SEPTEMBER 2013 THE CHIEF SUPPLY CHAIN OFFICER REPORT...

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2013PULSE OF THE PROFESSION

SEPTEMBER 2013

This document is the result of primary research performed by SCM World. SCM World’s methodologies provide for

objective, fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted,

the entire contents of this publication are copyrighted by SCM World and may not be reproduced, distributed, archived or

transmitted in any form or by any means without prior written consent by SCM World.

© 2013 SCM World. All rights reserved.

Report authors:

Dr Hau Lee, Chairman, SCM World, and Thoma Professor of Operations, Information and Technology, Stanford Graduate School of Business

Kevin O’Marah, Chief Content Officer, SCM World, and Senior Research Fellow, Stanford Global Supply Chain Forum, Stanford Graduate School of Business

Geraint John, Senior Vice President, Research, SCM World

Barry Blake, Vice President, Research, SCM World

FOREWORD ......................................................................................................................... 4

EXECUTIVE SUMMARY .................................................................................................. 5

INTRODUCTION ................................................................................................................ 7

1: STRATEGY ALIGNMENT & VALUE CREATION ........................................... 8

2: DIGITAL DEMAND & E-COMMERCE ............................................................ 10

3: SOCIAL & ENVIRONMENTAL RESPONSIBILITY ..................................... 14

4: RISK MANAGEMENT ............................................................................................... 17

5: TALENT MANAGEMENT ....................................................................................... 22

CONCLUSIONS & RECOMMENDATIONS ....................................................... 26

ABOUT THE RESEARCH ............................................................................................. 27

APPENDIX: FULL SURVEY RESULTS .................................................................... 28

CONTENTS

3THE CHIEF SUPPLY CHAIN OFFICER REPORT 2013

4 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2013

SCM World represents cutting-edge thinking

about the topic of supply chain management

as embodied in the real-world strategies

and tactics of leading practitioners around

the globe. This report, which analyses the

responses of over 750 executives across

industries, captures the pulse of the

profession as of September 2013.

As a founding member of SCM World’s

Executive Advisory Board (EAB), it is my

hope that this research and the learning it

supports will make a difference in how supply

chain affects not only the competitiveness of

our businesses, but also the wider impact of

our operations on society, the environment

and our people.

At General Mills we have made concerted

efforts to deepen the collaborative

relationships we maintain both with our

customers and our suppliers. As the host

of a recent SCM World community event,

Collaborate to Win, I was privileged to see

first hand the power of inter-enterprise

efforts to co-operate for more and better

value creation. The key lesson learned

at this event, which brought together 30

senior and executive vice presidents of

supply chain across industries, is that we

can do much to improve supply chain and

that senior leaders are more than willing.

This year’s Chief Supply Chain Officer

study has investigated attitudes and actions

in several vital areas of our discipline:

business alignment and value creation,

social and environmental responsibility,

e-commerce and digital/mobile demand,

risk management and supply chain talent.

We all wrestle with these issues and have

much to learn from how others handle

them. The design of our field work drew on

FOREWORD

John Church

Executive Vice President, Supply Chain

General Mills

Each of us has the opportunity to make

changes in the way we treat our suppliers and the way we work with

our customers

SCM World’s research leadership and also

the input of our members as reflected by

the EAB.

Change is a constant in supply chain, but

today the pressures of connectedness and

interdependency seem to have reached new

heights. Upstream concerns with the well-

being of our supply base, including both

people and also vital resources like clean

water, arable land and sustainable energy,

affect all of us. Downstream we see customer

expectations driving ever more complexity

into our operations. Caught between these

forces, supply chain organisations are very

sensitive to disruption or surprise. As always,

we are expected to deliver on time, but keep

costs under control. The challenge then is

how to balance all of these expectations to

the satisfaction of multiple stakeholders,

including of course our shareholders.

The most important goal of this research

may therefore be to equip our teams with

the latest insights and best ideas on how

the forces of change impact supply chain

strategy. Each of us has the opportunity

to make changes in the way we treat our

suppliers and the way we work with our

customers. More than anything else this

depends on people and how creatively they

think about supply chain management.

I am happy to contribute to this process on

behalf of General Mills and hope you will find

the research useful for your own team.


EXECUTIVE SUMMARY

An overarching lesson of the 2013 Chief

Supply Chain Officer study is to be careful

what you wish for. For at least a decade

the supply chain management profession

has been clamouring for a seat at the table

where the CEO and board of directors make

vital strategic decisions. Globalisation has

increased the dependence of many companies

on supply chain, as sourcing and selling have

steadily expanded the reach of our physical

footprints around the world. Big ideas that

cast supply chain in a wider, more integrated

picture of operations demand deeper

engagement with customer-facing elements

of the business, as well as those accountable

for ideation and product innovation. Many of

us are now sitting at this table and seeing just

how much we have bitten off.

A REALITY CHECK ON SUPPLY CHAIN’S AMBITIONS

The first section of this report hints at this

sentiment with aggregate data that shows

a small but significant step back from the

idea that CEOs view supply chain as an

“absolutely equal partner” to other key

functions in the business. In 2012, 59% held

this view against only 31% who believed

supply chain was seen as an “enabler” of sales

or product-driven strategies. This year, only

52% believe they are seen as equals, while

37% self-define as enablers.

Our data also shows an increase in the

share of respondents who believe that a

high-performing supply chain creates value

through customer service, and thus loyalty,

or through expanding the business in new

markets. This suggests we are feeling the

heat of rising customer expectations as

well as the broadening growth ambitions

of our management teams. However, we

also see a jump in the attitude that supply

chain’s importance to business strategy rests

in operating cost reduction and supplier

engagement. With economic growth

apparently cooling compared to 2012, many of

us are feeling pressure to get back to basics.

DIGITAL ERA SPEED CONTINUES TO CHALLENGE

In the second section we dig into one of the

more powerful forces of rising customer

demand: the digital/mobile consumer. In

2012 we asked about future expectations

of how digital demand would affect supply

chains. Things have moved so quickly that

we shifted this year away from asking about

attitudes and toward actions. The data shows

rapidly increasing complexity of demand,

with almost two-thirds of all respondents

actively developing new channels to market,

including heavy investment in direct-to-

customer channels.

For retailers, this overwhelming move to an

omnichannel model is swamping traditional

store-based operations. For suppliers

upstream, including industrial and other

business-to-business supply chains, the

effect is also being felt through investment

in new distribution centres, many of which

are larger and more centralised. All supply

chains, it appears, are being impacted by the

higher expectations of consumers for more

product variety, more channel selection and

deeper engagement. Supply chain leaders are

certainly feeling the pressure.

