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What does it take to be a top supply chain company? More Amazon planes take flight. And the latest figures reveal the current health of our supply chains.
Pull up a chair and join us as the editors of DC Velocity discuss these stories as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Fortna. Fortna partners with the world's leading brands to transform their distribution operations to keep pace with digital disruption and growth objectives. Known worldwide as the distribution experts, Fortna designs and delivers intelligence solutions powered by their proprietary software to optimize fast, accurate, and cost-effective order fulfillment. For more information, visit Fortna.com.
As usual, our senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today, I will turn the mic over to Ben to introduce our guest. Ben.Ben Ames, Senior News Editor, DC Velocity :
Thank you, Dave. Good morning. I'm here with Mike Griswold, research vice president in the industry analyst group Gartner's Consumer Value Chain team, focused on the retail supply chain.
Thank you for being here with us today, Mike.Mike Griswold, Research VP, Gartner :
Thanks for having me, Ben. Appreciate it.Ben Ames, Senior News Editor, DC Velocity :
Mike is responsible for helping companies implement demand-driven supply chain principles that improve the performance of their supply chains. And Gartner recently released its annual Supply Chain Top 25 list—the 16th edition of that that they've done—and Gartner identified some supply chain leaders and highlighted their best practices throughout the industry. This year, Cisco came out on top, and they were followed by Colgate-Palmolive, Johnson & Johnson, Schneider Electric, and Nestlé—so, some very familiar names to anybody. Mike, I'd love if you could walk us through a little bit, how does Gartner examine such a complex thing as a company's supply chain? And what sort of variables do you use to possibly rank them?Mike Griswold, Research VP, Gartner :
Yeah, sure, Ben. As you mentioned, we've been doing this for 16 years, and we've had several iterations. I'll touch on those briefly, for what we did in 2020.
But we start by creating a list that, year to year, has anywhere from 290 to 310 companies. The inclusion criteria are pretty simple: Need to be a manufacturer or distributor that lands on the Fortune Global 500 or the Forbes Global 2000; need to be a publicly traded company, so we can get publicly available financials; revenue greater than 12 billion; and 50% of the revenue needs to come from physical products. So you have to have an organization that has a supply chain.
With that list and that financial data, we have a series of KPIs [key performance indicators], if I use your words, Ben. We have—50% of the evaluation is, I'll call it [quantitative]. We look at three financial measures: return on physical assets, inventory turns, revenue growth. We've had, since 2016, a corporate social responsibility portion of the evaluation. This year, we added two new components to that and renamed it ESG—environmental, social, and governance. Those are all weighted, and that's 50% of the evaluation.
The other 50% is more of a qualitative perspective, and it's comprised of two voting blocs. Twenty-five percent of the evaluation are votes cast by the Gartner analyst community on the supply chain side, and 25% of the vote is from supply chain professionals, I'm sure from many of the folks that listen and read your material. That all goes into the process.
Every company is assigned a composite score. We rank the companies from high to low on the composite score, and that's how we create the list.
We also have, based on companies' performance, an area or a category that we call the Masters. So, companies that have sustained excellence in the supply chain—and we define that as having a Top Five composite score seven of the last 10 years—you need to do that to qualify as a Master. And we have, in 2020, five Masters: Apple, Amazon, McDonald's, Procter & Gamble, and, last year, Unilever made the list.
We can certainly—I can certainly share, Ben, more details around the methodology. But at a high level, that's how we get to the list.Ben Ames, Senior News Editor, DC Velocity :
Great, great, thank you. And "KPIs" is a common term in the industry that we both use, "key performance indicators," and it's a way of keeping track of certain variables and how companies perform their business.
So Cisco, when you add up all those different variables and KPIs, came out on top. However, this year's study, it must be very different from past years, because of the enormous impact of the Covid-19 pandemic, on global trade, on travel, on freight flows. Can you tell us about some of the trends that you might have seen with companies, and how they're coping with the disruption?Mike Griswold, Research VP, Gartner :
Sure. I think from a methodology perspective, because of the financial aspect of the data we get, we expect the financial impact to be more felt in 2021, when we look at that half of the evaluation. I think the responses that companies made during the pandemic, that's reflected in the peer and the analyst vote, because those happen in April and in March. So we do think the methodology will have—has had—some of the rankings, I think, were influenced, if you look at some of the peer and analyst numbers, by Covid-19.
But when I think about, kind of, what are some of the common denominators of companies that, you know, work themselves through the pandemic, there were four things that that stood out.
One was the fact that a number of companies have established Centers of Excellence, or COEs, in key areas around supply chain planning, sourcing and procurement, logistics, and strategy.
