Big Earnings Announcements And The Implications For The Supply Chain Top 25

Big Earnings Announcements and the Implications for the Supply Chain Top 25
by Matt Davis
It's that time of year again, when fourth-quarter earnings announcements hit full stride and we get insights into complete fiscal-year performance. As with any other year, there were some big winners mixed with other big misses. One thing caught my eye in several announcements: CEOs talking supply chain.As I read through messages in the statements, supply chain appeared as a key enabler of performance and strategy. Here are a couple examples:
• Michael Dell upon record 2011 results: "Our strategy around the efficient enterprise and flexible supply chain continues. Client profitability improved notably in the second half of the year, driven by solid supply chain performance, lower input costsand improved product quality."
• Ecolab after record fourth-quarter results: "Major initiatives include ... significant realignment of the supply chain, including repositioning of the warehousing networks, better leveraged purchasing capabilities, formula and packaging simplification, manufacturing consolidation and streamlined support functions."
• On an earnings call with Raytheon'sCEO William H. Swanson: "From our standpoint, we see plenty of opportunities in the company. There's a lot of effort going on in our supply chain side of the business .... What we're going to be working on [is giving] our suppliers better visibility into what we're doing ... where they can align their investments with our investments to make sure we continue to deliver the best value to ourcustomers."
Although a focus on operations to drive efficiency is nothing new, it's both interesting and exciting to see CEOs saying supply chain is a direct enabler of top-level corporate strategy — just where I think it should be. And it's also a key premise of the annual AMR Supply Chain Top 25. As a former employee of a consistent Top 5 player, I was quite familiar with the results before joiningGartner. But I've learned even more about it as an analyst.
So I thought it would be fun to sit down to informally interview Debra Hofman, who runs the annual research, on the details of how it's done, how innovation plays a role and what she's learned over the years. Here's the transcript from our chat:
Matt: Can you provide some quick context on the AMR Supply Chain Top 25 for those who may beunfamiliar with it? What is it? How is it used?
Debra: The AMR Supply Chain Top 25 is Gartner's annual ranking of the best supply chains among manufacturers and retailers in the Fortune Global 500. This is the seventh year of the ranking, and we'll publish the 2011 list at the beginning of June. The basic goal of the ranking is to highlight leadership in something we call the demand-driven valuenetwork: which companies are farthest along toward being demand-driven.
We're very transparent about the way we come up with the ranking. Every company on the list (224 last year) gets a composite score that's made up of three financial metrics (e.g., return on assets [ROA], inventory turns and revenue growth) and two voting pools. One voting pool is our supply chain analysts and the other a peerpanel made up of supply chain executives from across a spectrum of industries (last year, we had 154 peer voters). The peer vote, which represents 25% of each company's composite score, is a key component in that it reflects the opinion of the supply chain community. It's open to supply chain professionals at any manufacturer, distributor or retailer. We allow one vote per company, and the voteitself is a simple Web form that takes about 15 minutes.
Matt: What do you think about CEOs talking supply chain at earnings announcements? Is this new?
Debra: It's an exciting trend we're starting to see more and more — not just the use of the term "supply chain" at the highest levels, but the recognition that being good at it drives shareholder value. A few years ago when we started doing this,...