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The Gartner Supply Chain Top 25 for 2016

Summary
This research unveils the 12th annual global Supply Chain Top 25, identifying supply chain leaders and highlighting their best
practices for heads of supply chain and strategy organizations.

Overview
Key Findings

Three key trends emerged among the leaders: closer, customer-driven partner integration, further adoption of advanced analytics and a strong
focus on corporate social responsibility.
In recognition that running an ethical and sustainable supply chain is a key aspect of leadership, Gartner has added a quantitative measure of
corporate social responsibility to the Supply Chain Top 25 methodology.
For the first time, Unilever topped the ranking, followed by McDonald's, Amazon, Intel and a newcomer to the top group, H&M. Apple and P&G
continued to qualify for the Masters category recognizing sustained leadership over the last 10 years.
Five new companies made the list this year. Schneider Electric, BASF and BMW joined the list for the first time, and two companies rejoined this
year after a hiatus: HP and GlaxoSmithKline.

Recommendations

Build closer integration with suppliers, partners and customers in support of more value-added end-user solutions.
Invest in advanced analytics capabilities to make step-function improvements in performance within and across supply chain functions.
Link corporate strategy and social responsibility-focused efforts within supply chain. Describe how you are capitalizing on opportunities or
mitigating risks to drive your company's competitive advantage.

Table of Contents

Analysis
The Notable Trends

Customer-Driven Partner Integration

Adoption of Advanced Analytics

Inside the Numbers

Return of the Supply Chain "Masters"

The Top Five

Movers and Shakers: No. 6 Through No. 15

Rounding Out the List: No. 16 Through No. 25

Honorable Mentions

What Is Demand-Driven Excellence?

Operational Excellence and Innovation Excellence

Measuring Demand-Driven Excellence

The Metrics We Wish We Had


Supply Chain Top 25 Methodology

Business Data

Opinion Component

Polling Procedure

Composite Score
Looking Ahead

Increasing Emphasis on Corporate Social Responsibility

Gartner Recommended Reading

Tables

Table 1. The Gartner Supply Chain Top 25 for 2016

Table 2. Metrics for Operational Excellence and Innovation Excellence

Table 3. Industries Not Included in the Supply Chain Top 25

Figures

Figure 1. Gartner Supply Chain Masters for 2016

Figure 2. The DDVN Maturity Journey

Figure 3. The Hierarchy of Supply Chain Metrics: Operational Excellence

Figure 4. The Hierarchy of Product Metrics: Innovation Excellence

Figure 5. 2016 Peer Opinion Panel Composition: Region

Figure 6. 2016 Peer Opinion Panel Composition: Industry

Figure 7. 2016 Peer Opinion Panel Composition: Function

Figure 8. 2016 Peer Opinion Panel Composition: Role

Figure 9. 2016 Peer Opinion Panel Composition: Revenue

Analysis
In our 12th edition of the Supply Chain Top 25, we have several longtime leaders with new lessons to share and a number of more recent entrants from the
high tech, industrial, chemical, auto and life science sectors.
A key aspect of the Supply Chain Top 25 ranking is the demonstration of demand-driven leadership. We've been researching and writing about demanddriven practices since 2003, highlighting the journey companies are taking from inward-focused supply management functions to supply chains that
orchestrate a profitable response to demand. This year we are also elevating corporate social responsibility (CSR) as a critical element of supply chain
leadership by incorporating a new quantitative measure into our methodology.
Through this research we seek to foster the celebration and sharing of best practices as a way to raise the bar of performance for everyone. Another
objective of the Supply Chain Top 25 is to highlight and elevate the importance of the supply chain function and profession across our community, within
corporate boardrooms and for the investment community, at large.

In 2015, the CEO's focus continued to be on jumpstarting growth, 1 organically and through record levels of merger and acquisition (M&A). Supply chain did
its part to enable and help lead this charge. The global economy stumbled through another mixed year, facing headwinds ranging from a downshift in the
Chinese economy, stagnation and/or decline in many other major markets. Moderate growth in the U.S. was enough to strengthen the dollar and impact
trade flows and corporate earnings, particularly in consumer products (CP). The oil price shock that started in mid-2014 continued dramatically throughout
2015, eventually leading to a slowdown that decimated earnings in related industries, offsetting some of the gains from lower consumer energy prices.
The approximately 300 large corporations we track in our survey delivered an average annual revenue growth rate of 2.5% in 2015, down from 5.9% the
year prior, even when higher recent M&A activity was included. Sometimes, necessity is the mother of invention and, in this challenging economic
environment, companies continued to increase the pace of innovation in supply chain.

The Notable Trends


Each year, our analysts research the supply chains of hundreds of companies. Through this work, we note the trends: What are the leaders focusing on,
where are they investing time and effort, and what can be applied broadly? Three key trends stand out this year for these leaders that are accelerating their
capabilities and further separating them from the rest of the pack.

Customer-Driven Partner Integration


Gartner's supply chain research is centered on the concept of running a demand-driven value network (DDVN). While customer centricity is a natural
extension and enabler of DDVN, in the past year, some companies and ecosystems have raised the bar in terms of what this means.
For instance, a popular trend in leading consumer product companies is to centralize customer service and other customer-facing functions in more costeffective regional hubs. This allows for standardization of best practices and economies of scale, with the ability to stay relatively close to individual
customers. One leading CP company has piloted having supplier representatives sit side-by-side with their supply chain support counterparts in these
service centers to speed up collaboration cycles and, ultimately, the response to customer requests, issues and priorities. This is a deeper level of
integration than we've seen to date and bodes well for the long-term satisfaction of customers in this industry.
Meanwhile in high tech, there are dynamic federations of hardware, software and service providers coming together for the sole purpose of bringing
solutions to customer's requirements. This collaboration is sometimes for extended periods of time and, in other cases, it is a one-time project to deliver a
tailored response to customer needs. We're particularly seeing this type of arrangement in the delivery of Internet of Things (IoT)-based solutions. Consider
a solution that allows for the remote monitoring and management of refrigerated cases holding beverages in a large number of distributed locations. The
solution is comprised of sensor chips, gateway devices, embedded software and an analytics platform for tracking inventory replenishment requirements,
case temperature failures and other performance parameters. There is also a service component for maintenance of the solution hardware and software.
The orchestrator of the group is situation-specific. It could be an equipment OEM, a chipmaker, an electronics distributor, a contract manufacturer, an
integration partner or otherwise. The rules surrounding who owns the intellectual property (IP) and who bears the risks for the broader integrated solution
are still unclear in some of these arrangements. Despite the uncertainty in this brave new world, the end result is that customer's underlying challenges are
being solved.
More broadly, digital business has emerged as a key enabler of tighter integration across value chains. Leading companies in the process and industrial
discrete manufacturing industries are not only getting better visibility into their own manufacturing and outbound transportation networks, but also
integrating that visibility with similar data from upstream partners to provide a holistic view of supply to their customers and to sense and respond to
potential disrupters earlier than they have in the past.

Adoption of Advanced Analytics


Another trend we see at leading supply chains is the use of advanced analytics to aid in running multiple parts of their operations, spanning the entire endto-end supply chain. Consider an equipment manufacturer mining historical CRM and sales data and using machine learning algorithms to predict which
deals in the pipeline have the highest probability of converting into real demand and which are at risk, requiring intervention. Some CP companies have
enabled permission-based auto-replenishment of their products based on signals from internet-connected smart sensors embedded in the products at
consumers' homes. The usage data captured as part of this process is used to generate better demand forecasts based on usage personas and to inform
the design of new products entering the pipeline.
On the product side, leaders in various discrete manufacturing industries are using artificial intelligence to analyze digital photographs of their products
from source through manufacturing and delivery. They are matching this information up with customer complaint data to spot negative patterns and identify
quality problems sooner. A high-tech company is piloting real-time use of big data analytics to tailor test scripts executed based on the most current riskprofile of individual circuit boards. Component-test performance data from suppliers and customer product performance data from the field provide a
holistic view of product quality that is factored into which scripts are executed on products as they progress through the testing line.
One process manufacturer is consolidating near-real-time information from customers, internal manufacturing and distribution nodes, suppliers, logistics
partners, and complementary third-party sources. It then applies data analytics combined with business rules to generate prescriptive recommendations
and support daily decision making, business optimization, and long-term planning of network capacity and capabilities.
In each case, the value for these companies is in the algorithms that convert disparate data points into operational insights. In most cases, the output is
predictive of a future outcome or prescriptive of what the supply chain planner or operator should do about it. In some domains, this capability will be an
interim step in a longer journey toward running autonomous supply chain functions.

