Getting Supply Chain on the CEO’s Agenda

How do you get your chief executive officer to appreciate the potential impact that supply chain executives—and the key processes that they run—can have on the business? The three-part answer: think beyond cost, develop real collaboration skills, and grow your personal leadership capabilities. Here’s a plan for making it happen.

By Richard H. Thompson, Donald D. Eisenstein, and Timothy M. Stratman -- Supply Chain Management Review, 7/1/2007

This may sound like an overwhelming challenge, but discussions like this one are occurring every day in businesses throughout the world. In fact, this multidimensional approach to growth is how the very best companies win. Growth for them is a comprehensive concept, permeating all aspects of their business.

As a senior supply chain leader, what does the growth challenge mean to you? How can you embrace the CEO’s growth agenda and increase your value? How can you make a significant contribution to the business and capture the heart and mind of your CEO? How does a typical chief executive view your role and the role of supply chain management today? And is it a perception that needs to be changed?

To become contributing players to the growth agenda, we believe that supply chain leaders need to focus on three overarching areas:

1. Think beyond cost.
2. Develop world-class collaboration skills.
3. Aggressively grow your personal leadership capabilities.

Each of these imperatives is discussed below, augmented and clarified by a recent survey of CEOs that we conducted.

To better understand how chief executives currently perceive the challenge of growing their business profitably, we surveyed Chicago-based CEOs of leading companies ranging in size from $50 million to more than $20 billion in sales and representing a variety of industries. In addition to the survey questionnaire, we conducted follow-up interviews with a number of the CEOs to better understand and interpret the survey results. Our aim was to obtain their personal insights—their “color commentary” if you will.

This article is based on that research, coupled with the authors’ combined 65-plus years of industry, academic, and consulting experience.

But here’s the rub. Fully 82 percent of the same CEOs viewed supply chain management initiatives as primarily focused on cost reduction, as shown in Exhibit 2. Clearly, revenue growth and supply chain expertise are not linked in the minds of most chief executives. Yet does this also mean that SCM is no longer perceived as a key driver of business success? Certainly not. Ninety-three percent of CEOs identified supply chain management as either “critical” or “very critical” to their overall business strategy. (See Exhibit 3.)

So what needs to change for CEOs to start thinking about supply chain management more in growth terms than cost reduction? And how do you, as a supply chain executive, become a key player on the growth agenda rather than just a cost of doing business?

A necessary first step in the process is to communicate the relationship between supply chain competency and growth. A recent study conducted by the MIT Center for Transportation & Logistics did this effectively, finding that “…focusing supply chains on achieving customer objectives rather than reducing near-term costs and inventories can have a greater impact on a company’s financial performance. Leading enterprises integrate elements of supply chain management with customer-facing and revenue-generating capabilities.”

As proof positive, you only need to look at leading companies such as Wal-Mart and Procter & Gamble. They have captured large, profitable shares of their markets by integrating supply chain management into their growth initiatives. For these market leaders, the supply chain is front and center in the enterprise, rather than an overlooked back office function. These companies have embraced supply chain management as a competitive differentiator that helps to enable profitable growth.

In a similar vein, supply chain executives must move beyond a mindset focused solely on delivering the “right product, at the right place, at the right time, at the lowest cost” to one more oriented toward growth. Certainly, driving improvements in supply chain efficiency (cost) and effectiveness (service) are necessary and important to the business. But to profitably grow share, acquire new customers, and expand into new markets, a broader mindset is needed.

In many cases, in fact, that new mindset may be long overdue. The CEOs in our survey told us that they have already spent considerable time and energy squeezing out costs. For example, the head of one consumer products company reported that an aggressive cost focus had reduced the company to a “skeleton”; there simply weren’t any cost reduction opportunities left. Consequently, his team aggressively turned to revenue growth. After all, he reasoned, a great way to reduce costs is to sell more! Another CEO put it his way: “You can’t save your way to prosperity.” Growth was the obvious option for this executive.

