An efficient supply chain can add value, enabling a company to develop products and services, as well as enter new markets, in a digital age
Ten to fifteen years ago, supply chain representation at board level was highly unusual, although this has changed rapidly over the last decade, accelerating with the evolution of e-commerce.
While a study in 2006 by Vlerick Business School indicated that only around a quarter of supply chain leaders were on the boards of businesses, research by Cranfield School of Management and EFESO Consulting found that by 2012 well over half the companies it surveyed globally had placed their most senior supply chain executive on the board of the business unit.
A follow-up study this year is set to update these findings and Professor Alan Waller, vice president for supply chain innovation at EFESO Consulting, expects the figure will now be substantially higher, perhaps 60 to 70 per cent.
A business-wide process
This increased focus within the boardroom on the supply chain is due to a number of developments, but notably globalisation, which has increased the length and complexity of supply chains as well as their relative cost within most businesses, and the development of e-retail, multichannel and omnichannel retailing.
Perry Watts, chief executive for UK and Ireland at DHL Supply Chain, says lean processes in manufacturing and inventory management that demand a highly visible, controlled and agile supply chain have also contributed.
Historically, companies tended to think of supply chain principally as an internal cost, with its function and expertise divided across manufacturing, procurement, merchandising and sales, and the traditional physical logistics activities.
But those departments had priorities that often conflicted, creating cost within the business, Mr Watts notes. Today’s supply chain is designed to unite these functions in a coherent, business-wide process.
Speed and service levels delivered by a company’s supply chain can materially affect sales performance
Companies now tend to think in terms of the extended or end-to-end supply chain, including suppliers and suppliers’ suppliers, customers and customers’ customers. “So if a company wants to optimise supply chain performance, it has to look at the performance of its suppliers, its channels to market, its logistics service providers, the outsourced manufacturing, near-shoring, far-shoring or whatever it might be,” says Professor Waller.
Integrating supply chain
And supply chain is also now increasingly seen as something that can add value, not just cost, enabling the company to develop new propositions for the customer, reach into new markets with existing products and into existing markets with new products – a tool for marketing, he says.
Professor Waller stresses the importance of the integration of supply chain with business strategy “and that is the role of the board”, he says.
Speed and service levels delivered by a company’s supply chain can materially affect sales performance, adds Mr Watts, with the internet encouraging customer experience – good or bad – to be widely communicated.
The success of, and competition from, highly visible and influential companies such as Amazon have also further increased this focus on the supply chain, to the extent that few companies internationally can now fail to recognise its competitive value and importance.
Richard Wilding, professor of supply chain strategy at Cranfield School of Management, says the “revolution” in omnichannel retailing in the last two-and-a-half years means that, in retail, it is now the supply chains of companies that are competing.
“Having the product is like a qualifier, but it is the whole ‘service surround’ – the demand fulfilment part of the operation – that is becoming increasingly important. And that, or course, is totally supply chain dependent,” he says. But companies offering free delivery and returns can haemorrhage money without a supply chain director in the boardroom who truly understands the cost to serve a customer, he notes.
The effects are also spreading beyond retail throughout business, Professor Wilding says, with consumer-facing companies passing on their customers’ demands and expectations to their own suppliers, “creating a trickle-up effect within the supply chain”.
With business leaders increasingly recognising supply chain management as critical to delivering the business mission and maintaining or achieving competitive advantage, those with the necessary supply chain skillset are increasingly in demand.
On top of the technical skills that were traditionally part of the career track of supply chain professionals, such as inventory management or warehouse management, relational skills – the ability to manage relationships – are a new focus area for Cranfield, as supply chain management becomes more and more about “the management of relationships of all the various stakeholders in order to create value and reduce cost”, says Professor Wilding.
Today’s supply chain directors also need to think business first, supply chain second; be aligned with corporate strategy; be commercially astute; and demonstrate leadership. International experience is also increasingly important, as is breadth – experience in other parts of the organisation, he notes.
They also need to learn to speak “the language of profit”, says Professor Wilding, something that is essential for communications within the C-suite, but also vital to get the necessary buy-in throughout the business, enabling the implementation of the supply chain strategy.
Indeed, the Cranfield-EFESO study found that around half of companies’ supply chain strategies are never fully implemented, even when the discipline has representation within the boardroom.
Meanwhile, other organisations may be slower to adapt to a more supply chain- orientated approach. “Each company is different and needs to assess what will maintain its competitive advantage,” DHL Supply Chain’s Mr Watts concludes.