top of the supply chain

Who's the runaway leader when it comes to supply chain best practices and technologies? No, not Wal-Mart—the megaretailer placed a distant fifth. The top spot on AMR Research's first-ever list of the Supply Chain Top 25 went to computer maker Dell. The study, released late last year, ranked corporate supply chains based on financial results like return on assets and inventory turns as well as on AMR's own research and case studies.

Known for its lean operations, the Round Rock, Texas-based Dell has walloped the competition by finding a way to operate virtually without inventory. Dell is able to schedule its factories on two-hour planning cycles, which means it holds only materials needed to build machines whose orders have been in the system for two hours—and has successfully rolled that system out to its factories around the world. That's produced a big payoff: In its last reporting period, the company set records in everything from global product shipments to operating and net income to cash from operations. During that quarter, which ended Oct. 29, 2004, revenue shot up 18 percent, and earnings per share spiked 27 percent. The growth shows no sign of abating. Dell expects its fourth-quarter product shipments to be about 20 percent higher than year-ago figures, which should translate to revenue gains of 17 percent.

Of the top five companies named to AMR's first annual Supply Chain Top 25, three turned out to be technology companies. Along with Dell, they are Nokia (No. 2) and IBM (No. 4). The top five are rounded out by consumer-goods manufacturing giant Procter & Gamble (No. 3) and retailer Wal- Mart (No. 5).

The rankings represent a lot more than prestige for the inaugural Top 25. Those companies that operate at such rarefied supply chain levels can also look forward to a bright future. "We now know that such metrics as perfect order performance and supply chain management costs say more about next year's profits than last quarter's earnings," says Kevin O'Marah, vice president at AMR Research and lead analyst for the report. "The final ranking reflects both what is known about these supply chain leaders and what is expected for future growth."

By streamlining their supply chains and integrating them with the Internet, says AMR, the Top 25 have gained visibility and agility—benefits AMR has attempted to quantify. Companies whose supply chains can react quickly to customer and supplier demand see 5 percent higher profit margins and 10 percent more perfect orders than those that do not, AMR says. The research firm also maintains that demand forecast accuracy correlates directly with perfect order fulfillment: A 1-percent improvement in demand forecast accuracy yields a 2-percent gain in perfect order fulfillment capability. Therefore, even minor improvements in demand visibility can have a significant impact on a company's customer responsiveness.