Gartner's Rating of Top Retail Supply Chains
The analysts at Gartner recently released their top 10 retail supply chains for 2016, a subset, if you will, of the top 25 supply chain list released as usual in May.
The criteria for the rankings this year were as follows:
Supply Chain Digest Says... |
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| While many etailers are building new sales channels in towns like Magnum and thousands of other such locations, the financial results may not be so attractive. |
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Gartner starts with the Fortune 500 list of top US companies by revenue and the Forbes global 2000 list that basically does the same thing on a worldwide basis. It then eliminates a lot of those companies because they do not much operate what most think of as a real physical supply chain - companies in banking, insurance, software, etc.
What's more, the minimum revenue to be included in the final evaluation list was an amazing $12 billion.
From that master list, companies are ranked based on the following:
• A group of financial metrics (Return on assets, inventory turns, and revenue growth): 40%
• "Peer Ratings" by other supply chain professionals: 25%
• Ratings by Gartner analysts: 25%
• Social responsibility score based on 3rd party ratings (10%).
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Note that this formula gives a tremendous advantage to some companies, such as Amazon given its huge revenue growth or McDonald's and its 156 inventory turns per year. It also penalizes companies like a Home Depot or a Lowes, for example, which are only going to have turns in the mid-single digits, because of their need to stock a huge selection of SKUs to meet customer service targets, with many of those very slow movers. Department store chains also have very low turn numbers.
Six retailers made the top 25 for 2016, two of which were restaurants. The top 10 retailers, and their overall rank, are listed below.
• No. 1: McDonald's (No. 2 in Gartner's Global Supply Chain Ranking)
• No. 2: Amazon: (No. 3)
• No. 3: H&M (No. 5)
• No. 4: Inditex/Zara (No. 6)
• No. 5: Starbucks (No. 12)
• No. 6: Walmart (No. 16_
• No. 7: Gap (No. 32)
• No. 8: The Home Depot (No. 34)
• No. 9: Woolworths (No. 38)
• No. 10: Ahold Delhaize (No. 40)
Note that no department store chains made the list.
As say each year, the approach is far from perfect, but it's the best we have at the moment. The annual PoweRankings from Kantar Retail, which includes ratings for top retail supply chains, should be out soon for 2016, but that report only includes retailers primarily selling food and consumer packaged goods, such as mass merchants, grocers, drug stores, and warehouse clubs.
Remote Deliveries put Further Pressure on ecommerce Financials
The good news for many etailers is that more and more consumers living in relatively remote and rural areas are increasing their purchases on-line. But for many of them, that's also the bad news, as fulfillment costs can quickly lead to losses not profits, as the face of retail continues to evolve.
According to Kantar Retail, about 73% of rural consumers, which it defines as those who drive at least 10 miles for everyday shopping, are now buying on-line versus 68% two years ago. Last year, 30% were members of Amazon Prime, up from 22% in 2014.
Consider the town of Magnum, OK, population 3000. After a Walmart in the area killed off local retailers 20 years ago, residents there still had to drive 30 minutes to get to the store, and two and a half hours to reach Oklahoma City with more choices. Many have now decided ordering on-line is much easier - especially if etailers entice them with low shipping and zero handling costs.
On-line shopping and fulfillment, it seems, has become the new Wells Fargo Wagon for small town America.
In a recent article, the Wall Street Journal quoted a UPS driver serving Magnum as saying that he used to deliver mostly spare parts and items for businesses in the town. Now, he say he "delivers dog food, fruit snacks and Kleenex, among other things," adding that parcel volumes have increased 30% during the past couple of years.
On-line options have enabled shoppers in smaller and even mid-sized towns access to not only staple goods but of course a range of new and fashion merchandise they didn't have locally before from Walmart or Dollar General.
So while many etailers are building new sales channels in towns like Magnum and thousands of other such locations, the financial results may not be so attractive.
It costs a lot to ship ecommerce orders to small towns, much more than shipping large quantities to retail stores, and many retailers subsidize those costs with discounted or even free shipping.
But of course the shipping isn't really free - there are regular parcel shipping charges, plus a list surcharge price from both UPS and FedEx of $4.00 for remote rural deliveries - which retailers may or may not try to pass on.
Retailers are also constrained by policies that promote consistency across channels in terms of prices. If anything, there might be a web note that on-line prices could be lower than store prices.
So, even without considering shipping charges, it costs significantly more to pick and pack a single unit for an on-line order than it does to get that unit (from a case delivered to the store) on the shelf for a consumer to pick him or herself. But virtually no retailers anymore try to add a "handling" or picking charge to the on-line price.
Consider those picking costs and plus subsidized or free shipping costs if a consumer is ordering perhaps food, paper goods or similar products that cost just a few dollars each, and provide generally thin margins. So etailers are often losing money on each on-line sale.
At some point, something will have to give in eFulfillment - the question is when. But in the meantime, improved vendor management can contribute strongly to the bottom line in ecommerce.
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