Increasing Emphasis on Corporate Social Responsibility


Running socially responsible supply chains aligns with what investors, customers, employees and the general public expect from companies today. Our
research shows that mainstream institutional investors are paying greater attention to a company's nonfinancial performance indicators, including its
handling of environmental, social and governance (ESG) factors. Supply chain executives should expect their organizations to become a bigger part of
their company's investor relations story as these stakeholders expand their awareness of ESG issues.
Large corporate supply chains have enormous impact on people and the planet. As Gartner analysts, we're increasingly hearing from companies about
their efforts to increase transparency and performance in running socially responsible supply chains. A very high-profile example of this was Unilever's
recent announcement that it sends zero waste to landfills from its global manufacturing facilities and is well on its way to being an overall zero waste to
landfill company. Earlier this year, chipmaker Intel announced that its entire supply chain will be certified as conflict-free to ensure that profits from metals
sourced for its chips are not funding human rights atrocities in the Democratic Republic of the Congo (DRC). These are just two of many milestones
accomplished by those committed to running ethical, sustainable supply chains.
The companies we see as further along in developing mature corporate social responsibility (CSR) practices have moved beyond mere regulatory
compliance and have figured out how to link these efforts back to support for their underlying corporate strategies. That may be part of a brand promise
attracting more customers or identifying and mitigating ESG risks that could cost their company dearly. In one stark case highlighting the stakes, it is less
than a year since the announcement that Volkswagen knowingly evaded U.S. auto emissions testing standards, but the reputational damage, tallying in the
billions, has been done.
Customer-driven partner integration, further adoption of advanced analytics and strong focus on CSR are this year's most common trends among supply
chain leaders.

Inside the Numbers


Return of the Supply Chain "Masters"
Last year we introduced a new category to highlight the accomplishments and capabilities of long-term leaders. We refer to these companies as supply
chain "masters" and define them as having attained top-five composite scores for at least seven out of the last 10 years. To be clear, this category is
separate from the overall Supply Chain Top 25 list, but it is not a retirement from being evaluated as part of our annual research study. To the contrary, if a
"master" company were to fall out of having a top-five composite score for long enough, they would lose this designation and be considered as part of the
Supply Chain Top 25 ranking in the same way as any other company in our study. All of that said, both of last year's inaugural masters, Apple and P&G,
qualified for this category again (see Figure 1).

Figure 1. Gartner Supply Chain Masters for 2016

SOURCE: GARTNER (MAY 2016)

Apple recently announced that it would post a year-over-year revenue decline for the first quarter of 2016. This is not unusual for any company, given we
are three calendar quarters into a corporate earnings recession. What was remarkable about the announcement, however, was that it was the first decline
since 2003!
The iPhone has been a large part of Apple's remarkable performance. And while tens of millions are sold each year, the coordination required with
suppliers and partners to deliver new models each year has developed into a reliable cadence. Apple has also improved the degree of transparency into its
extended supply chain in recent years. In the area of conflict minerals, its 2015 Supplier Responsibility Progress Report states that all of its 242 smelters
and refiners of tin, tantalum, tungsten and gold are subject to third-party audits to ensure they are not funding violence in the Democratic Republic of
Congo (DRC).
Apple continues to succeed by offering platforms that ecosystems of partners build upon to meet customers' needs, whether that relates to core product
features such as access through touch-based security, media content and applications or third-party accessories that convert its products into smart
diagnostic devices or payment terminals. The big forward-facing question for Apple and its supply chain is whether it can deliver on the next big innovations
to continue the revenue and earnings parade of the last decade. A big X-factor will be Apple's ability to launch an automobile in the future a completely
different proposition than its continued innovation within the consumer electronics market, such as the Apple Watch.
Relative to the Supply Chain Top 25 ranking, Apple continued to dominate in both its historical financial performance and the opinion of the peer and
analyst communities. In 2016, Apple notched its tenth straight year with a top-five composite score.
CP giant P&G is our other returning master. P&G received a top-five composite score in 2016, marking an impressive nine out of the past 10 years for this
accomplishment.
For the majority of its products, P&G is running an end-to-end synchronization program. Every part of the supply chain operates based on the daily
cadence of consumption, in some cases triggered by demand at the shelf. Supply chain is also playing an active role in P&G's move toward common
product and packaging platforms, where standards are set globally and a more limited menu of options is selected regionally, as required. The supply chain
team brings data and analysis skills to the process, with the ultimate goal of increasing the value that each active SKU contributes to the company.
In the domain of big data analytics, P&G's supply chain team is using advanced techniques to drive elimination of truck residence time at mixing centers.
The company has also embedded sensors in some of its products, such as toothbrushes and air fresheners. The data transmitted from these products aids
the company in understanding consumer usage patterns to support replenishment of supplies for existing products and design features for future offerings.
Both Apple and P&G continue to offer advanced lessons for the supply chain community.
Along with the Masters category, the Supply Chain Top 25 continues to offer a platform for insights, learning, debate and contribution to the rising influence
of supply chain practices on the global economy (see Table 1).

Table 1. The Gartner Supply Chain Top 25 for 2016

Rank

Company

Peer
Opinion1
(185
Voters)
(25%)

Gartner
Opinion1
(38
Voters)
(25%)

ThreeYear
Weighted
ROA 2
(20%)

Inventory
Turns 3
(10%)

ThreeYear
Weighted
Revenue
Growth 4
(10%)

CSR
Component
Score 5
(10%)

Composite
Score 6

Unilever

1,841

632

10.8%

6.9

3.6%

10.00

5.84

McDonald's

1,754

493

13.2%

156.0

-4.0%

3.00

5.54

Amazon

3,356

582

0.5%

8.4

20.4%

0.00

5.34

Intel

1,112

496

11.4%

4.3

1.1%

9.00

4.62

H&M

833

189

25.3%

3.5

16.3%

9.00

4.50

Inditex

1,212

283

16.7%

3.9

11.2%

9.00

4.42

Cisco Systems

1,158

510

8.2%

11.2

2.3%

5.00

4.21

Samsung
Electronics

1,313

303

8.6%

14.8

-2.4%

9.00

3.95

The Coca-Cola
Co.

