Top Supply Chains Favor Leadership Over Process
By Darrell D. Edwards and Stuart M. Schmidt, Ph.D.
Supply chains are internal superhighways, deeply integrated in all organizational functions. They have the unique capability to span facilities, divisions, departments and teams while generating accretive value for the business. Therefore, as companies search for new ways to create competitive advantage, the effective management of global supply chains is uniquely critical — particularly with regards to leadership and cultural components. With this in mind, the authors of this article wanted to explore a few key questions:
- When organizations have similar markets and resources, why do some thrive while others struggle?
- Can an engineered supply chain process be so good that, regardless of its leadership, the supply chain always delivers?
- Are leaders able to make a real difference in performance by creating a superior supply chain culture?
To answer these questions, we conducted interviews with 23 supply chain executives from small, midsize and large companies. We specifically selected businesses with winning global supply chains. Their success was measured based on five generally accepted dimensions: gross profit percentage, the earnings per share price of company stock, change in revenue, inventory turns and net income. The supply chains were also evaluated according to the degree they practiced workflow integration, incorporated standardization, used lean tools and approached operations systematically.
While this was not exactly a scientific study performed by a research firm, our conversations with these supply chain front-runners made it crystal clear that best-in-class supply chains put leadership above process. We discovered numerous themes in support of this finding:
- Global supply chains create value within their organizations, and great leadership is a foundational strategy for doing so. This is accomplished by adding highly skilled professionals to the supply chain team, integrating all functional aspects of the supply chain, and leveraging their scale in practically every area — commodity spending, global sourcing, talent management, sales and operations planning (S&OP), and so on.
- In top-performing networks, supply chain processes are not as standardized across the business as one might think. Instead, leadership autonomy and different approaches and perspectives from site to site are encouraged, especially if performance is superior.
- Having a people-oriented culture is critical. One vice president of global supply chain who we interviewed shared an example of a complete cultural transformation: His department had been primarily focused on transactional work. Employees viewed their role as completing a specific number of digitized products within a specific time horizon, nothing more. But when this vice president was able to show them how their work linked to company objectives and overall strategy — and indeed influenced stock price — this all changed. Not only was morale significantly improved, but after the leadership intervention, the previous 18-to-20-day time horizon for the design of product to digitization was reduced to only 24 hours.
- Leaders of superior supply chains know they can make a positive difference while performing their roles. They thoughtfully consider how they spend their time and are enthusiastic about the efficacy of the soft side of leadership compared to the hard science of process.
Based on what we learned, following are five ways to emulate this highly effective supply chain leadership.
First, senior supply chain management must champion supply chain strategy. By clearly and effectively doing so, these executives demonstrate to the entire leadership team a strong connection to organizational alignment. In addition, a thoroughly developed and well-executed supply chain strategy creates even greater value for the business. Success within the global supply chain, as in so many other areas, starts at the top, and having a seat at the table is a critical.
Second, the supply chain function must be viewed as a key income generator. As we continue to shift toward a digital economy, a company’s supply chain becomes increasingly more important and strategic. Modern supply chains have finally grown up, and their value now transcends the movement of goods from location to location. When supply chains are viewed as a core capability, they are not only expected to protect against cost avoidance, but also to generate accretive income for the business.
In addition, both customer- and performance-oriented culture must be considered critical to supply chain strategy. The leaders we talked to leverage the qualitative attribute of culture as a business enabler — in other words, they use culture to drive results. Organizational management is much bigger than simply managing numbers and customers; it also means managing the environment in which people exist and supporting employee relationships.
Excellent supply chains also operate within a high-performance culture where everyone contributes. The competitive landscape is increasingly more global where challenging. To remain relevant, it’s no longer sufficient for supply chain leaders to be just as good as their peers across the state or county; now, they must outperform competitors all around the world. Companies do keep score, and the expectations heighten each year. The best supply chain leaders understand this and rise to the challenge.
Finally, as businesses strive for continuous improvement, supply chain management is a significant contributor and creates ongoing stakeholder value. Sustainability and business continuity are much discussed concepts today. They are all about investing in the supply chain and building infrastructure as a strategic value-creating capability. This infrastructure likely has both a talent and process component. For most companies, gone are the days when global supply chain was merely a transactional function used to support core competencies. This archaic view has now been transformed — replaced with a more long-term perspective, through which the supply chain becomes a core competency.
One executive we interviewed related how the value created by his company’s supply chain has led it to become a key enabler. He explained that he and his team built capabilities that previously had scarcely existed, with leadership as their foundational strategy. First, they added highly skilled professionals to the team in core areas. Then, they integrated all functional aspects of the supply chain and leveraged their scale in practically every area: commodity spending, global sourcing, talent management, and S&OP. If it was a supply chain function, they leveraged it to fuel business growth. The results were impressive. During his seven-year leadership tenure, operating income increased by about 60%. Perhaps even more importantly, supply chain is now viewed as an income generator and a critical part of the overall business strategy.
PUTTING IT ALL TOGETHER
Within the universe of today’s supply chains, the one common principle that is most obvious and, frankly, most compelling, is that leadership is more critical to success than process management. Clearly, as with all complex systems, there is no one-size-fits-all strategy, but when a choice must be made between competing priorities, focusing on leadership achieves the greatest results.
LEADERSHIP INSIGHTS FROM THE INTERVIEWEES
“The real issues occur when there are things totally out of the ordinary to get through. That’s when true leadership comes through — or doesn’t. Leadership makes or breaks your supply chain.”
—Vice president of global supply chain
“Surround yourself with incredible talent — smarter people than you are, people who are willing to work harder than you are — and you’ll probably be successful.”
—President of supply chain
“You can’t drive process excellence without great leaders.”
—Senior vice president of operations and engineering services
“Leadership gets people rallied around how to establish the process that is most appropriate for the situation.”
—Vice president for supply chain and operations
“What’s the fundamental driver of our success? We really, really drank the Kool-Aid on the power of the people.”
—President of supply chain
Darrell D. Edwards is senior vice president and chief operating officer for La-Z-Boy Inc. He leads an operations team of approximately 5,500 employees in the areas of manufacturing, global procurement, distribution, lean engineering, S&OP, customer experience, and research and development. Edwards may be contacted at email@example.com.
Stuart M. Schmidt, Ph.D., is a professor of human resource management at the Fox School of Business and Management at Temple University. His research spans several fields including leadership, organizational politics, virtual authority relationships, cross-cultural team relationships and power dynamics. Schmidt may be contacted at firstname.lastname@example.org.