.

Large corporate supply chains have enormous impact on people and the planet. As Gartneranalysts, we're increasingly hearing from companies about their efforts to increase transparencyand performance in running socially responsible supply chains. A very high-profile example of thiswas Unilever's recent announcement that it sends zero waste to landfills from its globalmanufacturing facilities and is well on its way to being an overall zero waste to landfill company.Earlier this year, chipmaker Intel announced that its entire supply chain will be certified as conflict-free to ensure that profits from metals sourced for its chips are not funding human rights atrocities inthe Democratic Republic of the Congo (DRC). These are just two of many milestones accomplishedby those committed to running ethical, sustainable supply chains.

The companies we see as further along in developing mature corporate social responsibility (CSR)practices have moved beyond mere regulatory compliance and have figured out how to link theseefforts back to support for their underlying corporate strategies. That may be part of a brandpromise attracting more customers or identifying and mitigating ESG risks that could cost their


company dearly. In one stark case highlighting the stakes, it is less than a year since theannouncement that Volkswagen knowingly evaded U.S. auto emissions testing standards, but thereputational damage, tallying in the billions, has been done.

Customer-driven partner integration, further adoption of advanced analytics and strong focus onCSR are this year's most common trends among supply chain leaders.

Inside the Numbers

Return of the Supply Chain "Masters"

Last year we introduced a new category to highlight the accomplishments and capabilities of long-term leaders. We refer to these companies as supply chain "masters" and define them as havingattained top-five composite scores for at least seven out of the last 10 years. To be clear, thiscategory is separate from the overall Supply Chain Top 25 list, but it is not a retirement from beingevaluated as part of our annual research study. To the contrary, if a "master" company were to fallout of having a top-five composite score for long enough, they would lose this designation and beconsidered as part of the Supply Chain Top 25 ranking in the same way as any other company inour study. All of that said, both of last year's inaugural masters, Apple and P&G, qualified for thiscategory again (see Figure 1).

Figure 1. Gartner Supply Chain Masters for 2016

Source: Gartner (May 2016)

Apple recently announced that it would post a year-over-year revenue decline for the first quarter of2016. This is not unusual for any company, given we are three calendar quarters into a corporateearnings recession. What was remarkable about the announcement, however, was that it was thefirst decline since 2003!


The iPhone has been a large part of Apple's remarkable performance. And while tens of millions aresold each year, the coordination required with suppliers and partners to deliver new models eachyear has developed into a reliable cadence. Apple has also improved the degree of transparencyinto its extended supply chain in recent years. In the area of conflict minerals, its 2015 SupplierResponsibility Progress Report states that all of its 242 smelters and refiners of tin, tantalum,tungsten and gold are subject to third-party audits to ensure they are not funding violence in theDemocratic Republic of Congo (DRC).

Apple continues to succeed by offering platforms that ecosystems of partners build upon to meetcustomers' needs, whether that relates to core product features such as access through touch-based security, media content and applications or third-party accessories that convert its productsinto smart diagnostic devices or payment terminals. The big forward-facing question for Apple andits supply chain is whether it can deliver on the next big innovations to continue the revenue andearnings parade of the last decade. A big X-factor will be Apple's ability to launch an automobile inthe future — a completely different proposition than its continued innovation within the consumerelectronics market, such as the Apple Watch.

Relative to the Supply Chain Top 25 ranking, Apple continued to dominate in both its historicalfinancial performance and the opinion of the peer and analyst communities. In 2016, Apple notchedits tenth straight year with a top-five composite score.

CP giant P&G is our other returning master. P&G received a top-five composite score in 2016,marking an impressive nine out of the past 10 years for this accomplishment.

For the majority of its products, P&G is running an end-to-end synchronization program. Every partof the supply chain operates based on the daily cadence of consumption, in some cases triggeredby demand at the shelf. Supply chain is also playing an active role in P&G's move toward commonproduct and packaging platforms, where standards are set globally and a more limited menu ofoptions is selected regionally, as required. The supply chain team brings data and analysis skills tothe process, with the ultimate goal of increasing the value that each active SKU contributes to thecompany.

In the domain of big data analytics, P&G's supply chain team is using advanced techniques to driveelimination of truck residence time at mixing centers. The company has also embedded sensors insome of its products, such as toothbrushes and air fresheners. The data transmitted from theseproducts aids the company in understanding consumer usage patterns to support replenishment ofsupplies for existing products and design features for future offerings.

Both Apple and P&G continue to offer advanced lessons for the supply chain community.

Along with the Masters category, the Supply Chain Top 25 continues to offer a platform for insights,learning, debate and contribution to the rising influence of supply chain practices on the globaleconomy (see Table 1).


Table 1. The Gartner Supply Chain Top 25 for 2016

Rank Company

Peer Opin-ion1

(185 Voters)(25%)

GartnerOpinion1

(38Voters)(25%)

Three-Year Weighted

ROA2

(20%)

InventoryTurns3

(10%)

Three-Year Weighted

RevenueGrowth4

(10%)

CSR Compo-nent Score5

(10%)

CompositeScore6

1 Unilever 1,841 632 10.8% 6.9 3.6% 10.00 5.84

2 McDonald's 1,754 493 13.2% 156.0 -4.0% 3.00 5.54

3 Amazon 3,356 582 0.5% 8.4 20.4% 0.00 5.34

4 Intel 1,112 496 11.4% 4.3 1.1% 9.00 4.62

5 H&M 833 189 25.3% 3.5 16.3% 9.00 4.50

6 Inditex 1,212 283 16.7% 3.9 11.2% 9.00 4.42

7 Cisco Systems 1,158 510 8.2% 11.2 2.3% 5.00 4.21

8Samsung Elec-tronics

1,313 303 8.6% 14.8 -2.4% 9.00 3.95

9The Coca ColaCo.

1,459 253 8.3% 5.7 -2.9% 9.00 3.69

10 Nestlé 1,251 257 8.9% 5.2 -1.1% 10.00 3.68

11 Nike 1,393 205 14.7% 3.9 9.7% 4.00 3.58

12 Starbucks 1,069 188 16.9% 6.8 13.8% 4.00 3.55

13 Colgate-Palmolive 880 323 15.1% 5.2 -3.5% 3.00 3.43


Rank Company

Peer Opin-ion1

(185 Voters)(25%)

GartnerOpinion1

(38Voters)(25%)

Three-Year Weighted

ROA2

(20%)

InventoryTurns3

(10%)

Three-Year Weighted

RevenueGrowth4

(10%)


(10%)