Top-line growth alone isn’t enough, though. One CEO said that his team falsely assumed that revenue growth alone would grow the bottom line. But the pure focus on revenue growth drove many “bad” behaviors including price reductions designed to stimulate demand. When these kinds of behaviors take over, revenues do grow but profits do not. This CEO took appropriate corrective action. “Now no one cares solely about revenue growth,” he said. “The focus is on earnings growth.”

Changing the traditional mindset is a necessary task for supply chain professionals—but it’s not necessarily an easy one. Supply chain managers typically have strong analytical orientations and process management experience. They are linear thinkers, trained to identify and drive out inefficiencies in a process.

Thinking with an “inside-out” perspective, many supply chain practitioners have been historically trained to evaluate the process starting with the flow of raw materials and ending with the customer. Even those who say that they start with the customer, or the demand signal, remain trapped in a linear thinking model as they work to optimize the existing supply chain network.

We found that CEOs often reinforce this approach, which makes breaking out of the traditional mindset all the more difficult. There clearly exists a strong cultural adherence to linear processes: marketing promotes, sales sells, and supply chain/operations come in at the back end ensuring that the product or service is delivered on time and at the lowest cost.

Supply chain professionals need to start thinking outside the four walls of the organization. Such “outside-in” thinking truly starts with the customer or end user. And it doesn’t necessarily proceed along a linear pathway. Outside-in thinking requires an intimate understanding of what the customer values. In addition to price, what are the five major reasons your customers prefer you? How should the supply chain align to meet these preferences? Does everyone in the supply chain understand what the customer values? Who are all the contributing companies in the supply chain—and are their share of profits equitable given the level of value they provide?

To answer these questions, organizations need to take a more holistic view of their business. Supply chain leaders play an important role in this effort. The approach begins by documenting and quantifying the supply chain economics starting with the customer. Specifically, this means developing a deep understanding of the value created by each participant in the chain, identifying the respective investments made by each participant, and quantifying the return that participant is receiving on that investment. You then work backwards to design the operational processes and supply chain structure needed to profitably deliver value to that customer. This outside-in approach forces the organization to fully understand its customer and the market. Potentially, it could even lead to a redesign of the supply chain to better deliver value and streamline the process, as opposed to optimizing the current-state network built around existing assets.

What we’re really advocating here is to look at things from the perspective of the customers—the people who pay the bills. This entails getting out and meeting them, understanding their pain points, finding out what’s really important to them. Taking a customer-centric approach helps the supply chain professional develop a non-biased understanding of how you create value. You discover that what you had believed to be true is irrelevant; rather, it’s the needs of the customers that really count. Harold Geneen, the former CEO of ITT, put it this way: “You read a book from the beginning to end. You run a business the opposite way. You start with the end, and then you do everything you must to reach it.” The “end” Mr. Geneen refers to is the customer.

The following example illustrates the need for outside-in thinking among supply chain people. One CEO we interviewed was challenged with how to grow his company. His sales people were especially frustrated. They were getting beat up on one end by stronger branded companies and on the other end by lower cost, private label manufacturers.

When the CEO asked one of his major customers how his company could obtain more business, the client quickly responded by saying, “You tell me!” While the CEO understood the power of “outside-in” thinking, he was struggling with how and particularly who in the organization could help develop objective answers to this question. In other words, who could identify and define the value they could provide the customer?

The sales force might have been the obvious first choice, but the CEO was concerned that his sales people were not trained to methodically address the challenges and opportunities represented by this customer. The CEO wanted instead to turn to his supply chain people because, in theory anyway, they were perfectly positioned to understand and uncover value that could be provided to the customer. Unfortunately, however, his supply chain people had not been well trained or experienced in customer interaction. They had simply not positioned themselves to know the end customers.

As this example illustrates, there is a substantial opportunity for supply chain management executives to not only enhance the marketing effort with their process prowess, but also to play a key role in driving the growth agenda.

