This is the first in a series of vignettes about supply chain that I will be sharing as part of my experience as an Executive Supply Chain Partner for Gartner. Since I spend so much time traveling to and working with clients, I’m calling it “Sojourns of a Supply Chain Road Warrior.” The stories will all be real but will never identify the actual companies or individuals involved. In every story there will be a message about the challenges and successes of supply chain teams and leaders.
This first piece is about a process manufacturing company and the clarity of goals and expectations on their supply chain.
One element of our service program for Chief Supply Chain Officers is our on-site qualitative 360-degree interview process. We interview key members and constituents of the supply chain organization to get a deeper understanding of the client’s supply chain strategy, organization, culture, people, process, technology, challenges, and risks. What we learn gets folded into our engagement plan with the client.
During the interviews at this company, one message came out very clear – the company cared a lot about cost.
It’s Cost, Right?
As I flew back home from the day of interviews, it struck me how often cost was mentioned. It was apparent that reducing cost was driving a significant share of mind throughout the organization. The planning, procurement, logistics, and customer service people all spoke of lowering cost. Since this company deals with the conversion of raw materials to finished products, the risks and benefits of inflation and deflation were brought up by everyone.
We ask about the top metrics in the organization as part of understanding how the supply chain measures success and how the supply chain itself is measured. Cost was unequivocally the #1 metric cited throughout the day. When probed for cost versus margin – the answer was consistently cost savings, cost reduction, cost this, and cost that.
The old-school procurement buying criteria priorities cliché came to mind … “It’s price, price, and price!”
The interviewees were 100% clear – cost was their primary driver.
One Last Check
The last part of the assessment process is a call with one or two of the senior-most executives as a means of checking alignment with what we hear during the interviews. The last call was with the operations leader on the executive staff of the company.
I asked about the expectations of the supply chain and their key metrics early in the final interview call. The executive talked about the bigger role the company needs from their supply chain to drive the business. Then he called out the supply chain’s role in driving profit.
I had to ask: “What about cost reduction? The people all said how important cost reduction was. No-one mentioned a word about margin or profit.”
We discussed the difference between materials cost reduction as a primary focus and the broader role of supply chain driving end-to-end improvements. The latter was where he saw the most opportunity.
Somehow, the team was not hearing this the same way.
Something was lost in translation. Somewhere between the executive suite and the managers and directors leading the supply chain functional organizations, profit was replaced by a maniacal focus on cost reduction.
Supply chains are always in the hot seat when it comes to cost management. Millions and millions of dollars are spent to produce and deliver products and then service them. The most mature supply chains look beyond pure cost and focus on driving value across their network. Value may be achieved by bringing products to market faster or aligning closely with suppliers to bring innovation to the market or by providing services to customers beyond the actual product being delivered.
A supply chain that focuses too narrowly on cost misses the opportunity to see and integrated, end-to-end view of the world. This type of focus leads to an inside-out view of the world instead of outside-in where customer value looms. When the supply chain becomes insular, value escapes through the crevices between the many nodes of the supply chain network.
The guidance to the client’s executives was the need to clarify the importance of profit and margin over cost. They needed to highlight where cost reduction was important and where end-to-end value to their customers was essential to their success. The executives needed to accentuate the perspective of profit as something the supply chain had to drive for the company end-to-end. Only then will the supply chain focus on the most opportune areas to drive the profit that the company wants and needs.
Does your supply chain clearly understand their key business objectives? Don’t let it get lost in translation!