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November 29, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Supply Chain, the CEO, and Opportunity

So, is there opportunity for most companies to significantly improve their supply chains?

If the anecdotes in a recent Harvard Business Review article on supply chain management are any indication, many companies are still very early in the SCM game.

Gilmore Says:

"CEO’s who aren’t engaged and knowledgeable in supply chain are likely to have under performance, as it is hard to push an organization for which you have little understanding."

What do you say?

Send us your comments here

The article itself – Are You the Weakest Link in Your Supply Chain? – was authored by Reuben Slone (exec VP of Supply Chain at OfficeMax); Dr. John Mentzer (University of Tennessee), and J. Paul Dittmann, (formerly of Whirlpool and now also at the University of Tennessee). (As an aside, when we did our ERP versus Best-of-Breed supply chain software reports almost three years ago now, I spoke with dozens of people on the topic, and Dittmann was easily the most insightful.)

The article has a catchy premise – that the CEO’s lack of knowledge and engagement in matters of supply chain either lead to operational problems or fail to capture potential opportunities. Our Gene Tyndall did a short summary of the thinking based on a presentation Slone did at the CSCMP conference (see Another Excellent Presentation at CSCMP – “Are you the Weakest Link in your Supply Chain?”)

I’ve spoken with several supply chain execs that have had the courage to send the article on to their CEOs and functional peers – I guess having the source as HBR gives you a lot of cover.

The article offers seven ways CEOs can impact a supply chain, which as Tyndall’s article reported are:

  • Picking the right SCM Leaders
  • Initiating Benchmarks and Devising the Right Metrics
  • Setting Incentives for Supporting Behavior
  • Keeping Up with Supply Chain Technology and Trends
  • Eliminating Cross-Functional Cross Wires
  • Adding SCM Insight to Business Planning
  • Resisting the Tyranny of Short-Term Thinking

Nicely, there is a quiz that CEOs are encouraged to take to assess where they stand along these dimensions. For example, in the area of cross-functional alignment, you score low if your company has no formal Sales & Operations Planning process, and obsolete inventory is rising or unknown; you get a high score if the CEO is personally involved in the S&OP process, and execs in sales, marketing, and SCM are all held accountable for inventory and customer service levels.

The full article and assessment was in the September, 2007 issue of HBR. It’s available on-line for just $6.50, or run down to your local library and the copy machine.

Here are my thoughts:

It’s a great article, and the first I’ve really seen that doesn’t talk all around the role of CEO and supply chain performance without quite getting to the point.

Here are just a few of the many insights worth noting:

  • If the CEO views the supply chain as a “black box” in which stuff happens to move products from source to customer, it’s not only very hard to create the right supply chain focus but even to pick the right supply chain leaders and assess their performance.
  • Similarly, CEO’s who aren’t engaged and knowledgeable in supply chain are likely to have under performance, as it is hard to push an organization for which you have little understanding. Not said in the article, but a natural corollary to this idea, is the common condition of supply chains being mostly driven by the basic metrics, like standard manufacturing costs, not total supply chain costs, since the former is much easier for a CEO to focus on. As a result, sub-optimal decisions are made.
  • Interestingly, the article says CEOs must get much more engaged in matters of supply chain technology – an area where few spend much time at all – as well as key trends, such as Lean and Six Sigma. It suggests that if CEOs were stronger here, the common case of companies under utilizing technology they purchased might be mitigated. A related anecdote from me: I heard that when Jim McNerney came from GE to be CEO of 3M (before moving on to Boeing), a first move was to install a Six Sigma program there. He did this in part by having a couple of hundred top managers come in for several days of training – the entire day 1 of which McNerney led personally. Do you suppose that delivered a message to the troops?