1,459

253

8.3%

5.7

-2.9%

9.00

3.69

10

Nestl

1,251

257

8.9%

5.2

-1.1%

10.00

3.68

11

Nike

1,393

205

14.7%

3.9

9.7%

4.00

3.58

12

Starbucks

1,069

188

16.9%

6.8

13.8%

4.00

3.55

Table 1. The Gartner Supply Chain Top 25 for 2016

Rank

Company

Peer
Opinion1
(185
Voters)
(25%)

Gartner
Opinion1
(38
Voters)
(25%)

ThreeYear
Weighted
ROA 2
(20%)

Inventory
Turns 3
(10%)

ThreeYear
Weighted
Revenue
Growth 4
(10%)

CSR
Component
Score 5
(10%)

Composite
Score 6

13

ColgatePalmolive

880

323

15.1%

5.2

-3.5%

3.00

3.43

14

3M

784

163

15.0%

4.2

-0.9%

9.00

3.30

15

PepsiCo

931

347

8.5%

8.6

-2.3%

4.00

3.23

16

Walmart

1,512

232

7.9%

7.7

0.6%

3.00

3.06

17

HP

390

266

4.6%

12.1

-5.2%

10.00

2.87

18

Schneider
Electric

392

259

4.3%

5.1

4.9%

10.00

2.80

19

L'Oral

888

159

11.4%

3.0

7.0%

4.00

2.70

20

BASF

492

199

6.5%

5.0

-2.0%

10.00

2.70

21

Johnson &
Johnson

950

165

11.6%

2.6

-0.4%

4.00

2.65

22

BMW

778

128

3.8%

6.0

8.8%

10.00

2.61

23

GlaxoSmithKlin
e

361

98

12.6%

1.9

-1.9%

9.00

2.51

Table 1. The Gartner Supply Chain Top 25 for 2016

Rank

Company

Peer
Opinion1
(185
Voters)
(25%)

Gartner
Opinion1
(38
Voters)
(25%)

ThreeYear
Weighted
ROA 2
(20%)

Inventory
Turns 3
(10%)

ThreeYear
Weighted
Revenue
Growth 4
(10%)

CSR
Component
Score 5
(10%)

Composite
Score 6

24

Kimberly-Clark

634

240

9.0%

6.3

-2.5%

3.00

2.48

25

Lenovo

508

217

3.6%

13.3

17.0%

4.00

2.43

Notes:
1. Gartner Opinion and Peer Opinion: Based on each panel's forced-rank ordering against the definition of
"DDVN orchestrator."
2. ROA: ((2015 net income / 2015 total assets) * 50%) + ((2014 net income / 2014 total assets) * 30%) + ((2013
net income / 2013 total assets) * 20%).
3. Inventory Turns: 2015 cost of goods sold / 2015 quarterly average inventory.
4. Revenue Growth: ((change in revenue 2015-2014) * 50%) + ((change in revenue 2014-2013) * 30%) +
((change in revenue 2013-2012) * 20%).
5. CSR Component Score: Index of third-party corporate social responsibility measures of commitment,
transparency and performance.
6. Composite Score: (Peer Opinion * 25%) + (Gartner Research Opinion * 25%) + (ROA * 20%) + (Inventory
Turns * 10%) + (Revenue Growth * 10%) + (CSR Component Score * 10%).
2015 data used where available. Where unavailable, latest available full-year data used. All raw data
normalized to a 10-point scale prior to composite calculation. "Ranks" for tied composite scores are
determined using next decimal point comparison.
SOURCE: GARTNER (MAY 2016)

The Top Five


We have a new No. 1 this year. Unilever, the Anglo-Dutch CP giant, has steadily moved up the rankings over the past several years and is very well
regarded by both the peer and analyst voting panels due, in part, to its willingness to share best practices with the broader supply chain community. The

company is a role model when it comes to CSR and scored a perfect 10 out of 10 on our new CSR component. Unilever says that it is achieving zero
waste through its "four R approach" reducing, reusing, recovering or recycling and treating waste as a resource with alternate uses, such as
converting factory waste to building materials or composting food waste from staff cafeterias. Longer term, it aspires to be "carbon-positive" by 2030.
Unilever has made significant investments in regional operational centers that support all facets of the customer order-to-cash process. This work is
yielding cost savings through economies of scale and common processes, as well as the ability to better support customer needs by applying analytics to a
common CRM system.
The company has also improved its product life cycle management (PLM). Recent efforts in that area include global reuse initiatives, product platform
thinking for scalable global growth and a segmentation-based approach. In 2015, it launched a Foundry Ideas platform to crowdsource innovations for
sustainable products as part of its "sustainable living" plan.
Returning at No. 2 is McDonald's. The well-known restaurant chain staged a comeback in 2015, paring unprofitable locations and menu items and
introducing its popular all-day breakfast offering. The latter entailed a broad-scale effort to retool restaurants previously configured for a more traditional
daily menu schedule. This program successfully moved from pilot in April 2015 to full deployment three months later across 14,000 restaurants in the U.S.
McDonald's supply chain actively participates on both product and menu category teams to help shape the portfolio and better plan for new initiatives.
Overall, the McDonald's corporate supply chain team excels at orchestrating the upstream supply network. It promotes and acts as the conduit between
outsourced vendors, suppliers, corporate stores and franchise partners. It uses council meetings to collaborate with suppliers on new product innovation
and technology, as well as on plant safety. Base expectations with suppliers are managed through a standard supplier performance index, but the
differentiator is more cultural and behavioral, as partners tend to put the McDonald's system first when sharing product and process innovations and
staffing support teams with top talent. It is this type of close, collaborative relationship that enabled McDonald's to escape any impact to its broader
restaurant network when a bird flu outbreak impacted about 40 million egg-laying hens last year (12% of U.S. supply). Working closely with the egg
suppliers, the restaurant locked in adequate supply at a higher quality rating than the overall industry and was able to smooth pricing so that end
restaurants saw no impact during the general disruption.
Amazon dropped to No. 3 after its first ever appearance at No. 1 last year. This was not due to flagging financial performance nor opinion polls. The main
driver was Amazon scoring zero out of 10 on our new CSR measure. The company is known for having a secretive culture that has historically extended to
a lack of transparency on supply chain sustainability and governance performance measures. In the past two years, Amazon has brought in a highpowered team of sustainability experts, so we hope to see changes in the years to come.
Amazon, of course, continues to be a leader when it comes to innovation in its products and supply chain. It has sold several million Echo voice-controlled
home speakers that allow users to search the internet for information, play music, complete online tasks and control other home devices. It is not hard to
see where this could become a popular means of reordering common everyday products. Amazon's Prime Now same-day delivery service has expanded
to more than two dozen U.S. cities and London, and includes delivery from local restaurants and stores in addition to company-owned warehouses. In
order to reduce dependency on third-party freighter services, Amazon is building its own logistics network to keep up with customer demand. The online
retailer recently leased 20 Boeing 767 freight aircraft to set up its own fleet and will deploy thousands of branded tractor trailer trucks in North America to
move packages between fulfillment centers. It has recently been reported that Amazon is in discussions to buy a German airport. 2And yes, it is still testing
drone aircraft, with the ultimate goal of creating a 30-minute order-to-delivery service.
Intel remained in the top tier of the ranking this year at No. 4, based on a relatively high return on assets (ROA) and strong opinion poll scores. Intel
continues to be the largest chipmaker in the world and dominates the markets for PC and server-based microprocessors. The company is actively pursuing
growth opportunities, as evidenced by its largest ever acquisition of chipmaker Altera in 2015. Intel's next challenge is to drive organic growth in new
markets. Its supply chain group has proven to be a worthy partner for growth in the past. Over the course of 2014, the team enabled an entirely new

ecosystem of China-based technology providers to support the ramp up of new tablet products. The result exceeded the CEO's aggressive 40 million unit
shipment goal by 15%. Intel's supply chain is also acting as a test bed for new products offered by its IoT group, using this technology to improve the
visibility and coordination of complex inbound capital equipment deliveries and outbound product shipments to customers.
Intel has had a longtime focus on running an ethical and sustainable supply chain and scored nine out of 10 on its CSR component score. It is the largest
U.S. purchaser of renewable energy certificates and when combined with in-house sources, gets 100% of the 3.1 billion kilowatt-hours of electricity its
operations consumes annually from green sources.
Rounding out the top-five group this year is H&M at No. 5. The Swedish fast-fashion retailer climbed two spots on a combination of extremely strong threeyear weighted average ROA (25.3%) and revenue growth (16.3%) and a nine out of 10 for CSR, reflecting its strong record in sustainability and workers'
rights. H&M was part of a recent coalition of top clothing companies that called on governments to agree to a strong climate change deal based on
concerns that long-term climate effects could harm production of one if its major inputs, cotton. In 2015, its founding family launched the H&M Conscious
Foundation, which presents a Global Change Award as a fashion industry innovation accelerator for sustainable clothing.
H&M has been on a rapid multiyear expansion path with its brick-and-mortar stores and shows no signs of slowing down, with another 425 planned for
2016. Its digital efforts are moving less quickly, as it grapples with the added shipping, handling and price deterioration associated with online returns. H&M
operates its supply chains tailored by product type, with 80% of volume built to plan at standard, cost-efficient lead times and the remaining 20% that is
agile and can respond to fashion trends by going from design to hanger in as little as 20 days.