SUSTAINABILITY AND RISK EXTEND OUR RESPONSIBILITIES

Social and environmental responsibility (SER)

is another area where supply chain’s role


has expanded. Ten years ago, few had any

inkling that this issue would get so big, and

while consumer willingness to pay for socially

responsible or green products remains low,

we in supply chain are still accountable for our

company’s sustainability record. Our 2013

data reflects a new level of maturity in how

supply chains handle social and environmental

responsibility. We are increasingly able to

identify real cost savings through SER and less

driven by image concerns than in years past.

Having stepped up to own the SER problem,

many of us have found the job to be bigger

than we imagined.

Much the same can be said of risk

management, the fourth area covered by

our survey data. Traditional supply chain risk

concerns centred on certainty of supply, but

recent natural disasters have shed a brighter

light on how fragile the system is. Here again,

increased visibility of the role supply chain

must play in assuring business continuity has

upped the ante for all of us. Proven success

with strategies like dual or multi-sourcing is

useful, but only so far as we can see and thus

manage deeper tiers of supply. Low efficacy

scores for more sophisticated tactics like

commodity hedging indicate that we are

still at the early stages of learning how to

systematically manage risk to the standard

our CEOs might expect.

SKILLING UP TO MEET GROWING EXPECTATIONS

Lastly, in section five we delve into the

question of talent management in an effort to

understand how supply chain organisations

are building the knowhow needed to meet

these rising expectations. As we found in

2011 and 2012, significant resources (around

3% of fully loaded staff costs on average)

are allocated to skills development. Despite

this investment, most of us have no way to

measure ROI and we continue to report that

offering team members a compelling career

progression is a major challenge. We also

saw a huge jump this year from 2011 in the

importance of skills around new product

development and launch. Again, the door is

apparently open for supply chain to be an

equal partner with sales and R&D, but only

so long as we are able to step up with the

appropriate skills.

In summary, 2013 appears to be a time for

supply chain to catch up to the bigger role

it has claimed in recent years. Customer

demands are expanding and fragmenting

faster than many are able to respond, while

such big-picture issues as sustainability and

business continuity have landed squarely

on our desks. Some may have discovered

the double-edged sword that accompanies

board-level accountability. With our talent

still evolving and our peers in sales and R&D

increasingly expecting more of us than simple

cost containment, perhaps we yearn for a

return to the basics.

2013 appears to be a time for supply chain to

catch up to the bigger role it has claimed in

recent years. Some may have discovered the

double-edged sword that accompanies board-level

accountability.


INTRODUCTION

Each year SCM World conducts an extensive

longitudinal study of the perspectives and

practices of supply chain management around

the world. The Chief Supply Chain Officer Report

2013 is the culmination of this year’s research

and is the fourth such report we have

published. Some of our topics are repeated

annually to collect a time-series view of trends

as they change, while others are one-off

questions meant to understand specific and

timely issues in detail. This year the report

contains five sections:

1. Strategy Alignment & Value Creation

2. Digital Demand & E-commerce

3. Social & Environmental Responsibility

4. Risk Management

5. Talent Management

Each of these sections is written as a brief

review of highlights reflected in the data, but

none are exhaustive analyses of the topic

in question. Given a data set of some 750

completed responses across all industries and

geographies, and comprising answers from

individuals representing seniority levels from

executive vice president all the way down to

managers, we are able to answer many specific

questions with precise cuts of the data.

In addition to demographic details that allow

a closer look at how different industries, job

levels or geographic locations view a particular

issue, we are also able to analyse how attitudes

in one area – risk management, for example –

might align with practices in another, such as

talent management. The intent is to provide a

large, contiguous data set against which any

number of theories can be tested. We have in

years past used this data set to support other

research projects throughout the year and will

do so again this year.

Since SCM World is a community dedicated

to practitioner-driven learning, we look at

this data set as a resource for all members.

Some of our university partners have used

it for their own research, while custom

cuts have been provided to members

looking for real-world data on specific

strategic questions of interest. It is our hope

that members will regard this report as

merely the tip of an iceberg, with far more

information and insights below the surface.

As always, we are looking for practitioner

input from our members, either directly

or through our Executive Advisory Board,

whose role it is to guide our work. We

welcome your ideas and inquiries.


Supply chain management forms the foundation of companies’ efforts to gain control of their operations. As a result, it is the backbone for excellent operational performance. This is a well-recognised observation; indeed, supply chain executives have consistently indicated that a strong focus on supply chain management is important to a company’s business strategy, since it enables operational efficiency through operating cost reduction. In this year’s CSCO survey, 96% of participants believe that such a link is either “very important” or “important,” compared with an almost identical figure of 97% in 2012.

In previous years, a significant share

of respondents also saw supply chain

management as an enabler for value creation

for their companies. Supply chain management

creates values through its support for revenue

growth, differentiated customer service,

strategic supplier relationships and, ultimately,

long-term equity value. This year, such

value-creating contributions retain a strong

resonance among supply chain executives.

So while operating cost reduction remains

the most important foundational element of

supply chain management focus, 80-90% also

highlight the function’s contribution for these

other value-creating levers.

STRATEGY ALIGNMENT & VALUE CREATION1

It is interesting to note, as Figure 1 shows, that

the proportion of respondents who feel that

supply chain’s contribution to business strategy

through operating cost reduction is “very

important” has actually increased, from 64%

in 2012 to 68% this year. Economic conditions

may explain this. In the US, for example,

GDP increased by 2.2% in 2012, but the

corresponding rate is projected to be only 1.5%

in 2013. Hence, there were concerns about

the potential economic recovery. It is possible

that executives put more emphasis on cost

reduction when they did not see the economy

growing rapidly.

A MAJORITY BELIEVE SUPPLY CHAIN IS AN EQUAL PARTNER

On the appreciation of alignment of business

strategy and supply chain strategy in the eyes

of the CEO and top executives, we continue

to observe that companies are not seeing

the supply chain function as only a means to

service the business or contain costs. More

than half of our survey participants (52%) say

supply chain is on an equal footing with other

functions like sales and marketing, R&D and

product development. Nearly 4 out of 10 (37%)

see it instead as an enabler for sales or product

development strategies.

The corresponding figures from 2012 were

59% and 31% respectively. This shift may also

reflect concerns among senior executives

Competitive advantage through strategic supplier engagement

Value creation through long-term equity improvement (such as enhancing brand equity)

4348

3437

4541

4640

2012 Very important 2012 Important

2013 Very important 2013 Important % of respondents2013 n=754

Operating cost reduction

Value creation through increasing revenue

Competitive advantage through differentiated customer service capabilities

6864

5151

4342

2833

4042

4642

Figure 1 Beyond cost cutting Importance of supply chain’s contribution to business strategy


about the slowing down of economic growth,

or the long time that the recovery is taking.

Hence, maintaining sales revenues and new

product development remain key to business

success, and supply chain management has to

be there to support such activities.

This slight year-on-year shift may also reflect

the reality check of people in the C-suite

that, while supply chain executives have

increasingly been viewed on an equal footing

with other functional executives, we still have

to earn the trust and credibility through the

delivery of value. The journey to credibility

within the C-suite is a long road – part of the

maturation journey.

