In conjunction with its Supply Chain Executive Conference being held this week, Gartner announced its often touted Top 25 Supply Chain Rankings for 2012. Supply Chain Matters provides readers an easy reference, not only to the 2012 rankings, but to previous ranking history:

To probably no reader’s surprise, Apple again tops the list for the third year in a row, despite some negative publicity this year. Another interesting side note, yesterday, The Wall Street Journal published a listing of the 20 highest-paid CEO’s in 2011.  Apple CEO Tim Cook tops that list with total 2011 compensation at close to $378 million. Mr. Cook, who is a highly experienced supply chain and operations executive, is obviously reaping the rewards of a supply chain completely aligned with business outcomes.  Congratulations to the entire Apple supply chain organization for their #1 recognition for the third straight year.

In terms of overall headlines for the 2012 rankings, Supply Chain Matters shares some of our observations.

We were pleased to note the addition of Caterpillar, Cummins and Kimberly-Clark to the 2012 ranking.  We were also pleased to note that Cisco was cited for its supply chain risk mitigation capabilities along with network collaboration and overall response management. All are well-deserved. Six major retailers were included in the 2012 rankings, up from four in the 2011 rankings. The supply chains with the most positive upward movement were Intel, McDonalds and Coca-Cola. Largest decliner was Research in Motion, slipping to #19 from #4 in 2011. The challenges of RIM in product innovation and management leadership have become highly visible.  Many in the Top 25 ranking have made leveraged investments in supply chain software technology to augment key process capabilities, collaboration and decision support.

Our biggest disappointment, as was the case last year, was noting that Johnson & Johnson would again appear in a top 25 ranking.  Readers of this blog can attest to our view that a litany of quality process breakdowns, multiple product recalls, and failure to have backup production plans for critical life-saving cancer drugs do not portend to meet the criteria best practices or cross-fertilization of ideas in process innovation.  We question how peer and analyst rankings can continue to place J&J above so many other well qualified supply chains. Another continued disappointment is the omission of the automotive group at Hyundai who has made remarkable strides in product innovation and industry market share gains, supported by a vertically integrated supply chain strategy. On the subject of automotive, Nissan demonstrated noticeable supply chain resiliency post Japan earthquake, gaining market share from both Toyota and Honda. In the category of remarkable turnaround should be Lenovo. We again note the absence of major contract manufacturer Hon Hai Precision Industries and its Foxconn contract manufacturing arm.  Perhaps Gartner’s Asia Pacific regional rankings will finally recognize this extraordinary supply chain that demonstrates scale and resiliency.

Dropped from the Top 25 ranking this year was IBM, Microsoft, Kraft Foods and Tesco.  Nokia which was once number one many years ago was dropped in 2011.  Electronics retailer Best Buy, currently dealing with significant business and senior management leadership challenges was dropped in 2010.

The unfortunate aspect of the Gartner Top 25 rankings is the high threshold of corporate revenues, which was set at $10 billion for the 2012 rankings.  Small and mid-market manufacturers, retailers and major distributors can also demonstrate world class supply chain process capabilities but often are lost in the tendency to focus on large enterprises with healthy budgets.

Bob Ferrari

We provide a brief but important update regarding Supply Chain Matters ongoing commentaries addressing significant supply breakdowns of critical life-saving drugs within pharmaceutical and drug supply chains.

Yesterday the U.S. Food and Drug Administration (FDA) approved two additional suppliers for two life-saving cancer drugs that have experienced short supply because of the unplanned shutdown of contract producer Ben Venue Laboratories, a division of Germany based Boehringer Ingelheim GmBH.

To respond to the critical shortage of ovarian cancer treatment drug Doxil, distributed by Johnson and Johnson, the FDA has approved temporary importation of the replacement drug Lipodox as an alternative to Doxil.  The FDA has authorized a limited arrangement specific to Mumbai India based Sun Pharm. Global FZE and its authorized distributor, Caraco Pharmaceutical Laboratories Ltd., based in Detroit. In its press release, the FDA reinforces that temporary importation of unapproved foreign drugs is considered in rare cases when there is a shortage of an approved drug that is critical to patients and the shortage cannot be resolved in a timely fashion with FDA-approved drugs.