Supply chain leaders are, in fact, clearly well positioned to leverage their knowledge of the extended supply chain to help build offerings that provide measurable value. What could those offerings be? What should they be? How does the customer measure value? What components of the supply chain deliver that value? How much is invested in the supply chain to deliver that value? Is our company receiving the appropriate level of return given the amount of value we create and deliver to the customer? Answering these questions requires an outside-in perspective.

The second key to being a growth contributor is to develop world class collaboration skills. Webster’s defines collaboration as “working jointly with others or together especially in an intellectual endeavor.” Sounds simple, right? But in reality, collaboration is a skill that takes hard work and practice to master. It isn’t something you take out of your tool box when and as needed. In successful businesses, collaboration is a way of life. It’s evident across all levels and functions of the organization. Collaboration extends into supplier networks, communities, and other entities that in one way or another, are touched by the business.

Industry leaders recognize that business today is just too complex to “go it alone.” Our survey results confirm this. When the CEOs were asked about their most critical supply chain challenges, the top response, by far, was the need for collaboration with customers and suppliers. (Exhibit 4 shows all of the responses given.) As one CEO put it, “Improved supply chain collaboration up and down the chain, driving top line, reducing costs, improving margins.”

While many CEOs we interviewed believed that supply chain collaboration was central to fostering growth, they also identified it as one of the greatest challenges. One respondent stated: “The sentiment among CEOs is that collaboration with partners does not come in 'big wins.’ It is earned slowly over time.” Another CEO, an avid chess player, provided the following insight: “Building on little advantages will have you ten steps ahead of the other guy. Slight advantages built one on top of another can make the difference between winners and losers.”

While the CEOs uniformly pointed to the benefits of improved collaboration in the supply chain, they acknowledged that they sometimes had difficulty actually making it happen. Digging further into their responses and through follow-up interviews, we identified these success factors to making collaboration work:

1. Define the Benefits. Both parties need to be aware of how they will benefit from collaboration. Incentives must be aligned and activities coordinated to make the supply chain as profitable as possible. And with a bigger supply chain profit pie, the parties can divide the pie so that everyone is better off. The benefits must be clearly defined and quantifiable—complete with good examples to reinforce the point. In some cases this will require one partner to educate less sophisticated partners on the economics of collaboration. Issues that typically need to be addressed here include, “What will I save in inventory costs?” Or “How much will this collaboration improve my profitability?”

2. Make the Investment. The supply chain partners must be willing to invest to make collaboration a reality. This goes beyond spending on technology or resources that focus just on your own operation. Rather, it needs to extend to mutually beneficial investments that will increase the share of the profit pie. This might include, for example, appropriate investments in logistics, packaging, or forecast-sharing capabilities. Or it might mean a new revenue-sharing contract.

3. Earn Trust and Create Mutual Ownership. Collaboration is based on a foundation of trust. Building and fostering such trust happens over time. Several CEOs told us that trust often comes through the accumulation of small victories. Both partners need to become vested in the collaboration efforts and develop a sense of ownership in the initiative. This is particularly important for the “weaker” partner in the relationship. Note that this sense of ownership goes beyond any contractual agreements. Contracts between companies do not ensure successful collaboration; in fact, they can even deter it. Sometimes, sticking to the letter of the contract (for instance, deliveries will be made within X days) can hinder incentives for more progressive collaboration like sharing forecasts or product development information.

4. Dedicate “A” Players. One CEO from a $1.5 billion division of a Fortune 500 company believes that the biggest barrier to successful collaboration relates to people. For collaboration to really happen, he said, the effort has to be led by your “A” players—your best and brightest with boots on the ground. Anything less will not produce the desired results. This is true in the supply chain or in any other part of the business where collaboration is critical, they emphasized. Furthermore, a cross-functional team is typically required since a successful collaboration may ultimately involve many functions of your business.

Several of the CEOs spoke pointedly to this people factor. “You only collaborate with those people who want to collaborate,” one said. “It does not work for everyone. You must reallocate resources to interested partners.” There is inherent conflict that exists between partners in a supply chain, he added. These conflicts must be overcome for the benefit of the supply chain, and ultimately both parties.