Survey participants also reaffirmed, as in

previous years, that the most significant way

that supply chain can create value is through

enhanced customer service and loyalty, with

83% indicating that the value here is high or

very high. This is followed by stronger supplier

relationships, with three-quarters seeing high

or very high value; and acceleration of new

product introduction, with 72% believing that

supply chain makes a major contribution here.

These findings are in line with those of 2012.

The aggregate data indicates an outlook on

supply chain that is increasingly orientated to

serving customers and enabling growth, but

perhaps now with a bit more realism in terms

of how the function must work in concert with

sales and product development. Where our

self-perceptions last year leaned toward equal

partnership with our sales and R&D colleagues,

2013 seems to reflect somewhat of a step back

into an enabler role. Challenging economic

times combined with a closer look at how

business growth happens could be bringing

some of us back to basics.

Figure 2 How the board sees supply chain Do CEO and executive management appreciate the alignment of business and

supply chain strategy?

Absolutely. Supply chain is understood as an equally important part of business success as sales & marketing or R&D/product development

Yes, but only as an enabler of product or sales-driven business strategies

Not really. Supply chain is understood primarily as a cost centre that affects margins

No. Supply chain is strictly seen as a function meant to service the business

5259

3731

87

32

Enhanced customer service and customer loyalty

Stronger supplier relationships

Expansion of business to new market segments within existing/new geographies

Accelerated new product introduction

Expanded offerings of value-added services

Facilitation of premium pricing

Leverage opportunities created by external supply disruptions

2012 Very high value 2012 High value

2013 Very high value 2013 High value % of respondents2013 n=752

Figure 3 Supply chain value levers Assessment of the value created by a high-performing supply chain

4141

3031

3229

3131

1920

1919

1618

4240

4546

4140

4143

4341

3838

2830

2013

2012

% of respondents2013 n=752


Forces of change in supply chain include both demographic and technological factors, but the emergence of digital/mobile demand combines both in ways that are driving some true upheaval. Online selling is only part of this movement, as digital demand includes not only consumer use of e-commerce channels but also shifts in business-to-business supply chains, reaching from social media to distribution centre design changes.

OMNICHANNEL RETAILING IS BLOWING UP TRADITIONAL CHANNELS TO MARKET

In last year’s CSCO survey we asked

respondents about their expectations of what

these new forces of demand would mean in

the future. This year we started asking instead

about current practices. The data shows that

most supply chains have already begun the

pivot to a new model of ominchannel retailing,

which means consumers now flow demand

back into the supply chain not only by their

in-store purchases but also by their use of

smartphones, tablets and desktop devices.

Retailers have long been aware of the need

to accommodate this shift and are now well

along the road to implementing it.

DIGITAL DEMAND & E-COMMERCE2

When asked how the demands from today’s

e-commerce and mobile-enabled customers

are affecting current channel operations,

a clear majority report that changes are

underway. Nearly half overall are building

direct-to-customer fulfilment capabilities. This

includes not only consumer-facing industries

like hi-tech and apparel, but also industrial

manufacturers, 46% of whom say they are

going direct to customers.

The retail sector is clearly under siege as core

consumer industries like CPG and food &

beverages move towards either direct models

or selling through e-commerce channels such

as Amazon. Recognising the inevitability of

this trend, retailers are themselves rapidly

outfitting an omnichannel supply chain –

Figure 4 The fulfilment effect Changes to fulfilment in response to demands from e-commerce and mobile-

enabled customers

CPG

49 36 15

Hi-Tech

58 17 25

Industrial

46 10 44

Media & Telco

52 20 28

Fabric & Apparel

67 25 8

Retail

74 13 13

Medical Devices

56 0 44

Healthcare & Pharma

29 17 54

Food & Beverage

38 19 43

No changeBuilding direct to customer

Relying on e-com retailers

% of respondentsn=542

Selected sectors


almost three-quarters of survey participants

in the sector say they are now going direct to

the customer.

The move to an omnichannel supply chain

is not only pervasive across industries, it is

also common regardless of company size.

Larger companies (those with sales above

$5 billion) are marginally more likely to have

made the move to enable direct-to-customer

fulfilment, while the smallest (those with sales

below $1 billion) are still apparently behind

in responding to digital demand. But clear

minorities across all demographics say that

they see little or no change to their channels.

This reality is also true across geographies,

with all three major regions preferring

direct channels than the current state. The

Americas lags significantly, perhaps as a result

of relatively poor network infrastructures,

but even there fewer see an unchanging

go-to-market landscape than expect change.

Traditional retail cannot continue.

No changeBuilding direct to customer

Relying on e-com retailers


By company size (annual sales)

<$1bn $1-5bn >$5bn

41 13 46 50 11 39 48 21 31

SUPPLY NETWORKS BUILT FOR ADDED COMPLEXITY GET BIGGER AND MORE CENTRALISED

Among the most important considerations

facing supply chain strategists is what type of

supply chain infrastructure this omnichannel

movement will require. Our survey asked

about distribution centres (DCs) being built

today in response to this new force of digital

demand and found a distinct movement away

from business as usual. More than a third are

increasing the size and centralisation of DCs,

while another fifth are building smaller and

more local DCs.

Operational dynamics driving these

differences lie largely in SKU variety, which

most say is increasing with digital demand.

In fact, when the DC architecture plans of

our respondents are cut according to the

degree of SKU complexity we see a definite

link between increasing complexity and a bias

toward larger, more centralised DCs.

The retail sector is clearly under siege as core consumer industries like CPG and food & beverages move towards either direct models or selling through e-commerce channels such as Amazon.


Cutting this data by industry reveals

significant diversity with a few prominent

examples of clear moves toward the big,

central DC (apparel and media & telecoms),

but many others apparently juggling options,

including hi-tech, which is almost evenly split

across responses that are radically different

strategically.

It may be the case that many firms intend to

use hybrid strategies, with layers of mega-DCs

feeding existing and/or small, local DCs to

best achieve good in-stock performance while

limiting total inventory on hand. Enabling such

a multi-level inventory strategy depends on

other capabilities further upstream, including

some form of product platform approach with

conscious design for postponement.

DIGITAL DEMAND IS NOT JUST DIGITISED BUYING

Added complexity driven by the power of

digital/mobile customers comes not only

from transactions fragmenting beyond the

retail store, but also from other forms of

demand. One of the most prominent is social

media, which although generally not a point

of purchase has become a vital source of

consumer (and customer) insight. We asked

last year about what effect, if any, social media

was having on supply chains. Almost half of

respondents (47%) said they saw no effect.

This year the proportion saying the same has

dropped to 37% – a large change in the course

of only one year.

