Three Big Questions CEOs Should Ask About Their Supply Chain
Before the pandemic economy brought us clogged ports, empty shelves and skyrocketing shipping container prices, CEOs typically viewed supply chain as a transactional issue that could be safely left to their managers. of operation.
But the painful disruptions of the past year have been a game-changer, requiring CEOs to pay greater attention to the subject and begin to treat it as a core strategic area that can drive value and performance.
CEOs need to start thinking more strategically about these issues and asking the right questions to ensure the supply chain is resilient and better aligned with overall business goals.
These questions need to be applied in three key areas: technology, integration with customers and suppliers, and performance measurement.
1. Integrate new technologies
Harnessed in the right way, technology can add value and efficiency, making Industry 4.0 a reality in the supply chain. But it has to be applied in the right areas. Before investing in solutions, CEOs should perform process-based analysis of the supply chain, identifying where technology can add value, reduce bottlenecks and break down silos. Technology can be a powerful way to foster closer integration and coordination between customer demands and supplier capacity, reducing the risk of disruptions.
A cosmetics company we worked with recently, for example, had trouble keeping up with a large order from a customer for a Valentine’s Day promotion because their supplier hadn’t had enough notice to meet future demand. Predictive technology could have allowed him to plan further and give suppliers more time, solving what should have been an easily avoidable problem.
2. Strengthening integration with suppliers and customers
CEOs need to make it a point to truly understand their suppliers and customers, seeing them as part of the same organization rather than separate entities. On the supplier side, this means achieving detailed knowledge of their capabilities and limitations, as well as any other issues that may affect their ability to deliver.
For example, gaining transparency about a supplier’s cash position and overall financial health, as well as vulnerabilities in their own supply chain, will better prepare a leader to avoid potential disruptions. This could be by stepping in with a cash advance, ordering directly from vendor vendors, or switching to alternative sources that have been vetted in advance.
On the customer side, it’s valuable for CEOs to have detailed conversations to understand their needs and position their company as a true partner on supply chain strategy. Customers often stick to old buying patterns out of habit and can benefit from new ideas on how to order more efficiently.
3. Measure Meaningfully
There is a persistent tendency for companies to use metrics that make them look good rather than reflect reality. A manufacturer of building materials that we advised, for example, used figures showing a productivity rate of 90%. In fact, the rate turned out to be closer to 35% because its production line had a much larger capacity than the company was measuring. Improving measurement accuracy and coverage highlights areas where improvements are needed and is a valuable way to streamline processes and reduce waste, helping to reduce pressure on suppliers.
CEOs should explore these issues around efficiency, supplier and customer risk, and measurement in regular weekly meetings with their COOs and other executives with an interest in supply chain management. . If supplier risks prove too high, the response may be to spread sourcing across different geographies or increase production in-house. And production inefficiencies could be mitigated by simplifying product development.
The answers will vary widely, but the important thing is for the CEO to make supply chain management a priority. The global supply shortage has made it clear that the very survival of businesses may depend on it.