Gartner recently announced their Top 25 Supply Chains List. I always find it interesting to see the list, to see who came out on top, and to hear what their views are on prevailing trends.
But as I review the list, compare it to prior years, and consider the scoring methodology I do wonder whether the list in its current form continues to be relevant for identifying the best of the Supply Chain.
The 2018 Gartner Top 25 Supply Chain List
The Gartner Top 25 Supply Chain list has now been released for 14 consecutive years. Unilever was selected as having the number one Supply Chain for the third year running. McDonald’s was selected for the Masters class, along with prior inductees Apple, Amazon and Proctor & Gamble.
Year Weighted ROA2
Year Weighted Revenue Growth4
CSR Component Score5|
|18||Johnson & Johnson||880||322||6.2%||2.7||2.8%||6.00||3.08|
|22||The Coca Cola Co.||1,558||221||4.6%||4.8||-10.1%||4.00||2.87|
As I reviewed the list it struck me that it looked very close to the list I remember seeing from 2017. Upon closer review it was notable that Home Depot was on the list for the first time since 2015. Novo Nordisk and Adidas were new additions to the list. And Lenovo and Nokia were dropped from the 2017 list.
But overall most of the list was the same as 2017. In fact if you go back 5 years to 2013 you will find that most of the names are the same as on the 2018 list. So if most of the names on the list are the same year after year, only jostling for position on the list, is it still relevant and is the methodology still valid?
I don’t for one second deny that the companies on the list have great supply chains, but there are so many advances in Supply Chain technology, talent, skills and capabilities that it is hard to believe that all of this excellence is restricted to the same group of 20 companies year after year after year.
Let’s consider the methodology and scoring, as shown in the table above, that Gartner uses to create the list.
First let’s consider the Opinion scores. The Peer Opinion score and the Gartner Opinion score each account for 25% of the total score … that’s 50% overall. Gartner derives an overall list from the Fortune Global 500 and the Forbes 2000 lists. Further companies must have a minimum annual revenue of $12B!
By definition the Peer group that is providing their Opinion scores is restricted to large companies voting on other large companies. On top of that there are only 184 Peer voters. That is a very small sample size considering the thousands and thousands of great Supply Chain leaders in the world.
And Brand recognition alone, as opposed to deep understanding of other company’s Supply Chains, may create a bias in the results. The Gartner opinion group is also restricted to 42 voters. I do not doubt the tremendous expertise of these individuals, but 42 is a very small number such that the addition of even 5-10 more people could provide for a statistically significant and different result.
Return on Assets (ROA) and Inventory turns are also a part of the scoring process. There is no question that the Supply Chain of any business usually has a significant impact on ROA and certainly on Inventory turns. But an ROA as low as 4.1% on this Top 25 list does not seem compelling.
Further an Inventory turn of 1.0 on the Top 25 list seems extremely low. And the Novo Nordisk ROA of 37.9% combined with an Inventory turn of 1.2 suggests that it is more likely that the business model is driving the high ROA, not Supply Chain per se.
Now ROA and Inventory benchmarks certainly vary from Industry to Industry but on an individual basis do all of the ROAs and Inventory turns for each of these companies represent the benchmark for their respective industries?
The inclusion of Revenue growth is also worth discussing. The Supply Chain certainly enables and can create revenue growth, or reduction for that matter. But the same can be said of Sales, Marketing and Development. Does a lack of revenue growth mean that a company has a poorer performing Supply Chain than companies with revenue growth?
And finally there is Corporate Social Responsibility. This is certainly an important measure. But how exactly is this objectively measured and audited? With large companies it is a solid bet that they will have the size and infrastructure to ensure that the appropriate processes, controls, accreditation and checkpoints are in place to ensure that the scores are valid, auditable, and verifiable. But that doesn’t mean that companies with less than $12B in revenue are any less socially responsible!
I want to reiterate that I have tremendous respect for the people and experts at Gartner. And there is no doubt that opening up the envelope to look at an even larger group of companies can be overwhelming from a workload standpoint.
But by the same token there is a phenomenal amount of talent in Supply Chain throughout the world and it is not confined to only the largest companies. Companies of all sizes are making phenomenal improvements and advancements in Supply Chain every single day.
My recommendation would be to create a second Top 25 Supply Chain list. This list would not be restricted by revenue or revenue growth. It could be based on Innovations made, true industry specific benchmarks, Supply Chain capabilities, etc. And perhaps it could be based on company submissions and not just the opinions of a small number of individuals.
The key trends identified by Gartner this year included: Focus on Customer Experience, Scaling Digital Supply Chain Capabilities, and Moving to Circular Supply Chain Designs. Perhaps a list could be created of the Top companies leading each of these trends (however they are measured): the Top 25 Supply Chain Trendsetters list! Gartner has a great view of the Strategic Supply Chain landscape. That could provide the backdrop for identifying new leaders.
Gartner Top 25 Supply Chain List
It is always great to get the latest Gartner Top 25 Supply Chain list. I believe it is great to promote the best of the Supply Chain and what is going on in our profession. My critique is in no way meant to diminish the importance of the work that Gartner does. And I do understand that Gartner is already reconsidering its methodology for the future.
But wouldn’t it be great to hear about new and emerging companies doing great things that are otherwise invisible to most of us because the companies are too small or they don’t have the same brand recognition that most of the current Top 25 already have?
Gartner Survey Metric Notes:
1. Gartner Opinion and Peer Opinion: Based on each panel’s forced-rank ordering against the definition of “DDVN orchestrator.”
2. ROA: (2017 net income/2017 total assets)*50% + (2016 net income/2016 total assets)*30% + (2015 net income/2015 total assets)*20%.
3. Inventory Turns: 2017 cost of goods sold/2017 quarterly average inventory.
4. Revenue Growth: (Change in revenue 2017-2016)*50% + (change in revenue 2016-2015)*30% + (change in revenue 2015-2014)*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%).
Source: Gartner (May 2018)