by Kevin O'Marah | July 21, 2010 | Comments Off on Chief Supply Chain Officers are still rising, but what is the job?
The following note was published over two years ago. Looking at fresh data from our Supply Chain Organization and Budget Study, it appears most of the message remains on point. Updating the details slightly, the question remains the same: How does a Chief Supply Chain Officer deliver the breakthrough competitive advantage promised by technology?
Back in 2000, the Chief Information Officer was king. IT and the Internet were transforming business, and CEOs were budgeting big dollars to hedge their bets in the mysterious new world of B2B and e-commerce. The CIO was holding the reins, plus managing hundreds of millions of dollars already committed to ERP systems. Back then, supply chain was little more than a specialty application to bolt on to the ERP backbone, targeted bluntly at cost reduction.
Ten years later most CIOs are under increasing pressure as a cost center, while supply chain executives are looked to for growth, agility, and strategic advantage. Expectations of senior management increasingly focus on supply chain to provide the edge in competitive battles.
From the Back Office to the Board Room
The parallels between a “Chief Supply Chain Officer” and the CIO are compelling. In the 1970s, data processing managers were all about box maintenance in the back room. By the early 1990s these guys had matured into VPs of MIS with a bigger scope and much more influence in the business. By 2000, the CIO had been elevated to a board-level job in many companies, wrestling with issues of global importance.
Meanwhile, supply chain in the 1980s was a servant of production, feeding the plant with materials on one end and shipping boxes on the other. This was a blue collar wage job (I myself was a shipper/receiver getting $4.50 an hour in 1980) with little, if any management-track potential. By 1990, the function was beginning to gain importance as directors of materials management started to influence engineering with smart ideas about better sourcing, and operations research folks started to affect asset utilization in plants and distribution networks with advanced math. Today, the head of supply chain, in most major manufacturers and retailers, is influencing margins, time to market, and customer retention with strategic capabilities that matter to investors.
This should be no surprise. Technology has broken the link between location and communication and allowed manufacturing, assembly, promotion, and service to draw on players around the world and around the clock. The good work of CIOs, in other words, has given us a world in which supply chain is consuming procurement, manufacturing, distribution, and even field service as one big process for customer fulfillment. Why do you think the Council of Logistics Management renamed itself the Council of Supply Chain Management Professionals http://cscmp.org/ and the Purchasing Management Association renamed itself the Institute for Supply Management? http://www.ism.ws/
Who has the Bigger Budget?
Think about budgets. According to our research, IT budgets typically represent anywhere between 2%-5% of revenue depending on industry. Meanwhile, supply chain management—encompassing direct materials sourcing, manufacturing operations, packaging, handling, and transport—is likely to account for as much as 20% of revenue including not only technology like order management systems or planning algorithms, but machinery, buildings, freight contracts, and more. Big money is spent each year in bets that merge good old fashioned industrial technology like conveyor belts and forklifts with information age technology like sensors, inventory tracking systems, and web order forms.
The underpinning movement here is one called out by Carlota Perez http://www.carlotaperez.org/ in her seminal book Technological Revolutions and Financial Capital. Her thesis is that history has seen a series of boom and bust cycles that coincide with the introduction of transformational new technologies. At first the new technology riles up investors, who pour money in faster than the general economy can absorb it. The ensuing bubble naturally bursts, but is followed by a period of wide adoption that shifts overall productivity to a new level across all sectors of the economy. This phase, which she calls the Golden Age, may be starting now.
Power with “Dotted line” authority
On one hand, supply chain looks ready to usurp all kinds of traditional functions from purchasing through shipping; but on the other, the very breadth of this span of control means that most real VPs of supply chain have hard line authority over only a portion of the process and must influence via dotted lines, the traditional owners of manufacturing or forecasting.
It is perhaps telling that supply chain folks love sales and operations planning so much. This discipline is the ultimate cross-functional exercise and one that positively craves good data and rigorous process.
If the days of big empire-like organizations are coming to an end it may be the most powerful influencer who rules the roost.
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