Being a CEO is tough enough, let alone how difficult it is if you don’t have all of the skills and knowledge needed.. Many CEOs have a background in Finance or Sales and Marketing or Engineering, or are just entrepreneurs. But few have in-depth experience in Supply Chain, let alone understand how to leverage Supply Chain.
The truth is that the overwhelming, but often misunderstood and underrated, impact of Supply Chain’s importance to the success of an organization is missed and unknown to many CEOS.
Only truly smart CEOs get it. They get the importance of Supply Chain and understand that they will succeed or fail depending on how they do, or do not, leverage Supply Chain.
What Does Supply Chain Include?
For context it is important to first outline what Supply Chain includes. My view of Supply Chain is far more all encompassing the traditional, and sometimes current, views of Supply Chain.
Historically Supply Chain was considered to include Procurement, Warehousing, Freight and Logistics. These were viewed as back office, non-strategic functions that were necessary but not critical.
My view of Supply Chain is much broader. Unlike virtually any other function in an organization, Supply Chain touches and influences almost every aspect of an organization.
In addition to the traditional Supply Chain functions, it also can include customer order management, customer service, last mile delivery and services, strategic and operational planning, asset management, cash flow management, manufacturing, time to market, digitization of all business processes (internal and external), competitive differentiation, IT strategic direction setting, spend management and control, aftermarket service, returns processing and management, disaster recover and risk management.
Now in fairness to CEOs if you don’t have strong leadership from your Supply Chain team, then they are likely just playing and perpetuating the traditional roles and long held paradigms of what Supply Chain is.
But if you have great leadership, Supply Chain should be setting the agenda for your company in every respect. It is the most critical part of setting and implementing strategy, dealing with day to day operations and problem solving, creating competitive advantage, and ensuring the financial viability of your company.
The pandemic alone should have been enough to alert everyone to how important Supply Chain is. Broken Supply Chains resulted in companies suffering and often failing. Broken Supply Chains set failed competitors apart from those with strong Supply Chains.
Smart CEOs know this. If they didn’t realize the importance of Supply Chain before the pandemic, they know it now. Supply Chain has gone viral! Certainly the smart CEOs know this. Still others will revert to their old, antiquated views and ways of doing things.
Let’s discuss some of the ways that Smart CEOs leverage Supply Chain!
1. Cash Flow and Cash Cycle Management
Apart from Finance, Supply Chain has the preeminent role in Cash management.
Supply Chain clearly influences Inventory levels and Inventory turnover. It clearly manages supplier payment terms and conditions, defining Accounts Payable. Procurement negotiates and sets the conditions for purchase of all goods and services, which by extension impacts cash flow. Supply Chain manages the reverse logistics processes which involve cash reimbursement to customers.
Additionally Supply Chain impacts Accounts Receivable by determining through manufacturing and distribution when goods are delivered to customers, which in turn triggers the payment from customers in many industries.
2. Customer Experience
The customer experience is highly determined by Supply Chain.
The experience of ordering goods or services, cost competitiveness, getting promised delivery dates and inventory availability, tracking goods in the process of delivery, receiving goods on time or late or early, the integrity of the packaging, the quality of the goods when opened, the ease of returning goods when necessary, and the overall ease of doing business are all largely determined by Supply Chain.
The ability for Sales and Marketing to do their work depends on Supply Chain’s ability to deliver on the promise and expectation given to customers.
3. Competitive Advantage
Competitive advantage is often the differentiator between growth and success or mediocrity and failure. In the case of business Supply Chain can make all the difference.
Supply Chain controls the speed of responsiveness to customer order requests, the integrity of delivery commitments, the speed and accuracy of delivery, and the quality of those deliveries. If you are able to offer your customers rapid (eg. same day or next day), accurate and timely delivery with tracking of orders then this can set you apart from the competition.
Just being able to ensure continuity of supply is a competitive advantage. Think about the pandemic and its aftershocks. Those who can get their products to market, due to Supply Chain, have a clear advantage over those who can not.
The effectiveness of your Procurement team in negotiating competitive material rates and continuously negotiating based on market conditions, provides you the room to offer competitive prices and healthy profitability.
Further your Procurement team interacts with third parties all of the time. This interaction gives them priceless and advanced insight into industry dynamics and competitive actions that you can’t get anywhere else other than from these Procurement relationships.
4. Profitability and Return on Investment
Depending on your industry the cost of materials and the cost of parts is often the single largest expense in your business. In the contract manufacturing industry materials can make up over 80% of revenue.
Now consider all of the other expenses for external goods and services that are needed to run your business, from MRO to contractors to utilities to capital and on and on.
What do these areas have in common? The management of the amount paid for these materials, goods and services is controlled by Procurement. Your Procurement team must negotiate, and renegotiate, all of these contracts and agreements.
Now consider the cost of Manufacturing, Warehousing, Distribution, Freight and Logistics. These are the purview of Supply Chain and the effective management of these costs has a direct impact on profitability.
And as previously mentioned Supply Chain has a preeminent role in cash cycle management. The number of days of cash, as determined by A/R, Inventory, and A/P will directly impact your return on invested capital.
5. Brand Building and Protection
A core role of Supply Chain is protecting and building your company’s brand. We’ve discussed how critical and central Supply Chain is to the customer experience. In these days of social media any bad customer experiences will immediately show up online and be shared to a wide, global audience.
Conversely if Supply Chain does its job well it will be reflected in positive customer reviews, rapid time to market, competitor envy, and financial success.
6. Creating the Digital Future
Finally, the future is about digitization. Specifically the future is about the Digital Supply Chain.
The creation, oversight and management of the Digital Supply Chain is enabled by the end-to-end real time, electronic connectivity of your entire business network from multi-tier suppliers to manufacturing and logistics entities to warehouses and distribution centres through to all of your channels and to your end customers.
Pulling together all technologies such as Control Towers, IoT, Cloud Computing, Machine Learning, Artificial Intelligence, Big Data, Cyber Security, Blockchain, Autonomous vehicles, Predictive analytics, Robotics, and much more is required to enable the Digital Supply Chain.
While you need I/T to make all of these technologies work, and work together, the visioning and architecture of this Digital Supply Chain schema requires the leadership of Supply Chain. No other function has the scope, experience, knowledge and responsibility that is necessary to make this happen.
Conclusion
Supply Chain is pervasive in any organization, often beyond the understanding and comprehension of those in that organization, including the CEO. But smart CEO’s know that Supply Chain is a dominant, if not THE dominant, part of their company. And if they want to succeed then they must leverage Supply Chain.
We’ve discussed previously how, post-pandemic, Supply Chain’s Moment of Truth has arrived. We are on the verge of a Supply Chain Renaissance. Whether that vision of the future is realized will depend on the leaders of our industries and institutions.
Will they leverage Supply Chain for maximum success in the future or will they revert to their old, antiquated views and ways of managing their business?