Another drug that is in critical short supply in the U.S. drug supply chain is the drug methotrexate, prescribed to treat many forms of cancer and chronic disease. Their have been recent media reports indicating that only two weeks of supply of the drug remained to fulfill patient demand. The FDA has additionally approved a preservative-free generic equivalent manufactured by Illinois based APP Pharmaceuticals, a division of Fresenius Kabi AG based in Germany. Drug maker Hospira additionally expedited release of additional 31,000 vials of methotrexate, described as the equivalent of one month’s demand for this drug. The FDA is also working with other drug producers to free-up additional supplies.

The FDA also issued additional guidance to drug manufacturers regarding more detailed requirements for both mandatory and voluntary notifications to the FDA regarding future drug shortages or potential drug shortages.

Supply Chain Matters applauds these latest actions coming from both the FDA and the industry.  The fact remains however that the potential for stockouts of any critical life-saving drug remains unacceptable, and the industry continues to find itself in a situation of too much sourcing risk, without contingency plans for augmenting supply.  We also strongly suspect that the new FDA directives regarding notification of short supply will only increase the visibility to other drugs in short supply, adding more embarrassment, patient and healthcare provider mistrust concerning the U.S. drug supply chain.  We fear that this will only add to the growing problem of counterfeit and grey market supplies of critical drugs.  We hope that we are proven wrong.

Bob Ferrari

This commentary can also be viewed on the Supply Chain Expert Community web site, upon which the author is a featured guest blogger.

One of the cornerstones of the Supply Chain Matters blog is to track the history of specific supply chain related events involving industries and to help our readers connect the dots in term of strategy and results. In May 2009, we featured a commentary regarding Fiat Group and its unfolding strategy of opportunistic supply chain strategy, specifically its planned acquisition of Chrysler in the U.S..  At the time, this author was impressed with Fiat chairmen Sergio Marchionne and his strategy to make both companies global players in the industry.

As we approach the end of 2011, the story of Fiat and Chrysler is much more positive, with an even stronger potential.  We call readers attention to an article published in the December 19 edition of Time, Power Steering- How Chrysler’s Italian boss drives an American auto rival. (paid subscription required) Author Bill Saporito pens a very insightful look at Chrysler, where it was, and what it is becoming, and in particular, the noticeable leadership of its chairmen, Sergio Marchionne. Sergio has a knack for turning around dysfunctional automobile companies along with a keen understanding of operations and value-chain management.

The article points out that Fiat’s small-car prowess, engine technology and superior manufacturing capability was a perfect complement to Chrysler’s needs. Fiat which now owns 53.5 percent of Chrysler, has made its impact. Chrysler revenues were up 23 percent in Q3-2011 and could top $55 billion.  Operating profit could reach $5 billion vs. hemorrhaging $1 billion a month in 2009. In May, Chrysler transferred $5.9 billion to the U.S. treasury, paying off its bailout loan six years ahead of schedule.

The article goes on to expound on the unique leadership style of Mr. Marchionne, specifically his no-nonsense approach to management, his deep analytical abilities, and attention to the details of all aspects of the business, including manufacturing and value-chain.  He has thus far resized the company, flattened management layers, and overhauled the vehicle line-up in record time. Mr. Marchionne is a strong believer in elimination of management layers and practices promoting people buried in the ranks to higher levels of responsibility, giving such people all that they need to succeed and prove their potential. It is referred to as loose-tight management, a concept which many successful companies have practiced.  At the same time, he also holds people accountable for definitive results and is not shy about pulling the plug when results are not forthcoming. The author notes that: “Marchionne has the Steve Jobs gift of absolute focus.” He gets into the details. He also does not choose to have his office within Chrysler’s former executive penthouse, opting instead to locate his office in the engineering department, a visual reinforcement that it is no longer business as usual.

As was noted in 2009, Marchionne has a vision that the surviving global automotive OEM’s will need to have sufficient volumes of production to support each of the major world markets, at least one million for each major product platform in order to drive required global production cost efficiency and sustained profitability.  This translates to a combined goal for producing 6 million vehicles among the Fiat and Chrysler brands, with today’s volumes at 4.2 million vehicles. Fiat has become a global leader in efficient, high-volume, robotized production of small displacement engines and there are plans to have a similar focus for V6 engines.  Fiat also excels in small diesel powered engines, and its production facility in Poland recently exceeded a production target of 4 million 1.3 litre, 16 valve MultiJet technology engines. Technology and world class manufacturing knowledge transfer is underway among both companies with a cultural premise that production workers, not engineers, own the quality control process.  A global manufacturing boss has been appointed to oversee both Chrysler and Fiat, and the article points out that Mr. Marchionne has been known to show up from time-to-time at warranty analysis and quality performance meetings. Chrysler itself has not been known to invest in advanced supply chain software technology for planning and business intelligence but that may perhaps change.