Despite being a very new technology, social

media has quickly gained relevance in our

supply chain strategies. And yet none of

our traditional systems for capturing and

managing demand are positioned to utilise this

information. Many in supply chain are already

Selected sectors

CPG

311851

Food & Beverage351748

Hi-Tech342838

Industrial372043

Retail382043

Fabric & Apparel62318

Media & Telco541531

Same DCsBigger DCs Smaller DCs % of respondentsn=466

Figure 5 Bigger or smaller DCs? Distribution centre impact of demands from e-commerce and mobile-enabled customers

By SKU assortments

% of respondents n=738

Smaller DCsBigger DCs Same DCs

Fewer SKUs

Same SKU assortments

Some SKU expansion

Much larger SKU assortments

38

18

41

51

23

14

24

21

38

68

35

28


Today In the future % of respondentsn=748

Figure 6 Social media influence Effect of Twitter, Facebook, blogs, etc, on supply chains

Source of real-time customer feedback

Inform product enhancement/innovation priorities

Give visibility of social/environmental/labour practices

Improved communication with trading partners

Provide advance warning of potential supply disruptions

Improved demand sensing and forecasting

No effect

3856

2945

2639

1942

1739

1546

3714

struggling to define a lasting strategy for cost-

effectively serving the power of digital/mobile

consumers. Adding the complexity of digesting

unstructured data from social media will

demand much more of forecasters, inventory

planners and network designers.

Looking ahead, many respondents foresee

opportunity in social media as a source of rich

demand data. In fact, just 14% dismiss the idea

of social media data as a supply chain planning

input. Hopeful we may be, but who really

knows how all of this new information will

affect our operations?

DEMAND IS QUICKLY GETTING STRONGER – SUPPLY MUST MEET THE CHALLENGE

Digital/mobile demand is clearly driving

complexity in supply chains. This is happening

around the world, across industries and for all

sizes of company. The first reaction of many in

supply chain is to re-configure the distribution

network. While larger, more centralised DCs

seem to dominate plans, it is not clear how

best to combine new distribution capabilities.

What is clear is that social media has arrived

as a meaningful demand data input to

accompany point-of-sale data and other

traditional forecasting systems. Supply

chain planners need to understand how this

added demand insight can help to reduce the

traditional complexity buffers of inventory and

capacity before costs spiral out of control.


From a corporate standpoint, the main problem with social and environmental responsibility (SER) – or sustainability, as it commonly referred to now – is that it has been seen largely as a matter of compliance and reputation protection, rather than as a driver of real business value and profitability. Outside of the small band of companies whose stated mission is to “do good” (for people and the planet), the result of this is that SER has often felt like an added burden rather than a core strategy. Despite the high profile and importance of issues from child labour to climate change, it has been difficult to get managers and shareholders fired up about the opportunities, as opposed to the risks.

This is starting to change. A growing number

of firms across a broad span of industries are

building SER principles – and particularly those

around environmental performance – into

the way they source, make and deliver their

products to customers. And they are looking to

their supply chain experts to help monetise it,

both through bottom-line efficiencies and top-

line sales growth. While it is still early days for

most such initiatives, our CSCO survey findings

clearly indicate that a more balanced view of

SER is taking root.

MONEY-MAKING DRIVERS ARE INCREASING IN IMPORTANCE

For the third year in a row, we asked survey

participants to gauge their boards’ reasons

for investing in SER initiatives. As in 2011

and 2012, by far the most important driver

is to “create a positive customer image and

enhance brand equity” – 8 out of 10 agree

this is true at their companies, the highest

share recorded so far. Respondents in the

automotive, consumer products, food &

beverage, apparel and telecommunications

sectors are even more convinced about this.

Beyond that, the real story this year is that

reducing costs and increasing efficiency

through SER efforts continues to assume

greater significance (see Figure 7). Almost

half of respondents say this is a business

SOCIAL & ENVIRONMENTAL RESPONSIBILITY

3

driver now, compared with less than a third

two years ago. In other words, companies are

recognising that SER can drive real bottom-

line improvements, not just satisfy government

regulations, bolster public relations or fend off

the risk of supply disruptions (all of which fell

by several percentage points year on year).

In parallel, the sharp decline in those believing

their boards invest in SER to increase sales

revenue has been partially reversed. Nearly

a quarter thinks this is now a driver, up from

17% in 2012. This finding is consistent with

the rise in importance of customer image –

after all, the value of enhancing brand equity is

not only to hang on to existing customers but

also to attract new ones.

One possible explanation for this reversal

is that while experience has shown that

customers are generally unwilling to pay

higher prices for socially and environmentally

friendly products, they can be enticed

to switch to brands with more desirable

characteristics. Examples from the consumer

products sector include detergents that clean

clothes at lower temperatures, deodorants

that pack the same volume into smaller

containers (and hence require less packaging)

and coffee where the growers get a higher

share of the price paid per pound.


Figure 7 Sustainability drivers What is your best judgment of your board’s motivations for investing in SER?

Create a positive customer image and

enhance brand equity

807175

Reduce costs and/or increase efficiency

Satisfy government regulations

474332

Ensure no disruption of supply

293730

Increase sales revenue241731

Fend off shareholder or external PR concerns

232822 % of respondents

2013 n=748

2012

2011

2013

474942

RESPONSIBILITY INITIATIVES PUT HEALTH AND SAFETY FIRST

This balancing of defensive and money-making

activities is apparent when we look at the top

SER issues that supply chain professionals

are focused on. The clear leader by some

margin is health and safety, with almost 6

out of 10 placing it in their top 3 issues and a

third ranking it number one. Examples such

as the seizure by terrorists of a BP facility in

Algeria, the collapse of a clothing factory in

Bangladesh and the explosion of a fertiliser

plant in Texas are just some of the examples

this year that have had a heavy toll on human

life and made international headlines.

That companies should prioritise the well-

being of their own employees as a cornerstone

of responsibility efforts is both understandable

and consistent with our finding that internal

operations are where SER initiatives are most

fully implemented. Broadening this focus out

to include the conditions faced by workers

at immediate suppliers and in the extended

supply network, along with associated ethical

issues such as the use of conflict minerals, is

the second highest priority for practitioners

– 44% place it in their top 3. For hi-tech

firms, ethical issues are the most important

priority and they are much more bullish than

respondents from other sectors in believing

that they have addressed them across their

entire value chain.

In third spot is product integrity. The obvious

recent example in this category is the European

horsemeat scandal, but from a quality

perspective it also includes the grounding of

Boeing 787 airliners as a result of overheating

batteries and Johnson & Johnson’s recall of

schizophrenia drugs and insulin cartridges,

among other products. Among CPG and

healthcare & pharmaceutical firms, product

integrity actually ranks above ethical issues in

terms of supply chain importance.

