Gilmore Says:

CEO’s 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.  What do you say? Send us your comments here

So, is there opportunity for most companies to significantly improve their supply chains?

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 itself – Are You the Weakest Link in Your Supply Chain? – was authored by Reuben Slone (exec VP of Supply Chain at OfficeMax); Dr. John Mentzer (University of Tennessee), and J. Paul Dittmann, (formerly of Whirlpool and now also at the University of Tennessee). (As an aside, when we did our ERP versus Best-of-Breed supply chain software reports almost three years ago now, I spoke with dozens of people on the topic, and Dittmann was easily the most insightful.)

The article 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. Our Gene Tyndall did a short summary of the thinking based on a presentation Slone did at the CSCMP conference (see Another Excellent Presentation at CSCMP – “Are you the Weakest Link in your Supply Chain?”)

I’ve spoken with several supply chain execs that have had the courage to send the article on to their CEOs and functional peers – I guess having the source as HBR gives you a lot of cover.

The article offers seven ways CEOs can impact a supply chain, which as Tyndall’s article reported are:

• Picking the right SCM Leaders
• Initiating Benchmarks and Devising the Right Metrics
• Setting Incentives for Supporting Behavior
• Keeping Up with Supply Chain Technology and Trends
• Eliminating Cross-Functional Cross Wires
• Adding SCM Insight to Business Planning
• Resisting the Tyranny of Short-Term Thinking

Nicely, there is a quiz that CEOs are encouraged to take to assess where they stand along these dimensions. For example, in the area of cross-functional alignment, you score low if your company has no formal Sales & Operations Planning process, and obsolete inventory is rising or unknown; you get a high score if the CEO is personally involved in the S&OP process, and execs in sales, marketing, and SCM are all held accountable for inventory and customer service levels.

The full article and assessment was in the September, 2007 issue of HBR. It’s available on-line for just $6.50, or run down to your local library and the copy machine.

Here are my thoughts:

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, CEO’s 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 under utilizing technology they purchased might be mitigated. A related anecdote from me: I heard that when Jim McNerney came from GE to be CEO of 3M (before moving on to Boeing), a first move was to install a Six Sigma program there. He did this in part by having a couple of hundred top managers come in for several days of training – the entire day 1 of which McNerney led personally. Do you suppose that delivered a message to the troops?

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.

Sound familiar?

There’s a lot more, but I am out of space. Congrats to Slone, Mentzer and Dittmann for a fine article that has received a lot of attention. CEOs should consider the message. So should most of us in the fray. We still have a long journey to go.

Is lack of knowledge and engagement on Supply Chain by CEOs a real barrier to performance? How so? Can supply chain managers really “educate” the CEO in this area? Have you read the article? What struck you?

Let us know your thoughts at the feedback link below.