Top executives are recognizing how supply chain excellence affects the bottom line.

In Part I of this two-part series, the authors of The New Supply Chain Agenda outline the five pillars of excellence that form the foundation of that agenda and how it ultimately makes its way into the executive suite and boardrooms as more firms realize that the pathway to shareholder value runs through supply chain excellence.



A company’s supply chain is probably the most underutilized lever to drive overall financial performance and shareholder value. This thesis is heavily supported in the new book, The New Supply Chain Agenda, by Reuben Slone, Paul Dittmann, and Tom Mentzer.

Our research at the University of Tennessee clearly shows that more and more CEOs, boards, and stock market analysts recognize this new agenda and look to their supply chain as the prime driver of financial excellence. They understand that the supply chain controls most of the inventory; manages approximately 70 percent of the cost; provides the foundation to generate revenue by providing outstanding product availability; and it manages many of the physical assets of the firm.

The Great Recession of 2008-2010 has only increased this focus. In an era of tighter credit, supply chain levers can be used to free cash reserves from balance sheets rather than depending on restricted credit markets.




 

Supply chain as part of the executive team

Because of this expanding role in driving a firm’s financial health, a growing number of firms make sure that their supply chain chiefs don’t just have access to the executive team-they’re part of it. That role requires the that the supply chain executive bring value by educating the CEO and the Board and imparting the knowledge to better understand the company’s supply chain subjects and its critical role in creating economic profit (i.e. net income minus the cost of the capital required to generate that income). The supply chain position in those progressive firms is no longer simply a functional one, but instead plays a key strategic role.




 

Five Pillars of Supply Chain Excellence

In the book referenced above, five pillars of excellence form the foundation of the new supply chain agenda. These are certainly not new on the one hand, but they undergoing a rebirth as they increasingly resonate in the executive suite and in the boardrooms as a critical driven of supply chain excellence and shareholder value.

1.    Talent. Without the right people in place, an innovative supply chain strategy can’t be developed, and certainly can’t be executed.  Finding talent for supply chain positions has difficult and unique challenges due in large part to the cross-functional and cross-company process challenges faced by supply chain executives today.

2.    Technology. The real key is making sure the right supply chain technology is chosen and successfully implemented.

3.    Internal Collaboration involves each function in the firm playing a critical role in a successful supply chain; and developing a clear vision for how they can work together to achieve supply chain excellence.

4.    External Collaboration focuses on how each company can achieve breakthrough results by collaborating externally with both suppliers and your customers.

5.    Managing Supply Chain Change addresses the last but equally critical pillar of a supply chain excellence strategy. Everything else is for naught if brilliant supply chain projects fail in execution. Because of their cross-functional, cross-company nature, supply chain initiatives are simply more difficult to implement than those in other functional areas. wt



J. Paul Dittmann, Ph.D. is Director, Corporate Partnerships at the University of Tennessee, and author (along with Reuben Slone, EVP of Supply Chain at OfficeMax, and John T. (Tom) Mentzer) of The New Supply Chain Agenda (www.TheNewSupplyChainAgenda.com).