Movers and Shakers: No. 6 Through No. 15


This section of the ranking offers an impressive array of blue chips, with notable contributions to the discipline of supply chain management (SCM).
At No. 6, is Inditex, Spain's leading fashion retail group best known for its Zara brand. Inditex posted similar strong performances in three-year weighted
average ROA (16.7%) and revenue growth (11.2%) and scored nine of 10 for CSR. The Zara brand has been quite successful in its e-commerce business,
particularly in the U.S. Inditex's culture is very team-oriented and focused on having talented practitioners run the business using best-in-class processes
versus the personality-driven cultures often found at fashion houses. A couple of years ago, it set up a planning and analytics team that sorts through realtime sales trends to inform future design and production. Another team converts voice of the customer feedback gathered from the store and district
network into prescriptive advice for the design teams. Inditex has set a goal to run 100% eco-efficient stores by 2020. The new Zara flagship store in
Manhattan tracks sustainability measures across all of its processes and will consume 30% less energy and 50% less water compared to a conventional
store.
Networking pioneer Cisco is No. 7. Concurrent with Cisco's changing of the guard at the CEO level last year, it created a new role managing both supply
chain operations and the IT group, reflecting the high use of technology in managing supply chains. One area where Cisco has leveraged technology along
with process improvement is in supplier collaboration. The team deployed a cloud-based partnering platform with suppliers that serves as a single source
of truth for data, eliminating the bullwhip effect between Cisco, contract manufacturers and suppliers. There is full demand visibility, and suppliers can
address shortages through alerts in a more automated way, removing Cisco as the potential bottleneck to the resolution process. Another focus area for
the team is in digitizing the logistics function. This includes connecting logistics to the broader supply chain with data, standards, automated event
management and machine agents. Cisco is also bringing new technologies to bear in its warehouses, including augmented reality, telematics and video
analytics. This is part of a broader effort to digitize its supply chain. It is leveraging in-house Internet of Everything (IoE) technology to improve product
quality, gain energy efficiency in operations and reach universal order visibility.
Samsung Electronics, at No. 8, has been a familiar face on our ranking for many years. Its growth slowed in recent periods due to competition from Apple
and others in the maturing mobile phone market, but early 2016 results look good, as component businesses such as semiconductors offer a solid

performance counterbalance. Its supply chain has enabled a move into business-based products and solutions tailored for industry-specific uses across
retail, education, hospitality, healthcare, finance and transportation. Meanwhile, Samsung has continued to innovate its products, with the most recent push
being in virtual reality (VR), by offering a lower-cost device that converts its latest Galaxy smartphones into a full-on mobile VR headset. The supply chain
team continues to focus on improving customer collaboration and gaining insight into consumer behaviors through connected devices. Samsung
Electronics received high marks (nine of 10) on the new CSR component. It recently received two awards for sustainability from the U.S. Environmental
Protection Agency (EPA) for its use of sustainable materials in the Samsung Galaxy S6 and its long-term commitment to the proper disposal and recycling
of e-waste in the United States.
The Coca-Cola Co. ranks at No. 9. The food and beverage leader is driving growth through product innovations and entering new markets and products,
particularly in juices and waters. Supply chain, in partnership with the business, is taking a value-based approach to product and packaging portfolio
management. The company continues to use its Freestyle smart delivery systems to tailor supply chain solutions by market and segment. In the U.S., it is
a full-service dispensing machine that can offer a myriad of choices by combining 100+ different sodas and juices, while in the U.K., it is a tabletop format
focused more on juices. In emerging markets, it might be a three-bottle, two-liter dispensing machine set up for a village. Late in 2015, The Coca-Cola Co.
announced that it was selling some production plants and creating a new supply system in the U.S. that will leverage the strengths and capabilities of its
four largest producing bottlers to operate as an aligned and competitive national product supply system. The company scored nine out of 10 for CSR and
has set out ambitious sustainability goals for 2020 that include improving water and emissions efficiency by more than 20%, empowering five million
women across its value chain and several programs to improve nutritional content and reporting.
One of the biggest gainers at the top of this year's ranking is Nestl, up seven to No. 10. The world's largest consumer food supply chain scored a perfect
10 out of 10 for CSR, including a 99 out of 100 in the environmental dimension of the Dow Jones Sustainability Index for its use of "zero-water" factories
and conversion of biowaste into renewable energy. Nestl's supply chain has consistent priorities around fresh product availability, customer collaboration,
capital efficiency, data-driven decision making, complexity management and people development. It is now focused on optimizing end-to-end process flows
and rethinking quality across its broader value chain. Recalling half a billion Maggi noodles units in India in 2015 was a reminder that "one up and one
down" traceability is no longer sufficient. This is no small task in an organization staffed by tens of thousands, spanning more than a hundred countries.
Nestl is also investing in predictive analytics for demand planning and enabling growth in its e-commerce business, which includes packaging tailored
more for delivery than display in a store.
At No. 11 is footwear and apparel leader, Nike, which continues to post strong financial performance, with a three-year weighted average ROA of 14.7%
and growth rate of 9.7%. Nike continues to lead in product innovation, and its supply chain plays a big role in enabling and ramping new technologies. For
those who remember Marty McFly's self-tying shoes in the movie "Back to the Future II," the company recently announced that it is actually releasing a
version. The self-tying sneakers with power-operated laces, which tighten with the press of a button, will launch later this year. Last fall, Nike entered into
an innovation and manufacturing partnership with outsource provider Flex that is expected to add value in terms of new manufacturing technologies and
shorter cycle times. Nike has invested significantly in supply network design and PLM capabilities. Its supply chain also has extended visibility to
outsourced factory production and compliance, as well as to how stores are executing on merchandising, inventory and operations plans.
After jumping five slots last year, Starbucks held steady at No. 12. The world's largest coffee retailer is on a roll and posted stellar results heading into
2016, with a three-year weighted average ROA of 16.9% and growth rate of 13.8%. Starbucks' prominent CEO, Howard Schultz, recently spoke about the
need for supply chain to have a seat at the boardroom table. He emphasized the criticality of strong supply chain capability to achieving the level of scale
required to support its more than 20,000 locations and the consumer trend toward speedy delivery. Starbucks has further rolled out a click-and-collect
feature through its online app that allows consumers to place and pay for orders that are routed to the nearest store for fast-lane pick up. Starbucks has
been a socially conscious company as evidenced by its program to reimburse employee college costs and the use of marketing to promote harmony in the