The first totally new vehicle of the combined Fiat-Chrysler collaboration will debut in 2012 with a C-class Dodge branded vehicle. It will be based on the Fiat platform of the Alfa Romeo Giulietta, adapted for U.S. market requirements. There is a further plan to invest $23 billion to develop new vehicles for Chrysler through 2014, a rather aggressive plan by U.S. automotive industry standards, and all vehicle can be adapted by Fiat for other global sales needs.

The Time article concludes with a very characteristic Marchionne quote: “People need to trust you that you’re going to pull them out and that they will follow you when you pull them out.  If they don’t get that comfort, they’re going to drop you. This is true of organizations.  It’s true of countries.”

We would add that this quote represents a philosophy that is rather important for senior and team focused supply chain management in the coming year and beyond, namely the ability to lead, get into the details, provide people with the means and tools to accomplish their goals, and to foster consistent accountability.

In our 2009 commentary, we closed with the statement that whether the combined force of Fiat and Chrysler was totally successful, we have the opportunity to observe a visionary company with a leader that truly understands the importance of a leveraged global value-chain and integrated supply chain execution.  Two years later, this case study continues to play out with positive potentials.

Time will tell if this will become a definitive case study in vision and consistent execution in supply chain management but the scorecard thus far is rather positive.

Bob Ferrari

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

The following posting can also be viewed and commented on the Supply Chain Expert Community web site.

This posting continues highlights of the Kinexions 2011 conference being held this week in Scottsdale Arizona.  Readers can also reference our prior Day One dispatch which highlighted remarks from Kinaxis President/CEO Doug Colbeth.

Day one featured a full agenda of customer and partner presentations along with the first ever briefing session for industry analysts, partners and key market influencers.  Customer presentations included Barnes and Noble, specifically the Nook Division, who’s implementation pioneers a an entirely new area of support for Kinaxis RapidResponse, namely the incorporation of actual point-of-sales demand data into overall supply chain planning and visibility.  When implemented, this effort has the potential to be the largest deployment in terms of scope and user count of RapidResponse to date.  Matthew Red, Vice President, Supply and Demand Planning, took leave of the upcoming planned go-live to share his organization’s goal to have product demand visibility among 13,000 point-of-sales outlets implemented to support the upcoming 2011 holiday buying season. The clear focus for B&N is to focus on “sell-through”, namely where customers are buying and how the supply chain should best respond to outlet level demand.  Even though the go-live will occur in the coming weeks, Matthew was able to share lessons learned, which identified access to data as the biggest challenge along with the need to scale-back on original project scope because of implementation timing needs.

Another customer presentation included one by Lockheed Martin on managing its supply chain performance-based logistics need by utilization of RapidResponse.  The morning concluded with a presentation and demonstration of the new RapidResponse Control Tower from Kinaxis’s new vice-president of marketing, Kirk Munroe.  One of the highlights of this presentation was the articulation of the three design pillars for control tower functionality:

• Supply and demand balancing to responsive and predictable customer fulfillment.
• Planning, monitoring and responding only works if they are performed from one platform.
• Business problems are complex, but IT systems need not be as complex.

The pillars are simply stated but the meanings are all important.  We would hasten to add that business rule context is another very important consideration for any decision platform.

For Supply Chain Matters, and for others, one of the most talked about presentations during day one was delivered by McKinsey partner Paul Carbonneau. Readers should note that McKinsey’s reputation lies in consulting on C-level corporate strategy, direction and problem-solving, and to have a McKinsey partner talk to the importance of supply chain capabilities is a significant affirmation of how important global supply chain capabilities have become in C-level perspectives and concerns.  In that light, Paul communicated that the most expensive problems for McKinsey clients often are reflected in supply chain capabilities. Another significant reinforcement came from Paul’s comments relative to the March earthquake that occurred in Japan and the high-level awareness of the impacts of supply chain disruption and risk that has occurred across the C-suite right now.  My hallway conversations reinforced the fact that many manufacturers are re-visiting or initiating supply chain risk identification and mitigation.  An added takeaway shared by Paul was that McKinsey is advising clients to re-visit previous thinking and specifically three myths surrounding business process and technology implementation efforts. These include:

• Rather than linear rollouts of functional initiatives, pilot initiatives with the required cross-functional behaviors needed to sustain the new process.
• Rather than people first, process next, and technology last, with the implication of multi-year technology implementation calendars, frame the initiative with a defined narrower scope but with all three components required in the new or changed business process.
• Rather than getting the CEO on-board first, and risking a perceived colossal waste of time by that executive, bring C-level sponsorship on-board when definite pilot steps indicate meaningful benefits.