CompositeScore6

14 3M 784 163 15.0% 4.2 -0.9% 9.00 3.30

15 PepsiCo 931 347 8.5% 8.6 -2.3% 4.00 3.23

16 Walmart 1,512 232 7.9% 7.7 0.6% 3.00 3.06

17 HP 390 266 4.6% 12.1 -5.2% 10.00 2.87

18 Schneider Electric 392 259 4.3% 5.1 4.9% 10.00 2.80

19 L'Oréal 888 159 11.4% 3.0 7.0% 4.00 2.70

20 BASF 492 199 6.5% 5.0 -2.0% 10.00 2.70

21Johnson & John-son

950 165 11.6% 2.6 -0.4% 4.00 2.65

22 BMW 778 128 3.8% 6.0 8.8% 10.00 2.61

23 GlaxoSmithKline 361 98 12.6% 1.9 -1.9% 9.00 2.51

24 Kimberly-Clark 634 240 9.0% 6.3 -2.5% 3.00 2.48

25 Lenovo 508 217 3.6% 13.3 17.0% 4.00 2.43

Notes: 1. Gartner Opinion and Peer Opinion: Based on each panel's forced-rank ordering against the definition of "DDVN orchestrator."2. ROA: ((2015 net income / 2015 total assets) * 50%) + ((2014 net income / 2014 total assets) * 30%) + ((2013 net income / 2013 total assets) * 20%).3. Inventory Turns: 2015 cost of goods sold / 2015 quarterly average inventory.4. Revenue Growth: ((change in revenue 2015-2014) * 50%) + ((change in revenue 2014-2013) * 30%) + ((change in revenue 2013-2012) * 20%).5. CSR Component Score: Index of third-party corporate social responsibility measures of commitment, transparency and performance.6. Composite Score: (Peer Opinion * 25%) + (Gartner Research Opinion * 25%) + (ROA * 20%) + (Inventory Turns * 10%) + (Revenue Growth * 10%) + (CSR Component Score * 10%).


Rank Company

Peer Opin-ion1

(185 Voters)(25%)

GartnerOpinion1

(38Voters)(25%)

Three-Year Weighted

ROA2

(20%)

InventoryTurns3

(10%)

Three-Year Weighted

RevenueGrowth4

(10%)


(10%)

CompositeScore6

2015 data used where available. Where unavailable, latest available full-year data used. All raw data normalized to a 10-point scale prior to composite calculation. "Ranks"for tied composite scores are determined using next decimal point comparison.



The Top Five

We have a new No. 1 this year. Unilever, the Anglo-Dutch CP giant, has steadily moved up therankings over the past several years and is very well regarded by both the peer and analyst votingpanels due, in part, to its willingness to share best practices with the broader supply chaincommunity. The company is a role model when it comes to CSR and scored a perfect 10 out of 10on our new CSR component. Unilever says that it is achieving zero waste through its "four Rapproach" — reducing, reusing, recovering or recycling — and treating waste as a resource withalternate uses, such as converting factory waste to building materials or composting food wastefrom staff cafeterias. Longer term, it aspires to be "carbon-positive" by 2030.

Unilever has made significant investments in regional operational centers that support all facets ofthe customer order-to-cash process. This work is yielding cost savings through economies of scaleand common processes, as well as the ability to better support customer needs by applyinganalytics to a common CRM system.

The company has also improved its product life cycle management (PLM). Recent efforts in thatarea include global reuse initiatives, product platform thinking for scalable global growth and asegmentation-based approach. In 2015, it launched a Foundry Ideas platform to crowdsourceinnovations for sustainable products as part of its "sustainable living" plan.

Returning at No. 2 is McDonald's. The well-known restaurant chain staged a comeback in 2015,paring unprofitable locations and menu items and introducing its popular all-day breakfast offering.The latter entailed a broad-scale effort to retool restaurants previously configured for a moretraditional daily menu schedule. This program successfully moved from pilot in April 2015 to fulldeployment three months later across 14,000 restaurants in the U.S. McDonald's supply chainactively participates on both product and menu category teams to help shape the portfolio andbetter plan for new initiatives.

Overall, the McDonald's corporate supply chain team excels at orchestrating the upstream supplynetwork. It promotes and acts as the conduit between outsourced vendors, suppliers, corporatestores and franchise partners. It uses council meetings to collaborate with suppliers on new productinnovation and technology, as well as on plant safety. Base expectations with suppliers aremanaged through a standard supplier performance index, but the differentiator is more cultural andbehavioral, as partners tend to put the McDonald's system first when sharing product and processinnovations and staffing support teams with top talent. It is this type of close, collaborativerelationship that enabled McDonald's to escape any impact to its broader restaurant network whena bird flu outbreak impacted about 40 million egg-laying hens last year (12% of U.S. supply).Working closely with the egg suppliers, the restaurant locked in adequate supply at a higher qualityrating than the overall industry and was able to smooth pricing so that end restaurants saw noimpact during the general disruption.

Amazon dropped to No. 3 after its first ever appearance at No. 1 last year. This was not due toflagging financial performance nor opinion polls. The main driver was Amazon scoring zero out of 10on our new CSR measure. The company is known for having a secretive culture that has historicallyextended to a lack of transparency on supply chain sustainability and governance performance


measures. In the past two years, Amazon has brought in a high-powered team of sustainabilityexperts, so we hope to see changes in the years to come.

Amazon, of course, continues to be a leader when it comes to innovation in its products and supplychain. It has sold several million Echo voice-controlled home speakers that allow users to searchthe internet for information, play music, complete online tasks and control other home devices. It isnot hard to see where this could become a popular means of reordering common everydayproducts. Amazon's Prime Now same-day delivery service has expanded to more than two dozenU.S. cities and London, and includes delivery from local restaurants and stores in addition tocompany-owned warehouses. In order to reduce dependency on third-party freighter services,Amazon is building its own logistics network to keep up with customer demand. The online retailerrecently leased 20 Boeing 767 freight aircraft to set up its own fleet and will deploy thousands ofbranded tractor trailer trucks in North America to move packages between fulfillment centers. It has

recently been reported that Amazon is in discussions to buy a German airport.2 And yes, it is still

testing drone aircraft, with the ultimate goal of creating a 30-minute order-to-delivery service.

Intel remained in the top tier of the ranking this year at No. 4, based on a relatively high return onassets (ROA) and strong opinion poll scores. Intel continues to be the largest chipmaker in the worldand dominates the markets for PC and server-based microprocessors. The company is activelypursuing growth opportunities, as evidenced by its largest ever acquisition of chipmaker Altera in2015. Intel's next challenge is to drive organic growth in new markets. Its supply chain group hasproven to be a worthy partner for growth in the past. Over the course of 2014, the team enabled anentirely new ecosystem of China-based technology providers to support the ramp up of new tabletproducts. The result exceeded the CEO's aggressive 40 million unit shipment goal by 15%. Intel'ssupply chain is also acting as a test bed for new products offered by its IoT group, using thistechnology to improve the visibility and coordination of complex inbound capital equipmentdeliveries and outbound product shipments to customers.

Intel has had a longtime focus on running an ethical and sustainable supply chain and scored nineout of 10 on its CSR component score. It is the largest U.S. purchaser of renewable energycertificates and when combined with in-house sources, gets 100% of the 3.1 billion kilowatt-hoursof electricity its operations consumes annually from green sources.

