I miss the work conversations by the coffee pot. Especially the old-fashioned ones that forced teams to linger and talk with colleagues as the coffee brewed. The smell and the sounds enticed me to hold my warm mug and stay a little longer.
Lately, as I reflected on my conversations with John (fictitious name) when I was at AMR Research, I yearn to go back in time. (AMR Research was an industry analyst firm in Boston. Gartner purchased the firm in 2010.) As busy analysts, we seldom had the luxury of relaxing very long in the breakroom, but there was a consistent theme between us when we did.
Driving Improvements in Supply Chain Excellence
John and I held differing beliefs. We were both very opinionated. He felt strongly that supply chain leaders knew how to drive supply chain excellence and needed a forum– or maybe two or three depending on the business model– to help them network and refine their approaches. Waving his hands, John likened the need to a high-priced golf club membership with a great pro in the clubhouse. He wanted AMR to sponsor two-to-three forums by geography.
He also believed that supply chain leaders could easily select top-performing supply chains and designed the AMR Top 25 Supply Chain (now the Gartner Top 25 analysis) to be 25% of the score. As the architect of the Top 25 methodology, he strongly wanted peer rankings. I disagreed.
I saw things differently and the discussions were heated. I did not think that anyone had a clear definition of supply chain excellence. I advocated a study, an analysis of market value. My desire was to make the rankings of the Top 25 supply chain report data-driven based on balance sheet results. With a strong focus on peer voting, I worried that the Top 25 would become a beauty pageant.
When it came to the golf pro analogy, I felt that a forum was nice but insufficient. I wanted to help companies drive step-changes in performance. A forum was great for networking but not for driving process innovation. Based on my experience, when a forum had many senior executives with strong opinions, I felt that they took all of the oxygen from the room making it a tough place for a meaningful discussion.
My argument centered on the observation that as new technologies evolved, companies did a lift and shift. For example, client-server to cloud architectures offered great promise for process innovation, but companies just moved their processes without asking how to drive new levels of value from technology.
I argued for industry collaboration to define and drive process innovation. My goal was to have AMR drive process innovation as a business model. I liked the work on the SCOR model (developed jointly by AMR Research and PRTM), but as I sat on the SCOR executive council, I could see the fallacies in the SCOR model and thought we should take it further. As I talked, John shook his head. My point of view was so foreign to him. My approach took too much time and resources. The approach was not as profitable.
Stubborn, I would ignore his disgust and continue. Using new technologies in traditional process definitions reduces the potential for value enablement. Companies want a definitive Return on Investment (ROI), limiting the opportunity to test and learn with new technologies. The industry is involved in the big hustle—RFPs into the market, pink ghetto marketing machines, technologists hawking their wares, and aggressive technology sales teams selling to supply chain leader egos with over-hyped hyperbole on PowerPoint. I would argue to John: no one knows how to drive a step-change in process improvement. Technology companies sell technology and consultants implement.
Over the last decade, supply chain performance regressed. Companies entered the pandemic with twenty more days of inventory than at the beginning of the great recession. Currently, supply chain performance is a barrier to economic recovery.
Today, the rate of promising technology innovation is much faster than when I had these coffee chats with John, yet I see the same problem. We don’t have a clear industry definition of supply chain excellence. Nor is there a good way to test and learn on the promise of new technologies.
A balance sheet analysis shows that 95% of publicly traded manufacturers are stuck (when compared to peer group) at the intersection of growth and margin, margin and inventory turns, and Return on Invested Capital (ROIC) and growth.
So, when Gartner bought AMR Research, I left and started Supply Chain Insights. I finished the work that I advocated over the cup of coffee. The methodology to understand supply chain peer group performance and improvement is named the Supply Chains to Admire. I began analyzing correlations of groups of metrics to market capitalization and found that the most significant correlation was between market capitalization and growth. (Initially, I worked with Arizona State statistics professors and graduate students to correlate market factors to 2006-2012 data.) When companies were growing, I also discovered that the cost and inventory metrics better aligned with peers. When growth declined, the company’s ability to manage inventory digressed.
John also left Gartner, albeit a bit later, and started a forum business. He retired handsomely with the equity from the sale of his company and is no longer active in the industry. I continue to work on trying to find ways to drive process innovation. My latest focus is to define outside-in processes in Project Zebra.
In parallel, the Gartner Top 25 changes slightly each year but at a principle level remains essentially unchanged. In Table 1, I share a comparison of the two methods.
Table 1. Comparison of the Gartner Top 25 and Supply Chain Insights Supply Chains to Admire Methodologies
In an industry flush with conferences, technologists and business leaders self-promote. There is never a meaningful comparison of balance sheet performance or a serious conversation on supply chain excellence. Everyone assumes that they know what supply chain excellence is and process innovation remains stalled.
The industry is like a Ferris Wheel. Technologists hustle, business leaders hype, and process innovation—the wheel at the center—turns ever so slowly.
The Gartner Top 25 Bias to Celebrate Underperformance
This year, there are only four companies that both methods support as peer group winners—Abbvie, Apple, Inditex, and Nike. For chuckles and grins, I compared the winner’s results to peer group averages for the period of 2011-2020. As shown in Table 2, these results show a bias for the Gartner methodology to reward companies underperforming against their peer group in growth.
Table 2. Comparison of the Gartner Top 25 Winners to Peer Group for the Period of 2011-2020
If John were at the coffee pot, I would love to hear his response on why the analysts and supply chain leaders select under-performing companies in the Top 25. What do you think?
For greater insights check out the presentation and discussion on the Comparison of the Gartner Top 25 to peer group. The Supply Chains to Admire webinar is on June 16th at 11:00 EST. At the webinar, gain insights to the winners and the industry trends. I hope to see you there!
In addition, Project Zebra–an open source initiative to define outside-in planning processes–starts the testing phase of two of eighteen capabilities next week. To gain insights join the webinar on June 9th at 11:00 EST. We will archive the recording and share it through youtube.
Preparing for the Supply Chain Insights Global Summit
The Supply Chain Insights Global Summit is happening on September 7th-9th in Franklin, TN.
We are taking the risk that everyone can get COVID shots to enable an in-person event in September. We will also have a virtual feed hosted by Supply Chain Now for those unable to travel. The goal of the conference is to Imagine the Supply Chain of 2030.
In preparation, I am handpicking the speakers and finishing up the Supply Chains to Admire analysis for 2021. If you have a story you would like to share at the conference; please drop me an email at firstname.lastname@example.org. Mark your calendars to join us to think differently and Imagine the Supply Chain of the Future.
We Give to You. Will You Give to Us?
Our current research project is understanding the current state of analytics. Our philosophy is you share with us and we share with you. We don’t believe that research should be locked behind paywalls. If you take the study, you will be invited to a closed roundtable to discuss the output. We would love to have your input on the study.