Before the pandemic economy brought us clogged ports, empty shelves and skyrocketing shipping container prices, CEOs typically viewed the supply chain as a transactional issue that could safely be left to their COOs.
But the painful disruptions of the past year have changed that, demanding that CEOs pay much closer attention to the subject and start treating it as a core strategic area that can drive value and performance.
CEOs need to start thinking more strategically about these issues and asking the right questions to ensure the supply chain is resilient and better aligned with the company’s overall goals.
There are three key areas where these questions should be applied: technology, integration with customers and suppliers, and measuring performance.
1. Incorporating new technology
Leveraged in the right way, technology can add value and efficiency, making Industry 4.0 a reality in the supply chain. But it needs to be applied in the right areas. Before investing in solutions, CEOs should run a process-based analysis of the supply chain, pinpointing where tech can add value, ease bottlenecks and break down silos. Technology can be a powerful way to drive tighter integration and coordination between customer demands and supplier capacity, reducing the risk of disruptions.
One cosmetics company we worked with recently, for example, struggled to cope with a big customer order for a Valentine’s Day promotion because its supplier didn’t have enough advance notice to meet coming demand. Predictive technology could have enabled it to plan further out and given the suppliers more time, solving what should have been an easily preventable problem.
2. Tightening integration with suppliers and customers
CEOs need to make it their business to really understand their suppliers and customers, thinking of them as part of the same organism rather than separate entities. On the supplier side, that means attaining a detailed knowledge of their capabilities and limitations, and any other issues that could affect their ability to deliver.
As an example, gaining transparency into a supplier’s cash flow position and overall financial health, as well as any vulnerabilities in their own supply chain, will better prepare an executive to head off potential disruptions. That could be through stepping in with a cash advance, ordering directly with the supplier’s suppliers or shifting to alternative sources that have been vetted in advance.
On the customer side, it’s valuable for CEOs to have detailed conversations to understand their needs and to position their company as a true partner on supply chain strategy. Customers often stick with old buying patterns out of habit and can benefit from new ideas on how to order more efficiently.
3. Measuring meaningfully
There’s an enduring tendency for companies to use measurements that make them look good rather than reflect reality. A construction supplies manufacturer we advised, for example, used numbers showing a productivity rate of 90%. In fact, the rate turned out to be closer to 35% because its production line had a much higher capacity than the company was measuring. Improving the accuracy and coverage of measurements highlights where improvements are needed and is a valuable way to streamline processes and cut waste, which in turn helps reduce pressure on suppliers.
CEOs should be probing these questions around efficiency, supplier and customer risks, and measurement in regular weekly meetings with their COOs and other executives with a stake in supply chain management. If supplier risks are found to be too high, the answer may be to spread supply to different geographies or to take more production in-house. And production inefficiencies could be eased through simplifying product development.
The answers will vary widely, but the important thing is that the CEO makes supply chain management a priority. The global supply crunch has made it clear that businesses’ very survival may depend on it.