Supply Chain And The 3G Effect

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Chief Supply Chain Officers are still a fairly new phenomenon. Compared to more established C-level roles such as Chief Financial Officer and Chief Information Officer, the idea of a board-level executive in charge of all source, make and deliver functions remains novel. The logic of a centralized strategy to manage cost-of-goods-sold, quality and customer service may seem obvious to those schooled in supply chain thinking, but new survey data suggests the rest of the executive team does not always see it that way.

Are we losing our seat at the table?

How Executives view supply chain chartSCM World

Supply Chain as Cost Center

SCM World’s 2017 Future of Supply Chain survey data flags a trend away from the notion that supply chain strategy and business strategy are intertwined and aligned. One question asked of more than 1,000 practitioners lets respondents choose from answers designed to reflect a descending scale of supply chain importance. In 2012 those who believed their CEOs considered supply chain an equal partner outnumbered those who felt they were viewed strictly as a cost center by nearly nine to one. This year that ratio is closer to four to one.

The drop in confidence that supply chain is viewed as an equal partner to sales or R&D is mirrored by a 50% jump in the share who feel they are viewed only as a cost center. Is this truly what board-level executives think about supply chain? And if so, what should we do about it?

Reconciling Cognitive Dissonance

This data feels wrong. We can see the ascendance of supply chain executives to general management leadership roles everywhere. That includes Tim Cook at Apple, of course, but also Mary Barra at General Motors, Brian Krzanich at Intel, Mark Sutton at International Paper, and many more. Plus, who can dispute the massive strategic impact of Amazon on business strategy everywhere? Amazon’s Worldwide Consumer business is led by CEO Jeff Wilke, who, with his roots in chemical operations and graduate work in MIT’s Leaders for Manufacturing program, is about as perfect a supply chain icon as one could ask for. Don’t these examples prove the importance of supply chain to business strategy?

Yes and no. They demonstrate how a deep grasp of end-to-end supply chain thinking can translate into business competitiveness in terms of winning customers and market share, preserving or building margins through operational excellence, and enabling innovation by efficiently scaling good ideas.

Those examples do not, however, map perfectly to the CEO’s ultimate mission, which is building shareholder value. Our failing could be that share price movements reflect a time horizon which is out of whack with the supply chain practitioner’s perpetual quest for continuous improvement.

The 3G Effect

Big private-equity firms, such as Brazil’s 3G Capital, as well as activist investors, such as Nelson Peltz in the U.S., have put a sharp edge on this dynamic. Where large companies could once afford to take a very long view of their operational strategies, today it is essential to be prepared for intense scrutiny at any moment. In principle, activist investors bring a fresh, external perspective to questions of operational strategy. In practice, what they contribute is sometimes little more than short-term margin-enhancement achieved with aggressive and simplistic cost-cutting.

Activists Campaigns ChartMcKinsey & Company

Little wonder, then, that some are starting to see themselves less as partners than as piggy banks. McKinsey’s recent article on activism has useful suggestions that might help restore the confidence that supply chain practitioners felt back in 2012. Among its most important recommendations is to preemptively take an outsider’s perspective when trying to benchmark operational excellence in the organization.

Aligning Supply Chain Strategy and Business Strategy

Returning to Amazon as an exemplar of both supply chain excellence and massive shareholder value creation recalls the famous “Amazon Flywheel.” This image codifies simply, and yet powerfully, how supply chain strategy and business strategy are not just aligned, but also unified.

The Amazon Flywheel ModelAmazon

There are two key lessons to take from this image. The first is that supply chain must understand exactly how its end-to-end operations work in order to systematically build value for customers by managing the basics of source, make and deliver.

The second is that communicating how it works is often just as important as keeping it going. A seat at the table means nothing unless you speak up, so others will listen.

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iStock Photo

Chief Supply Chain Officers are still a fairly new phenomenon. Compared to more established C-level roles such as Chief Financial Officer and Chief Information Officer, the idea of a board-level executive in charge of all source, make and deliver functions remains novel. The logic of a centralized strategy to manage cost-of-goods-sold, quality and customer service may seem obvious to those schooled in supply chain thinking, but new survey data suggests the rest of the executive team does not always see it that way.

Are we losing our seat at the table?

How Executives view supply chain chartSCM World

Supply Chain as Cost Center

SCM World’s 2017 Future of Supply Chain survey data flags a trend away from the notion that supply chain strategy and business strategy are intertwined and aligned. One question asked of more than 1,000 practitioners lets respondents choose from answers designed to reflect a descending scale of supply chain importance. In 2012 those who believed their CEOs considered supply chain an equal partner outnumbered those who felt they were viewed strictly as a cost center by nearly nine to one. This year that ratio is closer to four to one.

The drop in confidence that supply chain is viewed as an equal partner to sales or R&D is mirrored by a 50% jump in the share who feel they are viewed only as a cost center. Is this truly what board-level executives think about supply chain? And if so, what should we do about it?

Reconciling Cognitive Dissonance

This data feels wrong. We can see the ascendance of supply chain executives to general management leadership roles everywhere. That includes Tim Cook at Apple, of course, but also Mary Barra at General Motors, Brian Krzanich at Intel, Mark Sutton at International Paper, and many more. Plus, who can dispute the massive strategic impact of Amazon on business strategy everywhere? Amazon’s Worldwide Consumer business is led by CEO Jeff Wilke, who, with his roots in chemical operations and graduate work in MIT’s Leaders for Manufacturing program, is about as perfect a supply chain icon as one could ask for. Don’t these examples prove the importance of supply chain to business strategy?

Yes and no. They demonstrate how a deep grasp of end-to-end supply chain thinking can translate into business competitiveness in terms of winning customers and market share, preserving or building margins through operational excellence, and enabling innovation by efficiently scaling good ideas.

Those examples do not, however, map perfectly to the CEO’s ultimate mission, which is building shareholder value. Our failing could be that share price movements reflect a time horizon which is out of whack with the supply chain practitioner’s perpetual quest for continuous improvement.

The 3G Effect

Big private-equity firms, such as Brazil’s 3G Capital, as well as activist investors, such as Nelson Peltz in the U.S., have put a sharp edge on this dynamic. Where large companies could once afford to take a very long view of their operational strategies, today it is essential to be prepared for intense scrutiny at any moment. In principle, activist investors bring a fresh, external perspective to questions of operational strategy. In practice, what they contribute is sometimes little more than short-term margin-enhancement achieved with aggressive and simplistic cost-cutting.

Activists Campaigns ChartMcKinsey & Company

Little wonder, then, that some are starting to see themselves less as partners than as piggy banks. McKinsey’s recent article on activism has useful suggestions that might help restore the confidence that supply chain practitioners felt back in 2012. Among its most important recommendations is to preemptively take an outsider’s perspective when trying to benchmark operational excellence in the organization.

Aligning Supply Chain Strategy and Business Strategy

Returning to Amazon as an exemplar of both supply chain excellence and massive shareholder value creation recalls the famous “Amazon Flywheel.” This image codifies simply, and yet powerfully, how supply chain strategy and business strategy are not just aligned, but also unified.

The Amazon Flywheel ModelAmazon

There are two key lessons to take from this image. The first is that supply chain must understand exactly how its end-to-end operations work in order to systematically build value for customers by managing the basics of source, make and deliver.

The second is that communicating how it works is often just as important as keeping it going. A seat at the table means nothing unless you speak up, so others will listen.

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