The 2016 Top 25 Supply Chains – Three Bold Predictions

CJWehlage

Future PredicitionsTwo years ago, I made some very bold predictions on the 2014 Top 25 Supply Chains, and about 80% of them were true.  Last year, I made the not-so bold predictions, as the Gartner 2015 Top 25 Supply Chain rankings were pretty much unchanged.  That is, except for the new “Masters” category.  I sure hope the Gartner gang will keep a focus on the Masters (Apple and P&G), as these two supply chains continue provide best practice learnings.  Which leads me to my first Bold Prediction…

Bold Prediction #1:  The Master’s category will be, more or less, forgotten this year.

Apple and P&G were put in a Master’s category in 2015.  I’m still a bit confused about this move as I’m not sure if this was a way to clear these two perennials out and make room for others, or a means to focus on their unique capabilities.  Having worked at AMR Research, I understand the need to showcase other companies – helps readership.  But, like Ric Flair would say, “if you want to be the man, you gotta beat the man….”

Next year (2017), by the rules of “those companies that have consistently had top five composite scores for at least seven out of the last 10 years”, Amazon will be moved into the Master’s.  However, I predict in next month’s Top 25 Gala, that both Apple and P&G will not have much airtime.  Unfortunate, as I believe Apple and P&G can still share some significant strategies on supply chain.  So, I will state one thing each of the Master’s can teach us.

Apple = Leverage
This starts with product simplification.  Supply chain leaders talk about SKU rationalization, but rarely achieve it.  Apple has.  With a succinct variety, you can leverage common parts, and more precisely optimize the supply chain network.  Apple’s supply chain also has a small amount of suppliers, allowing them to leverage relationships, price and volumes.  The result being higher profit margins, something Apple could use to leverage exclusivity agreements (such as booking out UPS and DHL shipment capacities).

P&G = Control Tower
P&G taught us about the “Three Moments of Truth”: see the product at the store, purchase & use the product, and become a fan of the product.  P&G has built a supply chain success around these three moments, with visibility and control from the demand back into their supply network.  Their control tower manages the bull whip effect better than most.  They continue to implement automation in the control tower practice, and this is where P&G can show the Top 25 some advanced supply chain analytics strategies.

Bold Prediction #2: The Top 10 from 2015 stays the same, except for One

Starbucks replaces Colgate Palmolive in the Top 10.  Otherwise, it’s status quo.

The voting categories are Financial (ROA, Revenue, Inventory Turns), and Voting (Peer and Analyst).  A careful investigation of what impacts these categories will lead to a prediction.  Like Captain Jack Ross from A Few Good Men said, “these are the facts of the case…and they are….undisputed..”

Here’s the basis of my forensics…..

Financial

  • Watch the Revenue growth, as this is one of the components of the Top 25 ranks. The 3 year Revenue average has more volatility than any other.
  • Inventory turns, mostly, will follow Revenue.
  • ROA can be impacted by acquisitions and new products. But, this is much less volatile than Revenue.

Voting

  • Peer and Gartner voting pretty much stays the same year over year.
  • There’s been some increased supply chain executive movements in 2015, which could alter the Peer votes, but the one factor that drives Peer voting is the conference speaking. The more a company speaks at conferences, the more known their supply chain is.
  • Gartner voting can been seen by what white papers & reports they write. The more references to a specific supply chain, the more recognized that company will be in the Analyst vote.  They’ve brought on more international supply chain analysts, so expect a higher ranking for non-US based supply chains.

Here’s how the 2016 Top 10 Supply Chains will fall…..

10. Starbucks – fantastic year, record revenue up 17%, operating income up 19%, Starbucks is setting the trend for the Digital Supply chain, through digital ordering & payment, rewards and loyalty through apps and cards, and using social media for demand shaping.

9. Nike – revenue up 10%, gross margin expanded 120 basis points to 46%, net income up 22%. The brand is solid, and they are announcing significant innovation, such as the self-tying shoe.

8. H&M – steady financials, but they are leaning heavily on the ROA, where they scored #1 in the 2015 Top 25 at 26.60%. However, the Gartner Opinion vote had them at 23rd, and the Peer Opinion had them at 19th. With a store growth expansion underway, their ROA could take a small hit, and drop them inside the Top 10.

7. McDonald’s – 2015 was a tougher year, sales were down, there was structural and operational changes, the menu was reduced, cooking methods changed.

6. Cisco – if Cisco didn’t fall to #6 in 2015, they would be in line for the Master’s category. They’ve done some great work in elevating the supply chain into the Board Room. Angel Mendez was a pioneer in showing the C suite the value of a supply chain strategy.  As well, Cisco’s work on risk management and simulating outcomes has been successful.  2015 saw revenue and net income slightly up.