community. It recently announced that it plans to donate all its leftover food at U.S. stores to charity, starting with 5 million meals provided to nationwide
food banks this year and expanding to approximately 50 million meals annually, in five years.
CP leader Colgate-Palmolive lands at No. 13. Even in the face of unprecedented currency headwinds, the company pulled off an impressive 15.1% threeyear weighted average ROA. The engine behind these results is extensive programs, comprised of more than 10,000 projects, focused on finding cost
savings and reinvesting them back into growing the business. Continuous improvement and the concept of economic value-add are embedded in the
supply chain and broader company's DNA. For several years running, supply chain, in partnership with the business, has managed significant
improvements in SKU productivity through a disciplined governance process. The Colgate-Palmolive team has partnered with its enterprise software
provider to co-develop supply chain control tower capabilities, including better demand sensing, inventory optimization and supply network planning. The
pilot implementation of this capability has enabled daily responsiveness and reduced inventory levels, while minimizing out of stock impacts.
Industrial innovator 3M retained its No. 14 position. For a diverse manufacturer, it boasts a very high three-year weighted average ROA of 15%. 3M has
also demonstrated a strong commitment to, and performance in, running a sustainable supply chain, scoring nine out of 10 points for CSR. It has set
aggressive 10-year sustainability goals that include reducing global water usage by 10%, improving energy efficiency by 30%, achieving "zero landfill"
status for more than 30% of manufacturing sites and helping customers reduce CO 2 emissions by 250 million tons. 3M supply chain's take on running a
bimodal supply chain is embodied by its use of the term "Efficient Growth." For decades, the company has grown its top line, mostly through more creative
use of resources. Supply chain's role in this growth is centered on three elements. The first is regionalizing supply chains to reduce complexity, enhance
operational impact and improve customer service. Next is accelerating disruptive technology to leverage innovation and deliver higher-quality, lower-cost
and even-more-innovative products. The third is harmonizing global processes in alignment with a global ERP platform to deliver world-class productivity,
inventory management and capital efficiency.
Forward-thinking food and beverage purveyor, PepsiCo is last in this middle group at No. 15. PepsiCo is leveraging its near-real-time direct store delivery
network visibility to support hyperlocal marketing, including tailored assortments and perimeter displays at the right store and time to drive sales. Another
focus area is a global rollout of a standardized demand and supply planning platform that delivers base capabilities to emerging markets and a larger menu
of capabilities for complex, mature markets. PepsiCo's supply chain is partnering with commercial teams to deploy a total portfolio optimization governance
process and tool that allows for data-driven assessment of portfolio health, detailed analysis relative to evaluation criteria and targets, and a process for
final portfolio decisions. Pilots of the new portfolio optimization platform are yielding double-digit percentage improvements in profit per volume measures.
PepsiCo is also using tools and models to perform advanced inventory analysis and decision making. This includes self-service dashboards that allow
users to drill into root causes for problem areas and to simulate the quantitative impact of corrective actions.

Rounding Out the List: No. 16 Through No. 25


Megaretailer Walmart, at No. 16, continued its push into e-commerce channels in 2015 with more than $1 billion in new investments. Global revenue in that
channel increased 22% to $12.2 billion. The company set up large, dedicated online fulfillment centers to support this volume in the U.S. By stocking
product centrally, it has been able to simultaneously increase assortment by 60% to over 10 million items. About 75% of Walmart's online sales come from
nonstore inventory, providing a source of growth outside of brick and mortar. Its U.K.-based Asda stores offer the "click and connect" service, which has
been very popular with local shoppers. One of Walmart's community investments has been a Global Women's Economic Empowerment Initiative, which
provides training, access to markets and career opportunities to nearly 1 million women, many on farms and in factories. As part of that effort, the retailer is
increasing its sourcing from women-owned businesses.
After several years away, the legendary Silicon Valley innovator, HP, rejoins the list at No. 17. In November 2015, HP split into two separate entities, HP
Inc., which owns the PC and printer businesses, and Hewlett Packard Enterprise, which primarily owns the enterprise computing and services businesses.

Starting in next year's ranking, we will evaluate them as separate entities. The teams performing the complex split managed to pull off the complete
separation of two $50 billion-plus businesses without a hitch and in only a matter of months. While the split took dedicated focus, the two HPs were still
able to simultaneously improve their individual businesses. The enterprise business delivered a visibility and data analytics platform that is now leveraged
for improved demand forecasting, among other areas. It has also developed a quality cloud environment to better track the quality life cycle. Other
enterprise priorities include speeding new product design processes and improved cybersecurity. Meanwhile, HP Inc. has focused on improving customer
experience through perfect order fulfillment and other means. It is also enabling artificial intelligence (AI) software routines to identify problems in the order
to fulfillment process and upstream supply chain. HP scored a perfect 10 on the CSR component and is a longtime leader in this area. HPE is focused on
combatting human trafficking in its supply chains and HP Inc. is focused on improving sustainability and workers' rights across its entire value chain.
Schneider Electric, at No. 18, is a first-timer to the list, but frequently referenced as an honorable mention in previous years. The global specialist in energy
management and automation jumped 16 slots from No. 34 last year, based on increasing opinion poll vote sentiment and scoring 10 of 10 for CSR.
Schneider Electric has spent the last several years moving from decentralized supply chains supporting its extremely diverse customer base to one that is
tailored to align with customer requirements, in a scalable way, through a small number of differentiated end-to-end flows through ordering, planning,
sourcing, manufacturing and delivery. Other key initiatives include efforts to significantly reduce end-to-end customer lead times, improve time to market for
new capabilities and improve customer satisfaction through special care units and focused on-time-deliver improvements. Schneider Electric is also
focused on maturing its sales and inventory operations planning process, deploying network optimization and leaning out warehousing and transportation
functions. Finally, the team is driving continuous improvements in its engineer-to-order and field services supply chains.
France-based L'Oral, the world's largest cosmetics company, ranks at No. 19, up three slots from last year. Its supply chain has focused on improving
demand forecasting and supply and demand matching capabilities. The results have been impressive, as it has been able to improve service levels by
more than 2%, while holding inventory constant. In the area of product innovation, the supply chain organization closely coordinates with R&D on new
product introduction (NPI). Strategic sourcing team members are engaged in the early stages of the product life cycle to coordinate development and
eventual launch with supplier partners. The company manages a considerable amount of item complexity in its portfolio 30% to 50% of products refresh
annually through a mature governance process focused on product contribution. L'Oral has a very strong finance organization and culture that
pervades management of its portfolio, internal operations and supply base. The supply chain team is also continuing to develop and deploy its supplier
management program on a best-of-breed platform.
Another newcomer to the Supply Chain Top 25 is BASF at No. 20, the world's largest chemical company, leaping 16 slots from last year's ranking. BASF
has a long history of focusing on safety and sustainability and scored 10 out of 10 on the CSR component. There are a few major focus areas for its supply
chain team. One is referred to as lighthouse projects to digitize supply chain management, in line with Industrie 4.0 standards. This includes digitization of
its logistics function and horizontal digital integration from its customers, through its internal operations and upstream to suppliers. Prescriptive analytics
are being built to aid in daily decision making and strategy planning. Another key initiative is differentiation in supply chain services, which moves the group
from proportionally spreading costs to business units to charging for services rendered. This shift has put better visibility on the true cost-to-serve of each
business and presented opportunities to reduce expensive, complex offers where they are not needed. Through its focus, this effort has also improved
service delivery for customers and identified value-based pricing opportunities for special services. The last major focus area for supply chain is on delivery
reliability excellence.
Healthcare leader Johnson & Johnson, at No. 21, has been on the Supply Chain Top 25 list every year since its inception. This year, the supply chain
group defined an end-to-end operating system that defines a standard way of working across all internal functions with external partners and between
segments. J&J's customer experience program, launched four years ago, is targeted at improving customer experience and creating joint value delivered
through customer focus teams staffed by dedicated supply chain professionals. Its supply chain team has improved supplier collaboration through tighter

