After the supply chain debacle of 2020, I thought company boards of directors had seen the light. They realized they could not take supply chains for granted.
Chief supply chain officers escalated to the boardroom table. I figured the EERR (efficiency, effectiveness, respect, resiliency) supply chain revolution was over. Supply chain had respect and could deliver resiliency.
Unfortunately, boards still aren’t focusing on the complexity of global supply chains. That focus is paramount if board members are going to understand how their supply chains can drive competitive advantage.
The Touchdown That Wasn’t
Before 2020, company boards of directors simply assumed their supply chains would work. If supply chains were efficient and effective (EE), you were in pretty good shape. Post-2020, boards cannot make that assumption. So they brought their chief supply chain officers into the boardroom. Supply chain now has a seat at the table.
My reaction? Touchdown! The nearly 30-year evolution of supply chain was complete:
- Efficiency: When coined in the early 1990s, supply chain’s entire concept was reducing costs.
- Effectiveness: By at least 2005, most organizations used visibility to work together, collaborating on sales, stockouts, delivery snags, adding value to your partners and your customers.
- Respect: In 2020, when the pandemic, decades of digital innovation and geopolitical/financial crises combined to break the world’s supply chains, leaders gave supply chain the respect they deserved – respect, in this case, meant paying attention to and elevating Chief Supply Chain Officers (CSCOs) to the C-level.
- Resiliency: In turn, those CSCOs are charged with adding resiliency to their organization’s supply chains.
Right Seat. Wrong Languages …
Unfortunately, supply chain’s seat at the table was kind of like a writer getting invited to Norway to vote on the Nobel Prize for literature. A writer’s dream – except it turns out everybody at the table speaks Norwegian.
The good news is you’re at the table. The bad news is you don’t have a clue what’s going on.
Boardroom Power Dynamics
Sales and finance professionals dominate the executive boardroom.
In board meetings, sales wants more just-in-case inventory. Sales says we’re losing orders because those people over in supply chain will not deliver the products we need. If they did, we could sell it.
The sales team says, “Boss, we’re down 10% because they can’t get us the goods.”
The supply chain pro says, “Hey, it’s not my fault. We were buying products from China. China closed. Since then, China has opened back up, closed again, and opened back up.”
Supply chain is doing the best we can to add optionality by finding alternate sources for raw materials and products.
But we didn’t decide what factories to build or where to build them. We were told to find the lowest cost, even if that left us with single-source supply chains. As we all know, single source supply chains are not resilient.
The Finance Perspective
Then finance starts talking.
Finance says the genesis of the argument is too much inventory. That’s why we’re not successful. If we get rid of excess inventory, then our working capital would not be in a negative position. All that money tied up in inventory is waste.
Finance wants just-in-time inventory to limit the costs of storing inventory. Less inventory is better inventory.
The Supply Chain Dilemma
The supply chain pros think we’re watching a ping-pong match.
We want to add optionality not just with sourcing, but with trucking, transportation and freight forwarding, 3PLs, that kind of thing.
But when we speak up, sometimes we get told to quiet down. We don’t get a word in edgewise. So, we are at the table but have no ability to influence the direction of the company.
I call it tabled but not enabled.
The Planning Conundrum
It gets worse when the chairwoman says we need a plan for 2024.
Finance works on a budget using financial assumptions. Sales comes up with a budget using totally different assumptions. (Insightful leadership experience tip #37: Sales always assumes that you will sell a lot more than you will.)
The supply chain department comes up with our sales and operational plan (S&OP). We need to figure out how much we’ll sell so we can match supply with demand.
The CEO has three different plans. One plan says sales will grow 3%, one says 12%, one says 30%. The board accepted all 3.
Who wins? Likely the 30% growth plan. CEOs like growth. But I can tell you who never wins – the supply chain team.
A Solution: Integrated Business Planning
A solution is integrated business planning (IBP).
The board needs to take the initiative and pore through the finance plan, the sales plan and supply chain plan and turn it into one plan. Supply chain needs to be a critical portion of that plan.
Integrated business planning strategically aligns a company’s business goals with its finance, supply chain, product development, marketing and other siloed functions. Developing a culture of transparency will coordinate operations with strategies and holds staff members accountable.
IBP can optimize resources, improve service levels, reduce supply chain costs, increase productivity, enhance cash flow and boost profits. It enables greater planning accuracy and operational performance, driving real corporate performance like earnings per share, operating margin and working capital.
After all, taking care of customers (the sales department’s concern) is important. Being profitable (the finance department’s concern) is important.
But how you manage optionality within your supply chain is how you accomplish both of those.
Supply chain leadership needs to be enabled and really understand the cause and effect between budgets, product and sales.
I would love to discuss with you how corporate leaders can move into this new era of supply chain leadership. It’s time to move from being tabled to being enabled.
Jim Tompkins, Chairman of Tompkins Ventures, is an international authority on designing and implementing end-to-end supply chains. Over five decades, he has designed countless industrial facilities and supply chain solutions, enhancing the growth of numerous companies. He previously built Tompkins International from a backyard startup into an international consulting and implementation firm. Jim earned his B.S., M.S. and Ph.D. in Industrial Engineering from Purdue University.