But in the end, what really struck me were the many recent anecdotes in the article that showed the challenges or issues so many companies face. Examples:

  • The company whose sales team promised a customer shipping from regional DCs rather than the plant-direct shipments they had been using, adding significantly to logistics costs with no balancing concession from the customer.
  • Another manufacturer that lets obsolete inventory sit in warehouses for years so it doesn’t have to take the write-down.
  • A major railroad that frequently lets high volume customer shipments sit in terminals, sometimes for days, because terminal managers are incented on how many railcars are moved with available engines, not on keeping great customers satisfied.
  • What is probably a majority of companies whose supply chains are driven by quarterly ordering patterns that have nothing to do with actual consumption but everything to do with promotions, incentives and discounts.

Sound familiar?

There’s a lot more, but I am out of space. Congrats to Slone, Mentzer and Dittmann for a fine article that has received a lot of attention. CEOs should consider the message. So should most of us in the fray. We still have a long journey to go.

Is lack of knowledge and engagement on Supply Chain by CEOs a real barrier to performance? How so? Can supply chain managers really “educate” the CEO in this area? Have you read the article? What struck you? Let us know your thoughts at the Feedback button below.

Let us know your thoughts.

Want a printable version? Go to:


Dan Gilmore


Workforce Management in the Supply Chain Videocast Series

Interest in LMS?

You'll Benefit from this Four-Part Videocast Series

Part 1: On Demand
Getting Real Results from Engineered Labor Standards

Part 2: The Role of LMS Software in a Performance Culture
Dec. 5, 2007

View the Entire Series Schedule and Register Today

Hot Topics in
Supply Chain
Videocast Series

What key new issues and technologies are coming to the forefront of Supply Chain?

Part 1: On Demand Leveraging the Green Supply Chain

Part 2: On Demand
Securing the Global Supply Chain

Part 3: The Ten Keys to Global Logistics Excellence
Dec. 12, 2007

View the Entire Series Schedule and Register Today


This Week’s Supply Chain News Bites – Only from SCDigest

November 29, 2007
Supply Chain Graphic of the Week - Benefits of Labor Management Systems

November 30, 2007 Supply Chain by the Numbers: November 30, 2007


The saga of falling stock prices on Wall Street continued last week and our Supply Chain and Logistics stock index reflected the market’s downward movement.

In the software group, JDA was down 8.8% for the week, followed by Descartes (-7.5%).  In the hardware group, Intermec and Zebra were both down, 4.4% and 1.0%, respectively.  In the transportation group, Ryder was down 8.4%, followed by Prologis and JB Hunt (both -5.7%).             

See stock report.


Weekly On-Target Newsletter
November 27, 2007

Supply Chain InView

by: Tom Wallace

S&OP and Lean Manu-facturing - Can They Work Together?

Lean Strategies are Great - but Sometimes They Need Help


Q. What is a 753 transaction in EDI standards?

A. Click to find the answer below


Reader Question: Can Bucket Brigades Work with Mechanized Order Picking?

Reader Question: Is there a True Global RFID Standard?

See our expert answers at the links above. Share your knowledge or perspective.

Or, ask your question


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're really behind again - bear with us. But keep the letters coming! In the next few weeks, we'll start adding feedback right on specific story pages, so you can see what others are saying.

We received a number of great letters on our First Thoughts piece a few weeks ago on “ROI and the Elephant in the Room,” which suggested that among the reasons why projects don’t meet their ROI estimates is that IT often requires getting rid of employees based on productivity gains, which in practice is hard to do. The article simply pointed out the challenge – what to do about it is unclear.

Our feedback from the week on this topic is from Don Smith of Quad Graphics, who suggests companies might want to consider a new metric of net profit per employee hour as one way to manage this. Ruth Baratta of Shaklee believes the key question is whether shifting employees to new areas adds to productivity. Steve Murray of Supply Chain Visions agrees that the issue of displaced personnel is a huge barrier to improvements. Ken Pywell of Zebra Technologies agrees having work hours expand to “fill the void” is a challenge, while Ramon Rodriguez in a previous role says his company saw strong benefits from shifting employees to higher value work.

You’ll enjoy all of these letters below.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On "The Elephant in the Room:"

Thank you for your excellent newsletter. I always read it and always learn something new.

We have faced having to prove the effectiveness of ROI’s that are built on labor reduction when there is no overall headcount reduction and, fortunately, we are also a growing company and could assume reassignments helped offset the need for new employees. But your article brought some thoughts to mind about that problem.

