The Real Supply Chain Challenge Leadership and Talent Management

The Real Supply Chain Challenge Leadership and Talent Management

The best supply chains appear to be complex, precise machines with millions of moving parts that mesh efficiently and function flawlessly. In fact, the supply chain not only appears to be a machine, but also heavily employs machinery from the humble forklift to various transportation vehicles to the most sophisticated communications and information technology. But a focus on mechanics, literal or figurative, misses what has become the critical differentiator in supply chain performance today: leadership. Having the right leaders in place with the key skills and competencies required to transform the supply chain into a real difference-maker for revenues and profits has become the number one factor that sets top supply chain performers apart from the competition. Tom Reynolds Egon Zehnder International Atlanta

The Real Supply Chain Challenge Leadership and Talent Management Creating Value with the Supply Chain It s no secret that companies with superior supply chain performance also achieve superior financial performance. Since the inception of AMR s Supply Chain Top 25 in 2004, the companies on this annual best list have outperformed the market, often by significant margins. For example, the portfolio of 25 companies on the 2007 list averaged a total return on equity of almost 17.89% for the year, compared with returns of 6.43% for the Dow Jones Industrial Average (DJIA) and 3.53% for the S&P 500. 1 These top-performing organizations have redefined the supply chain. They see it as: An integrated end-to-end system, not isolated silos A value-adding process, not a cost A comprehensive supply web or supply network that provides critical differentiation from competitors, drives demand, uncovers opportunities, and makes investments easier to justify This redefinition is also no secret. Many companies recognize the need for a comprehensive, integrated approach to the supply chain. They know that while cost remains an important consideration, supply chain organizations that focus exclusively on cost at the expense of value creation are increasingly seen as laggards. Moreover, best practices 1 How has the Top 25 fared in the recent bear market? AMR reports that since May 29, 2008, when the 2008 list was announced, and September 29, 2008, when the Dow fell 778 points, losing 7% of its value in just one day, the Top 25 continued to outperform the market. During that period, the Top 25 list dropped only 13.6%, while the Dow dropped 18% and the S&P 500 fell 20.9%. 1 Egon Zehnder International

The Real Supply Chain Challenge Leadership and Talent Management have sprung up around many of these issues and technology continues to keep pace. Many companies also understand that the human factor can make all the difference. In a recent survey of executives, CSC found that the top two critical factors for meeting supply challenges in the future are top management support and capable supply chain management leadership. 2 Answering the Question of Leadership In sum, many leading companies understand that the supply chain can provide a rich source of value creation. They are aware of best practices. They continue to scan the horizon for new technological developments. And they proactively strive for continuous improvement. Most importantly, they recognize that success ultimately depends on supply chain talent and leadership to put it all together. But what they often struggle with is how best to approach the talent issue. Too often, they may simply put the most What is the Supply Chain? Representative Supply Chain Example Planning Dashboard Key Supply Chain Performance Indicators Supplies Fulfillment Providers 3PLs SUPPLIER COMMUNICATION Supply Process Performance Monitoring Collaborative Planning Sourcing Fufillment CUSTOMER COLLABORATION Key Supply Chain Supporting Processes Demand Shaping Dynamic Profitable-to-Promise Consumer-Driven Demand and Replenishment Planning Intergrated Planning and Execution CUSTOMER COLLABORATION Demand Management Demand Forecasting Promotion Planning Merchandise Planning Replishment Planning CUSTOMERR COMMUNICATION Stores POS Data Other Sales Channel Competitors Information Manufacturing & Distribution Operations Adaptive Technology Foundation 2 2008 Global Survey of Supply Chain Progress. 2 Egon Zehnder International

The Real Supply Chain Challenge Leadership and Talent Management experienced or best candidate in a key supply chain role. Experience and general qualifications are of course important, but fully leveraging the advantage of superior talent requires a far more systematic approach. In our experience, such an approach begins with three essential elements and three corresponding questions: Organizational capabilities: What skills and attributes must the supply chain organization possess if it is to be a real difference-maker for revenues and profits? Leadership competencies: What are the indispensable abilities that supply chain leaders need to lead such an organization? Talent management: How does the organization identify and develop supply chain leaders that possess the requisite competencies? Answering those questions satisfactorily and turning the answers into action every day might not get you into the top 25 overnight, but it could start you well on your way. This strategic use of supply chain requires an agile organization that is capable of developing, improving, and executing strategy capabilities that reside not in a single individual but in the organization itself. Organizational Capabilities: The Strategic Supply Chain In recent years, more and more companies have learned how to use the supply chain to make a strategic difference. Among AMR s Supply Chain Top 25 for 2008, Apple has long appealed to the market through innovation and design, but has been so successful that the resulting demand and fulfillment pressure has made the company s supply chain the unsung hero of, for example, the successful roll-out of the iphone. Dell Computer, number three on the list, has enjoyed a long run of success with its pull-driven, build-to-order business model, which leverages the company s extraordinary supply and manufacturing capability, supplier partnerships, and e-commerce technology. Wal-Mart, at number six, has famously used its supply chain to hold down prices, enabling the discounter to become the largest company in the world. This strategic use of the supply chain requires an agile organization that is capable of developing, improving, and executing the strategy capabilities that reside not in a single individual but in the organization itself. Schlumberger, the oil field services company and also in the Supply Chain Top 25, has built a supply chain organization 3 Egon Zehnder International

