The following is a guest posting that is also published on the Supply Chain Expert Community web site.

This author recently had the opportunity to view a promotional webcast featuring Gartner analysts,  that set the framework for the upcoming designation of Gartner’s Top 25 Supply Chains in 2012. Some community readers may have viewed this webcast and had reactions to the messages delivered.  We would like to share ours.

According to Gartner, the overall criteria, among others, for being designated on this prestigious listing are supply chains that are:

• Predictable and reliable
• Flexible to changing business conditions
• Exhibit a profitable response to product demand
• Exhibit sustainable growth and satisfied customers
• Move from words on a PowerPoint slide to attitudes and demonstrated practices

Readers might recall last year’s the top ten listing, which included:

1. Apple
2. Dell
3. Procter & Gamble
4. Research In Motion
5. Amazon
6. Cisco
7. Wal-Mart
8. McDonalds
9. Pepsico
10. Samsung

The year 2011 was very challenging for these supply chains, not only from the perspective of a rapidly changing and dynamic global economy but also major incidents of supply chain disruption. My first reaction was to take note of the listed supply chains and reflect on how many of them had a reported stumble during the year.  I came up with at least four.  Even Apple has had to deal with the challenge of heightened visibility to labor practices. Community readers may come up with the same or a different number.  That triggered a pointed reminder that even the top supply chains are not immune to vulnerabilities. The real criteria are how each responds to such challenges.

Another theme brought forward by the Gartner presenters was the possibility of changed ranking or new names appearing in the 2012 ranking. That brought forward a reminder that no supply can rest in the satisfaction that it has reached the pinnacle of capabilities. The global economy and events move far too quickly, and there will always be next objective to address. One supply chain stumbles and another takes advantage. One supply chain is mandated to reduce costs to the detriment of certain capabilities while another aligns to business needs and business outcomes.  The result is the shifts that we continually observe.

If this listing included mid-market supply chains, those that included the challenge of far more limited resources and higher stakes, perhaps the listing would further reveal how wide the gap in capabilities has become. Many mid-market companies were severely impacted by either the global recession, or the disruptive consequences of the tsunami in Japan, and the floods in Thailand.  Their influence over suppliers was morphed by larger supply chain dominants, perhaps some of those listed in the Top 25. Perhaps they who have successfully overcome these challenges and maintained an objective for responsiveness and resiliency should have recognition as well.

The takeaway from this commentary is that we as a community sometimes place too much emphasis on a singular tenet or goal.  In one year it may be lean, another demand-driven, resilient or agile.  Perhaps the reality is that the top supply chains must have the ability to respond to many challenges, along with multiple objectives. They must have a lens that extends well beyond the current quarter, or current fiscal year.

Finally, Supply Chain Matters would like to provide a helpful suggestion to those of you that have volunteered to be Peer voters for the 2012 Gartner rankings. It might be helpful for all in the supply chain community if your lens of ranking included multi-dimensional, multi-geographical and multi supply chain tried perspectives of the top supply chains. The reality is perhaps that the entire value-chain eco-system of partners really determines which supply chains are top ranked. Perhaps the lens of ranking is really weighted toward attitudes and consistent demonstrated practices in spite of the realities of constant change.

Bob Ferrari

The following is a guest commentary that is published on the Supply Chain Expert Community website.

This author just returned from the Supply Chain World North America 2012 conference, sponsored by the Supply Chain Council, which was held this week in Miami. The theme for this year’s gathering was Taking Supply Chains to the Next Level, and as was the case last year, the speakers were extraordinary and the messages fairly consistent.

I had the distinct opportunity to moderate a panel consisting of various well noted supply chain thought leaders and influencers. The panelists included:

Steven A. Melnyk, Professor of Operations and Supply Chain Management, Michigan State University

Roddy Martin, Senior Vice President, Global Supply Chain Practice, Competitive Capabilities International (Former Vice President at AMR Research/Gartner)

Matthew Davis, Research Director, Supply Chain, Gartner Inc.

Bob Parker, Group Vice President, IDC Manufacturing Insights and IDC Retail Insights

One particular question that I posed to the panel was on the topic of S&OP and included the following:

Many companies are now embracing sales and operations planning (S&OP) processes as a key mechanism to align anticipated product demand with supply and operations requirements.