Rounding out the top-five group this year is H&M at No. 5. The Swedish fast-fashion retailer climbedtwo spots on a combination of extremely strong three-year weighted average ROA (25.3%) andrevenue growth (16.3%) and a nine out of 10 for CSR, reflecting its strong record in sustainabilityand workers' rights. H&M was part of a recent coalition of top clothing companies that called ongovernments to agree to a strong climate change deal based on concerns that long-term climateeffects could harm production of one if its major inputs, cotton. In 2015, its founding familylaunched the H&M Conscious Foundation, which presents a Global Change Award as a fashionindustry innovation accelerator for sustainable clothing.

H&M has been on a rapid multiyear expansion path with its brick-and-mortar stores and shows nosigns of slowing down, with another 425 planned for 2016. Its digital efforts are moving less quickly,as it grapples with the added shipping, handling and price deterioration associated with onlinereturns. H&M operates its supply chains tailored by product type, with 80% of volume built to plan


at standard, cost-efficient lead times and the remaining 20% that is agile and can respond tofashion trends by going from design to hanger in as little as 20 days.

Movers and Shakers: No. 6 Through No. 15

This section of the ranking offers an impressive array of blue chips, with notable contributions to thediscipline of supply chain management (SCM).

At No. 6, is Inditex, Spain's leading fashion retail group best known for its Zara brand. Inditexposted similar strong performances in three-year weighted average ROA (16.7%) and revenuegrowth (11.2%) and scored nine of 10 for CSR. The Zara brand has been quite successful in its e-commerce business, particularly in the U.S. Inditex's culture is very team-oriented and focused onhaving talented practitioners run the business using best-in-class processes versus the personality-driven cultures often found at fashion houses. A couple of years ago, it set up a planning andanalytics team that sorts through real-time sales trends to inform future design and production.Another team converts voice of the customer feedback gathered from the store and district networkinto prescriptive advice for the design teams. Inditex has set a goal to run 100% eco-efficient storesby 2020. The new Zara flagship store in Manhattan tracks sustainability measures across all of itsprocesses and will consume 30% less energy and 50% less water compared to a conventionalstore.

Networking pioneer Cisco is No. 7. Concurrent with Cisco's changing of the guard at the CEO levellast year, it created a new role managing both supply chain operations and the IT group, reflectingthe high use of technology in managing supply chains. One area where Cisco has leveragedtechnology along with process improvement is in supplier collaboration. The team deployed acloud-based partnering platform with suppliers that serves as a single source of truth for data,eliminating the bullwhip effect between Cisco, contract manufacturers and suppliers. There is fulldemand visibility, and suppliers can address shortages through alerts in a more automated way,removing Cisco as the potential bottleneck to the resolution process. Another focus area for theteam is in digitizing the logistics function. This includes connecting logistics to the broader supplychain with data, standards, automated event management and machine agents. Cisco is alsobringing new technologies to bear in its warehouses, including augmented reality, telematics andvideo analytics. This is part of a broader effort to digitize its supply chain. It is leveraging in-houseInternet of Everything (IoE) technology to improve product quality, gain energy efficiency inoperations and reach universal order visibility.

Samsung Electronics, at No. 8, has been a familiar face on our ranking for many years. Its growthslowed in recent periods due to competition from Apple and others in the maturing mobile phonemarket, but early 2016 results look good, as component businesses such as semiconductors offer asolid performance counterbalance. Its supply chain has enabled a move into business-basedproducts and solutions tailored for industry-specific uses across retail, education, hospitality,healthcare, finance and transportation. Meanwhile, Samsung has continued to innovate itsproducts, with the most recent push being in virtual reality (VR), by offering a lower-cost device thatconverts its latest Galaxy smartphones into a full-on mobile VR headset. The supply chain teamcontinues to focus on improving customer collaboration and gaining insight into consumerbehaviors through connected devices. Samsung Electronics received high marks (nine of 10) on the


new CSR component. It recently received two awards for sustainability from the U.S. EnvironmentalProtection Agency (EPA) for its use of sustainable materials in the Samsung Galaxy S6 and its long-term commitment to the proper disposal and recycling of e-waste in the United States.

The Coca Cola Co. ranks at No. 9. The food and beverage leader is driving growth through productinnovations and entering new markets and products, particularly in juices and waters. Supply chain,in partnership with the business, is taking a value-based approach to product and packagingportfolio management. The company continues to use its Freestyle smart delivery systems to tailorsupply chain solutions by market and segment. In the U.S., it is a full-service dispensing machinethat can offer a myriad of choices by combining 100+ different sodas and juices, while in the U.K., itis a tabletop format focused more on juices. In emerging markets, it might be a three-bottle, two-liter dispensing machine set up for a village. Late in 2015, The Coca Cola Co. announced that it wasselling some production plants and creating a new supply system in the U.S. that will leverage thestrengths and capabilities of its four largest producing bottlers to operate as an aligned andcompetitive national product supply system. The company scored nine out of 10 for CSR and hasset out ambitious sustainability goals for 2020 that include improving water and emissions efficiencyby more than 20%, empowering five million women across its value chain and several programs toimprove nutritional content and reporting.

One of the biggest gainers at the top of this year's ranking is Nestlé, up seven to No. 10. Theworld's largest consumer food supply chain scored a perfect 10 out of 10 for CSR, including a 99out of 100 in the environmental dimension of the Dow Jones Sustainability Index for its use of "zero-water" factories and conversion of biowaste into renewable energy. Nestlé's supply chain hasconsistent priorities around fresh product availability, customer collaboration, capital efficiency,data-driven decision making, complexity management and people development. It is now focusedon optimizing end-to-end process flows and rethinking quality across its broader value chain.Recalling half a billion Maggi noodles units in India in 2015 was a reminder that "one up and onedown" traceability is no longer sufficient. This is no small task in an organization staffed by tens ofthousands, spanning more than a hundred countries. Nestlé is also investing in predictive analyticsfor demand planning and enabling growth in its e-commerce business, which includes packagingtailored more for delivery than display in a store.

At No. 11 is footwear and apparel leader, Nike, which continues to post strong financialperformance, with a three-year weighted average ROA of 14.7% and growth rate of 9.7%. Nikecontinues to lead in product innovation, and its supply chain plays a big role in enabling andramping new technologies. For those who remember Marty McFly's self-tying shoes in the movie"Back to the Future II," the company recently announced that it is actually releasing a version. Theself-tying sneakers with power-operated laces, which tighten with the press of a button, will launchlater this year. Last fall, Nike entered into an innovation and manufacturing partnership withoutsource provider Flex that is expected to add value in terms of new manufacturing technologiesand shorter cycle times. Nike has invested significantly in supply network design and PLMcapabilities. Its supply chain also has extended visibility to outsourced factory production andcompliance, as well as to how stores are executing on merchandising, inventory and operationsplans.

