The Rise of the Supply Chain Executive
Supply chain professionals get a lift as more companies grow to appreciate the strategic value of a well-run logistics operation.
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Think the center of supply chain action these days is on the loading dock, or in a back office crammed with computers? Think again. As corporate leaders come to understand the critical role supply chain operations play in a company's success, logistics is an increasingly frequent topic of boardroom discussions—and it is becoming common to find executives with supply chain or logistics titles holding a seat at the conference table.
"Companies are now vesting more power and responsibility in their supply chain executives," says Bob Heaney, senior analyst in the supply chain management practice at Boston-based Aberdeen Group.
Whether those high-ranking supply chain officials carry the title chief supply chain officer (CSCO), or joined the ranks as senior or executive vice president, one thing is certain: logistics leaders are influencing and even making their organizations' high-level operations decisions.
"The responsibilities are typically the same for a CSCO and other high-level supply chain leadership titles," says Neil Collins, partner and co-leader of the transportation and logistics practice at Heidrick and Struggles, an executive recruiting firm in Atlanta. The specific title says more about a corporation's naming conventions than about the power invested in the executive who holds it.
"What's important is not whether you have a 'C' in your title, but whether you have an audience with the corporation's key decision-makers," Heaney agrees. "Are you treated as their equal? Are you in the know when major structural changes take place within the organization?"
One reason more supply chain executives are moving into the C-suite is a growing belief that a well-run supply chain drives success not just by controlling costs, but by creating value. Supply chain improvements help increase revenues, according to 80 percent of top supply chain executives surveyed for a study published in early 2011 by SCM World, a London-based educational institute. Sixty-one percent said that supply chain improvements help their companies make long-term equity gains such as better customer service and increased customer loyalty.
To demonstrate how companies use their supply chains to generate value, Reuben Slone, executive vice president, supply chain, at OfficeMax in Naperville, Ill., and co-author of The New Supply Chain Agenda: The Five Steps That Drive Real Value, cites the example of Walmart. When the big-box retailer decided to add groceries to its product mix, it used its well-honed supply chain as a weapon in a successful bid to dominate the supermarket sector.
"They looked at selling groceries from a distribution standpoint, as opposed to a grocer or merchant standpoint," Slone says. Walmart's sophisticated point-of-sale and replenishment systems allowed it to keep prices low while selling high-quality merchandise, catching rivals such as Kroger and Safeway off-guard, he says.
Consolidating the Links
To support strategies of this kind and create as much value as possible, companies are using the CSCO position to consolidate all the activities that make up supply chain operations. But this wasn't always the case. As recently as 2000, most companies treated the elements of supply chain management—supply and demand planning, procurement, manufacturing/operations, and logistics—as separate disciplines, according to The New Path to the C-Suite, a paper by Boris Groysberg, L., Kevin Kelly, and Bryan MacDonald published in the March 2011 Harvard Business Review.
That approach has started to change. "More and more companies look at supply chain management holistically," says Groysberg, professor of business administration at the Harvard Business School.
Those firms have designed the CSCO role to give one executive a comprehensive view of all supply chain activities. Globalization, longer lead times, higher transportation costs, and the need to support multiple sales channels all have made supply chain a bigger element of a company's overall operating costs, Heaney says. That increase makes it more important than ever to orchestrate a company's various supply chain functions so that a decision in one area—for example, to build more distribution centers—doesn't create unintended negative consequences in another, such as the company's inventory position.
"Now that inventory and distribution often fall under the same umbrella, decisions have to balance the impacts on both groups," Heaney says. "Elevating an executive to chief supply chain officer is one way to achieve the balance."
The same kind of logic applies to sourcing in a global marketplace. "There's a balancing act between the price of the product itself, and the transportation and inventory that needs to be in the pipeline," Heaney says. "By centralizing control of those factors in one position, companies achieve a better balance and make more prudent decisions."
One more reason behind the elevation of supply chain executives is the increasing importance of sustainability, according to Groysberg, Kelly, and MacDonald. "Companies are finding that they can create value by executing and sharing sustainability strategies throughout their supply chains, from suppliers to customers," the authors write. Charging a CSCO to head those efforts makes it easier to collaborate across the enterprise, with the goal of operating a more eco-friendly company.
The Top-Tier Toolbox
Along with conferring a broader range of responsibilities, the CSCO needs to possess a wider variety of competencies than supply chain executives lower in the pyramid. Collins identifies the following five important characteristics of a CSCO:
- — the cost of goods and operating margins—because they have such an impact not only on the top line, but on the bottom line of the organization.
- Technological know-how. CSCOs must grasp the importance of using technology to gain end-to-end visibility across the supply chain. Not only do they understand information technology, but also how to leverage IT as a strategic tool for transparency across the supply chain to make smarter decisions.
- Leadership. The ability to direct large numbers of people working at different levels, doing different kinds of work at multiple locations, is key.
- Cultural savvy and a strong international perspective. Today's global supply chain demands insight into world markets.
- Change management skills. Supply chain leaders need to be agile and flexible in the way they think and execute.
A CSCO must possess "soft skills," such as problem-solving, as well as traditional operational skills. But this doesn't mean that operational skills are less important than in the past. "It's not that the pie is being divided differently," Groysberg says. "The pie is actually growing. Operational excellence is more important now than it was 10 years ago." But as the head of a large, often multinational organization, a CSCO also must be a talented leader, a change manager, and a strategic thinker.
Supply chain leaders who develop broader skill sets and assume more wide-ranging responsibilities may also rise even higher than the CSCO's chair. "We will see more supply chain leaders break through into the CEO or divisional president role," Collins says.
In the days when companies put different people in charge of planning, procurement, manufacturing, and logistics, none of those executives gained a view of the entire operation. "By definition, they weren't capable of stepping into a much broader general manager's role," Collins says. That is changing. More executives with supply chain backgrounds are becoming chief operating officers, presidents of large corporate divisions, or CEOs of smaller, private corporations.
The broader perspective and experience that CSCOs gain also makes it easier for them to move among different verticals—say, from a consumer packaged goods firm to a technology manufacturer. Companies may look to other industry categories for executives with fresh perspectives on subjects such as supply planning and global manufacturing. "Sectors are much more open to infusing talent from other sectors, as long as they've got that leadership expertise," Collins notes.
As increasing numbers of supply chain executives gain that broad expertise, look for more of them to rise from the back room to the C-suite.