Business people have been trained traditionally to maximize their self interest. Successful collaboration requires analytical and business savvy—but as important, psychological savvy. It is the people or emotional side of the equation that is most difficult and fragile. The good news for supply chain leaders is that from a people and process standpoint, they are in a great position to get the collaboration ball moving. And the CEO will be watching.

The last component in getting on the CEO’s agenda is to aggressively develop your leadership skills. Leadership is the mortar between the bricks of business that makes success possible. In fact, strong leadership is often the single most important factor driving the fortunes of a business. Without it, growth is elusive or non-existent.

The best business leaders view leadership development as a lifelong pursuit. Much like star athletes who don’t stop practicing when they reach the top of their game, the best-performing executives continually develop and refine their leadership skills. This commitment to continuous growth is crucial for the supply chain executive aiming to play a major role on the growth agenda.

Traditionally, organizations have looked to their sales and marketing executives for future leaders. These individuals were typically viewed as the most engaging, persuasive, visible, and customer-focused members of the executive team. Supply chain managers, on the other hand, often were seen as behind-the-scenes specialists with limited involvement in the sales and marketing process and even less involvement with direct customer interaction. What can supply chain professionals do to change this perception?

• Get out of your office and opportunistically interact with customers. Join sales executives on customer visits, facility tours, and other activities where customer interaction occurs. Raising your profile and maintaining a high visibility in this way is critical to gaining support and cooperation for your ideas.
• Be a great listener. Try to spend 90 percent of your communication time listening. As you listen to customers, prospects and partners, demonstrate sincere interest by frequently seeking clarification, listening closely for unmet needs, and not interrupting. When you have the opportunity to meet with customers in particular, demonstrating strong listening skills will greatly enhance your credibility with your sales and marketing executives. At the same time it allows you to gain valuable insight into your customer’s priorities and concerns. Ultimately, your ears will become your strongest asset.
• Rely on influence. As a supply chain leader, your expertise can significantly accelerate the growth agenda. However, you need to ensure that your voice is heard and people feel compelled to implement your suggestions. Strong influencing skills makes this possible.

Many of us learned early in life that position power is an efficient way to get others to listen and follow our lead. “I am your parent and you will do as I say!” Yet the real skill is learning how to influence through commitment, loyalty and trust, rather than through mere compliance or, at worst, coercion. This reality is especially true for supply chain leaders because many of their most important constituencies lie outside of their formal position power. Understanding the motivation, priorities and concerns of these individuals will help you connect with them and build influential relationships.

• Develop your personal leadership brand. Your brand is really about how others perceive you. Much like powerful consumer brands, a personal leadership brand defines your values; it arrives before you do and lingers after you are gone. By making sure your leadership brand reflects a strong growth bias, you reduce barriers to your ideas and eliminate the perception that you are strictly a one-dimensional executive.

Here is how one senior supply chain officer of a Fortune 200 company (for the purpose of this article we’ll call her Jane Smith) put these core leadership traits into action.

Jane Smith was moving from a consumer products company where she had a wealth of relationship equity to a manufacturing firm that primarily sold to businesses. Coming in, she had little internal credibility other than the inherent endorsement of being hired. So why was she pursued? Simply put, she had something that the CEO wanted badly: she understood the power of marketing. CPG companies and this executive’s firm in particular, are highly regarded for their marketing prowess. And becoming a “marketing driven” company was a key element of his new CEO’s growth strategy.

Smith had practiced supply chain management in a company that viewed SCM as a fully integrated marketing activity. Her marketing orientation, which incorporated important activities like demand-based segmentation, focus groups, and targeted promotion, would prove pivotal to the manufacturing company’s growth strategy.

How was Smith, an outsider with little credibility, going to redefine how SCM was viewed in her new company and become a key player in the CEOs growth strategy? The executive spent the first 90 days listening intently to key constituencies within the organization. She identified the key stakeholders, asked many open-ended questions and listened to what was said—and what wasn’t. She spent only about 15 percent of her interpersonal communication time speaking. As she reviewed her copious notes to identify the challenges and opportunities of her new assignment, the questions significantly outnumbered the answers. While some within the organization branded her as being unqualified, she received positive feedback regarding the quality of her questions, leaving people impressed with her approach.