After jumping five slots last year, Starbucks held steady at No. 12. The world's largest coffee retaileris on a roll and posted stellar results heading into 2016, with a three-year weighted average ROA of


16.9% and growth rate of 13.8%. Starbucks' prominent CEO, Howard Schultz, recently spokeabout the need for supply chain to have a seat at the boardroom table. He emphasized the criticalityof strong supply chain capability to achieving the level of scale required to support its more than20,000 locations and the consumer trend toward speedy delivery. Starbucks has further rolled out aclick-and-collect feature through its online app that allows consumers to place and pay for ordersthat are routed to the nearest store for fast-lane pick up. Starbucks has been a socially consciouscompany as evidenced by its program to reimburse employee college costs and the use ofmarketing to promote harmony in the community. It recently announced that it plans to donate all itsleftover food at U.S. stores to charity, starting with 5 million meals provided to nationwide foodbanks this year and expanding to approximately 50 million meals annually, in five years.

CP leader Colgate-Palmolive lands at No. 13. Even in the face of unprecedented currencyheadwinds, the company pulled off an impressive 15.1% three-year weighted average ROA. Theengine behind these results is extensive programs, comprised of more than 10,000 projects,focused on finding cost savings and reinvesting them back into growing the business. Continuousimprovement and the concept of economic value-add are embedded in the supply chain andbroader company's DNA. For several years running, supply chain, in partnership with the business,has managed significant improvements in SKU productivity through a disciplined governanceprocess. The Colgate-Palmolive team has partnered with its enterprise software provider to co-develop supply chain control tower capabilities, including better demand sensing, inventoryoptimization and supply network planning. The pilot implementation of this capability has enableddaily responsiveness and reduced inventory levels, while minimizing out of stock impacts.

Industrial innovator 3M retained its No. 14 position. For a diverse manufacturer, it boasts a very highthree-year weighted average ROA of 15%. 3M has also demonstrated a strong commitment to, andperformance in, running a sustainable supply chain, scoring nine out of 10 points for CSR. It has setaggressive 10-year sustainability goals that include reducing global water usage by 10%, improvingenergy efficiency by 30%, achieving "zero landfill" status for more than 30% of manufacturing sitesand helping customers reduce CO2 emissions by 250 million tons. 3M supply chain's take onrunning a bimodal supply chain is embodied by its use of the term "Efficient Growth." For decades,the company has grown its top line, mostly through more creative use of resources. Supply chain'srole in this growth is centered on three elements. The first is regionalizing supply chains to reducecomplexity, enhance operational impact and improve customer service. Next is acceleratingdisruptive technology to leverage innovation and deliver higher-quality, lower-cost and even-more-innovative products. The third is harmonizing global processes in alignment with a global ERPplatform to deliver world-class productivity, inventory management and capital efficiency.

Forward-thinking food and beverage purveyor, PepsiCo is last in this middle group at No. 15.PepsiCo is leveraging its near-real-time direct store delivery network visibility to support hyperlocalmarketing, including tailored assortments and perimeter displays at the right store and time to drivesales. Another focus area is a global rollout of a standardized demand and supply planning platformthat delivers base capabilities to emerging markets and a larger menu of capabilities for complex,mature markets. PepsiCo's supply chain is partnering with commercial teams to deploy a totalportfolio optimization governance process and tool that allows for data-driven assessment ofportfolio health, detailed analysis relative to evaluation criteria and targets, and a process for final


portfolio decisions. Pilots of the new portfolio optimization platform are yielding double-digitpercentage improvements in profit per volume measures. PepsiCo is also using tools and models toperform advanced inventory analysis and decision making. This includes self-service dashboardsthat allow users to drill into root causes for problem areas and to simulate the quantitative impact ofcorrective actions.

Rounding Out the List: No. 16 Through No. 25

Megaretailer Walmart, at No. 16, continued its push into e-commerce channels in 2015 with morethan $1 billion in new investments. Global revenue in that channel increased 22% to $12.2 billion.The company set up large, dedicated online fulfillment centers to support this volume in the U.S. Bystocking product centrally, it has been able to simultaneously increase assortment by 60% to over10 million items. About 75% of Walmart's online sales come from nonstore inventory, providing asource of growth outside of brick and mortar. Its U.K.-based Asda stores offer the "click andconnect" service, which has been very popular with local shoppers. One of Walmart's communityinvestments has been a Global Women's Economic Empowerment Initiative, which providestraining, access to markets and career opportunities to nearly 1 million women, many on farms andin factories. As part of that effort, the retailer is increasing its sourcing from women-ownedbusinesses.

After several years away, the legendary Silicon Valley innovator, HP, rejoins the list at No. 17. InNovember 2015, HP split into two separate entities, HP Inc., which owns the PC and printerbusinesses, and Hewlett Packard Enterprise, which primarily owns the enterprise computing andservices businesses. Starting in next year's ranking, we will evaluate them as separate entities. Theteams performing the complex split managed to pull off the complete separation of two $50 billion-plus businesses without a hitch and in only a matter of months. While the split took dedicatedfocus, the two HPs were still able to simultaneously improve their individual businesses. Theenterprise business delivered a visibility and data analytics platform that is now leveraged forimproved demand forecasting, among other areas. It has also developed a quality cloudenvironment to better track the quality life cycle. Other enterprise priorities include speeding newproduct design processes and improved cybersecurity. Meanwhile, HP Inc. has focused onimproving customer experience through perfect order fulfillment and other means. It is also enablingartificial intelligence (AI) software routines to identify problems in the order to fulfillment process andupstream supply chain. HP scored a perfect 10 on the CSR component and is a longtime leader inthis area. HPE is focused on combatting human trafficking in its supply chains and HP Inc. isfocused on improving sustainability and workers' rights across its entire value chain.

Schneider Electric, at No. 18, is a first-timer to the list, but frequently referenced as an honorablemention in previous years. The global specialist in energy management and automation jumped 16slots from No. 34 last year, based on increasing opinion poll vote sentiment and scoring 10 of 10 forCSR. Schneider Electric has spent the last several years moving from decentralized supply chainssupporting its extremely diverse customer base to one that is tailored to align with customerrequirements, in a scalable way, through a small number of differentiated end-to-end flows throughordering, planning, sourcing, manufacturing and delivery. Other key initiatives include efforts tosignificantly reduce end-to-end customer lead times, improve time to market for new capabilitiesand improve customer satisfaction through special care units and focused on-time-deliver


improvements. Schneider Electric is also focused on maturing its sales and inventory operationsplanning process, deploying network optimization and leaning out warehousing and transportationfunctions. Finally, the team is driving continuous improvements in its engineer-to-order and fieldservices supply chains.

France-based L'Oréal, the world's largest cosmetics company, ranks at No. 19, up three slots fromlast year. Its supply chain has focused on improving demand forecasting and supply and demandmatching capabilities. The results have been impressive, as it has been able to improve servicelevels by more than 2%, while holding inventory constant. In the area of product innovation, thesupply chain organization closely coordinates with R&D on new product introduction (NPI). Strategicsourcing team members are engaged in the early stages of the product life cycle to coordinatedevelopment and eventual launch with supplier partners. The company manages a considerableamount of item complexity in its portfolio — 30% to 50% of products refresh annually — through amature governance process focused on product contribution. L'Oréal has a very strong financeorganization and culture that pervades management of its portfolio, internal operations and supplybase. The supply chain team is also continuing to develop and deploy its supplier managementprogram on a best-of-breed platform.

