By Alan Waller
Most people in an organization think of the supply chain as a business function. But the businesses who will succeed are the ones that see it both as a function and a value adding process.
Supply chain leaders by definition manage functions. In fact, 40% of supply chain leaders in manufacturing businesses are responsible for all of the following areas: Source, Make (manufacture) and Deliver (outbound logistics). Further, another 80% are responsible for planning throughout the supply chain. Whatever their title (and titles vary considerably), supply chain leaders must be adept at managing the flow of goods and the costs associated with that flow.
It’s not just about functions
But to succeed in tomorrow’s outsourced world, a successful supply chain leader must manage the complete business process, of which the supply chain is an integral part.
According to a 2005 report by Gartner group, 50% of the supply chain process is outside the business, and consequently often outside a retailer’s control. As factories buy from suppliers, and many of the resources on the outbound side have been outsourced, the supply chain process takes on even greater importance.
Success depends on how well a manager controls both internal and external factors, ensuring complete visibility and transparency. In order to do this effectively, they need the skills to manage suppliers, distributors and systems. In other words, move from value delivery to value creation.
A brave, new outsourced world
These processes become increasingly important as we extend globally and outsource. Actually, the profile of the supply chain manager becomes T shaped. The upright of the T consists of the traditional functions where a supply chain manager has been active. These include transport, inventory control, customer service, etc.
The cross of the T indicates the breadth of expertise which is becoming critical. This covers areas such as understanding the customer, responding to needs, understand the supplier, being used to negotiating cross border issues, instilling team work, collaboration across functions, and much more.
So a successful supply chain manager leads both the logistical functions of a business while orchestrating the processes. In many companies the CEO runs processes, but in almost every case they will rely on the skill of the logistics manager to conduct and harmonise these processes.
Often, other functions in an organization can perceive this pervasive influence of the supply chain manager as empire building. But if they see it for what it is, a process, then it should remove any such concerns. Once this is acknowledged, board members can work together across processes to successfully drive their external agenda.
The new breed of supply chain leader
As logistics management transforms from a “getting your hands dirty” low-paid job to a well-qualified, highly paid career, the individuals attracted to the profession are smart, driven people. This leads to board members making more room for such skilled professionals. As the profession continues to call for more “high fliers”, candidates for those jobs can achieve greater career enrichment, which in turn attracts more people of the right calibre.
This hypothesis is validated by the latest research from Cranfield and Solving Efeso. All sectors across all geographies showed more than 50% of Supply Chain leaders now sit on the executive board of their business unit.
Smooth operators needed
The supply chain is probably the single most important function in a company, covering inventory, manufacturing and customer service. But it can’t run without smooth interaction with other functions. Consequently, successful managers have to champion cross-functional teams.
Retail is the perfect example of this. The supply chain director is an expert at getting goods from suppliers to the back of the stores. But typically in bricks and mortar retailing, 50% of logistics costs are in taking goods from the back of the store to the shelves. In other words, it costs as much to get goods from the back of the store to shelf as it does to get goods from China to back of store.
How can this process be made more efficient?
While the goal should be “on-shelf in full” with 97-99 % availability, companies will typically lose 3-5% availability between back door and shelf. They simply don’t know where these goods are or can’t process them quickly enough.
Companies like Tesco and Carrefour have set up what they call shelf replenishment processes to get this right. Building cross-functional teams, they are managing an internal process through collaboration, with good results.
However, where businesses often fall down is when combining external processes. A typical example is where a business is acquired by a company who expect to see synergies through that acquisition, but often totally exclude the supply chain when performing due diligence. M&As are not just about strategic synergies, they are also about operational synergies.
The supply chain director should be involved from the start, leading relationships will external partners, from logistics companies to software houses. This is traditionally poorly done, resulting in acquisitions that can take years to turn a profit once supply chain processes are aligned, or are downright loss makers.
The supply chain leader is a cost saver
Often, CEOs see the supply chain purely as a cost. With quotes like, “You need to take another million Euros from the supply chain, make sure you don't screw up”. However a more enlightened CEO will rely on the supply chain director to see new market opportunities. So the person responsible for the supply chain should be the key element in strategy, looking at issues like how best to work with marketing to transform business, and help align the board, actually leading that business strategy.
Finally, what really defines a future supply chain leader is their ability to create partnerships in a genuine sense. Any true partnership between retailers and suppliers, internal and external bodies, etc, should share the risks and rewards, something our modern supply chain leaders know all too well.