Making up the top 5 are product innovation

and energy efficiency. Our data indicates

that automotive and apparel manufacturers

are more heavily focused on sustainable

innovation than are other sectors (think

electric cars and water-free dyes, for example),

while industrial and food & beverage firms

put the greatest emphasis on reducing their

energy consumption. (One related and notable

finding: despite all the attention given to

carbon emissions during the past decade, this

ranks seventh out of 10 on the supply chain

priority list. Only respondents in transport-

based industries put it higher. This suggests

The real story this year is that reducing costs and increasing efficiency through SER efforts continues to assume greater significance.


% of respondents ranking each issuen=736

Ethical issues

Product innovation

Health and safety Product integrity

Energy efficiency

Figure 8 Business benefits of SER What value has been generated so far from addressing your most important SER issues?

4543

2325

19

2636

2525

15

1911

2323

51

910

2927

16

Compliance with regulations/strategy

‘Soft value’ (e.g., PR, better supplier relations)

Bottom-line results (cost savings)

Top-line results (growth/revenue increase)

that others believe they have already tackled

the problem to at least a reasonable extent,

whether by actually cutting their emissions or

offsetting them through trading schemes.)

PRODUCT INNOVATION, INTEGRITY AND ENERGY EFFICIENCY HIT THE P&L

What about the value generated through SER

initiatives around these issues? As Figure 8

illustrates, the biggest single impact to date

has been cost savings through the more

efficient use of energy, with slightly more

than half of respondents agreeing that their

companies have achieved results here. In

contrast, the benefits gained by addressing

health and safety and ethical issues are skewed

heavily towards compliance and “soft value”

in the form of, say, good PR, while product

integrity and product innovation display a

more balanced mix of benefits and are clear

winners, as one would expect, when it comes

to top-line value.

The main message here is that companies that

invest in greener products and more efficient

processes – and make them an integral part of

the way they do business – can expect them

to generate a P&L impact. And supply chain

functions that play an active role in this can

expect to enhance their standing: among those

survey respondents who said product integrity

had delivered top-line value, 63% believed that

supply chain was on an equal footing with R&D

and marketing, compared with 52% overall.

None of this means that compliance efforts are

any less important, of course; companies need

to focus on both streams to be successful. But

ensuring strong compliance with regulations,

health and safety policies and ethical standards

is now simply a licence to operate. Competitive

advantage in the sustainability domain

requires collaboration between supply chain,

other functions and key suppliers to streamline

those operations and, as those practices level

out the playing field, to further differentiate

their products in the market.

Companies that invest in greener products and more efficient processes

– and make them an integral part of the way they do business – can

expect a P&L impact.


RISK MANAGEMENT 4Perceptions of risk tend to be shaped by specific incidents where theoretical possibility has become hard reality. Twelve months ago, with the repercussions of the 2011 Japanese earthquake and tsunami and Thai floods still reverberating along many supply chains, practitioners were understandably concerned about the risk of natural disasters, other incidents affecting supplier facilities and the potential negative impact of both on the supply of raw materials and components. A year on and our latest CSCO survey findings show that these concerns have eased somewhat.

In 2012, 23% of survey participants were “very

concerned” and a further 44% “somewhat

concerned” about natural disasters. In

2013, these figures have fallen to 13% and

39% respectively. Concerns about supply

shortages – the top concern across all sectors

last year – and disruptive incidents such as

fires and strikes have also dropped by several

percentage points. Similarly, as global economic

conditions have improved relative to 2010-11,

worries about key suppliers and customers

going out of business have reduced (although

a majority of practitioners remain concerned

about all of these issues).

COMMODITY PRICING AND QUALITY TOP THE RISK LIST

The two most troublesome risks for 2013-

14, as Figure 9 shows, are commodity price

volatility and safety/quality incidents (we didn’t

include either of these in last year’s survey

question, hence the lack of time series data).

As was discussed in the previous section

on social and environmental responsibility,

well-publicised events such as the horsemeat

scandal in Europe have pushed product

integrity up the risk agenda this year. So

the fact that 37% of respondents are very

concerned about such issues should come as

no surprise (in the food & beverage sector the

figure is much higher at 57%).

In terms of commodities, the extreme swings

in pricing experienced during the past five

years for key raw materials have made this a

top business issue for many manufacturing

companies, especially those in consumer

products. In CPG, 44% of practitioners are

very concerned about this risk, compared

with 31% across all sectors, while in food &

beverages it’s 43%. Research we published

on commodity price volatility in June* found

that while procurement and supply chain

executives in general expect the negative

impact from commodity prices (up or down) to

be less pronounced during the next two years

than in the previous two, as markets stabilise,

more than a fifth still predict a “significant”

P&L effect.

Lower down the list, we see a four-point rise in

the proportion of those very concerned about

data security and IT risks. Press stories about

the growing threat of cybercrime and the spat

between the US and Chinese governments on

this issue in recent months are likely to have

played a part here. Meanwhile, it is interesting

to note that just 8% are very concerned about

geopolitical events – almost half the figure

recorded in 2012 – despite serious instability

in Egypt and the looming prospect of military

action against Syria.

* Commodity Price Volatility and Supply Management Best Practices. SCM World, June 2013

http://www.scmworld.com/Research/Reports/Commodity-Price-Volatility-and-Supply-Management-Best-Practices/


DISRUPTIONS HAVE A MULTI-MILLION DOLLAR IMPACT

To understand the actual impact of these

risks, in this year’s survey we asked

participants to describe, in their own

words, the biggest incidents to affect their

companies during the past 12 months.

More than 500 answered this question

and responses ranged from a single word

(“piracy”, “safety”) to fuller descriptions with

hard-dollar costs detailed. Some of the most

eye-popping examples include:

• Capacity constraints at a second-tier

supplier to a major European technology

firm, with a cost impact of around €200

million.

• Restricted supply of cotton adding $165

million to a US clothing company’s cost

base.

• Demand fluctuations causing excess

inventory at an Asian hi-tech manufacturer,

prompting losses estimated at $50-100

million.

• The bankruptcy of a key supplier costing a

global chemicals company $50 million.

• Food safety recalls at a household brand

name producer at a cost of around $30

million.

Such examples serve to explain why supply

chain organisations have been so focused on

building their risk sensing and management

capabilities in recent years. So which

practices are most commonly used in an

effort to mitigate this broad portfolio of

risks, and – crucially – which do respondents

believe have been most effective?