Another newcomer to the Supply Chain Top 25 is BASF at No. 20, the world's largest chemicalcompany, leaping 16 slots from last year's ranking. BASF has a long history of focusing on safetyand sustainability and scored 10 out of 10 on the CSR component. There are a few major focusareas for its supply chain team. One is referred to as lighthouse projects to digitize supply chainmanagement, in line with Industrie 4.0 standards. This includes digitization of its logistics functionand horizontal digital integration from its customers, through its internal operations and upstream tosuppliers. Prescriptive analytics are being built to aid in daily decision making and strategy planning.Another key initiative is differentiation in supply chain services, which moves the group fromproportionally spreading costs to business units to charging for services rendered. This shift has putbetter visibility on the true cost-to-serve of each business and presented opportunities to reduceexpensive, complex offers where they are not needed. Through its focus, this effort has alsoimproved service delivery for customers and identified value-based pricing opportunities for specialservices. The last major focus area for supply chain is on delivery reliability excellence.

Healthcare leader Johnson & Johnson, at No. 21, has been on the Supply Chain Top 25 list everyyear since its inception. This year, the supply chain group defined an end-to-end operating systemthat defines a standard way of working across all internal functions with external partners andbetween segments. J&J's customer experience program, launched four years ago, is targeted atimproving customer experience and creating joint value delivered through customer focus teamsstaffed by dedicated supply chain professionals. Its supply chain team has improved suppliercollaboration through tighter integration, created digital visibility through serialization and track andtrace, and deployed control towers for supply chain planning (SCP) and analytics to sense andrespond to issues. Factory 4.0 is another priority for its advanced manufacturing group, which isexperimenting and implementing disruptive technologies such as robotics, 3D printing and dataanalytics. Finally, J&J has adopted new product design-to-value principles and governance and astructured product portfolio optimization approach to maximize ROI.


Also new to the list this year is BMW at No. 22. The German luxury automobile company receivedhigh marks from the opinion panels and a top score of 10 on the CSR component. BMW hasimplemented a risk filter for suppliers that takes into account location-specific and product-specificrisks. Its sourcing group uses this filter to consider ESG risk potential for new and existing suppliersand follow up with supplier self-assessments and audits, as needed. BMW has also madesignificant investments in supply network visibility and digital manufacturing in line with Industrie 4.0objectives. In a pilot project, its Munich and Leipzig plants tested smartwatches that alert workerswhen a car with special requirements is approaching. To reduce the strain on workers, physicallydemanding and nonergonomic tasks can now be carried out by innovative robot systems. Thecompany is also using self-driving robots equipped with radio transmitters and a digital map totransport up to a ton of car parts independently to their destination. BMW has long been recognizedas a leader in automotive sustainability. It has reduced the volume of resources utilized and theemissions per vehicle produced by an average of 45% since 2006 through a variety of projects.

GlaxoSmithKline, at No. 23, returns to the ranking after a nine-year hiatus. It had a strong three-yearweighted average ROA of 12.6% and scored nine out of 10 on the CSR component. The Britishpharmaceutical company has set up a new information exchange for its suppliers to share bestpractices on energy efficiency and reducing environmental impacts. More than 500 suppliers havebeen asked to join the network, which GSK expects to cut value chain emissions by 25% by 2020.GSK's end-to-end supply chain program, started in 2013, is designed to reform and simplify thecompany's supply chain. In 2014, the business introduced processes to improve coordinationacross each stage of production from sourcing and manufacturing to more efficient delivery of itsproducts to patients and consumers. At the same time, the business introduced the GSKProduction System (GPS) across its pharmaceutical manufacturing sites. The GPS is a standardway of working that identifies and eliminates the root causes of accidents, defects and waste. Morerecent initiatives and capabilities include product portfolio complexity analysis and end-to-endlogistics coordination and visibility.

Leading personal care and paper product company Kimberly-Clark, at No. 24, continued its steadyrise up the supply chain maturity curve over the last year. As part of this evolution, it created a newchief supply chain officer (CSCO) position with global responsibilities for procurement,transportation, continuous improvement, sustainability, quality, safety and regulatory operations.Three of the top initiatives for Kimberly-Clark's supply chain are improvements in on-shelfavailability, e-commerce fulfillment capabilities and continued refinement of its world class SupplyChain Efficiency Fund (SCEF) program. Its on-shelf availability work involves further improvementsin demand forecasts based on point-of-sale data, near-term customer demand signals andpromotional forecasting tools. Other considerations include product portfolio and packagingdecisions. Kimberly-Clark seeks to be a supercompetitor in e-commerce to enable growth. It isinnovating packaging to make it more direct-ship friendly and realigning its network to ensure widecoverage for quick delivery windows. Its SCEF program centers on a cost-to-serve model thatidentifies a range of logistics services from most to least efficient and provides incentives throughtrade promotion fund transfers for customers to choose more efficient models, where it is a netpositive for the company.

Lenovo rounds out the list at No. 25, this year. The Chinese high-tech company made significantacquisitions over the past two years and its supply chain took a disciplined approach to integrate


and return the IBM System X server and Motorola mobility businesses to profitability in 18 months.A large part of this success story was a detailed network design analysis that led to a decision tomerge acquired product production into Lenovo's existing in-house manufacturing network. Overall,the company runs a hybrid ownership model for all of its manufacturing. At the same time, thesupply chain team ran programs to enhance customer experience and operational excellence. Oneprogram that has improved customer satisfaction is the creation of a customer social/digitalplatform for key global accounts with content that is tailored to each customer's preference in termsof order status, new product information and technical support information. A supply chain staffmember is assigned as an executive sponsor for each major account.

Honorable Mentions

Every year, there are companies that demonstrate strong leadership in demand-driven principles,but do not make the list. This year, we recognize Caterpillar, Seagate Technology, Nokia andCummins.

Caterpillar held at No. 26 this year, though its composite score was within a hundredth of a point ofNo. 25 Lenovo. The industrial manufacturer is seeing improved demand visibility from channelpartners after training them in best practices. Most of its supply chain functions now roll under oneowner. Caterpillar is also taking a conscious end-to-end segmentation approach. The supply chaingroup has developed a second-generation lane strategy, with value chains that are more closelyengineered based upon customer value propositions.

Seagate Technology is No. 27 and, similar to Caterpillar, its composite score is just a tenth of a pointbehind the last spot on the global list. Seagate is pursuing three major initiatives this year:increasing supply chain agility, optimizing the cost of quality and developing big data analytics tospot product trends, provide operational alerts and glean insights from supply chain sensor data.

Telecommunications equipment provider Nokia, at No. 28, has a management team that is a coupleyears into its turnaround effort. It stabilized and improved performance of the business whileintegrating its supply chain functions to operate end to end. This all happened just in time for thecompany to digest its next major merger partner, Alcatel-Lucent. Nokia jumped an astonishing 73slots year over year, based on a confluence of factors, including stronger financial performance, ahigher analyst opinion score and a perfect 10 score for CSR.

