April 16, 2018
By Chuck Franzetta
The supply chain affects more than 37% of a company’s operating expenditures. But responsibility for it shouldn’t fall on the CFO’s shoulders.
In many—perhaps most—companies, no one has been given the title and role of chief supply chain officer (CSCO) and there is no supply chain expertise in the C-suite.
By default, the chief financial officer often takes on that responsibility. The CFO probably does not have the time nor the expertise to also function as CSCO, but seldom is there anyone else to turn to. Certainly there is no one who has any comprehension of the full scope of what supply chain management (SCM), or the lack of it, represents to the company.
What the CFO does understand is dollars, and there are a lot of them tied to SCM.
In most organizations, the supply chain affects more than 37% of operating expenditures. It also has an important influence on revenue. A company cannot produce and sell something if it fails to buy and receive the necessary raw materials. In addition, a company must deliver the finished product to customers, in a timely manner, effectively satisfying its customers’ own SCM requirements.
In that way, the supply chain involves nearly every aspect of any firm’s operation, everything from its vendors’ vendors, through production, to its customers’ customers.
Clearly, then, a company’s operations, costs, revenues, and profitability can all depend on having a supply chain executive who understands the supply chain’s connection to the company’s success.
Most senior executives are aware, at least in general terms, of SCM’s impact on operating costs.
However, the CFO often has the most detailed understanding of factors like how revenues can be negatively affected by shortfalls in production. Or how revenues can be positively affected by quickly adapting to new opportunities. Or, lastly, how well-intended efforts to save costs along the supply chain can result in production bottlenecks and unhappy customers.
Most CFOs understand the broad impact of SCM. But most don’t have the time, background, or technical expertise to delve into supply chain issues that can enhance or detract from revenues, such as how managing the product mix can produce higher margins.
Without someone providing the correct overall guidance, companies often launch ad hoc efforts to improve operating efficiency and reduce costs. While often applauded and incentivized, these can take a too-narrow approach and result in unintended negative consequences.
The good news is that CEOs and boards of directors are increasingly recognizing the need to add a supply chain management guru to the executive suite, if not with a “C” title, at least at the executive-vice-president level, reporting to the CEO.
But there’s bad news, too.
First, the role of the CSCO is often not clearly defined prior to making a hire.
Without adequate preplanning, the organizational restructuring is left to somehow evolve after the hire is made. The CFO usually has to play the role of referee as powerful executives try to defend their turf. (Sometimes, the CFO may be one of those executives mounting a defense of her or his own domain.) In far too many instances, the result is internal turmoil and significant opportunity costs.
Second, too often companies make unrealistic assumptions as to the specific talent and experience needed in candidates for the CSCO role. Candidates that are perceived as “ideal” are often currently involved in sourcing or logistics. A deep understanding of both of those disciplines is obviously important.
However, it is equally important that the candidate have a keen respect for the influences SCM has on the manufacturing process (factory planning), marketing, sales, customer service, and other links in the profit chain. The effect on marketing opportunities and the impact on sales are far too often after-thoughts to those charged with SCM planning.
Perhaps the largest issue related to SCM executive talent is the need for technological expertise.
Swarms of vendors offer SCM technologies that claim to provide an organization the best solution to gaining control of its supply chain.
Most of these technologies can indeed enhance SCM control—but only if they are managed by someone who has actual supply chain expertise. Unfortunately, well-intentioned decisions on acquiring SCM technology are too often made by very intelligent executives who are not genuine SCM experts.
More often than not, that results in a hodgepodge of systems, each intended to solve a specific SCM pain.
The systems conflict with one another, do not mesh well with the company’s primary ERP system, disrupt operations, and run up implementation costs—all without delivering the hoped-for improvements in organizationwide performance. Had there been someone charged to manage the full breadth of SCM who had the required technology expertise, the outcome could have been much better.
Since the CFO has the best corporate overview of the supply chain he or she should become the champion of establishing supply chain expertise in the C-suite; of ensuring SCM becomes a core management function; and of recruiting the appropriate talent required for this crucial role.
Chuck Franzetta is CEO of Franzetta & Associates. Since 1981 he has provided SCM consultation, marketing assistance, training, and SCM talent recruitment in diverse industries.
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