What matters to Top Management?

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Today, company after company is turning to supply chain management (SCM) in order to bridge the gap between trading partners. Focused on improving the flow of material (downstream), the flow of information (upstream), the flow of activities/workflows and last but not least the cash flow through the entire supply chain, supply chain management techniques are used to create networks, or trading alliances, that allow the participating companies to compete externally as though they were one entity. Up to now SCM was mainly a task of logistics, supply chain or purchasing managers within a company. Therefore three key questions arise:

  • What is the perception of supply chain management at top management level (CEO,
    CFO, COO)?
  • How is supply chain management linked to corporate strategy and corporate objectives?
  • What is the impact of eBusiness in supply chain management on strategy and operations?

The study is based on detailed responses of 73 top managers throughout Europe. 41 per cent of the interviewees were Chief Executive Officers (CEOs), 44 per cent Chief Financial Officers (CFOs) and 15 per cent Chief Operating Officers (COOs).The survey was conducted across eleven European countries.

The businesses surveyed represent a cross-section of different industries: Transportation (3 per cent), Utilities (4 per cent), Chemical/Pharma (12 per cent), Facilities/Equipment (11 per cent), Manufacturing (27 per cent), Retail (33 per cent) and Technology Media & Communication (10 per cent).

The survey covered small and medium sized companies with a number of employees less than 1000 and less than e50 annual turnover (20 per cent) as well as big companies (80 per cent).

Observations and Findings
Six top-line findings provide an answer to the key questions:

Top-line finding 1: SCM is a top management issue. Top management formulates supply chain overall performance objectives derived from corporate strategy and corporate objectives. In addition top management supports a break down of overall supply chain objectives on the functional level and is aligned with functional goals and supply chain strategy. Although, all corporate functional departments are involved in supply chain management activities, each department has individual expectations on the supply chain performance.

Top-line finding 2: SCM is a major contributor to fulfil corporate objectives. Supply chain management represents a powerful tool to achieve corporate objectives. A broad range of different supply chain leverages supports specific corporate objectives, e.g. leverages for working capital improvements are inventory reductions, cycle time reductions and improved asset utilization. Sales growth can be achieved through product variety without additional cost, capacity and service improvements as well as responsive cycle times for customers. Total cost structure improvements result from improved capabilities, flexible and reliable manufacturing and integrated short cycle times. In addition eChain solutions such as solutions for ePlanning, eFulfilment, eProcurement and eSales are recognized to have a huge potential to support supply chain management to achieve strategic objectives, but are by far not exploited at the moment.

Top-line finding 3: SCM is expanding in span and scope. Today most companies focus on their internal supply chain and on the integration of their first tier supplier/customer. In the near future companies will significantly expand supply chain span towards supplier’s supplier and towards customer’s customer with a slight shift to more customer integration. One major driver to implement expansion of the SCM’s span is the increase of eChain investments, which enable collaboration with upstream and downstream partners. The SCM scope – the cross company integration of information, product, activity and cash flow – is considered to be a major contributor in the future to achieve SCM objectives such as improved customer service, reduced cost, support growth and higher cash flow.

Top-line finding 4: Continuous investments in traditional as well as in eChain solutions. A comparison of investments in eChain solutions and investments in traditional processes reveals that both investments are focused on the same processes, favouring the top processes ‘understanding customers and markets’, ‘production’, ‘marketing’ and ‘selling products and services’. However, the trend for replacing traditional supply chain investments by eChain investments will continue and increase in the future. Although, the potential of eChain solutions for supply chain management is recognised, companies mostly focus on eProcurement applications. Other methods for integrating supply chain flows, e.g. ePlanning, eFulfilment, eSales, are either not yet recognised or underestimated. Therefore, companies must be educated about the potential of eChain solutions through best practices, benchmarking, and increasing their external focus.

Top-line finding 5: SCM is an inter-functional task. Although core functions like general management, logistics, finance, productions and sales are mostly involved in supply chain management activities, all managers across all corporate functions spend significant time and resources in supply chain activities. As a result, implementation of supply chain management is an inter-functional task involving all departments (from sales to purchasing) and top management as well, as concluded in top-line finding one.

Top-line finding 6: Financial supply chain performance indicators are a prerequisite to communicate SCM results on top management.

Financial supply chain indicators such as supply chain costs, return on supply chain assets, return on inventory investment and others are the essential instrument for each supply chain manager to report SCM performance towards other company functions and towards top management. Bridging the gap between supply chain financial levers impacting the company’s financial value drivers is the key. Non financial supply chain performance indicators such as order fill rates, customer service level, order to customer cycle time, purchase to pay cycle time, response time and others are primarily used internally to evaluate supply chain effectiveness and efficiency.

Customer related and process related supply chain indicators such as order fill rates, customer service level, order to customer, purchase to pay, response time and others are used first of all internally by the supply chain manager to evaluate his supply chain regarding effectiveness and efficiency.Pfohl, H.-Chr.1 / Brecht, L.2 / Elbert, R.3

1 Professor Dr. Dr. h.c. Hans-Christian Pfohl, Darmstadt University of Technology, Institute of Business Studies, Head of Chair of Management; Vice-President of the European Logistics Association (ELA), Head of the Research and Development Committee of ELA.

2 PD Dr. Leo Brecht, Senior Manager and Head of BearingPoint`s Supply Chain, Switzerland.

3 Ralf Elbert, Darmstadt University of Technology, Institute of Business Studies, Chair of Management.

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