Cummins, at No. 39, dropped out of the global ranking after making the list for four years running. Ithas faced some macroeconomic headwinds from slower overseas sales, though it has thecapability of quickly adjusting its cost structure and has used the downturn to improve its business.The engine and power generation company matured its integrated business planning process overthe past few years. It has also developed innovative techniques to automate custom productsettings in its factories to increase supply agility and capacity.

All of these companies exhibit leadership characteristics and have compelling lessons for thebroader supply chain community. We look forward to sharing lessons from them and many others inthe year ahead.


What Is Demand-Driven Excellence?

The concept of being demand-driven is at the heart of the Supply Chain Top 25 ranking. We havepublished hundreds of documents on the topic for more than a decade, including a maturity modelto help companies move along the transformation curve (see "Introducing the Five-Stage Demand-Driven Maturity Model for Supply Chain Leaders").

Because it's so critical to the Supply Chain Top 25 analysis, here's a brief synopsis of what it meansto have a demand-driven value chain. The DDVN model is characterized by an understanding ofcustomer value with processes and metrics that enable business trade-offs to deliver products andservices profitably. Companies that work toward the DDVN ideal use demand management as a keydifferentiating capability, so they can plan, sense and shape in a way that brings profitable balanceto the business. They also design supply networks to be more closely aligned with the developmentof product platforms that enable innovation, agility and responsiveness.

We find that companies that continually secure spots on the Supply Chain Top 25 have successfullyshifted from the traditional disconnected approach to managing supply, demand and product to anintegrated approach to coordinating plan, source, make and deliver functions across the end-to-endsupply chain. Companies typically make this shift as they advance along the DDVN maturity journey,which represents a long-term commitment to doing business in a customer-value-centric way (seeFigure 2).


Figure 2. The DDVN Maturity Journey



The seven dimensions of the Gartner DDVN maturity model (see "Assess Your Supply ChainMaturity Using the Seven Dimensions of DDVN Excellence") establish a clear definition for eachaspect of the supply chain, as it matures and integrates with focus on customer value.

Operational Excellence and Innovation Excellence

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 recommend ahierarchy of metrics, with perfect order performance and total supply chain costs at the top (see"The Hierarchy of Supply Chain Metrics: Diagnosing Your Supply Chain Health").

Of course, operational excellence has value only if customers want what's being made and shipped.To address this, we look at innovation excellence. Although far harder to measure reliably, thisdimension can also be managed with a hierarchy of metrics, in this case, topped by time to valueand return on new product development and launch (NPDL). The key is to find the right balance onboth these dimensions. Too much emphasis on one at the expense of the other either squashesinnovation or hampers growth.

It's important to recognize the business life cycle aspect to this balance that our methodology alsoattempts to reflect. Each year, we see examples of previously successful businesses struggling withthe competitiveness of their products, while still possessing very advanced supply chaincapabilities. This condition can exist for a period of time before both resynchronize and either returnto high performance or spiral into decline. Since the opinion poll portion of our methodology isbased on the relative capability and leadership of a supply chain at a given point in time, it ispossible for a company's supply chain to score well on the polls, while also posting a less-competitive financial performance in the near term.

Measuring Demand-Driven Excellence

The Metrics We Wish We Had

For the Supply Chain Top 25 ranking, our ideal would be to have metrics that perfectly describe thetwo basic dimensions of performance: operational and innovation excellence. These are thedimensions that point meaningfully to the better value chain, identifying which business is faster,stronger and smarter. Betting on next year or next quarter is a matter of knowing who the better"athlete" is, not merely who won last time. Our premise is that the better athlete is more likely to winmarkets and profits in the future. Therefore, the companies that can demonstrate superiorperformance against these dimensions merit a higher share price multiple on a dollar of currentearnings.

In our ongoing supply chain research, we've identified the metrics that map to these dimensions,which, if we had them, would clearly convey the organizations that have the healthiest value chains(see Table 2).


Table 2. Metrics for Operational Excellence and Innovation Excellence

Performance Dimension Key Metrics

Operational Excellence Perfect order ratesTotal supply chain costs

Innovation Excellence Time to valueReturn on new product launch


For each of these performance dimensions, we've published a full hierarchy of metrics that allowsmanagement to assess overall performance at the highest level, diagnose problems via processdecomposition and make corrections at the tactical work level (see Figure 3 and Figure 4). We havealso published hierarchies for each of the functions that make up the supply chain: a hierarchy ofsupply management metrics (see "Use the Hierarchy of Supply Management Metrics for StrategicAlignment and Enhanced Performance — Part 1" and "Use the Hierarchy of Supply ManagementMetrics for Strategic Alignment and Enhanced Performance — Part 2"), a hierarchy ofmanufacturing metrics (see "Use the Hierarchy of Manufacturing Metrics to Connect Manufacturingand Supply Chain Performance") and a hierarchy of logistics metrics (see "Align Supply Chain andLogistics Performance With the Hierarchy of Logistics Metrics").


Figure 3. The Hierarchy of Supply Chain Metrics: Operational Excellence

AP = accounts payable; AR = accounts receivable; FG = finished goods; SCM = supply chain management; WIP = work in process



Figure 4. The Hierarchy of Product Metrics: Innovation Excellence


However, from our work with companies and our benchmarking studies, we're all too aware of howinaccessible this data is in most companies, particularly within a realistic time frame. Moreover,although some companies may have some of the data we seek, there are vast inconsistencies inhow these metrics are calculated from company to company.

Therefore, for the Supply Chain Top 25 ranking, we look to publicly available, audited financial datato find the closest possible proxies. We know the limitations inherent in these metrics. Existingfinancial accounting principles were developed in the hard-asset, factory-intensive economy of theearly 1900s. For example, the balance sheet treatment of inventory as a valuable asset rings falsefor the many short-cycle businesses today that see inventory as more of a liability. Similarly, softassets like brands and IP, which are essential to demand creation, are difficult for standardaccounting practices to handle. Even income statements can obscure real costs with sneakycapitalization rules.

Because of these issues, our methodology isn't limited to financial metrics. Instead, we see thefinancials as one important component that provides a baseline, an anchor and an objectivefoundation on top of which we place the group intelligence of a vote, precisely because nocombination of income statement or balance sheet financial metrics will tell us which companies arefurthest along toward the demand-driven ideal of supply chain excellence. For this reason, we look


to craft a methodology that combines enough, but not too many, of the right metrics — bothquantitative and qualitative — to achieve our goals.

Supply Chain Top 25 Methodology

The Supply Chain Top 25 ranking comprises two main components: business performance andopinion. Business performance in the form of public financial and CSR data provides a view intohow companies have performed in the past, while the opinion component offers an eye to futurepotential and reflects leadership in the supply chain community. These two components arecombined into a total composite score.

We derive a master list of companies from a combination of the Fortune Global 500 and the ForbesGlobal 2000. In an effort to maintain the list of companies evaluated at a manageable level and inrecognition of the inflation and growth these larger companies have experienced, we increased thegeneral revenue threshold to $12 billion last year, up from $10 billion.

We then pare the combined list down to the manufacturing, retail and distribution sectors, thuseliminating certain industries, such as financial services and insurance (see Table 3 for a full list ofexcluded industries).