integration, created digital visibility through serialization and track and trace, and deployed control towers for supply chain planning (SCP) and analytics to
sense and respond to issues. Factory 4.0 is another priority for its advanced manufacturing group, which is experimenting and implementing disruptive
technologies such as robotics, 3D printing and data analytics. Finally, J&J has adopted new product design-to-value principles and governance and a
structured product portfolio optimization approach to maximize ROI.
Also new to the list this year is BMW at No. 22. The German luxury automobile company received high marks from the opinion panels and a top score of
10 on the CSR component. BMW has implemented a risk filter for suppliers that takes into account location-specific and product-specific risks. Its sourcing
group uses this filter to consider ESG risk potential for new and existing suppliers and follow up with supplier self-assessments and audits, as needed.
BMW has also made significant investments in supply network visibility and digital manufacturing in line with Industrie 4.0 objectives. In a pilot project, its
Munich and Leipzig plants tested smartwatches that alert workers when a car with special requirements is approaching. To reduce the strain on workers,
physically demanding and nonergonomic tasks can now be carried out by innovative robot systems. The company is also using self-driving robots
equipped with radio transmitters and a digital map to transport up to a ton of car parts independently to their destination. BMW has long been recognized
as a leader in automotive sustainability. It has reduced the volume of resources utilized and the emissions per vehicle produced by an average of 45%
since 2006 through a variety of projects.
GlaxoSmithKline, at No. 23, returns to the ranking after a nine-year hiatus. It had a strong three-year weighted average ROA of 12.6% and scored nine out
of 10 on the CSR component. The British pharmaceutical company has set up a new information exchange for its suppliers to share best practices on
energy efficiency and reducing environmental impacts. More than 500 suppliers have been asked to join the network, which GSK expects to cut value
chain emissions by 25% by 2020. GSK's end-to-end supply chain program, started in 2013, is designed to reform and simplify the company's supply chain.
In 2014, the business introduced processes to improve coordination across each stage of production from sourcing and manufacturing to more efficient
delivery of its products to patients and consumers. At the same time, the business introduced the GSK Production System (GPS) across its pharmaceutical
manufacturing sites. The GPS is a standard way of working that identifies and eliminates the root causes of accidents, defects and waste. More recent
initiatives and capabilities include product portfolio complexity analysis and end-to-end logistics coordination and visibility.
Leading personal care and paper product company Kimberly-Clark, at No. 24, continued its steady rise up the supply chain maturity curve over the last
year. As part of this evolution, it created a new chief supply chain officer (CSCO) position with global responsibilities for procurement, transportation,
continuous improvement, sustainability, quality, safety and regulatory operations. Three of the top initiatives for Kimberly-Clark's supply chain are
improvements in on-shelf availability, e-commerce fulfillment capabilities and continued refinement of its world class Supply Chain Efficiency Fund (SCEF)
program. Its on-shelf availability work involves further improvements in demand forecasts based on point-of-sale data, near-term customer demand signals
and promotional forecasting tools. Other considerations include product portfolio and packaging decisions. Kimberly-Clark seeks to be a supercompetitor in
e-commerce to enable growth. It is innovating packaging to make it more direct-ship friendly and realigning its network to ensure wide coverage for quick
delivery windows. Its SCEF program centers on a cost-to-serve model that identifies a range of logistics services from most to least efficient and provides
incentives through trade promotion fund transfers for customers to choose more efficient models, where it is a net positive for the company.
Lenovo rounds out the list at No. 25, this year. The Chinese high-tech company made significant acquisitions over the past two years and its supply chain
took a disciplined approach to integrate and return the IBM System X server and Motorola mobility businesses to profitability in 18 months. A large part of
this success story was a detailed network design analysis that led to a decision to merge acquired product production into Lenovo's existing in-house
manufacturing network. Overall, the company runs a hybrid ownership model for all of its manufacturing. At the same time, the supply chain team ran
programs to enhance customer experience and operational excellence. One program that has improved customer satisfaction is the creation of a customer
social/digital platform for key global accounts with content that is tailored to each customer's preference in terms of order status, new product information
and technical support information. A supply chain staff member is assigned as an executive sponsor for each major account.

Honorable Mentions
Every year, there are companies that demonstrate strong leadership in demand-driven principles, but do not make the list. This year, we recognize
Caterpillar, Seagate Technology, Nokia and Cummins.
Caterpillar held at No. 26 this year, though its composite score was within a hundredth of a point of No. 25 Lenovo. The industrial manufacturer is seeing
improved demand visibility from channel partners after training them in best practices. Most of its supply chain functions now roll under one owner.
Caterpillar is also taking a conscious end-to-end segmentation approach. The supply chain group has developed a second-generation lane strategy, with
value chains that are more closely engineered based upon customer value propositions.
Seagate Technology is No. 27 and, similar to Caterpillar, its composite score is just a tenth of a point behind the last spot on the global list. Seagate is
pursuing three major initiatives this year: increasing supply chain agility, optimizing the cost of quality and developing big data analytics to spot product
trends, provide operational alerts and glean insights from supply chain sensor data.
Telecommunications equipment provider Nokia, at No. 28, has a management team that is a couple years into its turnaround effort. It stabilized and
improved performance of the business while integrating its supply chain functions to operate end to end. This all happened just in time for the company to
digest its next major merger partner, Alcatel-Lucent. Nokia jumped an astonishing 73 slots year over year, based on a confluence of factors, including
stronger financial performance, a higher analyst opinion score and a perfect 10 score for CSR.
Cummins, at No. 39, dropped out of the global ranking after making the list for four years running. It has faced some macroeconomic headwinds from
slower overseas sales, though it has the capability of quickly adjusting its cost structure and has used the downturn to improve its business. The engine
and power generation company matured its integrated business planning process over the past few years. It has also developed innovative techniques to
automate custom product settings in its factories to increase supply agility and capacity.
All of these companies exhibit leadership characteristics and have compelling lessons for the broader supply chain community. We look forward to sharing
lessons from them and many others in the year ahead.

What Is Demand-Driven Excellence?


The concept of being demand-driven is at the heart of the Supply Chain Top 25 ranking. We have published hundreds of documents on the topic for more
than a decade, including a maturity model to help companies move along the transformation curve (see "Introducing the Five-Stage Demand-Driven
Maturity Model for Supply Chain Leaders" ).
Because it's so critical to the Supply Chain Top 25 analysis, here's a brief synopsis of what it means to have a demand-driven value chain. The DDVN
model is characterized by an understanding of customer value with processes and metrics that enable business trade-offs to deliver products and services
profitably. Companies that work toward the DDVN ideal use demand management as a key differentiating capability, so they can plan, sense and shape in
a way that brings profitable balance to the business. They also design supply networks to be more closely aligned with the development of product
platforms that enable innovation, agility and responsiveness.
We find that companies that continually secure spots on the Supply Chain Top 25 have successfully shifted from the traditional disconnected approach to
managing supply, demand and product to an integrated approach to coordinating plan, source, make and deliver functions across the end-to-end supply
chain. Companies typically make this shift as they advance along the DDVN maturity journey, which represents a long-term commitment to doing business
in a customer-value-centric way (see Figure 2).

Figure 2. The DDVN Maturity Journey

SOURCE: GARTNER (MAY 2016)

The seven dimensions of the Gartner DDVN maturity model (see "Assess Your Supply Chain Maturity Using the Seven Dimensions of DDVN Excellence" )
establish a clear definition for each aspect of the supply chain, as it matures and integrates with focus on customer value.

Operational Excellence and Innovation Excellence


Two basic dimensions of measurement capture the totality of the best-in-class, demand-driven, global supply chain: operational excellence and innovation
excellence. To measure operations, including delivering as promised to customers and keeping costs under control, we recommend a hierarchy of metrics,
with perfect order performance and total supply chain costs at the top (see "The Hierarchy of Supply Chain Metrics: Diagnosing Your Supply Chain
Health" ).
Of course, operational excellence has value only if customers want what's being made and shipped. To address this, we look at innovation excellence.
Although far harder to measure reliably, this dimension can also be managed with a hierarchy of metrics, in this case, topped by time to value and return
on new product development and launch (NPDL). The key is to find the right balance on both these dimensions. Too much emphasis on one at the
expense of the other either squashes innovation or hampers growth.

