What are the Critical Skills of Supply Chain Leaders?

Dec. 19, 2007
Supply chain leaders embody five critical skills:hiring the best and brightest, being driven by metrics, having a performance-reward orientation, being technology savvy, and resisting the urge to surge.

What are the critical skills of supply chain leaders? This is a question we have been asked numerous times by CEOs searching for the right person to lead their supply chain strategies. The following are five critical skills that we have observed supply chain leaders exhibit.

First, supply chain leaders surround themselves with the best and brightest supply-chain professionals. The supply chain leader of one textile manufacturer pushes the best-and-brightest idea all the way down to entry-level hiring: "Supply chain management philosophy so permeates our organization that ... if we can just get quality supply chain management MBAs to join our company, they'll move quickly through the decision-making hierarchy and never be tempted to leave us." This company regularly recruits at major supply chain-management schools -- most productively during recessions, when other companies cut back on hiring and top talent can be had more easily.

Second, supply chain leaders are metrics driven. Specifying goals for future improvement requires knowing where you presently are. Supply chain leaders should be able to list and explain the factors affecting availability, working capital, and cost, and push the organization to do supply chain benchmarking and best-practice analysis, and personally review the results. Unfortunately, many firms only measure what is easy to measure.For instance, they do not know the true total system cost of the SKUs they carry or take the trouble to measure the true cost of obsolete inventory, or put inventory carrying cost on internal financial statements.

Third, supply chain leaders, armed with the appropriate metrics, reward performance toward appropriate goals. These leaders establish reward and incentive programs to encourage people to behave in ways that benefit the overall firm -- not just their own functions. At one retail business, the purchasing, logistics, and merchandising managers work in cross-functional teams and are measured and rewarded on the basis of supply chain metrics that assess purchasing costs, logistics costs to get the product to the store (also called "landed cost"), and the selling price in the store. Not surprisingly, these cross-functional teams drive supply chain performance to achieve their bonuses.

Fourth, software, process, and technology advances are rapidly emerging to support sophisticated supply chain management. Supply chain leaders understand these new technologies and challenge the business case for technology adoption. These leaders lead the change-management process, helping drive user buy-in and making certain that proper vendor support, adequate training, and other resources are in place. Moreover, leaders who fully appreciate the challenges of deploying complex and costly systems help their companies avoid classic mis-steps. The CEO of an industrial equipment manufacturer admitted that her company had run afoul of one such pitfall: "We spent $18 million getting an ERP package up and running in our company, and all we did was bring more modern technology to bear on supply chain processes that are 40 years out of date.I expected this technology to bring supply chain costs down dramatically, and nothing has changed. My mistake was expecting technology to solve a process challenge." She is now leading the company through a major effort to understand existing processes, identify opportunities to improve them, and adapt the new system to support the re-engineered supply chain processes.

Finally, supply chain leaders resist the urge to surge and are a voice in the company to avoid these disruptive practices. Sluggish sales for most of the quarter are often capped by an end-of-quarter surge.For example, a large manufacturer of consumer products' quarterly demand with many retailers followed a three-month sales pattern of "low, low, high." In a meeting with the CEO, the head of supply chain management pointed out the extreme costs and supply disruptions created by a quarterly cycle consisting of over-capacity and inventory buildup for two months, followed by rush production and delivery in the third month. The CEO doubted that anything could be done about it since it was the "natural demand pattern." The supply chain leader pointed out that the demand pattern was for disposable diapers, and the fluctuations were entirely caused by the CEO pushing the company into the "urge to surge." By accepting and managing to the quarterly sales numbers, the CEO was implicitly signaling to retailers that, when the company was not hitting its quarterly target, it would offer deep price discounts to make the numbers.Thus, retail customers regularly bought a three-month supply in the third month of each quarter so that low "sales" by the company in the first two months of the next quarter would cause another discounted surge.As the CEO put it, "This was a real revelation for me. Babies pee at a constant rate, but our demand was fluctuating wildly. We had trained our retail 'partners' to take advantage of us and only order in the third month of each quarter, when we were trying to make our numbers."

The CEO subsequently drove the supply chain to offer consistent price and delivery terms every month, saving tens of millions of dollars in supply chain costs (consisting of the combined impact of overtime during the surge, downtime and wasted labor during the slow sales months, and higher inventory costs in anticipation of the coming surge). The company shared its savings in supply chain costs with the retail partners, in effect netting them better prices than under the old, high-cost, urge-to-surge supply chain.None of these improvements would have happened without the supply chain leader playing a change-management role with the CEO.

So, what do we look for in supply chain leaders? Supply chain leaders embody five critical skills:hiring the best and brightest, being driven by metrics, having a performance-reward orientation, being technology savvy, and resisting the urge to surge. The question now before you is, "do the leaders of your supply chain strategies exhibit these characteristics?" If the answer is "No," you may face a competitive disadvantage in your supply chains.

Dr. John T. Mentzer is the Distinguished Professor of Business Department of Marketing and Logistics. He holds the Bruce Chair of Excellence and is the Executive Director of the Integrated Value Chain Forums. www.bus.utk.edu/ivc For over 50 years, University of Tennessee (UT) faculty have played a major role in the supply chain/logistics arena -- conducting innovative research, publishing leading-edge findings, writing industry-standard textbooks, and creating benchmarks for successful corporate supply chain management. Programming is top-ranked in Supply Chain Management Review, U.S. News & World Report, and Journal of Business Logistics. Certification is available. http://SupplyChain.utk.edu

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