Table 3. Industries Not Included in the Supply Chain Top 25

Airlines Insurance Services

Banks Mail, Package and FreightDelivery Shipbuilding

Crude Oil Production Metals Software Development

Diversified Financials Mining Telecommunications

Energy Petroleum Refining Temporary Help

Engineering/Construction Pipelines Trading

Entertainment Railroads Utilities

Healthcare: Insurance, Managed Care,Services, Providers

Real Estate

Information Technology/Computer Services Shipping


Each year, we examine the methodology used to develop the ranking, with two sometimes-conflicting goals in mind: consistency and improvement. We want to improve the methods andprocedures we use, but, for the sake of consistency, in a way that builds on what we've done inprevious years.


We are open to feedback from the broader supply chain community on the methodology we useand have a new metric related to CSR, based in part on this feedback. Indeed, the Supply ChainTop 25 is intended to be a lightning rod and foundation for vigorous debate about what constitutesleadership and supply chain excellence.

At the same time, we continually look for ways to enhance the explanatory power, applicability andextensibility of the overall ranking. The impact of brand recognition on the vote, industry variationsin inventory and inequalities between more versus less asset-intensive industries are all challengeswith which we grapple. These issues are multifaceted. By analyzing them, we've been able to makeincremental changes that have allowed us to painstakingly chip away at some of the problems,while maintaining consistency from year to year at the same time.

In 2016, we added a CSR scoring component to the Supply Chain Top 25 program (see"Introducing a Score for CSR and Sustainability Performance to the Gartner Supply Chain Top 25").

We believe that adding a quantitative scoring method to the ranking program gives CSR theprominence it deserves in our definition of supply chain excellence. We also want to recognizesupply chain organizations that effectively manage opportunity and risk, with a focus on the long-term view, so that profitability does not come at the expense of people or the planet. This additionaligns with what investors, customers, employees and the general public expect from companiestoday.

The current quantitative components of the Supply Chain Top 25 scoring system use publiclyavailable data to calculate financial performance scores. The new CSR component also uses third-party data as a proxy for assessing each company's commitment to, and proficiency in, runningsocially and environmentally responsible supply chains.

Similar to last year, we used a 50/50 overall weighting for this year's ranking: 50% for the businessperformance component and 50% for the opinion component.

Business Data

Three financial metrics and the new corporate social responsibility metric are used in the ranking:

1. ROA — Net income/total assets

2. Inventory turns — Cost of goods sold/inventory

3. Revenue growth — Change in revenue from prior year

4. CSR — Index of third-party CSR measures

We designed a scoring system for CSR based on our research and input from third-party experts inCSR, a cross-section of supply chain community members and our broader research organization(see "Introducing a Score for CSR and Sustainability Performance to the Gartner Supply Chain Top25" for details of the scoring index).


Each company has the opportunity to achieve up to 10 points for evidence of its CSR commitment,transparency and performance. The revised category is now called "Business Data" to reflect theinclusion of the nonfinancial data we capture in the CSR score.

We accommodate the CSR score by subtracting 5% of the weighting from each of two metrics:ROA shifts from 25% of the overall score to 20%; and inventory turns shifts from 15% of the overallscore to 10%. Revenue growth remains at 10%.

Inventory offers some indication of cost, and ROA provides a general proxy for overall operationalefficiency and productivity. Revenue growth, while clearly reflecting myriad market andorganizational factors, offers clues to innovation. Financial data is taken from each company'sindividual, publicly available financial statements.

We use a three-year weighted average for the ROA and revenue growth metrics and a one-yearquarterly average for inventory. The yearly weightings are as follows: 50% for 2015, 30% for 2014and 20% for 2013.

The use of three-year averages is in place to accomplish two goals. The first is to smooth the spikesand valleys in annual metrics, which often aren't truly reflective of supply chain health, that resultfrom events such as acquisitions or divestitures. It also accomplishes a second, equally importantgoal: to better capture the lag between when a supply chain initiative is put in place (a networkredesign or a new demand planning and forecasting system, for example) and when the impact canbe expected to show up in financial statement metrics, such as ROA and growth.

Inventory, on the other hand, is a metric that's much closer to supply chain activity, and we expect itto reflect initiatives within the same year. The reason we use a quarterly average is to get a betterpicture of actual inventory holdings throughout the year, rather than the snapshot, end-of-year viewprovided on the balance sheet in a company's annual report.

Opinion Component

The opinion component of the ranking is designed to provide a forward-looking view that reflectsthe progress companies are making, and the extent to which they demonstrate leadership throughvisibility in the supply chain community. It's made up of two components, each of which is equallyweighted: a Gartner analyst expert panel and a peer panel.

The goal of the peer panel is to draw on the extensive knowledge of the professionals that, ascustomers and/or suppliers, interact and have direct experience with the companies being ranked.Any supply chain professional is eligible to be on the panel, and only one panelist per company isaccepted. Excluded from the panel are consultants, technology vendors and people who don't workin supply chain roles (such as public relations, marketing or finance).

We accepted 240 applicants for the peer panel this year, with 185 completing the voting process.Participants came from the most senior levels of the supply chain organization across a broad rangeof industries. There were 38 Gartner panelists across industry and functional specialties, each ofwhom drew on their primary field research and continuous study of companies in their coveragearea.


Organizations must surpass a base threshold of votes from both panels to be included in theranking. Therefore, a company that had a composite score fall within the Supply Chain Top 25 solelybased on the financial metrics would not be included in the ranking.

The figures below provide a breakdown of the peer vote on the dimensions of region, industry, roleand revenue. The regional breakdown of voters continued to be a particular emphasis for us, andwe continued to make progress this year. Until 2010, North American voters made up 80% of thetotal. Since that time, we have made progress in achieving better balance regionally to provide amore balanced global view of supply chain leadership (see Figure 5).

Figure 5. 2016 Peer Opinion Panel Composition: Region



Figure 6. 2016 Peer Opinion Panel Composition: Industry


Figure 7. 2016 Peer Opinion Panel Composition: Function



Figure 8. 2016 Peer Opinion Panel Composition: Role


Figure 9. 2016 Peer Opinion Panel Composition: Revenue



Polling Procedure

Peer panel polling was conducted in April 2016 via a web-based, structured voting process identicalto previous years. Panelists are taken through a four-page system to get to their final selection ofleaders that come closest to the demand-driven ideal, which is provided in the instructions on thevoting website for the convenience of the voters.

We continued including consideration of CSR practices in this year's opinion poll voting criteria. Wespecify that peer voters consider each company's commitment to running a supply chain thataddresses social, environmental, ethical human rights and consumer concerns in its operations andcore strategy. Many companies are proud of their CSR initiatives, and have observed that supplychain leadership includes running a responsible, sustainable business, and that our ranking shouldexplicitly reflect this dimension. We have always recognized and often written that CSR is animportant aspect of leadership, and wholeheartedly agree that it should be a consideration for howhigh or low they rate on the annual ranking.