What do you believe are the logical next steps for organizations in their S&OP journey?

Do you believe that the benefits of S&OP are being overhyped?

In the spirit of education and continual learning, I wanted to highlight with this broader supply chain community some insightful responses from our panelists regarding this important topic. Too often, as a community, we tend to get wrapped up in project management thinking, viewing an existing process in the lens of sequential steps.  Sometimes it helps to take pause and instead reflect on the overall business and supply chain outcomes required from an important process such as S&OP.

All the panelists were in agreement that S&OP is not a short-lived, vendor-hyped process and is not going away anytime soon. They characterized S&OP as a journey toward multiple outcomes and benefits. What is most important is knowing what the current and required maturity level should be.

Matthew Davis observed that S&OP can be positioned as a means to determine where decisions and what decisions need to be made regarding the need to represent the one face of the firm to customers.  It brings together teams that directly touch and/or influence product demand and supply, along with those responsible for influencing resources or making decisions as to options. The activities incorporated are generally focused on demand shaping or the ability to influence and respond to changing customer needs.  In terms of future needs, with more and more manufacturing and service firms positioning product offerings as “solutions-centric”, the process will need to synchronize a combination of product, technology and coordinated services needs. As an example, in the high tech industry, a product could involve a combination of hardware, software and services coordination.  All of this implies that the planning process changes from that of materials and physical needs to further include a broader context of project management based synchronization.

Technology’s role in the process is to help overcome time latency and aide in the ability to integrate information with the capabilities needed to influence and respond to customers. A broader scope of product solutions adds a project management dimension to the process.

Bob Parker added the need to incorporate portfolio, situational and scenario based analysis to manage products, tradeoff decisions, as well as to mitigate risk, with an overall goal of continuous planning. He cited as an example, Procter and Gamble’s circles of cadence, involving strategic, tactical and operational decisions that need to be coordinated.  The S&OP process never ends, it is continuous.

Professor Melnyk added the need to focus the process on required business outcomes, not so much in the sense of hard metrics, but on the required outcomes needed to satisfy customer and business needs.

Roddy Martin added that the future of S&OP is framing the process differently, as a journey toward integrative decision-making. Too often, S&OP teams rush to include senior executives in the process without the process maturity, and the right level of information that can context business impact or business options. Having arguments as to the accuracy of information or the meaning and implications of information, chases senior executives away and can derail efforts. That is perhaps, the worst mistake. Executive S&OP is the summarization of all business planning and execution across various time horizons, along with the business decision implications related to resource plans.

What I took away from these combined insights is that we as a community may be framing the question of the future of S&OP in an improper context.  The future is a given, the opportunities are enormous, but our context and lens needs to broaden.

Bob Ferrari

We pen this commentary at the conclusion of the Supply Chain World North America 2012 conference, sponsored by the Supply Chain Council.

The highlight of today’s session was the keynote, Making Supply Chain Management Truly Strategic, delivered by Dr. Steven A. Melnyk, Professor of Operations and Supply Chain Management at Michigan State University.  Dr. Melnyk’s messages regarding moving from a supply chain that it is strategically decoupled and cost-driven, to one that is business outcomes driven were very insightful and ones that all of us in the supply chain community need to think about. Without giving away the complete concepts shared, Supply Chain Matters will highlight some very important thoughts shared regarding Dr. Melnyk’s concepts of defining of six possible supply chain outcomes:

• Cost
• Responsiveness
• Security
• Sustainability
• Resiliency
• Innovation

His counsel was for supply chain executives is to try to avoid single outcome initiatives, for instance cost savings, namely because the supply chain lives or withers under the single outcome of cost.  Instead, the recommendation is blend outcomes, with perhaps 3 focused outcomes.  The first would be characterized as strategically critical, and not to be compromised. The second outcome, strategically important, and the third, strategically necessary. Another important message is that some outcomes may not mix well, for instance, lean driven cost avoidance and innovation. Professor Melynk offered an example, communicating his belief that the outcomes of the Apple supply chain are innovation, security and responsiveness.

