If you are a company CEO, this article is for you. If you a senior supply chain manager, director, or leader of one of the functions touched by the supply chain, it’s for you too, as long as you have the ear of your company’s CEO.
What you are about to learn is vital for the long-term success of your organisation. These are the essential facts that every CEO should know about the supply chain – the lifeline for a business and its customers.
If you’re a supply chain leader, you’ll probably be familiar with much of the following information already, but unless you know for sure that your CEO is familiar with it, don’t assume it to be so. If you have the chance, share the following information with him or her. It could help to bring about a sea change in your business.
A Message to the CEO
CEOs in many organisations aren’t directly responsible for controlling supply chain activity, but trust me, business is changing. Your supply chain can make a huge difference to your company’s success—but before it can do so, there are very likely to be changes that you need to drive, if you want them to stick.
By understanding the things a CEO should know about supply chain, and then directing related questions to your management team, you will learn which of those changes are necessary, and gain the necessary intelligence to affect them.
Of course, the more you know, the better, but for starters, I recommend that you take an investigative interest in the following six sections. They cover some of the most important things a CEO should know about the supply chain, best understood by asking questions around the business.
6 Key Questions A CEO Should Ask the Supply Chain Team
1. Has Our Supply Chain Been Strategically Developed?
The first thing a CEO should know about the supply chain, is how it has been developed. What you really want to know is this:
Has your company’s supply chain been established and improved through a process of strategic decision-making, or has it simply evolved?
If you’re a CEO yourself, you might be shocked at the possibility that your company’s supply chain has not been consciously developed to support your business strategy. For many companies though, that sadly is the case. What tends to happen is that the supply chain, which may initially have served the enterprise well, doesn’t get reviewed in light of long-term business trends.
Try asking your logistics management team why your warehouses are located where they are. If answers are vague, it’s probably because your current managers have never actually considered warehouse location from a strategic point of view. If this is the case, there’s every possibility that your supply chain is no longer optimised for your business or its customers.
Even if you receive seemingly well-informed answers to your questions, it’s a good idea anyway to test and challenge the assumptions on which the answers are based, unless of course, your team can show you up-to-date facts and figures to support their assertions.
This is not a matter of whether or not you trust your management team, but one of whether supply chain design has received enough attention, and whether it has been adapted to meet needs that may well have changed subtly, but meaningfully over the last few years.
If your investigations lead you to believe that your supply chain hasn’t been strategically reviewed and developed on an ongoing basis, you should use your influence to drive a more strategic approach to supply chain development. Can this make a difference to business prosperity and growth? You’d better believe it.
The first thing a CEO should know about the supply chain, is how it has been developed. Click To Tweet
2. Do We Have The Right People in Key Supply Chain Positions?
Just like development of the supply chain itself, the organisation of supply chain functions hasn’t always been a high priority in the majority of companies. If that’s true of your company, the functions which collectively manage the supply chain might still live in silos, instead of working collaboratively towards common, aligned goals.
Some enterprises have taken a progressive step, creating an office for a supply chain director or similar. However, according to authorities such as Harvard Business School, the people appointed into those offices often have few, if any supply chain credentials.
For anyone that understands the mechanics of supply chains, this is something of a conundrum. It’s rare for any company to appoint a leader in manufacturing, sales, or finance for example, who has no background in the respective function. Somehow though, it’s not uncommon to find even large companies that are happy to have a supply chain director with no actual supply chain experience, or even knowledge.
With that in mind, the second question to ask as a CEO is “how highly is supply chain leadership valued as a career path in our company?” Perhaps followed by “how qualified are our key supply chain leaders?”
If you have supply chain leaders with no proven background in the field, it’s probably time to reevaluate the importance of the supply chain to your company’s health. Sadly but realistically, it might also be necessary to think about making changes in the top ranks of your supply chain organisation.
3. Are Business and Supply Chain Strategies Aligned?
This is a question that you might wish to ask of yourself, before you take it to your colleagues and managers.
Why? Because while supply chain operators are used to feeling the squeeze—thanks to the traditional view that the supply chain is a cost centre—you probably share something in common with most CEOs; a business strategy focused on growth.
If your company has misaligned strategies though (for example; a growth strategy for business generally and an aggressive cost reduction strategy for the supply chain), you’ll probably find it hard to meet the needs of your customers, which is naturally counterproductive if profitable growth is your aim.
Strategy misalignment is not uncommon, even among large, prestigious organisations, but it is detrimental to progress, so if growth is on your agenda—and that of your executive colleagues and business stakeholders—you might need to insist upon some adjustments to supply chain strategy.
The news is not all bad though. Aligning your supply chain strategy to support business growth doesn’t mean settling for increasing costs. The key is to focus your supply chain team on efficiency, value creation, and effectiveness. CEOs who successfully achieve this formula are seeing cost savings and service improvement from supply chain strategies that don’t merely support profitable business growth, but actively contribute to it.