Figure 9 Most troublesome risks Biggest changes in concern levels, 2013 vs 2012

2012 Very concerned 2012 Somewhat concerned

2013 Very concerned 2013 Somewhat concerned

Supply shortage of raw materials/components

Safety/quality incidents*

Commodity price volatility*

Shipping/logistics disruptions

Financial failure of critical supplier

Data security/IT incidents

Other incident at supplier facilities

Financial failure of critical customer

Natural disaster affecting supplier facilities

Counterfeit products

War, terrorism or other geopolitical issues

28

31 43

35

3943

4448

2223

4042

2125

3636

2420

4450

1319

3538

1821

3944

1323

3032

2226

3131

815

37

32


* Not included in 2012


Figure 10 Top 10 risk mitigation practices Most effectively used tactics/strategies

Weighted average rating (1-5 scale, where 5=most effectively used)n=745

Commodity hedging

Expand into new/undeveloped markets

Risk registers/reporting/governance

Implement and test business continuity plans internally

Diversify customer base/product range

Evaluate business continuity plans of key suppliers

Performance-based contracts with key suppliers

Hold safety stocks of key materials/components/products

Regular audits of key suppliers

Dual or multiple sourcing of key materials/components/products

SUPPLIER OPTIONS AND AUDITS REMAIN THE MOST COMMON RESPONSES

Figure 10 shows the top 10 risk mitigation

strategies in 2013. What’s striking about this is

the degree of similarity with last year’s ranking

(when we asked only about usage and not

effectiveness). The top 5 order is identical and

the only change in tactics 6-10 is the addition

of commodity hedging (which was not included

as an option in the 2012 survey question) at

the expense of maintaining spare in-house

production capacity. Here, there is a worrying

shortfall between the three-quarters of survey

participants who say they are concerned about

commodity price volatility and the less than

half who believe that hedging via financial

and other instruments has been better than

marginally effective.

The top practice – dual or multi-sourcing

strategies (rated very effective by 39% of

our sample and moderately effective by

a further 38%) – clearly plays to the risk

of supply shortages, shipping disruptions,

incidents affecting supplier plants and supplier

bankruptcies. Respondents at chemicals and

CPG firms are even more positive about the

advantages of having more than one supply

choice in the event of a disruption.

The second highest ranked strategy, regular

audits of key suppliers, is an obvious method

of minimising the risk of quality or safety

incidents, although as was laid bare during

the horsemeat scandal the cause of such

incidents is often to be found at sub-tier

suppliers – beyond the scope of many firms’

auditing efforts. Indeed, this event has

only added to the pressure on supply chain

executives to understand in far more detail

who their supplier’s suppliers are, where their

4.02

3.47

3.82

3.38

3.23

3.86

3.43

3.63

3.25

3.12


heavy reliance on tier-1 suppliers to manage

and integrate components, systems and

services from the sub-tiers of the supply base.

In contrast, apparel and hi-tech firms believe

they have the best visibility, with more than

a fifth claiming this extends to at least tier-3

suppliers. This is not surprising, given the

history of negative stories about sweatshop

conditions and child labour at factories in

developing countries, and the sourcing of

rare earth materials from conflict zones in

Asia and Africa.

Analysis of this data throws up two other

interesting findings. First, bigger companies

have better visibility of sub-tier suppliers,

although not significantly so. At those with

more than $5 billion of annual sales, 61%

believe they have good visibility at tier-2 and

beyond, compared with 56% of firms with

$1-5 billion of revenue and 54% of those

below $1 billion. One explanation could be

the superior resources and the scope and

Fabric & Apparel

Food & Beverage

Hi-Tech

Retail

Healthcare & Pharma

CPG

23

27

40

41

42

44

54

52

51

51

41

46

23

21

9

8

18

10

Chemicals

44 52 4

Media & Telco

Industrial

Logistics & Distribution

Automotive

Aerospace & Defence

Utilities & Energy

46

46

49

52

58

67

42

35

42

32

26

29

13

19

9

16

16

4

Tier 1 and 2 suppliersTier 1 suppliers only Tier 1, 2 and 3+ suppliers


Figure 11 Sub-tier insights Level at which companies have good visibility of potential risks, selected sectors

operations are located, and the particular risks

that could potentially have a negative impact

on their reputation and/or ability to fulfil

customer orders.

GETTING A FAR DEEPER UNDERSTANDING OF THE SUPPLY BASE

Through the CSCO survey, we wanted to get

a sense of, first, the degree of visibility that

participants believe they currently have; and

second, the tools being used by those whose

reach extends beyond tier-1 suppliers. At an

aggregate level, a majority of respondents

believe they have good visibility beyond their

immediate suppliers, although just 13% say

this extends to at least the third tier. But

slightly more than 4 out of 10 have visibility

only of tier-1 suppliers.

As Figure 11 shows, companies in the energy

and aerospace & defence sectors are the

worst performers. This is likely due to their

Apparel and hi-tech firms believe they have the best

visibility of their supply bases, with more than a

fifth claiming this extends to at least tier-3 suppliers.



Internal information systems

Sub-tier supplier audits

Ask Tier 1 suppliers

Third-party newsfeeds/reports

Figure 12 Deeper dive Methods used to obtain visibility of potential sub-tier risks, top 5 sectors

Fabric & Apparel Healthcare & Pharma

80 50 4070

Hi-Tech

77 52 4861 79 45 6147

CPG

64 36 5040

Food & Beverage

47 58 3947

maturity of enterprise-wide risk management

programmes that larger companies have at

their disposal.

Second, survey participants associate deeper

visibility of their supply bases with enhanced

standing of the supply chain function inside

their organisations. Among those who claim

to have visibility of tier-3 suppliers, 72% also

believe their CEOs and top executives see

supply chain as core to business success,

compared with 54% of those at the tier-2 level

and just 43% of those whose view is limited to

tier-1 suppliers.

COMPANIES RELY ON TIER-1 SUPPLIERS FOR SUB-TIER INSIGHTS

Turning to the methods used to obtain better

visibility, by far the most popular – used by

almost two-thirds of companies – is to ask

tier-1 suppliers for information about their

own suppliers. Such information can often

be sensitive and requires a degree of trust

and openness in the relationship rather than

simply RFP and contractual edicts. Half of

respondents also say they rely on internal

information gathering and systems, sub-tier

supplier audits and third-party intelligence.

Just 15% are mining social media networks

for useful insights, although as we saw in the

earlier section on digital demand, 39% expect

to do this in the future.

Looking at how these methods are used

across the five sectors that claim the deepest

tier visibility, we find that hi-tech and apparel

firms ask tier-1 suppliers and use sub-tier

audits more than the others. Healthcare &

pharma relies more heavily on third-party

reports and newsfeeds, while food & beverage

companies use internal information systems

to a greater extent.

Survey participants associate deeper visibility of their supply bases with enhanced standing of the supply chain function inside their organisations.


TALENT MANAGEMENT5Functional expertise in core supply chain disciplines such as planning, sourcing and logistics is not enough to give the business what it needs to manage diversifying customer expectations or company growth objectives. To be clear, the importance of these traditional supply chain disciplines hasn’t lessened at all, but we are now expected to connect these core skill sets with capabilities that traditionally have resided in the commercial or R&D organisation. For the most part, supply chain has successfully made the case for an expanded role in the company.