McKinsey further advocates starting with small ecosystem initiatives that include all required capabilities. Rather than spending enormous amounts of time getting organizational-wide consensus on a theoretical future end-state, launch “live-fire” exercises and iterative pilots that emulate what end-state could be. Accept the notion and provide support mechanisms that anticipate frequent failures, with constant learning and forward movement.  Finally, once pilots have provided valid benefits, scale quickly with serious investments in talent, disciplines, and required tools.

A final message reflected on future supply chain challenges that lie ahead and the need for, what Paul described as,  ‘maestros’ of supply chain planning and decision-making.  These are people who can think cross-functionally and cross-organizationalyl, who know where the right information resides, and how to leverage that information into various predictive options and scenarios to which  that the supply chain needs to respond.

It was a rather thought-provoking presentation and well slotted to kickoff a supply chain response management oriented conference. Supply Chain Matters will provide additional context and commentary in our summary impressions of this year’s Kinexions.

In our subsequent dispatches, we will provide highlights of day two of Kinexions 2011, along with summary impressions, so stay tuned.

Bob Ferrari

Added Note: Kinaxis is one of other named sponsors of the the Supply Chain Matters blog and the author provides services to this vendor.

Today, Supply Chain Matters attended the two-day Sales and Operations(S&OP) Summit meeting sponsored by IE Group. This was the second year that we attended this particular conference and hence we had a baseline of comparison.  As was the case last year, the conference was again filled to capacity, with a far larger meeting room.  Our unofficial estimate was a range of 150-175 attendees. In this Part One posting, we will highlight some observations and key takeaways from day one of the conference.

First, it remains striking to observe the continued wide-scale adoption of S&OP across multiple industry, production, and service industry sectors. Many of today’s presentations were insightful and helpful in understanding current process maturity levels. This is a process that continues to deliver value for many companies. Wide scale adoption brings continuous learning, and many speakers shared more of their learning.  To cite some examples, John Hellriegel, Global Director of Sales, Inventory and Operations Planning at Honeywell provided a key takeaway that to be successful; the S&OP process needs to:

•  Support each and every function for achieving individual goals
• Assess the business honestly
• Offer a realistic picture with options and solutions
• Be the one and only process to plan the business.

Cathy Budd, Supply Chain Director for Dow Chemical Company has had 18 years of experience implementing individual S&OP processes across the various business divisions at Dow. Budd shared her key learning:

Do not assume the process design is always easy. You sometimes have to take a step back to ascertain the overall strategic goals of the process.

• Keep it simple, even when the environment seems complex.
• Think broader than just demand, supply, and inventory.  For Dow’s insulation business, a key determinant to the planning process was freight cost optimization.  In other businesses, it can be profitability or customer service level.
• Stay focused on the questions you are trying to answer and the decisions that need to get made by the process.

Sean Willems, Chief Scientist, Inventory Optimization Solutions at Logility, and faculty member at Boston University made an outstanding argument for jointly optimizing production and inventory planning with S&OP.  Professor Willems was quick to note that inventory is often an outcome of the efforts of various planners yet most companies do not have an inventory planner. His key message is that all inventory is not equal, and consideration of all classes of inventory, along with where they are positioned in the value-chain, are required to jointly optimize supply, inventory and service level needs.  Incorporating multi-echelon inventory optimization in an S&OP process can enhance service levels and inventory mix.

Beyond these and other insights relative to the state of S&OP maturity, other speakers today spoke to thinking more about what teams should be considering in their evolution plans for S&OP.  This can sometimes be a topic with controversy, since many labels are affixed to the next iteration. Industry analysts and we in the blogosphere are sometimes just as guilty in arguing semantics and labels vs. objectives and needs. There are terms like integrated business planning (IBP), SIOP, RBM, IPP, and others.  Similar to our observation from last year’s event, a consensus of today’s speakers advised to avoid arguing the labels but rather focus on what the process needs to iterate to.  Listening to speakers such as Joe Boszarek of Jonova, Andy Coldrick of Ling-Coldrick, Don Wood of Cott Beverages, Rob Borrows of One-Point Group caused me to ponder that perhaps some of the classical process tenets of S&OP may need to be revisited in this new era of business.