Supply chain strategy misalignment is detrimental to progress. Click To Tweet
4. Are We Using the Right Metrics and Incentives?
Hopefully you’ve noticed a theme running through the previous sections of this article. That theme is one of alignment and collaboration—the very essence of effective supply chains. As a gauge of your company’s supply chain maturity, you might want to look at the metrics and KPIs you have in place, and whether incentives encourage a joined-up approach to supply chain management.
So the question here is “do our measurements and incentives encourage all functions to support an enterprise-wide strategy, or are they more likely to encourage an inward-thinking mentality and the continued existence of functional silos?”
The answer is likely connected to the topics already discussed here. If you don’t have an experienced and knowledgeable supply chain leader (or you have no supply chain leader per se), and if business and supply chain strategies are not aligned, disparate, conflicting performance measurements should come as no surprise.
Again, it’s not an uncommon issue, so there’s no shame in its discovery. It’s unlikely after all, that the problem results from any direct desire for functional teams to “look after themselves”.
It’s just that when attention is not paid to supply chain integration, there’s a natural tendency for managers to think functionally and miss the bigger picture.
If you should find that your purchasing, logistics, and other departmental metrics support, or potentially support conflicting goals, the answer will lie in a new system of measurement and compensation—one that encourages functions to work together. Even better, the system should extend beyond the enterprise; encouraging collaborative efforts from suppliers and even customers.
5. Have We Built Quality Into Our Supply Chain?
While the previous four questions relate to how the supply chain is organised and driven, operational performance is also among the things a CEO should know about the supply chain. Quality management in particular, should be on your agenda if your supply chain is to be a source of competitive advantage.
Now of course, the last thing you want to do is start poking around, checking and inspecting products and processes for quality. You’re the CEO for pity’s sake.
In fact, you shouldn’t need anyone to focus greatly on inspection and correction (except where required to meet legal and industry compliance obligations) … and you won’t if you ensure quality is built into the supply chain. But what does built-in quality look like? That’s the next question, and one which I’ll try to answer for you, although there’s really no one single answer.
Building quality into a supply chain requires an iterative, continuous approach and must be addressed on multiple fronts.
Solutions might include:
- Standardising processes across the business, to reduce variations
- The use of Poka-yoke strategy to prevent or bring attention to errors
- Implementing continuous improvement initiatives to reduce defects
- Practicing effective supplier performance management
- Proactive identification and management of supply chain risk
- Automation of processes to minimise variance
These then, are some of the most important areas to investigate, ask questions about, and to address with your supply chain team, if effective quality measures aren’t yet in place.
Operational performance is among the things a CEO should know about the supply chain. Click To Tweet
6. Are we Focused on Supply Chain Efficiency
Why should a CEO know about supply chain efficiency? Because as mentioned previously, it’s central to supporting business growth in a cost-effective manner.
The more efficiently your supply chain is run, the lower are the operating costs and cost of goods sold (COGS). However many CEOs are not fully aware of the potential ways in which efficiency can be improved. This is important, because some opportunities require changes to the way customers are serviced. When changes are likely to impact stakeholders, the CEO had better be in the loop.
As an example, service levels have a profound impact on distribution costs. Many organisations provide service levels based on perceived customer needs, but fail to check whether the reality matches that perception. This oversight can easily result in some customers receiving what they perceive to be sub-par service levels, while others are over-serviced.
It also results in some customers being less profitable than others, and even worse, can result in net losses, as service costs outweigh the revenue from sales. This is what tends to happen when a one-size-fits-all approach is taken toward service provision.
While the creation of a tiered service might add complexity, it will probably be a more efficient way of utilising assets, and at the same time, can reduce the operating costs of your company’s distribution network.
Other aspects of supply chain efficiency worth investigating include:
- The degree of distribution network optimization that has taken/is taking place
- Whether carriers and other service providers are chosen on the basis of value rather than lowest cost
- Does your company have sufficient supply chain visibility (what can’t be seen, can’t be measured or improved)?
- Is sufficient investment being made in safety measures (incidents and accidents compromise supply chain efficiency)?
Understanding supply chain efficiency is important for a CEO; since it helps you guide your management team toward improvement. The knowledge will also help you determine if your company should consider outsourcing as a way to increase efficiency and reduce operating costs.
Why You Should Be a CEO Who Knows About the Supply Chain
With the answers to the six questions outlined in this post, a CEO has at least some of the necessary insight to steer his company’s supply chain in the right direction.
All too often, the chief only gets involved in this area of business when something nasty hits the fan. If this applies to you, remember that it may be too late to avoid a significant loss of revenue and perhaps harm to your company’s (and therefore your own) reputation.
On the other hand, if you are a CEO who knows about the supply chain operation; its strengths, weaknesses, threats, and opportunities, your leadership abilities can inspire the management team, overcome inertia, and initiate change in your supply chain. This is the kind of change that drives competitive advantage … and competitive advantage is something that any CEO should be happy to know about.