5. Samsung – in all honesty, this is the supply chain I believe should be #1. Seeing is believing. Once you’ve spent some time with the Samsung team, you will understand why they have taken the supply chain practice to a level I’ve never seen.  By the 2015 numbers, sales were slightly down, but operating profit increased.  The S7 phone was introduced, and Samsung has done a great job at filling the innovation void.  Seems as if Apple has done some incremental product changes, and Samsung is setting the tone for consumer electronics innovation.  Samsung continues to master the smart home, and I can’t wait to see what a folding phone is like.

4. Intel – Gartner does a good bit of writing about Intel. However, the 2015 Peer vote had Intel at #14. Intel had good financial performance in 2015, albeit flat revenue and net income down the past three years.  They did acquire Altera in the “Semiconductor” merger & acquisition frenzy.   Nothing says they are going down, but nothing points to going up.  So, Intel stays at #4.

3. Inditex – numbers will speak to why Inditex will rise. Net profit up 15%, net sales up 15.4%, invested 1.52B euros into capital, mostly logistics automation and design centers.

2. Unilever – coming in at #3 in 2015, Unilever will move up to the #2 spot in 2016. They’ve influenced the Peer vote by winning the SCM World Breakthrough Supply Chain of the Year award. Sales were up 4.1%, operating margin up 14.8%.

1. Amazon – the capital spending Amazon has done in the past years is paying off, in the form of revenue and profit. They had their largest holiday sales in 21 years. Amazon now accounts for one quarter of all retail sales growth in 2015.   Amazon will significantly increase their two traditional lower scoring areas: Gartner Opinion and ROA.

Gartner Opinion – with Amazon doing a bunch of “Bi-Modal” and “Digital” concepts, Gartner has to move them up from their #4 spot (Gartner 2015 Analyst Rank).  Amazon speaks about “60 minutes to a customer’s doorstep”, and with the “Amazon-as-a-Service”, they will significantly innovate the fulfillment and logistics functions of the global supply chains.

ROA: Amazon was a 0.0% ROA in 2015, and still was #1 !  ROA is Net Income/Total Assets.  Amazon’s Net Income:

                2012       -$39M

                2013       $274M

                2014       -$241M

                2015       $596M

The 3 year ROA average last year was -$2M.  In 2016, it will be $209M.

A jump in ROA and Gartner votes will place Amazon far and above the rest of the Top 25.  As my kids would text, IMHO, or in my humble opinion, I would love leave Apple and P&G in the Top 25 ranks, and see how they match up against what Amazon is doing over the next few years

Bold Prediction # 3: Largest Jump up the Rankings

Schneider Electric: I love what Schneider Electric is doing with the end-to-end supply chain strategy, building out a collaborative, fast S&OP process, and getting the message out.  From Annette Clayton, to Alain Huillet, to Stephen Wagner, to Mourad Tamoud, the message of Schneider Electric’s success will help their Peer and Analyst Votes.  They also won the SCM World award for Talent Breakthrough of the Year.  For those reasons, I predict Schneider Electric will jump from 2015 #34 spot to 2016 #24 spot.

Ford:  2015 was a great year for Ford.  Revenue and operating margin both increased.  Net income hit $7.4B, up $6.1B.  Europe returned to profitability, Asia-Pacific best ever annual profit, global market share up two tenths, announced plans to invest $4.5B in electrified solutions by 2020.  Ford is also simplifying their product line.  Take a note from Apple, as this will help their supply chain tremendously.  Ford will jump from 2015 #45 spot to 2016 #25.

Now, all we have to do is wait for next week and see how accurate my Bold Predictions will be.  Would love to know your Bold Predictions on supply chains.

CJWehlage

CJ joined Kinaxis in 2013 with the responsibility to guide the company’s industry strategy within the high tech vertical. With extensive experience, both as a supply chain practitioner and an industry research analyst, CJ serves as a strategic advisor to the company, while also supporting global field teams and working with prospects and customers as they define and pursue supply chain excellence strategies. C.J. Wehlage has over twenty three years of industry experience as a supply chain professional, researcher, and technologist. Before joining Kinaxis, he was VP of High Tech Sales at Jonova, and prior to that, VP of Supply Chain at Sony Electronics. CJ was also ran the High Tech Practice at AMR Research, responsible for supply chain best practice research & thought leadership in the high tech industry. In addition, Wehlage has held leadership roles at EMC, where he was responsible for S&OP, Manufacturing M&A, Supply Chain IT, and Lean design; Bose, where he led a large scale ERP integration, and Apple, where he led Pacific Operations & WW Desktop Planning. C.J. has also served as an adjunct professor at Northeastern University, APICS CSCP, Six Sigma Black Belt, and a frequent speaker at supply chain conferences.

More blog posts by CJ Wehlage

Discussions

Leave a Reply