In fact, when we look at the value supply

chain brings to the business from the

perspective of the EVPs and SVPs in our

survey base, we see near equal value placed

on operating cost reduction (92% rate this

either important or very important) and

revenue increase (91% rate this either

important or very important). Helping grow

the business and controlling costs are not

mutually exclusive objectives in the eyes of

senior executives, and we require a broader

range of interconnected skill sets to meet

these objectives.

TALENT DEVELOPMENT ENGINES REQUIRE FURTHER TUNING

Unfortunately, acquiring and developing

the talent required to meet these objectives

isn’t as easy as simply recognising the

need for such talent. Talent acquisition and

development are perennial concerns for our

survey base, and the story at the aggregate

level isn’t particularly rosy. More than one-

third (37%) of survey respondents report

that bringing talented people on board and

developing them has become more difficult

over the past two years, while 44% feel the

situation hasn’t changed at all. Slightly over

three-quarters see either the same degree

of difficulty or an increase in difficulty over

the past two years, which suggests we

have a long away to go before our talent

development engines are optimally tuned.

However, when we look at the specific issues

in knowledge workforce development the

picture brightens slightly. Overall, 2013

has been less challenging than 2012 in all

areas of knowledge workforce development

other than the ability to offer talented staff a

compelling career progression. We see small,

but significant, deltas between the years,

which does suggest the supply situation

with talent has improved in the short term

as challenges in finding, hiring and retaining

talented people have eased. But this short-

term improvement hasn’t translated into

long-term career growth for the most

talented personnel.

Companies’ ability to offer their talented

supply chain personnel a compelling career

progression has not improved, and while we

only have a three-year picture, the data at

least directionally suggests that this is more

of a structural problem than a cyclical one.

Developing talented leaders or rising stars

within the supply chain organisation has

yet to be systemised or made repeatable in

a meaningful or effective manner. We can

identify our rising stars, but struggle when it

comes to helping them envision a long-term,

compelling career within our organisations.

If we are simply witnessing frustration on the

part of talented staff as a result of unrealistic

expectations about both the pace and scope

of organisational advancement, then we need

to more clearly set expectations without a

loss in motivation.


It’s worth diving a little deeper into this, as

there are fairly striking differences in job-

level perceptions of this issue. Consider that:

• 64% of senior and executive vice presidents

think that offering talented staff a

compelling career progression is either

somewhat or extremely challenging.

• This contrasts with 79% of vice presidents/

directors and 75% of managers who say the

same, more than a fifth of who believe it is

extremely challenging.

Clearly, VPs and directors have a different

view on the significance and urgency of this

challenge. From their perspective, at least

internally, there are undeniable limits to

professional development through supply

chain. This could signify that chief supply

chain officers have yet to figure out how

to package the capabilities of their rising

stars in a way that attracts more rotational

assignments and general management

opportunities. Persuading executive

leadership on the need for rotational

assignments for key supply chain personnel

into areas that involve the customer, product

innovation or finance will be key to change

the direction indicated in this data.

NEW PRODUCT INTRODUCTION NOW AN ESSENTIAL SKILL FOR THE MAJORITY

In 2011 we asked our community to rate

the importance of the skills and capabilities

essential for supply chain personnel. This

year we repeated the question and the

comparisons are shown in Figure 15. There

are shifts in importance across all these

capabilities over this two-year time span, but

clearly none greater than those believing

Figure 14 The seniority gap Challenge in offering talented staff a compelling career progression, by job level


SVP/EVP/Board Level

VP/Director

Manager/Head

50 14

59 20

54 21

Somewhat challenging

Extremely challenging

2013 2012 2011

Measuring and differentiating talent among existing staff

Willingness of talent to relocate internationally*

Developing skills among existing staff

Retaining talent

* Not asked in 20112013 n=742

Weighted average rating(scale 1-5 where 5=most challenging)

Hiring talent

Finding talent

2.80

3.003.20

3.403.60

3.804.00

Offering talented staff a compelling career

progression

Figure 13 Talent pressures ease Challenges in respect of knowledge workers


that new product development and launch

(NPDL) is an essential supply chain capability.

In 2011, less than a fifth agreed. Today,

more than half do. When we look at specific

industries, this trend becomes even clearer.

Seven out of 10 respondents in CPG and

two-thirds in hi tech rank NPDL as a must-

have supply chain capability.

Companies are clearly looking for supply

chain experts who can enable growth and

improve the speed and effectiveness of their

new product introduction processes. This

two-year shift is dramatic and suggests we

are becoming more tightly integrated with

research and development. To maintain this

integration, of course, requires upskilling in

both supply chain and R&D, as well as more

effective governance processes between

functions. Perhaps this is why we see the

accompanying increase in governance as an

essential supply chain capability.

Market growth objectives require not

only beefing up new product introduction

and launch capabilities, but also customer

management capabilities. We see a pretty

significant link between respondents who

see very high value in supply chain’s ability

to support market expansion and those who

see managing the customer as essential

to supply chain. Almost three-quarters of

survey respondents who feel their businesses

highly value a supply chain function that

can support business expansion plans say

customer management is an essential

capability. Just as new product introduction

and launch will require tighter integration

with R&D, managing an increasingly complex

customer profile across different geographies

will require tighter integration with sales &

marketing and a corresponding improvement

in skill sets on both sides.

There is little difference in how EVPs/

SVPs, VPs, directors and managers rate the

importance of NPDL for supply chain, which

suggests significant organisational alignment

and recognition that NPDL is a core supply

chain talent requirement. Moreover, a higher

proportion of survey participants who

believe that supply chain in their companies

is seen as an equally important business

partner as marketing or R&D and product

development recognise the importance of

NPDL – 56% compared with just 45% of

those who think supply chain is primarily

a cost centre. The difference is even more

striking for customer management – 70%

of respondents who see supply chain as an

equally important business partner rate

customer management as an essential supply

chain skill, compared with only 41% of those

who see supply chain as a cost centre.

Clearly, supply chain organisations that feel

they have earned a seat at the executive

table have prioritised skill enhancements

associated with both new product

introduction and launch and customer

management processes.

MEASURING RETURN ON INVESTMENT CONTINUES TO CHALLENGE

Data from our CSCO study suggests that

measuring the effectiveness of talent

development investments is an inexact science

at best. A slight majority (53%) of respondents

overall are not measuring whether training

expenditures are worth it or not. Just

over a fifth track programme completion

or utilisation rates, while a quarter track

performance improvements among those who

undergo development activities.

Supply chain functions that feel they have earned

a seat at the executive table have prioritised

skill enhancements associated with both new product introduction and

customer management.



2011 Essential2013 Essential

Figure 15 Essential supply chain skills Importance of skills/capabilities for supply chain talent in your company

Plan

Deliver

Performance management

Source

Change management

Customer management

NPDL

Technology enablement

Make

Governance

Post-sales support

8785

8277

6165

7369

5048

4637

7681

5318

7376

5052

2928

The data does seem to suggest that companies

are more comfortable with qualitative methods.

