By Dan Gilmore
Through a special arrangement, what follows is an excerpt of a current article from Supply Chain Digest, presented here for discussion.
If the anecdotes in a recent Harvard Business Review article on supply chain management are any indication, many companies are still very early in the SCM game. The article - Are You the Weakest Link in Your Supply Chain? - has a catchy premise, that the CEO's lack of knowledge and engagement in matters of supply chain either lead to operational problems or fail to capture potential opportunities.
It's a great article, and the first I've really seen that doesn't talk all around the role of CEO and supply chain performance without quite getting to the point.
Here are just a few of the many insights worth noting:
- If the CEO views the supply chain as a "black box" in which stuff happens to move products from source to customer, it's not only very hard to create the right supply chain focus but even to pick the right supply chain leaders and assess their performance.
- Similarly, CEOs who aren't engaged and knowledgeable in supply chain are likely to have under performance, as it is hard to push an organization for which you have little understanding. Not said in the article, but a natural corollary to this idea, is the common condition of supply chains being mostly driven by the basic metrics, like standard manufacturing costs, not total supply chain costs, since the former is much easier for a CEO to focus on. As a result, sub-optimal decisions are made.
- Interestingly, the article says CEOs must get much more engaged in matters of supply chain technology - an area where few spend much time at all - as well as key trends, such as Lean and Six Sigma. It suggests that if CEOs were stronger here, the common case of companies underutilizing technology they purchased might be mitigated.
But in the end, what really struck me were the many recent anecdotes in the article that showed the challenges or issues so many companies face. Examples:
- The company whose sales team promised a customer shipping from regional DCs rather than the plant-direct shipments they had been using, adding significantly to logistics costs with no balancing concession from the customer.
- Another manufacturer that lets obsolete inventory sit in warehouses for years so it doesn't have to take the write-down.
- A major railroad that frequently lets high volume customer shipments sit in terminals, sometimes for days, because terminal managers are incented on how many railcars are moved with available engines, not on keeping great customers satisfied.
- What is probably a majority of companies whose supply chains are driven by quarterly ordering patterns that have nothing to do with actual consumption but everything to do with promotions, incentives and discounts.
Discussion Questions: Is lack of knowledge and engagement on supply chain matters by CEOs a real barrier to performance? How so? Can supply chain managers really "educate" the CEO in this area?