One presentation we neglected to mention from yesterday’s sessions was that of Dell and its efforts in supporting direct retail fulfillment.  Dell’s current successful efforts in transforming its supply chain from a predominate configure-to-order customer model, is a successful transition to supporting forecasting based, direct retail sales via major electronics retailers. Behind the scenes, and a major enabler of this direct retail transformation is the existence of a highly experienced supply chain analytics team based in Bangalore, India.  Supply Chain Matters will be arranging a follow-up briefing with this group to share with our readers the breakthrough efforts in demand sensing and accurately predicting customer buying trends.

This author was pleased to facilitate the Pundits and Influencers panel discussion which discussed a number of topics related to the current state of global supply chains and the consistent messages that continue to be brought forward from these conferences.  One observation that all the panelists concurred with is the requirement on a renewed emphasis on the strategic, collaborative and organizational alignment skills for today’s senior supply chain leaders. Once again, Supply Chain Matters will feature a separate dedicated commentary regarding the panel exchange.

Bob Ferrari

Every now and then we reach a point when it is time to make a statement about the current challenging business environment, especially when it relates to global supply chains, and this is that time.

Catching-up on last week’s reading, in particular two related articles published in the Financial Times, triggered this commentary.  One article noted that the biggest U.S. companies currently have an estimated $2 trillion in cash balances as a result of healthy earnings in 2011.

Reflect on that number for a moment, TWO TRILLION.

What a problem to have!

Where do you think a good majority of this cash is going to be directed?  If you speculate stock buyback and dividend payout programs, you are absolutely correct.  Amid a perceived uncertain economic environment, and not to mention a presidential election year, companies seem very reluctant to either hire or invest in longer-term capabilities. According to FT, analyzing the most recent figures available, last year, from Q4-2010 thru Q3-2011, U.S. companies diverted $336 billion into share buybacks,  That is the highest volume since 2007. Corporations also raised dividend payouts by 11 percent in 2011.  Some large companies actually issued more debt to finance buybacks of more than $2 billion.

That brought us to recall a January 4^th FT Insight Commentary article penned by John Plender (paid subscription or free metered view).  He observes that corporate profit margins are at all time highs because of savage labor shedding or shifting of labor costs to lower cost regions.  The open question raised by Plender relates to where will this cash be routed in 2012.  Pender opines that the obvious outlet again will be share buybacks.  Why? Because the compensation incentives of many of today’s senior executives is pegged to increased earnings per share measures.  He points out that academic evidence shows that a high proportion of CFO’s admit to a willingness to sacrifice economic value to meet short-term earnings target.  These trends are referred to as financial engineering.

Both articles are cause for considerable concern.  Manufacturers should not be faulted for being cautious given the current uncertain economic environment.  There should be some cushion of cash as a contingency.  However, the upcoming challenges in 2012 point to a significant need to reassess supply chain strategies and invest in longer-term capabilities.

Supply chains have been under enormous stress these past few years.  They have had to respond to relentless pressures to cut costs, reduce overhead and increase productivity.  For well over ten years, a flight to low-cost manufacturing regions was fueled by these pressures for cost reduction. However, the year 2011 offered stark evidence that the era of low-cost sourcing of manufacturing comes with significant risk, especially when supply chains are profiled in the leanest dimensions, or the sourcing of key components is too focused and vulnerable to disruption occurring in a single region.

Supply chain professionals had to perform yeomen activities and work countless hours to respond to assess and respond to major supply disruptions. Interestingly enough, the companies who managed the disruptions best were those who had healthy inventory safety stock levels.

We heard one senior supply chain manager express it best- we are perhaps in an era of the one quarter supply chain, configured for short-term measures and financial results.

Thus, the purpose of this commentary is to send a wake-up call to corporate boardrooms.

There is ample and proven evidence that companies who invest for the long-term, whether in people, process or technology, will reap the rewards of long-term industry competiveness.  Even in times of uncertainty, those that invested where far more able to leverage market opportunities when opportunities presented themselves in the market.

We all, as stockholders, whether direct or through our long-term retirement savings, need to send a clear and loud message to CEO’s that while languishing in earnings in cash is great and leads to healthy bonus compensation, the tradeoff can well be more financially damaging to the economy and to the corporation..

