Unlike finance or sales, supply chain is a business discipline that’s still very much in its infancy. The conditions giving rise to the Chief Supply Chain Officer role have only been around for about 25 years. Outsourced manufacturing, free trade with China and other emerging economies, and most importantly, connected information systems from ERP to cloud, all make the CSCO a hot seat for the next generation of corporate executives.
The question is, what’s their purpose?
CSCOs on the Rise
A new study in the Journal of Operations Management (Roh et al.) says that formal appointment of a Chief Supply Chain Officer to the top management team correlates with better financial performance as long as the business is highly leveraged, moderately diversified and operating globally. There were 71 new CSCO positions created between 2000 and 2012 among S&P 1500 firms. The performance gap was up to 200 basis points higher return on assets for CSCO equipped businesses with these characteristics. Wisely chosen, these new leaders enabled their businesses to effectively share assets, capabilities and commitments to drive growth.
The difference between this highly strategic role definition and the much simpler traditional view of supply chain as a cost center reflects a huge shift in attitude. As recently as 1999, the supply chain function was still gelling as a cooperative exercise between purchasing, manufacturing and distribution. The glue in those early days was often a Vice President of Supply Chain IT, whose main job was populating and running rudimentary planning engines in pursuit of cost savings.
Low-hanging fruit was everywhere for the first 10 years or so and working capital in the form of inventory got steadily leaner. Costs also came down as better sourcing, logistics and, of course, low-cost country manufacturing combined to essentially destroy the forces behind consumer price inflation. All good, so long as businesses could keep growing profits by cutting costs.
Lately, the game has changed.
Supply Chain Leader as Business Strategist
I recently met with a newly minted CSCO and their 20-person leadership team comprising production, logistics, procurement, IT, HR and strategy. The dialog said a lot about what defines greatness going forward. Instead of dwelling on cost-cutting measures and scrutinizing directives from “the business”, this group bounced through a series of initiatives focused on growing sales through more customized products, better customer retention, faster innovation and exploitation of digital in supply chain.
One participant commented that, although he had worked in manufacturing at the company for 20 years, he hadn’t really thought of it as a career until now. The difference was being asked to think strategically about supply chain as an enabler of growth and competitive advantage.
Whatever your industry, volatility is the new normal. CPG companies can no longer rely on organic growth to expand. Tech firms face ever shorter product lifecycles. Retailers must contend with the hydra effect of digital demand. Industrial manufacturers face commodity price volatility and slowing demand from emerging markets. Even healthcare businesses struggle with uncertainty around payer rules.
Supply chain excellence from now on is about sparking growth with innovation rather than just beavering away at continuous improvement.
Best in the Business
A case in point may help to illustrate.
His ability to connect with CEO Paul Polman’s mission to double revenue while halving environmental impact galvanized not only the Unilever team internally but also customers, suppliers and even competitors. He insisted on basic operational excellence while still pushing innovation with technology and process design in the establishment of a state-of-the-art control tower in Shelton, Connecticut. As one of the first true modern CSCOs, Sigismondi leaves a legacy of business impact, but also inspiration.
The point of a CSCO is to frame business strategy in operational terms and make the impossible happen.