It's important to recognize the business life cycle aspect to this balance that our methodology also attempts to reflect. Each year, we see examples of
previously successful businesses struggling with the competitiveness of their products, while still possessing very advanced supply chain capabilities. This
condition can exist for a period of time before both resynchronize and either return to high performance or spiral into decline. Since the opinion poll portion
of our methodology is based on the relative capability and leadership of a supply chain at a given point in time, it is possible for a company's supply chain
to score well on the polls, while also posting a less-competitive financial performance in the near term.

Measuring Demand-Driven Excellence


The Metrics We Wish We Had
For the Supply Chain Top 25 ranking, our ideal would be to have metrics that perfectly describe the two basic dimensions of performance: operational and
innovation excellence. These are the dimensions that point meaningfully to the better value chain, identifying which business is faster, stronger and
smarter. Betting on next year or next quarter is a matter of knowing who the better "athlete" is, not merely who won last time. Our premise is that the better
athlete is more likely to win markets and profits in the future. Therefore, the companies that can demonstrate superior performance against these
dimensions merit a higher share price multiple on a dollar of current earnings.
In our ongoing supply chain research, we've identified the metrics that map to these dimensions, which, if we had them, would clearly convey the
organizations that have the healthiest value chains (see Table 2).

Table 2. Metrics for Operational Excellence and Innovation Excellence


Performance Dimension

Key Metrics

Operational Excellence

Perfect order rates


Total supply chain costs

Innovation Excellence

Time to value
Return on new product launch
SOURCE: GARTNER (MAY 2016)

For each of these performance dimensions, we've published a full hierarchy of metrics that allows management to assess overall performance at the
highest level, diagnose problems via process decomposition and make corrections at the tactical work level (see Figure 3 and Figure 4). We have also
published hierarchies for each of the functions that make up the supply chain: a hierarchy of supply management metrics (see "Use the Hierarchy of
Supply Management Metrics for Strategic Alignment and Enhanced Performance Part 1" and "Use the Hierarchy of Supply Management Metrics for
Strategic Alignment and Enhanced Performance Part 2" ), a hierarchy of manufacturing metrics (see "Use the Hierarchy of Manufacturing Metrics to

Connect Manufacturing and Supply Chain Performance" ) and a hierarchy of logistics metrics (see "Align Supply Chain and Logistics Performance With the
Hierarchy of Logistics Metrics" ).

Figure 3. The Hierarchy of Supply Chain Metrics: Operational Excellence

AP = accounts payable; AR = accounts receivable; FG = finished goods; SCM = supply chain management; WIP = work in process
SOURCE: GARTNER (MAY 2016)

Figure 4. The Hierarchy of Product Metrics: Innovation Excellence

SOURCE: GARTNER (MAY 2016)

However, from our work with companies and our benchmarking studies, we're all too aware of how inaccessible this data is in most companies, particularly
within a realistic time frame. Moreover, although some companies may have some of the data we seek, there are vast inconsistencies in how these metrics
are calculated from company to company.

Therefore, for the Supply Chain Top 25 ranking, we look to publicly available, audited financial data to find the closest possible proxies. We know the
limitations inherent in these metrics. Existing financial accounting principles were developed in the hard-asset, factory-intensive economy of the early
1900s. For example, the balance sheet treatment of inventory as a valuable asset rings false for the many short-cycle businesses today that see inventory
as more of a liability. Similarly, soft assets like brands and IP, which are essential to demand creation, are difficult for standard accounting practices to
handle. Even income statements can obscure real costs with sneaky capitalization rules.
Because of these issues, our methodology isn't limited to financial metrics. Instead, we see the financials as one important component that provides a
baseline, an anchor and an objective foundation on top of which we place the group intelligence of a vote, precisely because no combination of income
statement or balance sheet financial metrics will tell us which companies are furthest along toward the demand-driven ideal of supply chain excellence. For
this reason, we look to craft a methodology that combines enough, but not too many, of the right metrics both quantitative and qualitative to achieve
our goals.

Supply Chain Top 25 Methodology


The Supply Chain Top 25 ranking comprises two main components: business performance and opinion. Business performance in the form of public
financial and CSR data provides a view into how companies have performed in the past, while the opinion component offers an eye to future potential and
reflects leadership in the supply chain community. These two components are combined into a total composite score.
We derive a master list of companies from a combination of the Fortune Global 500 and the Forbes Global 2000. In an effort to maintain the list of
companies evaluated at a manageable level and in recognition of the inflation and growth these larger companies have experienced, we increased the
general revenue threshold to $12 billion last year, up from $10 billion.
We then pare the combined list down to the manufacturing, retail and distribution sectors, thus eliminating certain industries, such as financial services and
insurance (see Table 3 for a full list of excluded industries).

Table 3. Industries Not Included in the Supply Chain Top 25


Airlines

Insurance

Services

Banks

Mail, Package and Freight


Delivery

Shipbuilding

Crude Oil Production

Metals

Software Development

Diversified Financials

Mining

Telecommunications

Energy

Petroleum Refining

Temporary Help

Engineering/Construction

Pipelines

Trading

Entertainment

Railroads

Utilities

Healthcare: Insurance, Managed Care, Services,


Providers

Real Estate

Information Technology/Computer Services

Shipping
SOURCE: GARTNER (MAY 2016)

Each year, we examine the methodology used to develop the ranking, with two sometimes-conflicting goals in mind: consistency and improvement. We
want to improve the methods and procedures we use, but, for the sake of consistency, in a way that builds on what we've done in previous years.
We are open to feedback from the broader supply chain community on the methodology we use and have a new metric related to CSR, based in part on
this feedback. Indeed, the Supply Chain Top 25 is intended to be a lightning rod and foundation for vigorous debate about what constitutes leadership and
supply chain excellence.
At the same time, we continually look for ways to enhance the explanatory power, applicability and extensibility of the overall ranking. The impact of brand
recognition on the vote, industry variations in inventory and inequalities between more versus less asset-intensive industries are all challenges with which
we grapple. These issues are multifaceted. By analyzing them, we've been able to make incremental changes that have allowed us to painstakingly chip
away at some of the problems, while maintaining consistency from year to year at the same time.
In 2016, we added a CSR scoring component to the Supply Chain Top 25 program (see "Introducing a Score for CSR and Sustainability Performance to
the Gartner Supply Chain Top 25" ).
We believe that adding a quantitative scoring method to the ranking program gives CSR the prominence it deserves in our definition of supply chain
excellence. We also want to recognize supply chain organizations that effectively manage opportunity and risk, with a focus on the long-term view, so that
profitability does not come at the expense of people or the planet. This addition aligns with what investors, customers, employees and the general public
expect from companies today.
The current quantitative components of the Supply Chain Top 25 scoring system use publicly available data to calculate financial performance scores. The
new CSR component also uses third-party data as a proxy for assessing each company's commitment to, and proficiency in, running socially and
environmentally responsible supply chains.
Similar to last year, we used a 50/50 overall weighting for this year's ranking: 50% for the business performance component and 50% for the opinion
component.