How about channeling some of that cash into investments in people, process, and in longer-term supply chain capabilities. Executives need only review our 2012 Predictions for Global Supply Chains to understand that challenges remain and investment in a longer-term window is way overdue.

Bob Ferrari

The following commentary can also be viewed and commented upon in the Supply Chain Expert Community web site.

It is time to update our readers on Bombardier and its C-Series aircraft program.

Our last Supply Chain Matters and Supply Chain Expert Community update was in October 2010. We noted that Bombardier was taking a huge strategic gamble on the supply chain deployment and market launch of the new C-Series aircraft scheduled for 2013.  The C-Series is a 100-150 single-aisle passenger aircraft that is the cornerstone of the company’s plan to compete head-on with the likes of Boeing’s 737 and the Airbus A380 for advanced, lightweight commercial aircraft that can deliver compelling fuel efficiencies for airlines. This market segment has dominated aerospace headlines throughout the year.

In 2011, airlines were compelled to begin to open their wallets and place large amounts of replacement orders for more fuel efficient, narrow aisle aircraft, and the Airbus A380 Neo has been the prime beneficiary, followed by the 737. At the recent Paris Air Show, Airbus garnered one of the highest order volume rates in its history through customer orders of the planned A380 Neo. Thus far, Bombardier, and its China based rival COMAC, continue to compete for remaining customer orders.

In an interview published in the Wall Street Journal on November 21 (paid subscription or free metered view), Bombardier CEO Pierre Beaudoin remained upbeat, indicating that he was not too worried about uptake in new orders for the C-Series.  Thus far, Bombardier has 133 firm orders, which is supposed to place the manufacturer on-track to its target to have 200 to 300 orders between first maiden flight and first delivery in 2013. Mr. Beaudoin’s statement in the interview indicates that he would rather have his company concentrate on delivering the plane on time while maintaining its stated profitability goals than moving to discounting list price at this point. Further he states that the aircraft manufacturer has turned down prices that it did not like, and that its main market is China where anywhere between 20 to 30 percent of the global fleet could eventually be located.

Our reaction to the interview was of course, slanted toward a supply chain lens.  As more and more airlines weigh in with the current high rate of firm orders, the aerospace supply chain as a whole becomes committed to long-term capacity, and especially to the two current key players, Airbus and Boeing. Some of Bombardier’s C Series suppliers also cater to these current dominants.

Recall that the C series also features an outsourced global supply chain for many of its major components, allowing Bombardier to concentrate solely on innovation, design and final assembly needs.  Major components such as fuselage wings and tail are sourced in China, Ireland, Italy, and other countries.  All of the major components are to be shipped to Bombardier’s final assembly facility outside Montreal’s Mirabel airport for final integration. While profitability is certainly a very important goal, some aspect of volume scale is required to justify overcoming fixed supply chain material and transportation costs. There has always been a debate as to where the break-even point resides with this new outsourced major component and final assembly integration model. A review of Boeing’s 787 Dreamliner’s primarily outsourced supply chain provides ample evidence to this debate.

The second aspect for consideration is the stated goal competing for China’s aircraft business.  Aerospace is one of the key strategic growth industries identified by China’s political leaders in the current five year economic plan. In our November Supply Chain Matters commentary, China Takes Aim at Aerospace, we observed that China based, state-owned aerospace manufacturer COMAC has embarked on its own program of innovation and cost competitiveness for narrow aisle aircraft, and also features a C Series program. (Coincidental, of-course)  In order to insure strategic options are covered, major component aerospace suppliers such as General Electric and United Technologies have jumped-in with strategic development and relationship programs with COMAC and its other China based supplier partners. COMAC has already garnered orders from several of China’s state-owned airlines because of its unique role for contributing to China’s strategic plan for competiveness in aerospace, and continues its declaration that it will provide a compelling alternative offering for the global market.

Bombardier currently faces difficult headwinds with its C Series program, not all of which from its doing.  Aerospace industry events have been dramatic and far-reaching in 2011, and the industry is in both an enviable, and yet challenging situation.  Order volumes have been robust, but supply chains remain even more stressed to deliver capability and commitments for the next 5-10 years. The Bombardier C Series aircraft needs to find its place in this challenging environment, especially while customer buying motivations currently remain biased toward staying competitive in future aircraft operating efficiencies.

