Why supply chain professionals make great CEOs

SupplyChainCEOs

The move to an operational role is a common segue for many CFOs seeking the top spot, Business Insider recently wrote. That’s not a coincidence: many companies seek out their CEOs from operational roles, such as supply chain management. A famous example, of course, is Tim Cook, CEO of Apple, who served as COO and head of Macintosh division before becoming CEO. However, Tim Cook is by far not the only case! Alan George Lafley, CEO of Procter & Gamble (P&G), took a commission with the U.S. Navy as a supply officer first, and Mary T. Barra, CEO of General Motors, is known for her strong operations and supply chain management background.

What makes supply chain expertise so valuable for the CEO? In fact, there are two fundamental reasons for the increasing presence of supply chain professionals in the C-suite and the voices saying companies need a Chief Supply Chain Officer (CSCO).

Supply chain excellence is the prerequisite for business success

The supply chain is the funnel through which consumers and businesses get all what they need – in the right quantities, at the right place, and in the right time. With the rise of the e‐commerce and the experience economy, the supply chain has become even more important.

Supply chain excellence is part of the DNA for successful companies like Apple and P&G. In today’s highly competitive environment success depends on understanding the interaction of money, markets and materials. Supply chain excellence pays: Microsoft, Axis Communications and Johnson Controls have demonstrated that well-coordinated work between supply chain and engineering during new product launches makes money. Apple and P&G are the benchmarks for supply chain excellence. In 2015 Gartner moved Apple and P&G into the new ‘masters’ category of the supply chain ranking – the category for those companies that have consistently had top five composite scores for at least seven out of the last 10 years.

Conversely, supply chain disruptions can break a company

As the consequence of lean organisations and highly volatile markets the importance of good supply chain management becomes evident when natural disasters like the eruption of a volcano in Iceland, the tsunami in Japan and the flooding in Thailand risk to stop the production of vehicles or the supply of computer hard discs. The deep understanding of the supply chain does not only help to save cost and launch products successfully but also to avoid severe shocks. Threat lure as well in heavy fines and repercussions for example as the result of the failing to comply with the Dodd Frank Act, which demands to disclose whether products contain conflict minerals financing violence such as tin, tungsten, and tantalum from the Democratic Republic of the Congo.

In light of these two fundamental reasons and the many resulting advantages, opportunities and threats, shareholders and leadership understand the importance of supply chain excellence. The supply chain is central to business models and represents the ultimate source of competitive advantage. This explains why leading companies appoint supply chain professionals CEO. The latest example is Oliver Blume, so far responsible for production and logistics who took the top job at Porsche.

In light of the importance of the supply chain remains to ask whether there is enough available talent. The answer can be found in the Ernst & Young report “It’s Time to Think Differently About Procurement“, which outlines that 48 percent of Chief Procurement Officers (CPOs) see the biggest challenge in talent constraints. Another observation comes from Toy maker Mattel Inc. which says that there is a limited pool of people with the right supply chain skills. This shortage might even be exacerbated by the growing role of technology. But technology is often also the basis for new solutions. However, whether for example artificial intelligence can help to close the supply chain knowledge gap in the boardroom remains to be seen.

This blog was originally posted on the World Economic Forum Agenda.

Image: Gazprom Neft First Deputy CEO Vadim Yakovlev is silhouetted during an interview with Reuters in Moscow, Russia, August 17, 2015. REUTERS/Maxim Shemetov

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