The second common denominator that we see in these companies is, they implemented or upgraded supply chain planning and supply chain visibility technology. And I think the visibility piece, Ben, was really important. It gave organizations a better perspective on things like orders, customer demand, a better perspective, maybe, on some of their supplier capabilities and capacities. So that was a big one that we saw in these Top 25 companies.
The third one, and I would say almost as important as the visibility investments, were implementing and piloting advanced analytics and Big Data. When you look at companies in this list, the Masters as well as the Top 25, a lot of those companies, many of those companies, have a lot of acumen in the area of analytics and Big Data. They understand how to use it, how to mine it, and how to use it to drive quicker decisions, which certainly is one of the things that we saw as a critical capability during this pandemic, is the ability to make quick and accurate decisions.
And then the last observation I would make around these companies is, a significant number of them have ownership around change management within the supply chain. So they haven't necessarily had to rely on other parts of the business to be able to drive change. And if you think about how responsive the supply chain needed to be across all industries, the ability to drive change and kind of, you know, be able to control your own change element was really important.
So, I think, Ben, those four things would be the keys that I picked up on as we talked to organizations that are in, that are on the list.Ben Ames, Senior News Editor, DC Velocity :
Great. Really interesting stuff. It's striking that, however much we've all been really knee-deep in the effects of the pandemic, it seems that some of its effects are really going to be with us, and with companies' balance books, for some years to come. We've only seen some muted effects so far, for companies that report quarterly earnings, but that, so it's something for sure that all of us are going to be dealing with and talking about for a couple years in the future.Mike Griswold, Research VP, Gartner :
I agree, Ben. And if you look—even if we look specifically within just the retail industry, where I spend most of my time, different segments of retail have been affected in very, very different ways. So you're exactly right, Ben. I think the financial impact, and then the translation of how that translates into the customer experience, I think, I agree with you completely: We're going to be feeling that, I think, for a while.Ben Ames, Senior News Editor, DC Velocity :
So interesting. Mike, I really appreciate your sharing all this with us today. It's been a great chance for us to learn.
Again, we've been talking today with Mike Griswold, research vice president with Gartner, about the company's Supply Chain Top 25. This year that Top 25 led with Cisco, Colgate-Palmolive, Johnson & Johnson, Schneider Electric, and Nestlé, were the names.
Mike, thanks so much for being with us.Mike Griswold, Research VP, Gartner :
Ben, thank you very much for having me.Ben Ames, Senior News Editor, DC Velocity :
Back to you Dave.David Maloney, Editorial Director, DC Velocity :
Thanks, Ben and Mike.
Now let's turn to some of the other supply chain news from the week. Victoria, the latest Logistics Manager's Index numbers are out, and what are they saying about the health of the supply chain industry?Victoria Kickham, Senior Editor, DC Velocity :
Sure, happy to talk about that.
First, I'll just say the Logistics Manager's Index report is a monthly measure of business activity in the logistics sector across warehousing, inventory, transportation measures.
In May, what the researchers found is that the index rose 3.2 points, to a level of 54 and a half. And essentially what that means is, the level returned to kind of the pre-Covid-19 levels that they had been seeing, which was a trend toward slow and steady growth across the industry.
It's interesting, because it was a little bit erratic in March and April. March, there was a surge to, it was close to 60. It was actually 58.9, was the reading, which was something the researchers hadn't seen in more than a year, I think, or about a year. And then in April, there was a drop to a historic low. The index is a little more than three years old, and it dropped to a low level of 51.3.
So the researchers were really watching to see what happened in May to see, you know, is this going to level out, return to some regular steady growth? And that seems to be indeed what has happened. It hit 54 and a half, as I said, which is pretty much where it had been for the last year.
And that stands in comparison to, you know, really high levels that they had been seeing in the early days of the index. The industry was measuring in the 60s, even 70s, just showing really, really strong growth.
But like I said, it seems to have returned to a sort of slow and steady growth mode.David Maloney, Editorial Director, DC Velocity :
Were there any key points that came out in this month's report?Victoria Kickham, Senior Editor, DC Velocity :
Yes, yes. The key message seems to be inventory. It remains really high, obviously. And what they're saying, what the researchers saw, was sort of the upstream part of the industry—manufacturing distribution—really high inventory levels, and are going to need to find ways to sort of offload that inventory, and the retail sector is just not in a place to take it right now. They're trying to get rid of what they have. So that was a really key message.
Warehousing is at a premium as a result, and really kind of waiting to see how the inventory piece plays out.David Maloney, Editorial Director, DC Velocity :
Is there any news from the transportation sector?Victoria Kickham, Senior Editor, DC Velocity :
Yeah, transportation, they say the metrics are showing improvement, but still pretty sluggish. So they're watching that pretty closely as well.David Maloney, Editorial Director, DC Velocity :
Well, overall, it's certainly good news after a couple of rather dismal months, and hopefully will help to bring back the rest of the economy as well. Thank you, Victoria.
