A new study IDs the top performers in supply chain management and explains the importance of allowing the consumer to drive manufacturing and distribution strategies.
Posted Jun 8, 2007
AMR Research has identified its Supply Chain Top 25 for 2007, or "those manufacturers and retailers that exhibit superior supply chain capabilities and performance," according to the industry research firm. Nokia, Apple, and Procter and Gamble rounded out the top three. Rankings were based on each company's financial data and past supply chain performance, which represents 60 percent of the total score. The second component of the ranking is AMR Research's opinion, which represents the remaining 40 percent. According to Kevin O'Marah, senior vice president of strategic research at AMR, the study found that those companies that practice successful demand-driven supply networking (DDSN), or the strategy of taking customer demand, supply chain, and product development into account to drive products to market, are likely to carry 15 percent less inventory, are 60 percent faster to market with products and/or services, and complete 17 percent more orders.
"These advantages separate the predators from the prey," O'Marah says. "Business and financial leaders have come to recognize the importance of supply chain. These 25 companies are defining the future of supply chain and giving their companies a predator's edge." DDSN represents a new, conceptual approach to supply chain management (SCM) that leading vendors are using, O'Marah says. In the past a company most likely would derive its SCM from its production and manufacturing capabilities and schedules. To compete in today's marketplace, companies must draw from customer demand and service, supply management--which includes sourcing, manufacturing, distribution, and product design--and innovation. "Demand visibility is knowing as much as you can about your consumers and the marketplace to drive the performance of your factories, distribution centers, warehouse, etc.," O'Marah says.
Despite its intuitive nature, the concept of DDSN is relatively new due to industrial America's traditional focus on mass production via factory efficiency. "It's a concept that's been building for years now, and it flies in the face of industrial America," O'Marah says, referring to DDSN. "Now the customer is king, and companies are expanding globally via new consumers and markets and via offshoring."
In terms of the rankings, the big story for this year's Top 25 was the emergence of Apple, eligible for the first time with revenue that placed it in the Fortune Global 500 for 2006. Apple's No. 2 ranking surprised O'Marah, given the company's decidedly mixed reputation for customer service, in-stock performance, and forecasting, according to the report. The lesson for supply chain professionals is that product design and innovation matter, O'Marah says. By delivering almost $2 billion in sales of a zero-inventory product (iTunes) and creating huge demand with marketing and industrial design, Apple has consumers spending heavily on a supply chain with little physical product in stock. "Value chains that don't rely exclusively on low cost to win business can achieve some enviable results, even when viewed through a traditional supply chain lens," O'Marah says.
Another important trend in the study was recognized by the mobile telephone industry, with three of the top 13 companies, including No. 1 Nokia, No. 10 Samsung, and No. 12 Motorola all being cell phone makers. The short product lifecycles, huge global consumer demand, and complex value chain that comprises chip designers, hardware manufacturers, and telecom service providers "may be the ultimate crucible of supply chain innovation in the world today," O'Marah says. "These three, along with Sony/Ericsson and arguably LG Electronics, have made commonplace a class of devices that would have been thought as pure science fiction just 20 years ago, all while managing to drive prices to the point where almost everyone on earth has access."
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