A highly uncertain global financial climate and industry that has supplier capacity increasingly being committed and internal dynamics within China’s airline operators may alter the widow of opportunity for Bombardier.

We wish Bombardier well and trust we can look forward to the inaugural flight of the C-Series.

Bob Ferrari

As we transition into the final month of 2011, we are revisiting the Supply Chain Matters 2011 Annual Predictions for Global Supply Chains which were outlined a year ago.  Our annual process is to first re-visit past projections made for the current year, in this case 2011, and declare some projections for the upcoming 2012 year, which will come in a later series of postings before the end of the year. In this Part Four and final posting, we will revisit predictions eight through ten. Our earlier scorecards can be accessed by clicking on the following links:

Part One- Predictions One and Two

Part Two-Predictions Three and Four

Part Three- Predictions Five through Seven

Prediction Eight: Two industry sectors, B2C and healthcare, will be especially effected by significant supply chain process impacts in 2011.

Both the B2C retail and pharmaceutical and healthcare industries were significantly impacted by supply chain related process impacts in 2011, making our prediction right on the money.

In the brick-and-mortar and E-Commerce sectors, a more sophisticated consumer has absolutely altered the retail buying landscape. Throughout 2011, consumers are exercising their ability to significantly influence product selection choices, perform real-time price comparisons, and easily place orders via the Internet and smartphones. According to comScore Inc., U.S. online e-Commerce spending is expected to grow to $162 billion in 2011, up from $142 billion in 2010, an increase of 14 percent. This motivated brick-and-mortar, as well as online retailers, to significantly enhance their online shopping, multi-channel commerce and operational capabilities throughout 2011. An article featured in the Wall Street Journal in mid-November (paid subscription or metered free view) noted that the hottest thing on retailers Christmas lists this year are finding experienced directors of e-commerce. Those that are highly experienced with solid track records are commanding total compensation packages upwards of $1 million.

For the online channel, Amazon continues to set the bar for services and price aggressiveness, causing retailers in many sectors to heavily invest in augmenting online capabilities in order to protect market share. Two of the most visible aspects of online impacts were the announcement by Wal-Mart that its CEO of global E-Commerce would retire in July after disappointing results in the online channel. The retailer who continues to have aggressive expansion plans related to online presence promises to announce a replacement in early 2012.  Retailer Best Buy has experienced five consecutive quarters of declining sales growth as consumers visit that retailer’s brick-and-mortar stores to touch and view products but often order goods online from the most price advantaged sites.

Another highly visible impact was that of Target. The retailer had previously outsourced its online site to Amazon, but made a decision to roll out its own internally sourced online site Target.com in August, only to experience a five hour breakdown in September when premiering a highly marketed promotion of Missoni clothing. The after-effects of this incident have motivated that retailer to also seek a new director of online activity.

The massive shift to more online retail capabilities and services is forecasted to have noticeable impacts to retailer margins this year, particularly in the upcoming 2011 holiday buying season.  Most retailers are offering free shipping, and many have considerably expanded the availability of products available for online purchase.  The implications to retailer inventory management and added costs will be interesting to observe when the final year-end results are tallied.

Pharmaceutical and Healthcare

The second significantly impacted industry Supply Chain Matters predicted for 2011 was that of pharmaceutical and healthcare related value-chains. The reason was what we viewed as the cascading effects of the significant changes in strategic business models causing too much leaning toward reduction in supply chain costs, healthcare reform initiatives emanating from multiple countries and desires to grow sales in emerging markets.  We feared all of these forces would cause noticeable supply chain impacts.  What we did not anticipate was the severity, which turned out to be a complete breakdown in certain industry segments.

In July, we posted a Supply Chain Matters commentary, Why are Pharmaceutical and Drug Supply Chains Failing?, noting financial media headlines that a vast majority of U.S. hospitals were facing severe shortages of life-saving chemotherapy and intravenous drugs used in critical care.  We followed up with a commentary in August noting that the ongoing complexities of pharmaceutical global supply chains have become greater than these companies abilities to control them. Critical shortages of life-saving drugs spilled over to areas of pet care, and in September, we noted that 2011 was tracking to be a year with the largest number of severe, life-saving drug shortages causing hospitals and healthcare providers to resort to gray channels to secure supplies. While industry concerns were primarily focused on increased regulation and cost managing costs, value-chains in certain segments have broken down in 2011. Causation points to generic producers and contract manufacturing sources, but that may be symptomatic of other problems. Suffice it to state that this industry remains in supply chain related crisis and that the situation will continue into 2012.