Now, turning to Ben—Ben, you wrote this week that Amazon is flying high during the pandemic. Can you tell us more?Ben Ames, Senior News Editor, DC Velocity :
Yeah, we, again, we learned this week that Amazon—which of course everybody knows as the e-commerce store of everything—they've been keeping busier during the pandemic than a lot of other retailers, as people stay home and and continue ordering more, did more online items. So, Amazon this week said that they were to go to lease 12 more Boeing 767 cargo aircraft—those are converted planes, from passenger to freight. So just one of those has started performing air cargo operations, but when those new 12 are online, it's going to bring Amazon's fleet to more than 80 aircraft by the end of 2021. Eighty is quite a big number. It just shows that Amazon is really continuing to build out its delivery muscle from, we've seen the semi trucks, I've seen containers on trains, their local last-mile delivery vans, and now a really fast-increasing air fleet as well. They've got their foot on the gas pedal for sure.David Maloney, Editorial Director, DC Velocity :
How does this move, Ben, appear in relation to what's happening with their competing carriers?Ben Ames, Senior News Editor, DC Velocity :
Yeah, so on the one hand, 80 aircraft—eight zero—sounds like a big fleet, and it is—and Amazon has been also increasing their hubs, in addition. They've picked San Bernardino in California as its newest hub on the West Coast.
But having said that, you look at some somebody like FedEx, and they have something in the range of 430 planes. And UPS has something like 250 cargo planes in the air. And those numbers, by the way, are from DePaul University. But despite Amazon's fast growth, if the plan is to compete on a one-on-one level with those guys, then they have some ways still to go. So it's gonna be really interesting. Like I said, their foot is on the gas pedal, though, so this rate of growth may well change in the coming year.David Maloney, Editorial Director, DC Velocity :
Turning to another story, you also wrote about how new technologies are being launched to help logistics operations restart. Can you share more?Ben Ames, Senior News Editor, DC Velocity :
Yeah, that was really interesting. We've seen a number, throughout the pandemic, of companies throughout the logistics industry, and they're using some of their existing infrastructure, existing platforms, to find ways to keep their DCs going and to keep their workers safe.
The latest example came from Zebra, which is well known for providing mobile handheld scanners and other computers that you'd see very often on the warehouse floor. And they've basically [adapted] those by creating a cloud-based system that provides proximity sensing—which is to say that any worker carrying one of the devices can automatically be alerted—through a sound, or light or whatever their preference—if they're closer than six feet, or whatever the given number is, to another worker. So it allows them to not lose track of of how close they are to other people as they're busy doing their jobs. And as well, that cloud-based system also provides contact tracing. So, if a worker were to be sick, or I guess we should say, when workers do become sick, it'll be much easier to figure out exactly who they might have been close to, so that those other people can be tested as well. And that can obviously help control any outbreak, provide faster health care for people who are affected by Covid-19. And also avoid a shutdown of the whole facility, which can happen as well.
It's important to say Zebra is not the only one with some of these proximity sensors. We've seen versions of them from a lot of different companies—Acquired Data Solutions, Strategic Mobility Group, ProGlove, Triax—there are a number of them out there. But it gives a little peek at what we might be seeing ahead, as some of the parts of the industry start to reopen.David Maloney, Editorial Director, DC Velocity :
Thanks, Ben. Obviously, the tools are needed to be able to compete and to do the work that we need to do in the age of social distancing.
We also want to remind you of our continuing Covid-19 coverage and our list of resources that are available on DCVelocity.com. Go there to check them out. Thanks, Ben and Victoria, for sharing the highlights of the news this week.Ben Ames, Senior News Editor, DC Velocity :
Thank you, Dave. It's been fun.Victoria Kickham, Senior Editor, DC Velocity :
Yeah, thank you.David Maloney, Editorial Director, DC Velocity :
And again, our thanks to Mike Griswold of Gartner for being our guest today. And if you would like more information on the stories we discussed on Logistics Matters, be sure to check out DCVelocity.com for details. We also encourage you to subscribe to Logistics Matters on Apple, Google, and other popular podcast platforms, and at your app store. Just search for "logistics matters" to find us. Our new episodes are uploaded each Friday.
And a reminder that Logistics Matters is sponsored by Fortna. Fortna partners with the world's top brands to transform distribution operations into competitive advantage. Expertise includes distribution strategy, DC operations, micro-fulfillment, automation, and intelligent software. Distribution solutions designed today for tomorrow's challenges. Learn more about the distribution experts at Fortna.com.
We'll be back again next Friday with another edition of Logistics Matters, when we will look at National Forklift Safety Day. Be sure to join us. Until then, please stay safe and have a great week.