More than anything, however, Smith needed to overtly establish her leadership brand within the organization. While she couldn’t realistically become a manufacturing expert overnight, she could be seen as an astute growth-oriented leader. She carefully thought about what her leadership brand should be. What images should come to mind when someone hears her name? How would her brand reflect her values, expectations, and objectives? She decided to forge a brand reflecting three key elements: a passion for customers, a strong belief in the power of retaining and developing talent, and a belief that SCM can be a major growth driver. She emphasized these elements in every interaction and was vigilant about “walking the talk.” This branding paid off as she methodically built effective relationships and began making things happen.

The executive also implemented some important initiatives to ensure that her organization aligned to these key brand values. In doing so, she broke the mold that narrowly defined supply chain management as a specialty, separating it from other parts of the organization. She launched these initiatives to sustain the momentum:

• Cross Fertilize. Jane Smith provided top marketing people with experiences in the supply chain organization, and visa versa. In creating these integrated experiences, she aimed to embed a common growth mentality, break down stereotypes about who could do what, and build a stronger talent pipeline for the organization overall.
• Create the Right Skill Sets. Smith compared the existing position specifications for leaders in the supply chain organization to those of general managers. What she found were some significant differences. While supply chain management clearly requires some unique skill sets and experiences, it also calls for strong general management skills such as excellent interpersonal and communication capabilities with the ability to organize, direct, and motivate people.
• Invest in Leaders. To build stronger generalist skills, she sent the company’s supply chain leaders to well-regarded executive education programs and offered them coaching to accelerate development.
• Recruit Top Talent. Having established growth as her brand, she needed to make recruiting people with the skills necessary to play and win a top priority. To achieve this, she brought in talent from outside her new firm’s industry in the belief that a diversity of perspectives was essential to significantly change the culture.

As the meeting mentioned at the very beginning of this article was coming to a close, the CEO reiterated his charge to his executive team: Establish a plan for profitable growth within a month.

As the senior supply chain executive on this team, what competencies and points of view would you bring to the assignment? Put another way, what would you do to position yourself front and center on the CEO’s growth agenda?

As we’ve suggested in this article, you should proceed with a three-part course of action. First, you need to think beyond cost. What do your customers value? How do they use your product? What value can you, the supply chain executive, add to the relationship? To answer these questions, you must begin to expand your reach to interface with the customer. (Remember, this is not the sole domain of the sales or marketing functions.) You need to think with a customer-centric focus and adopt an outside-in approach that goes beyond the mental confines of cost.

Next, you need to further develop your collaboration skills. Begin by working closely with the sales and marketing organization. What can you learn from them about your customers and how they view the effectiveness of your supply chain? You must also learn to interface directly with your customers and suppliers. Effective collaboration requires people interaction. There is no substitute. What services or product changes will add value? Recognize that successful collaboration—both within your own company and with your suppliers and customers—is a significant area of opportunity that remains largely untapped in many companies.

Finally, your efforts must be coupled with a commitment to grow your leadership capabilities. You must be viewed as being able to add value to, and thus have a major influence on, the growth agenda. Improvements in the supply chain are more than just incremental advances to increase efficiency or lower costs. They must also include value-generating initiatives based on your improved customer interface and collaboration efforts.

This is not an easy assignment. In fact, it represents a new role for you and your organization. And it will have to be backed up by better hiring and training of your people. But successfully tackling this task is the way of getting on, or back on, the CEO’s growth agenda.

Supply chain management can and should be leveraged to drive revenue growth. Well-managed supply chains clearly support integration within the four walls of a company. But even more importantly, they represent the connection point with the outside world of customers and suppliers. Supply chain leaders focused on customer value creation will help to shape the growth agenda for their businesses.

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