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AMR ranks the best demand-driven supply chains

Courtney Bjorlin, News Editor

AMR Research's top-ranked supply chain this year is a company whose retail stores have almost no physical inventory on site.

The lesson from this year's AMR Research Supply Chain Top 25 report: Build and deliver

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value with ideas, rather than exclusively with products. It's what AMR refers to as the content economy, and Apple Inc. -- the Cupertino, Calif.-based electronics company ranked as having this year's best supply chain -- is king of it.

Companies that want to emulate Apple, and the other 24 companies on the list, must approach supply chain management (SCM) more as a way to add value than a way to cut costs. Apple, and the other top supply chains – Nokia ranked second, Dell third – balance innovation and operational excellence. They are demand-driven, meaning that they sense demand, shape it and orchestrate a profitable response, according to Debra Hofman, research director at Boston-based AMR.

"The movement toward the content economy is critical," said Hofman, who co-authored the report. "[Companies need to move] toward that model where demand is not just a given but something you manage and negotiate, and, in Apple's case, create and orchestrate that response to it."

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According to SAP, 14 of the companies on the list, including Apple and Nokia, are end-to-end users, or very close to it, of SAP SCM.

AMR has been ranking the supply chains of Fortune 500 retailers, manufacturers and distributors for four years. The companies are ranked based on their financials – return on asset, inventory turns and revenue growth – as well as opinions of peers and AMR researchers on how closely their demand-driven supply networks fit the AMR ideal.

None of these companies has perfected the model yet, Hofman said, but they are leaders in applying demand-driven principles of integrating supply, demand and product management.

According to the report, the defining characteristics of ideal demand-driven supply chains are managing demand, not just responding to it. There is a networked, not linear, approach to global supply, and they have an ability to embed innovation in operations, rather than just keeping it isolated in a laboratory.

What works for Apple isn't going to work for everyone, Hofman said. But companies should take lessons from all those who made the Top 25 this year, including consistent frontrunners Nokia, Procter & Gamble, IBM, Wal-Mart and Toyota, as well as newcomers like Sony Ericsson, oilfield services supplier Schlumberger, and supermarket operator Royal Ahold.

"I don't think everybody can do what Apple does," she said. "Apple is just sort of the epitome of the content economy. I think what you are seeing and will see [is that] companies can incorporate portions of that into what they do."

Key to this is SCM that starts with the customer experience. Ask yourself, Hofman said, how the product fits in with the totality of what a customer needs, what your customer experience is, and how you fit into that.

She points to several examples. Best Buy, ranked 14th, acquired Geek Squad and added an in-house installation service. Cisco, ranked 8th, has moved from selling routers to selling software and solutions as well. For example, Cisco's purchase of WebEx allows it to sell the software for the conferencing hardware it sells.

"I think that's the kind of direction you'll see a lot of companies moving in," Hofman said. "Expanding their footprint further into the supply market -- expand around total solutions instead of just physical products."

Obviously, having a strong end-to-end supply chain management system is key to making the list. SAP plays the same role in this as many other vendors do, Hofman said.

SAP SCM customers on the list include Apple, Nokia, Procter & Gamble, IBM, Samsung Electronics, Anheuser-Busch, PepsiCo, The Coca-Cola Company, Nike, Walt Disney, Hewlett-Packard, Johnson & Johnson, Lockheed Martin and Johnson Controls, according to SAP.

"I think it's the role we would expect any end-to-end system to play," she said. "Provide end-to-end support across the supply chain, enable an end-to-end supply chain strategy."


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