Here's a breakdown of the voting system:

1. The first page provides instructions and a description of the demand-driven ideal.

2. The second page asks for demographic information.

3. The third page provides panelists with a complete list of the companies to be considered. Weask them to choose 25 to 50 that, in their opinion, most closely fit the demand-driven ideal.

4. After the subset of leaders is chosen, the form refreshes, bringing just the chosen companies toa list. Panelists are then asked to force-rank the companies from No. 1 to No. 25, with No. 1being the company most closely fitting the ideal.

Individual votes are tallied across the entire panel, with 25 points earned for a No. 1 ranking, 24points for a No. 2 ranking and so on. The Gartner analyst panel and the peer panel use the exactsame polling procedure.

By definition, each peer voter's expertise is deep in some areas and limited in others. Despite that,peer voters aren't expected to conduct external research to place their votes. The polling system isdesigned to accommodate differences in knowledge, relying on what author James Surowiecki callsthe "wisdom of crowds" to provide the mechanism that taps into each person's core kernel ofknowledge and aggregates it into a larger whole.

Composite Score

All this information — the four business data points and two opinion votes — is normalized onto a10-point scale and then aggregated, using the aforementioned weighting, into a total compositescore. The composite scores are then sorted in descending order to arrive at the final Supply ChainTop 25 ranking.

For the second year, we tested the concept of a "social vote" as a complement to the Supply ChainTop 25 global ranking. The purpose of this social vote is to get a perspective for comparison from abroader portion of the supply chain community. The results from the social vote were not used in


the scoring of the Supply Chain Top 25 ranking this year, rather we plan on using the results ascomplementary to the Supply Chain Top 25 ranking, which will still be determined using ourtraditional methodology. The social vote is very similar in appearance to the survey the peer voterscomplete; however, we asked that the social voters only pick their top 10 supply chain leaders. Theintent is to see if different patterns emerge out of this more open, public vote versus our currentinvitation-only peer panel vote.

The Supply Chain Top 25 social vote is open to all supply chain professionals. Unlike the peer vote,there is not a limit of only one voter per company. We used a variety of social media channels andsupply chain publications to inform the community of this new approach. The level of response waspositive and we look forward to growing the social voter base next year.

Looking Ahead

As we look forward to the future of the Supply Chain Top 25, we are excited to share the latestlessons from leaders with the supply chain community and to foster a discussion with you all on thedefinition of leadership.

The Healthcare Supply Chain Top 25 lies ahead for the rest of 2016, as well as a steady cadence ofpublications that offer various analytical lenses on the full 2016 global ranking. These includeindustry cuts that examine how the companies in a particular industry stack up against each otherand what the industry can learn from them, as well as regional cuts for Asia/Pacific and Europe,which do the same for companies headquartered in each region. These cuts will be publishedthroughout the remainder of the year and we will pull them all together in a special report toward theend of the year for ease of reference. For the first time, we will also publish a toolkit shortly after thisreport that contains tables listing the top ranked supply chains from each industry. Also see"Gartner Webinar: Lessons From Leaders: The 2016 Gartner Supply Chain Top 25" for more insight.

As always, we'll continue to field feedback and investigate new approaches for measuring supplychain leadership. In particular, we'll be synthesizing the feedback we receive from the broadersupply chain community on the new CSR component, and build refinements into the 2017methodology where it makes the most sense to do so.

In our engagement with supply chain leaders over the past year, it is evident that the bar ofperformance has risen considerably for the top of the group. As Gartner's supply chain researchorganization, we remain committed to providing a platform for informed and provocative debateabout supply chain leadership. We look forward to leveraging this research to share the lessons,best practices and characteristics of leaders to inspire and challenge the entire supply chaincommunity to new levels of performance and contribution.

Gartner Recommended ReadingSome documents may not be available as part of your current Gartner subscription.

"The Gartner Supply Chain Top 25 for 2015"


http://www.gartner.com/webinar/3311325

"2015 Gartner Supply Chain Top 25: A&D"

"2015 Gartner Supply Chain Top 25: Automotive"

"2015 Gartner Supply Chain Top 25: Chemical"

"2015 Gartner Supply Chain Top 25: Consumer Products"

"2015 Gartner Supply Chain Top 25: High Tech"

"2015 Gartner Supply Chain Top 25: Industrial"

"2015 Gartner Supply Chain Top 25: Retail"

"2015 Gartner Supply Chain Top 25: Asia/Pacific"

"2015 Gartner Supply Chain Top 25: Europe Top 15"

"2015 Gartner Supply Chain Top 25: Europe's Next Top 10"

"The Healthcare Supply Chain Top 25 for 2015"

"Introducing the Five-Stage Demand-Driven Maturity Model for Supply Chain Leaders"

"Assess Your Supply Chain Maturity Using the Seven Dimensions of DDVN Excellence"

"The Hierarchy of Supply Chain Metrics: Diagnosing Your Supply Chain Health"

"Product Launch Dashboards, Part 1: The Hierarchy of Product Metrics"

"Use the Hierarchy of Supply Management Metrics for Strategic Alignment and EnhancedPerformance — Part 1"

"Use the Hierarchy of Supply Management Metrics for Strategic Alignment and EnhancedPerformance — Part 2"

"Use the Hierarchy of Manufacturing Metrics to Connect Manufacturing and Supply ChainPerformance"

"Align Supply Chain and Logistics Performance With the Hierarchy of Logistics Metrics"

"The Hierarchy of Healthcare Supply Chain Metrics for IDNs"

"Aligning Retail and Supply Chain Performance: The Retail Supply Chain Hierarchy of Metrics"

Evidence

1 "2016 CEO Survey: The Year of Digital Tenacity."

2 "Amazon Might Buy an Airport in Germany," Business Insider, 16 April 2016.


http://www.businessinsider.com/amazon-may-buy-german-hahn-airport-2016-4

GARTNER HEADQUARTERS

Corporate Headquarters56 Top Gallant RoadStamford, CT 06902-7700USA+1 203 964 0096

Regional HeadquartersAUSTRALIABRAZILJAPANUNITED KINGDOM

For a complete list of worldwide locations,visit http://www.gartner.com/technology/about.jsp

© 2016 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. Thispublication may not be reproduced or distributed in any form without Gartner’s prior written permission. If you are authorized to accessthis publication, your use of it is subject to the Usage Guidelines for Gartner Services posted on gartner.com. The information containedin this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy,completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. Thispublication consists of the opinions of Gartner’s research organization and should not be construed as statements of fact. The opinionsexpressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues,Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company,and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner’s Board ofDirectors may include senior managers of these firms or funds. Gartner research is produced independently by its research organizationwithout input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartnerresearch, see “Guiding Principles on Independence and Objectivity.”


http://www.gartner.com/technology/about.jsp

http://www.gartner.com/technology/about/policies/usage_guidelines.jsp

http://www.gartner.com/technology/about/ombudsman/omb_guide2.jsp

Documents

The Gartner Supply Chain Top 25 for 2016 - … Gartner Supply Chain Top 25 for 2016 ... Metrics for Operational Excellence and Innovation Excellence ... In 2015, the CEO's focus