Demand-driven supply chains help AMR Research's top 25 trump recession

By Courtney Bjorlin, News Editor 03 Jun 2009 | SearchManufacturingERP.com

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In a year marked by bailouts and bankruptcies, demand-driven tactics have helped the 25 companies ranked by AMR Research as having the best supply chains survive the recession.

The top 25 companies -- which this year include Apple, Dell and Procter & Gamble -- weren't immune to the economic downturn. The Dow Jones Industrial Average for the group fell an average of 29% in 2008.

But by building and maintaining flexible, demand-driven supply chains, the companies were able to adjust to fluctuations in demand, according to Debra Hofman, vice president of the AMR Supply Chain Top 25. As such, they outperformed the market -- the Dow Jones Industrial Average fell 34% overall in 2008.

"They're all having trouble," Hofman said. "The lesson is resilience and flexibility in response to a huge, falling off the cliff of the economy in the middle of the year."

For more on demand-driven supply chains Read about last year's AMR Research Top 25 supply chains Read what companies' top supply chain management priorities are this year

AMR annually ranks the supply chains of Fortune 500 retailers, manufacturers and distributors. 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.

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.

All of the companies on this year's list, named "flight-to-quality" -- a play on investors moving their money away from riskier investments to safer investment vehicles -- have deeply established reputations and long histories. Most companies on this year's top 25 supply chains -- the fifth year AMR has ranked the supply chains of Fortune 500 companies -- are its old stand-bys.

New to the list this year were Colgate-Palmolive (20), Unilever (22) and Intel (25), which bumped off Anheuser-Busch, Royal Ahold and Johnson Controls.

"There weren't as many surprises," Hofman said. "The companies that were in a better cash position and had a more flexible supply chain were better able to cope with the economy."

Once again, Apple (ranked first last year), with its focus on building and delivering value with ideas rather than strictly products, took the lead by a wide margin -- more than two points ahead of second-place Dell.

In turn, Procter & Gamble's flexible supply chain allowed it to shift its strategy to producing lower-cost items by relying on external partners for half of its product innovation.

Supply chain management software is key to the success of these companies, Hofman said. For instance, Cisco, which jumped from eighth to fifth this year, leverages technology for better operational performance, including a three-layer system for demand planning. It includes a "customer value chain management" structure that combines quality, customer fulfillment and the traditional supply chain, according to the report.

Hofman is also seeing much more interest from clients around demand forecasting software.

"You can't do this without software," she said. "It requires communication, collaboration, the demand and supply of products being integrally connected."

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. They are demand-driven, meaning that they sense demand, shape it and orchestrate a profitable response, according to the report.

AMR blamed the success of Apple's iPhone for knocking down the rankings of Nokia (ranked second in 2008 and sixth in 2009) and Sony Ericsson (ranked 16th in 2008 and 23rd in 2009).

"The success of Apple's iPhone continues to change the playing field for mobile devices," the report states. "Even more important, it is changing the rules for software and consumer information services."

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