The Supply Chain Should Not Be an Afterthought

How much attention does your CEO pay to the company’s supply chain? A recent survey indicates that many CEOs don’t devote enough mindshare to this part of their operation, even though supply-chain risk levels are rising.

The October 2010 survey by {complink 7473|McKinsey & Co.} of more than 600 C-level executives across a range of industries worldwide is highlighted in the November issue of the McKinsey Quarterly (registration required). More than two thirds of respondents said that supply-chain risk had increased over the last three years, and they expected it to continue increasing over the next five years.

There were six distinct areas, however, where respondents expected risks and pressures to increase the most:

  • Global competition
  • Complex patterns of customer demand
  • Financial volatility
  • Global markets for labor and talent
  • Exposure to differing regulatory requirements
  • Environmental concerns

Many companies aren’t prepared for these challenges. About 25 percent of respondents to the McKinsey survey said they aren’t prepared for more pressure from global competition and more complex customer demand patterns. And 37 percent are unprepared for the other four areas.

The last two, in particular — exposure to regulatory requirements and increasing environmental concerns — were up 10 percentage points compared to the past three years, and yet “relatively few consider it a priority today,” the article notes.

That’s troubling, given that between 40 percent and 60 percent of a company’s carbon footprint resides in its supply chain — from raw materials, transport, and packaging to the energy consumed in manufacturing processes, according to McKinsey research. “Companies would be wise to pursue economically attractive opportunities that address environmental impact in the near term and prepare to respond quickly to any sudden shifts in environmental expectations and requirements.”

A factor in managing risk — communication among business units — is missing in many companies. Between 31 percent and 40 percent of respondents, for example, said that their operations teams never or rarely meet with sales and marketing. That type of cross-functional communication usually happens only if it’s driven by the CEO.

The attention of senior executives, “including hands-on attention from the CEO, is pivotal in managing the cross-functional trade-offs that underpin many supply chain decisions,” says the report. “Yet the role of CEOs at many companies we surveyed is limited or nonexistent.” Some 38 percent of respondents reported that the CEO had little or no interaction with the supply chain, letting the operations people drive the strategy.

Another piece of the problem could be lack of good data. Companies can’t expect to manage their supply-chain risk if they don’t have accurate information on costs and customers. And yet half of the respondents admitted that their companies have little or no quantitative information about incremental costs for materials, manufacturing capacity, and personnel, while 41 percent said they don’t track per-customer supply chain costs at a useful level.

Does this sound familiar? Would your supply chain benefit from more attention from the C-suite?

5 comments on “The Supply Chain Should Not Be an Afterthought

  1. Backorder
    November 30, 2010

    I would say, it is unfair to point out that the CEOs are missing a trick in not attending to the supply chain concerns directly. There is much on their pallete to keep them occupied and I agree that the operations folks are the best people to take care of this. Inter-BU communications are important but to emphasize their importance would be exaggerating one aspect of management as against possibly several others. The head honchos know how to manage risks and doing so without getting dirty with micromanagement tactics is the right way to go about it!

  2. AnalyzeThis
    November 30, 2010

    When I read the line about how 38% of respondents reported that the CEO had little or no interaction with the supply chain, leaving that to the operations people… I was not surprised at all. In fact, I wouldn't have been too shocked if that figure was 50-55%.

    Most CEO-type people I have encountered have little interest in such things. You know, the old cliche about “focusing on the bigger picture.” When it comes to the supply chain, many don't have any particular interest in HOW things get done… they're just interested in getting it done. And cheap.

    The specific details are for someone else to figure out.

    But the upside of this is that there's less clueless meddling. So it's hard to say if more attention would be beneficial or not.

  3. Ms. Daisy
    November 30, 2010

    I totally agree that supply chain should never be an after thought. From a systems management perspective, supply chain management require a systems view of the linkages in the chain that work together efficiently and the monitoring of processes in the business to ensure that they are inter-related and interdependent to create customer satisfaction at the end point of delivery to the consumer.  According to APICS Dictionary, the major part of supply chain management involves design, planning, execution, control, and monitoring of supply chain activities .

    The objective of SCM is to create net value, build a competitive infrastructure, synchronize supply with demand, leverage logistics, and measure performance globally. As a consequence, the operations director must be the one taking the lead in making sure the business works efficiently, ensuring costs is lowered throughout the chain by driving out unnecessary costs and focusing attention on adding value.

    I would not want my CEO to take active role in this, but I would regularly keep him informed on the supply chain activities as part of strategic planning and execution. 

  4. Barbara Jorgensen
    November 30, 2010

    Interesting analysis, although I'm not surprised either. I think the attention of the C-suite depends on how strategic the supply chain is to the company's overall strategy. I believe Michael Dell was directly involved in Dell's supply chain evolution (and still is, I believe).  But they are the exception that proves the rule.


  5. hwong
    November 30, 2010

    Most CEO's are good at sales work, not logistics guru. These days supply chain management does play a strategic role to maintain inventory control and profit margin. One of the key advantages is it lowers the likelihood of missing the market window that could lead to permanent market share loss.

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