The Onset of Strategic Global Supply Chains
In this article, Mark Millar discusses why supply chains are becoming increasingly strategic.
Leading companies are increasingly considering their supply chains to be strategic - as a business enabler, as a revenue driver and as a differentiator. In several sectors, companies compete on the basis of their supply chains, as much as on their actual products.
For many businesses – particularly those in high tech and consumer electronics - time to market and effective distribution channels are critical success factors, and therefore supply chain management capabilities become a source of competitive advantage.
The supply chain embraces every single activity that enables getting products to customers and consequently touches the vast majority of functions within and across a company. World class organisations no longer perceive the supply chain as merely tactical support for business as usual, but take a holistic position that their supply chain is what drives the business. The latest thinking is that the supply chain is the business.
Supply Chain in the Boardroom
A growing trend in recent years is the presence of supply chain managers serving on the board of directors with the role and title of Chief Supply Chain Officer (CSCO). Standing agenda items for senior executives now include supply chain strategy, supply chain execution and supply chain risk.
Research led by Professor Alan Waller OBE of Solving Efeso, in collaboration with Cranfield School of Management, found that - in stark contrast to just ten years ago – amongst well over half of the companies surveyed, the most senior supply chain person now sits on the Board of the business unit. The research report surmised that this trend is accelerating and concluded that ‘the supply chain is an intrinsic element of the enterprise; its ability to adapt quickly to changes in the commercial environment is critical to the financial and market performance of the business’.
A high profile example of supply chain in the boardroom is Apple. Prior to becoming chief executive, Tim Cook was an acknowledged expert in the often low profile but absolutely critical world of supply chain management. His level of operational expertise and experience is essential for Apple’s continued leadership across global markets with global products amongst global competition, where the supply chain drives competitive advantage through time to market, finely tuned global operations, economically efficient logistics networks and simultaneous worldwide product releases.
Having an increasing presence at-the-table in the executive suite means that supply chain leaders have to learn to speak the language of the boardroom in order to operate effectively and succeed.
Supply Chain and the Chief Financial Officer
According to research by the Supply Chain Council, a company’s supply chain is responsible for between 63 and 90 per cent of a company’s total spend – depending on the type of business - however organisations typically measure and report financial metrics by department or product – rather than by supply chain.
Even with many companies having supply chain representation in the boardroom, in reality there is still some way to go before the whole board considers supply chain to be a substantial driving force for the business, in which case there is a real risk of sub-optimising from a strategic planning perspective.
In terms of meaningful engagement with the Chief Financial Officer (CFO), in reality the supply chain has significant material impact on multiple aspects of the balance sheet and profit and loss statements. Supply chain managers can therefore readily translate their activities, influence and results into the business language most suitable for the CFO and the rest of the boardroom – where inevitably money talks!
From the profit and loss perspective, the supply chain function will have a material impact as follows on the business’ income statement:
Likewise, supply chain activities will impact throughout the Balance Sheet. Accounts receivable and cash assets will be impacted by order fill rates, invoice accuracy and order lead times; whilst balance sheet inventory will be influenced by supplier relationships, supplier management strategies and inventory policies.
The fixed asset categories of property, plant & equipment will directly reflect a combination of the company’s warehouse network, insourcing-outsourcing strategies and build-buy-lease decisions. Order quantities will affect current liabilities whilst the financing arrangements for inventory, plant and equipment will influence long-term debt and shareholder equity.
Supply Chain as Competitive Advantage
In our world that is complex, connected and changing fast, the supply chain is more and more being recognised as a key source of competitive advantage and differentiation. Companies strive to build powerful supply chains that will enable them to get their products to market faster, more efficiently and more economically than their competition. Businesses are now competing on the basis of their supply chain management capabilities almost as much as their product or their brand.
Any chain is only as strong as its weakest link – and it’s the same with a supply chain, except that within a supply chain ecosystem the linkages are not consecutive and not linear; there are numerous multi-dimensional connections with profound inter dependencies.
Nevertheless, the strategy of achieving continuous improvement through consistently and persistently working on strengthening the weakest link(s) still applies, and companies adopting such an approach will leverage their global supply chain ecosystem for competitive advantage in our complex, connected world.
Mark Millar is the author of Global Supply Chain Ecosystems, in which he presents detailed and practical insights that help companies capitalise on market opportunities, overcome supply chain challenges and make better informed business decisions. Acknowledged as an engaging presenter who delivers a memorable impact, Mark has completed over 350 speaking engagements at corporate events, client functions and industry conferences across 23 countries. A Visiting Lecturer at Hong Kong Polytechnic University, Mark is recognised in the 'China Supply Chain Top 20', as one of ‘Asia’s Top 50 Influencers in Supply Chain and Logistics’ and in the 2014 USA listing of 'Top Pros-to-Know in Supply Chain'.