What if we measured our workforce by net profit dollars per employee hour? Then, if automation actually improved our productivity, quality, safety, etc., we should see a positive change in that measure. This would require that we also measure other factors such as costs due to utilities, transportation, taxes and others that impact net profit so that we could distinguish one from another and separate labor effectiveness. Then, even if headcount didn’t change, we could judge the financial benefits of investment in automation.

Don Smith
Corporate Facilities - Production Engineering

More on the Elephant:

Do the re-assigned managers increase productivity in new departments? Do they increase revenue or reduce costs? If yes, then the 'savings' appear in the improved company performance - still a greater spread between income and expense, yielding increased revenue.

Or not.

Ruth Baratta
Manager, Export-Import
Shaklee Corporation

We can easily recognize the meaning behind the phrase “elephant in the room," but there must be something larger than an elephant which can be used here. Beyond the area of technology, concern over the issue of displaced personnel is the single largest obstacle to implementing any kind of process improvements. I believe that it is the principle reason that lean practices are not more universally embraced.

Anytime you introduce something that can improve a process, whether it is software or process improvement or even education, there is a possibility that fewer manhours will be spent performing the process. Fewer manhours means fewer people. Management understands that this factor will offset the investment made in implementing the solution. The workforce understands that this will be the cost to them – fewer employees required. Line supervisors and middle management also understand that fewer employees means less management. Jobs going away is seldom a motivator.

We see this in action regularly as we are involved in implementation of best practices and process improvement projects as well as the implementation of appropriate metrics to measure improvements. Clearly these projects are meant to quantify and reduce waste, but many times the non value-adding activities are recognized as the thing employees are being paid for. If these processes are improved or eliminated, the job and the employee goes away.

Similarly the simple action of focusing on the process and measuring it puts the people involved in the spotlight. No longer can they assume a relaxed workday joking with colleagues, they must focus on meeting targets which are narrowly defined.

Moving employees to other positions is only viable to the employer if there are open positions available, and to the employee only if they are not receiving a pay cut in the process. In a high growth or high turnover environment this issue may be muted, however in a more stable business trying to improve service and profitability this is a major concern.

If you are in the former group you are fortunate and will likely have little resistance to implementing your plan. However if you are in the latter, you would do well to develop a serious strategy around this issue well ahead of any major investment in technology or process change. The strategy could be focused on ways that the improvements will help to grow the business, or it could be simple attrition of headcount over time to build ROI. However if it focuses on mass layoffs of personnel, you should count on little cooperation and likely a failed project.

Steve Murray
Senior Research Analyst
Supply Chain Visions

The adage, “work expands to fill the void”, is a classic response to the productivity improvement example you made in this article.

To avoid the dilemma of moving personnel around so that they are just doing something else to reduce cost or increase efficiencies, the focus should be made on changes that result in top line revenue growth instead. For example, by automating processes involved in standard delivery transactions, additional stops can be added to a delivery route allowing delivery revenue to increase. Likewise, everyday warehouse management and DC process improvements can positively impact revenue potential. The challenge is to identify activities that provide measurable revenue generating opportunities. As it becomes more difficult to demonstrate process cost reduction, revenue growth provides the appropriate metrics to monitor.

Ken Pywell
Zebra Technologies

I'm speaking not for Beckman Coulter but my experience with General Cable Corporation.  We implemented a WMS/TMS system that enabled us to shift office personnel into a more active role in the warehouse and transportation.  They went from keying historical transactions to actively directing the flow of the DC through the system.  Supervisors were more active on the floor with better tools to support them.  The reduction in force came in two ways.  One, the elimination of temporary labor force once the system was in place.  Then, additional reduction was obtained by attrition by not replacing those that left.

This supported the strategy to reduce cost while improving quality.

Ramon Rodriguez
Beckman Coulter


Q. What is a 753 transaction in EDI standards?

A. A vendor "request for routing instructions" - still relatively little used today in the supply chain.

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