The Real Supply Chain Challenge Leadership and Talent Management of more than 2,200 people who as a group provide the company with its organizational capabilities in the discipline. These capabilities run the gamut from strategy to operations and include the ability to: Strategically align the supply chain with the business to drive revenue Enable supply chain-based go-to-market strategies Integrate strategic suppliers and customers for competitive advantage Maintain an agile, responsive supply chain Leverage the global supply chain to drive efficiencies Apply innovation and technology for strategic, operational, and cost advantages Execute supply chain processes flawlessly Work cross-functionally throughout the enterprise to maximize business impact These are the skills that the supply chain organization must possess if it is to make a real difference for revenues and profits and to be regarded as a full-blown business discipline as important as Finance or Sales & Marketing for the performance of the company. Top supply chain leaders must be able to develop these organizational capabilities where they are lacking, strengthen them where they are weak, and change them when necessary. Leadership Competencies: What It Takes As leading companies redefine the supply chain discipline, they are also redefining the supply chain leader s role. About 40 45% of major companies have created the role of Chief Supply Chain Officer (CSCO). As the job title suggests, the role is being elevated to the level of top leadership. Many CSCOs report directly to the CEO or the President, who expect the supply chain leader to perform as a business partner. But whether these supply chain leaders are called CSCOs or hold some other title, they will need to have some highly specific leadership competencies. Not surprisingly, these leadership competencies reflect the organizational capabilities that the leader must create, maintain, and improve. Because most of those organizational capabilities involve strategy, the supply chain leader must have strong strategic orientation. In addition to aligning the supply chain to execute strategic plans, strategically-oriented leaders will develop supply chain-driven strategies that make a real competitive difference. Such strategies require an innovative synthesis of technology, procurement, logistics, and market knowledge as well as the ability to adapt quickly to changing competitive conditions. 4 Egon Zehnder International

The Real Supply Chain Challenge Leadership and Talent Management Market knowledge an understanding of operating conditions for the business, the competitive landscape, and key customer segments is particularly important. Without market knowledge, even a strategically-minded supply chain leader is likely to see technology, logistics, or cost as inherently conferring competitive advantage rather than letting the market determine what is most advantageous. To transform the supply chain function into a partner to the business, the supply chain leader must also be able to translate traditional supply chain metrics to measures of business results and financial impact. That means understanding precisely how the company makes money and what really drives the business and then configuring supply chain processes in line with those drivers and imbuing the supply chain operation with a sense of business mission. But no matter how strategically brilliant or business-savvy supply chain leaders may be, they cannot simply operate by decree. They must be able to collaborate with suppliers and distributors, with people in other functional areas, and with business leaders and top management to collectively determine superior approaches to supply chain-driven competitive advantage. They should also possess strong influencing skills and be able to navigate a complex, highly-matrixed, and inter-dependent organization to achieve collective success. To transform the supply chain function into a partner to the business, the supply chain leader must also be able to translate traditional supply chain metrics to measures of business results and financial impact. Closely related to collaboration and influencing skill and just as important for today s supply chain head is the ability to lead teams. As senior supply chain roles continue to evolve, the staffs of the executives who fill those roles must also develop new skills and capabilities. Top supply chain leaders will therefore need a strong grounding in general management and leadership development and be capable of assembling and guiding increasingly sophisticated teams. They must not only be able to lead teams, but also to lead change. New supply chain systems and technology don t create change; leaders do. Faced with rapidly evolving technology, the challenges of global operation, and the relentless pressure to innovate in supply chain, supply chain leaders must be adept at understanding the barriers to 5 Egon Zehnder International

Development Planning The Real Supply Chain Challenge Leadership and Talent Management change and to adoption of new ways of working and know how to overcome those barriers. At the highest level, they must be able to create an agile culture that can continually adapt to change. With a clear understanding of the leadership competencies required to create the organizational capabilities of the strategic supply chain, the organization can then take steps to ensure that it has the right leaders now and can continue to develop them for the future. Talent Management: Securing the Right Competencies The critical first step in securing the right competencies is to undertake a constructive appraisal of where the company currently stands in terms of the organizational capabilities needed to create and sustain the strategic supply chain. The emphasis is on constructive. The purpose of the assessment is to identify as dispassionately as possible any gap between needed organizational capabilities and the competencies its people possess. High Performance Companies Consistently Have Talent Management Plans That Support Their Overall Strategies Recuiting Sucession 2 6 Planning On-boarding 5 1 Competency Management 4 Assessment 3 6 Egon Zehnder International

The Real Supply Chain Challenge Leadership and Talent Management The first phase of the appraisal should establish the competencies that will be used to evaluate executives. This encompasses the competencies discussed above, but they must be refined and adapted to the specific organizational capabilities required by the company s business strategy. Each individual is then assessed against this evaluation framework, benchmarked in detail against relevant comparative organizations around the world, and assessed in terms of future potential. From the analysis of the findings for the entire supply chain group, a picture will emerge of the company s current organizational capabilities in supply chain, including any skill gaps and critical competency issues. This enables leaders to take decisive action on appointments, to embark on longer-term strategies for individual or team development, and to determine whether the company needs to look externally for top supply chain leadership with the requisite competencies. Beyond this first step lies the company s overall approach to talent management. High-performing companies consistently maintain talent management practices that support their overall strategies by ensuring that they have the competencies that they need. In fact, it s helpful in this regard to think of talent management as competency management. Each phase of talent management recruiting, on-boarding, assessment, development planning, and succession planning can then be seen in light of continuing to identify, secure, maintain, and develop the leadership competencies required to maintain the organizational capabilities of the strategic, value-creating supply chain. 7 Egon Zehnder International

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