As Rob Burrows astutely noted, S&OP thinking was incubated in a supply rich environment when excess production and inventory was far more tolerated. Today supply chains exist in an on-demand and pull-driven business environment where factors of market share, customer service and utilization of capital can outweigh operations driven planning.  One of the sacrosanct tenets of S&OP thinking is the “one-plan, one-number” perspective that drives the process. As Burrows noted, a ‘market-savvy’ S&OP that has a market-in and management by analytics perspective may call for scenario-based planning.  What’s the best-case plan for meeting required service levels?  What is the most profit optimized plan?  What is the worst case plan if demand falls short of budget or an unplanned supply shortage occurs?   Predictive analytics applied to S&OP introduce scenario and continuous planning, and in our particular view, an era where true business intelligence becomes the enabler of integrated business planning.

This is an exciting but least understood facet of next generation S&OP and Supply Chain Matters will feature additional commentary and insights in the coming weeks.

We look forward to day two of the conference.

Bob Ferrari

Just about every year at this time, supply chain teams can look forward to AMR Research’s (now Gartner) designation of the Top 25 Supply Chains. Similar to entertainers and recording artists having their Oscars, Emmy Awards and Grammy’s, there is the Top 25 supply chain designation that can be instrumental in a career journey.  Just as awards can provide recognition of the obvious, as well as surprises, so also is this year’s line-up.

First, Supply Chain Matters extends its congratulations to all of the 25 designees, as well as the finalists in the 2011 competition.  Quantitative and qualitative recognition for hard work, long hours, commitment and determination is always important.

In the spirit of the many entertainment shows, we will now share our Supply Chain Matters post award reactions of this year’s Top 25 designees.

Overall Listing

The overall list itself has many familiar names and global brands. It would be nice for one year to have a small or mid-market company make the listing.  Outsourcing the major portions of your supply chain provides a high ROA, and that can get your company a good shot for making it on the list. Speaking of effects outsourcing, once again, there is no presence from major process manufacturers (BASF, Dupont, Dow Chemical) and that remains a disappointment.  A lack of recognition of any major global contract manufacturer, those that own the majority of production and in some cases process design assets (Foxconn, Fextronics, Jabil) also remains disappointing.  While the overall list has some non-U.S. names such as Samsung and Inditex, it should include other capable names as well.

Perhaps there should be some added categories like:

Best effort in undergoing supply chain transformation or

Best supplier supporting role in bailing out a global OEM during a supply chain crisis such as the Japan earthquake.

The Coveted Number One Designation

Number one designee Apple had to be the obvious choice, as demonstrated by its very high composite score.  No other designee came close.  We are not alone in commenting on all the superior aspects of Apple’s broad supply chain capabilities and accomplishments.  The only comment to add is that being a repeat number one comes with continued responsibilities to lead and set the benchmarks in areas such as social responsibility, sustainability efforts, and openness.

Sound bites for the top-tier designees:

#2 Dell: Up three slots from last year, but not by much.  P&G merits this slot.

#3 P&G:  The obvious choice, always consistent performer and benchmark.

#4 Research-In Motion: Up 5 slots and in a very competitive field.

#5 Amazon: Up 5 slots and well deserved.  A demonstration that one can make the list with lower ROA.

In the category of rising stars:

#13 Colgate-Palmolive: Up 4 slots with better quantitative results than industry peer P&G.

#15 Unilever: Up a whopping 6 slots, also with better quantitative results with P&G.

In the category of new entrants:

#18 Nestle: It’s about time.

#24 3M: Significant achievement considering the diversity of products and supply chain needs.

#25 Kraft: Well-deserved and overdue for recognition

In the category of surprises:

#6 Cisco: Dropped 3 slots from last year.  Major re-organization underway to reduce management layers and speed decision-making.  Will Cisco’s supply chain be impacted?

#21 Johnson & Johnson: Dropped 7 slots and is still in the midst of non-stop product recalls brought about by lapses in quality.  Does being under watch by the FDA qualify as a Top 25 criteria?  Since J&J was the only life sciences company to be in the top 25, we have to categorize this one as a disappointment.  Perhaps there needs to be a category of “on-probation”.

#22 Starbucks: New entrant in the Top 25 with a rather low Gartner opinion vote.  Retail coffee distribution was outsourced to #25 Kraft before this year’s brew ha-ha and termination.  Next year will be the retention test.

There you go, our Supply Chain Matters post award musings for theTop 25.

What about your reactions and opinions on the selections?

Bob Ferrari