Business Data
Three financial metrics and the new corporate social responsibility metric are used in the ranking:
1. ROA Net income/total assets
2. Inventory turns Cost of goods sold/inventory
3. Revenue growth Change in revenue from prior year
4. CSR Index of third-party CSR measures

We designed a scoring system for CSR based on our research and input from third-party experts in CSR, a cross-section of supply chain community
members and our broader research organization (see"Introducing a Score for CSR and Sustainability Performance to the Gartner Supply Chain Top 25" for
details of the scoring index).
Each company has the opportunity to achieve up to 10 points for evidence of its CSR commitment, transparency and performance. The revised category is
now called "Business Data" to reflect the inclusion of the nonfinancial data we capture in the CSR score.
We accommodate the CSR score by subtracting 5% of the weighting from each of two metrics: ROA shifts from 25% of the overall score to 20%; and
inventory turns shifts from 15% of the overall score to 10%. Revenue growth remains at 10%.
Inventory offers some indication of cost, and ROA provides a general proxy for overall operational efficiency and productivity. Revenue growth, while clearly
reflecting myriad market and organizational factors, offers clues to innovation. Financial data is taken from each company's individual, publicly available
financial statements.
We use a three-year weighted average for the ROA and revenue growth metrics and a one-year quarterly average for inventory. The yearly weightings are
as follows: 50% for 2015, 30% for 2014 and 20% for 2013.
The use of three-year averages is in place to accomplish two goals. The first is to smooth the spikes and valleys in annual metrics, which often aren't truly
reflective of supply chain health, that result from events such as acquisitions or divestitures. It also accomplishes a second, equally important goal: to
better capture the lag between when a supply chain initiative is put in place (a network redesign or a new demand planning and forecasting system, for
example) and when the impact can be expected to show up in financial statement metrics, such as ROA and growth.
Inventory, on the other hand, is a metric that's much closer to supply chain activity, and we expect it to reflect initiatives within the same year. The reason
we use a quarterly average is to get a better picture of actual inventory holdings throughout the year, rather than the snapshot, end-of-year view provided
on the balance sheet in a company's annual report.

Opinion Component
The opinion component of the ranking is designed to provide a forward-looking view that reflects the progress companies are making, and the extent to
which they demonstrate leadership through visibility in the supply chain community. It's made up of two components, each of which is equally weighted: a
Gartner analyst expert panel and a peer panel.
The goal of the peer panel is to draw on the extensive knowledge of the professionals that, as customers and/or suppliers, interact and have direct
experience with the companies being ranked. Any supply chain professional is eligible to be on the panel, and only one panelist per company is accepted.
Excluded from the panel are consultants, technology vendors and people who don't work in supply chain roles (such as public relations, marketing or
finance).
We accepted 240 applicants for the peer panel this year, with 185 completing the voting process. Participants came from the most senior levels of the
supply chain organization across a broad range of industries. There were 38 Gartner panelists across industry and functional specialties, each of whom
drew on their primary field research and continuous study of companies in their coverage area.
Organizations must surpass a base threshold of votes from both panels to be included in the ranking. Therefore, a company that had a composite score fall
within the Supply Chain Top 25 solely based on the financial metrics would not be included in the ranking.
The figures below provide a breakdown of the peer vote on the dimensions of region, industry, role and revenue. The regional breakdown of voters
continued to be a particular emphasis for us, and we continued to make progress this year. Until 2010, North American voters made up 80% of the total.
Since that time, we have made progress in achieving better balance regionally to provide a more balanced global view of supply chain leadership (see
Figure 5).

Figure 5. 2016 Peer Opinion Panel Composition: Region

SOURCE: GARTNER (MAY 2016)

Figure 6. 2016 Peer Opinion Panel Composition: Industry

SOURCE: GARTNER (MAY 2016)

Figure 7. 2016 Peer Opinion Panel Composition: Function

SOURCE: GARTNER (MAY 2016)

Figure 8. 2016 Peer Opinion Panel Composition: Role

SOURCE: GARTNER (MAY 2016)

Figure 9. 2016 Peer Opinion Panel Composition: Revenue

SOURCE: GARTNER (MAY 2016)

Polling Procedure
Peer panel polling was conducted in April 2016 via a web-based, structured voting process identical to previous years. Panelists are taken through a fourpage system to get to their final selection of leaders that come closest to the demand-driven ideal, which is provided in the instructions on the voting
website for the convenience of the voters.
We continued including consideration of CSR practices in this year's opinion poll voting criteria. We specify that peer voters consider each company's
commitment to running a supply chain that addresses social, environmental, ethical human rights and consumer concerns in its operations and core
strategy. Many companies are proud of their CSR initiatives, and have observed that supply chain leadership includes running a responsible, sustainable
business, and that our ranking should explicitly reflect this dimension. We have always recognized and often written that CSR is an important aspect of
leadership, and wholeheartedly agree that it should be a consideration for how high or low they rate on the annual ranking.

Here's a breakdown of the voting system:


1. The first page provides instructions and a description of the demand-driven ideal.
2. The second page asks for demographic information.
3. The third page provides panelists with a complete list of the companies to be considered. We ask them to choose 25 to 50 that, in their opinion,
most closely fit the demand-driven ideal.
4. After the subset of leaders is chosen, the form refreshes, bringing just the chosen companies to a list. Panelists are then asked to force-rank the
companies from No. 1 to No. 25, with No. 1 being the company most closely fitting the ideal.
Individual votes are tallied across the entire panel, with 25 points earned for a No. 1 ranking, 24 points for a No. 2 ranking and so on. The Gartner analyst
panel and the peer panel use the exact same polling procedure.
By definition, each peer voter's expertise is deep in some areas and limited in others. Despite that, peer voters aren't expected to conduct external
research to place their votes. The polling system is designed to accommodate differences in knowledge, relying on what author James Surowiecki calls the
"wisdom of crowds" to provide the mechanism that taps into each person's core kernel of knowledge and aggregates it into a larger whole.

Composite Score
All this information the four business data points and two opinion votes is normalized onto a 10-point scale and then aggregated, using the
aforementioned weighting, into a total composite score. The composite scores are then sorted in descending order to arrive at the final Supply Chain Top
25 ranking.
For the second year, we tested the concept of a "social vote" as a complement to the Supply Chain Top 25 global ranking. The purpose of this social vote is
to get a perspective for comparison from a broader portion of the supply chain community. The results from the social vote were not used in the scoring of
the Supply Chain Top 25 ranking this year, rather we plan on using the results as complementary to the Supply Chain Top 25 ranking, which will still be
determined using our traditional methodology. The social vote is very similar in appearance to the survey the peer voters complete; however, we asked that
the social voters only pick their top 10 supply chain leaders. The intent is to see if different patterns emerge out of this more open, public vote versus our
current invitation-only peer panel vote.
The Supply Chain Top 25 social vote is open to all supply chain professionals. Unlike the peer vote, there is not a limit of only one voter per company. We
used a variety of social media channels and supply chain publications to inform the community of this new approach. The level of response was positive
and we look forward to growing the social voter base next year.

Looking Ahead
As we look forward to the future of the Supply Chain Top 25, we are excited to share the latest lessons from leaders with the supply chain community and
to foster a discussion with you all on the definition of leadership.
The Healthcare Supply Chain Top 25 lies ahead for the rest of 2016, as well as a steady cadence of publications that offer various analytical lenses on the
full 2016 global ranking. These include industry cuts that examine how the companies in a particular industry stack up against each other and what the
industry can learn from them, as well as regional cuts for Asia/Pacific and Europe, which do the same for companies headquartered in each region. These
cuts will be published throughout the remainder of the year and we will pull them all together in a special report toward the end of the year for ease of
reference. For the first time, we will also publish a toolkit shortly after this report that contains tables listing the top ranked supply chains from each industry.
Also see "Gartner Webinar: Lessons From Leaders: The 2016 Gartner Supply Chain Top 25" for more insight.

As always, we'll continue to field feedback and investigate new approaches for measuring supply chain leadership. In particular, we'll be synthesizing the
feedback we receive from the broader supply chain community on the new CSR component, and build refinements into the 2017 methodology where it
makes the most sense to do so.
In our engagement with supply chain leaders over the past year, it is evident that the bar of performance has risen considerably for the top of the group. As
Gartner's supply chain research organization, we remain committed to providing a platform for informed and provocative debate about supply chain
leadership. We look forward to leveraging this research to share the lessons, best practices and characteristics of leaders to inspire and challenge the
entire supply chain community to new levels of performance and contribution.