How Supply Chain Executives Can Earn a Place in the C-Suite
First there was Chief Executive Officer, then Chief Operating, Chief Financial, and Chief Marketing Officers joined the "C-suite." Isn’t it time Chief Supply Chain Officers took their place at the top? Despite supply chain’s functional cachet in business circles, many top supply chain executives don’t even report to the CEO. Why is that?
Service and Cost
Supply chains do two things: they provide service to customers, and they consume money. Typical high-level supply chain cost components are transportation, warehousing, and inventory.
Theoretically, and with a big enough bank account, we can provide any level of service needed. But, in the real world, we strive to achieve high service levels at low cost. Dealing with both service and cost is the essence—the very soul—of supply chain management (SCM).
One of the reasons SCM is so engaging is its breadth. It spans many interdependent business components that shape service and cost. For example, we can reduce customer lead times with deeper and broader inventory (i.e., higher fill rate) or by processing orders faster. We can get closer to customers, reducing lead-times, by expanding our warehouse network, but we then have to bear the additional inventory that comes with its dispersion. We can collect orders into cost-efficient freight modes—transforming parcel to less-than-truckload (LTL), and LTL to truckload, for example—but we will have to suffer the lead-time hit this collecting requires.
Too often, SCM executives limit their contributions by restraining their cost and service scope or by ignoring interdependencies between several components.
In the majority of our economy, material flows from suppliers to customers through manufacturers, distributors, and retailers.
On this spectrum, service tends to intensify toward customers. Cost tends to dominate upstream, closer to suppliers.
Accordingly, the operations team owns the organizational muscle in manufacturing businesses, and the marketing/sales team owns it for retailers.
The service-cost emphasis is more balanced for distributors. While both are relevant in all businesses, the pinch point—the core clash between service and cost—is foremost in distributors. Large portions of distributors’ organizations wrestle daily with cost and service. If any distributors’ executives deserve the C-designation, it is the SCM leaders.
The counterpoint is that SCM executives are not at parity with operations executives in manufacturing businesses, or with marketing/sales executives in retail companies. In these segments, they don’t have the organizational gravitas to be sufficiently linked to the business’ success.
SCM executives are talented at making trade-offs between service and cost; it’s our core competence. When customers’ value proposition is service, we eliminate variability and shrink lead-times; when they are cost-driven, we purge waste. This skill is key to playing a more essential and expansive role in your business’s financial performance.
How we do this depends on which end of the spectrum we’re at. For manufacturers, we should enlarge our "cost scope." For retailers, we should magnify our "service scope."
Finished inventory is a basic cost element and, consequently, a prime area of interest for SCM executives. The elementary decisions that manage inventory are when and how much to replenish. These choices are orchestrated by planning systems. Manipulating when and how much can be done as simply as changing safety stocks and order quantities – mere data elements in our planning systems.
SCM executives should apply their core skills to these critical data and all its consequences. This, in turn, will lead to impacting production schedules and quantities, then dealing with work in progress and raw materials. We can apply the same "when" and "how much" principles there. This takes us to inbound processes—transportation, warehousing, even purchasing, and procurement.
Then we’re dealing with the whole supply chain—exactly as we should be.
The same inventory principles apply for retailers, but the focus needs to be downstream, on the service inventory provides customers: the time it takes for customers to get what they want. This leads to store-facing and even in-stores processes, such as inventory in distribution centers and back rooms; fill rate, replenishment frequencies, and quantities; packaging such as consumer packs, cases, and pallets; receiving and re-stocking in stores; shelf and floor space allocation; and stock/no-stock decisions.
Retail marketing and sales executives watch competitors. Supply chain executives should, too. We should know how our competitors run their supply chains—what they do well and not so well, what their cost structure is, and what their plans and strategies are.
We should know why our customers buy from us, why theirs’ buy from them, and why some do both. We should discover what we did in our supply chains that caused our new customers to switch to us, and what we did that caused our old customers to switch to competitors. Then we can do more of the former and less of the latter.
By managing supply chain interdependencies and adopting a full view of service and cost, supply chain executives can amplify their organizational scope and heighten their financial contribution to attain the C-designation they deserve.