Prediction Nine: The landscape for the global outsourcing of components and finished goods production will shift again in 2011.

The essence of this 2011 prediction was that two fundamental business forces, ongoing fierce competitiveness forces directed at lowest product cost and continued needs for access to booming emerging markets, would compel manufacturers and retailers to pay much more attention to outsourcing strategies and to analyzing all the pertinent factors motivating these strategies.  We anticipated further shifts in component and finished goods product sourcing, particularly in low margin or highly sensitive IP product areas.

This prediction also turned out to be generally correct but the most compelling motivation for re-examining sourcing in 2011 relates to vulnerabilities to natural disaster when product production is too concentrated in a single geographic region.

Significant inflationary pressures brought about by explosive increases in labor costs, along with raw material and commodity costs, forced many manufacturers to revisit their sourcing strategies for China and other emerging economies. The building clouds of currency risk ebbed and subsided in various points in 2011, only to surface again late in the year with the ongoing Eurozone sovereign debt crisis and threats to the Euro. Manufacturers of lower costs and lower margin products continued to shift sourcing strategies away from China in favor of other countries.

Of more lasting impact, one that will continue in 2012 was the reminders that the northern Japan earthquake and severe monsoon floods in Thailand brought in 2011.  The motivations for low cost sourcing may have exposed significant vulnerabilities to strategic capacity and risk.  Having upwards of 30 percent of global hard disk drive manufacturing sourced within one country, along with the hundreds of bill-of-material related component related suppliers is cause for concern.

In the area of market access, intellectual property protection and increased concerns among senior executives regarding increased barriers for doing continued business within China have cast a less aggressive perspective for sourcing within China, and those companies that are compelled to stay the course, are constantly revising or modifying sourcing and value-chain strategies.

We believe that the landscape for global outsourcing of components and finished goods shifted in 2011, and will spillover again into 2012, perhaps at a much more aggressive rate.

Prediction Ten: Supply chain related green and sustainability programs will continue in 2011 and beyond, but at a slower pace.

Entering 2011, supply chain wide green and sustainability initiatives had been primarily directed at achieving reductions in resource use as well as in saving costs. Saving energy, water consumption or packaging resources all related to the bottom line and at the same time, provided customers and consumers a positive persona of a green and sustainable brand and company.

While a positive sustainability profile often makes good business sense, we had predicted a slowdown in green and sustainability program momentum during 2011. Our prediction was predicated on the continued effects of global recession and that consumer buying decisions would not in the end, favor a green or sustainable product over a lower-cost product.

That did not turn out to be the fact since consumers continued believe that companies can provide green and sustainable products at competitive prices. Rather than a slower pace, many companies, especially those with a B2C presence, increased their investments in green initiatives. The efforts and initiatives of multi-industry supply chain dominants such as Wal-Mart, Procter & Gamble, Kraft Foods, Nike and others no doubt kept momentum moving and expectations high. In one example, Wal-Mart is deploying its Supplier Energy Efficiency Program (SEEP) to improve the energy efficiency of its suppliers by passing along learning the global retailer has gained from its own internal initiatives.

The standards for green and sustainable supply chain are high, and we are pleased that our 2011 prediction in this area turned out to be more positive.

This concludes our complete series of scorecard updates related to the Supply Chain Matters 2011 Predictions for Global Supply Chains published at the beginning of this year.

Of the original ten predictions, by our count, five were on the money, three came about partially, and two were a miss.  We rate our 2011 predictions good, but readers are certainly welcomed to chime in and share their observations of global supply chain events in 2011.

Predictions aside, 2011 was a significantly challenging year for global supply chain teams and it does not get any easier in 2012. In December, we will declare and publish our 2012 Predictions for global supply chains so keep your browser favorites pointed toward Supply Chain Matters.

Bob Ferrari

©2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.