A quarter rely solely on them. This picture

gets more complicated when we look at the

proportion of personnel budgets dedicated

to talent development initiatives. Almost 7

out of 10 respondents whose supply chain

organisations spend 5% or more of fully loaded

personnel costs on training measure the

outcome of these investments in some way. This

contrasts with 56% of respondents who invest

2-5% and just 33% who invest 0-2%.

In other words, the greater the investment a

company makes in upskilling its supply chain

personnel, the greater the likelihood that it

measures the outcomes. Nevertheless, the

fact remains that a significant minority – 31%

of respondents spending 5% plus and 44%

spending 2-5% – don’t measure whether or not

their training investments are having an impact.

One possible explanation is that supply chain

leaders are ambivalent about the accuracy and

credibility of the metrics used. Another is that

they are navigating these talent development

waters without a clear rudder or strategy for

their initiatives.

Organisations that can demonstrate a causal

link between expenditures, talent initiatives

and positive outcomes stand a much greater

chance of creating an environment where

talent improvement becomes self-fulfilling. It

is interesting to note that 18% of respondents

who feel that acquiring and developing talent

has become easier over the past two years

spend 5% plus of fully loaded personnel costs

on improving supply chain knowhow. This is in

contrast to the 12% of respondents who say it

has increased in difficulty that make the same

level of investment. Raising the talent profile

for supply chain personnel looks like a battle of

endurance rather than speed.

2-5% 5%+0-2%

Figure 16 Value for money? How ROI on training expenditures is tracked, by % of fully loaded personnel

costs

We don’t track it

We track completion/utilisation rates

We track performance improvements of

trained staff

Other

674431

192416

122945

22

8



CONCLUSIONS & RECOMMENDATIONS

Supply chain’s seat at the table has been set.

Looking around that table, many among us

seem to have found a new level of respect for

what our peers in sales, marketing, R&D and

engineering bring to the business. Dealing as

we do across the full lifecycle of business, from

bringing a new product to market all the way

through to taking care of the waste it creates,

we see countless opportunities to do a better

job for customers, shareholders and the world

around us. As the old saying goes, though, be

careful what you wish for because you just

might get it.

Our duties start with the obvious – deliver

to customers while containing or reducing

operating costs. For many of us, however, the

charter now includes bringing innovation to the

quest for new markets, new channels and new

sources of revenue. At the same time, we have

largely accepted accountability for managing

physical, if not financial, risk to the enterprise as

well as owning most of the impact we have on

the environment and communities in which we

operate. The to-do list has gotten pretty long.

Our practices for handling the exploding

complexity of digital demand, the huge footprint

that is social and environmental responsibility,

and global supply chain risk continue to

advance and, in general, offer much promise for

steadily improving results. However, too little

systematic talent development with too hazy a

measurement system may be confounding our

efforts and investments at exactly the time they

are needed most.

Looking ahead to 2014 and beyond, several key

recommendations stand out:

• Audit and critique the role supply chain

plays within your wider management

team. Expectations of and communication

with board-level counterparts in sales, R&D

and finance require clarity. Nothing could be

worse than setting expectations that cannot

be met.

• Analyse the changes coming through

emerging digital demand channels and

understand how costs will evolve as new

physical channels arise to meet customer

expectations. Strategically unbundling supply

chain complexity will be an absolute necessity

if margins are to be protected going forward.

• Contain and document the sustainability

movement in supply chain. The topic has

an amoebic quality that can consume time

and resources in key functions. It also offers

meaningful long-term savings on material,

energy and even labour. Six-Sigma-like

approaches may help to keep initiatives clearly

scoped and on track.

• Invest time, if not money, in better visibility

back into the supply base and forward into

channels. Habits based mainly on supplier

pressure lack sophistication and are liable to

backfire when crisis hits. Agility in response

to problems is great, but it depends on

having designed agility and resilience into the

network before trouble arises.

• Focus skill development initiatives on

emerging leaders who are ready to think

strategically about business as well as

tactically about supply chain. Consistent

worries about how to offer these middle

managers a compelling career progression

point to a gap in the definition of what makes a

great supply chain executive. Big jumps in the

importance of new product development and

launch and governance as essential supply

chain skills say that we have much more to

offer these ambitious professionals.


ABOUT THE RESEARCH

This is the fourth annual Chief Supply Chain Officer Report published by SCM World. Invitations to complete an online survey were sent to members of SCM World’s global community and to other supply chain, procurement and operations practitioners in late July and August 2013. In total, 756 completed responses were received during the six-week survey period, ending 6 September 2013.

The key demographics of this sample are as follows (all figures show % respondents):

Hi-Tech 18

Food & Beverage 14

Industrial 11

CPG 10

Healthcare & Pharma 9

Chemicals 7

Retail 5

Logistics & Distribution 4

Media & Telco 3

Automotive 3

Utilities & Energy 3

Aerospace & Defence 3Medical Equipment &

Devices 2

Agriculture & Mining 2

Fabric & Apparel 2

Construction & Engineering 2

Metals 1

Paper & Packaging 1

Supply Chain 49Purchasing/Procurement 13

Operations 10Logistics/Transportation &

Distribution 7General Management 5

Manufacturing/Production 5Other 11

Europe, Middle East & Africa

Asia & Australia

Rest of the World

North & South America

41

14

44

1

<$1bn

$5bn-$10bn

$10bn-$25bn

$25bn +

Undisclosed

$1bn-$5bn26

13

20

139

19

SVP/EVP/Board Level

Manager/Head

Other

VP/Director9 14

3938

Industry sector: Hi tech, food & beverages, industrial, consumer packaged goods and healthcare & pharmaceuticals were the sectors with the largest number of respondents.

Job function: Half of respondents define their role as supply chain, while procurement and operations each account for at least 10% each.

Location: The largest proportion of respondents is based in the Americas, closely followed by those in the EMEA region.

Company size: In terms of revenue, a third of respondents work for companies with more than $10bn in annual sales, almost 3 in 10 are in the range $1-10bn and a quarter are less than $1bn.

Job level: More than half of respondents are at senior executive, vice president or director level, with almost 4 out of 10 at manager or head of department level.


APPENDIX: FULL SURVEY RESULTS

An aggregate view of all the findings from the 2013 Chief Supply Chain Officer Survey are shown here for reference purposes.

STRATEGY ALIGNMENT & VALUE CREATION

13 3

0

Q3 At your company, what is your assessment of the value created by having a high-performing supply chain?

Very high value High value Moderate value Little value No value whatsoever

Enhanced customer service and customer loyalty 241 42

Stronger supplier relationships 130 45 20 4

Expanded offerings of value-added services

19 43 28 7 3

Facilitation of premium pricing

19 38 32 10 3

Leverage opportunities created by external supply disruptions (earthquakes, floods, fires, etc)

16 28 32 18 6

Other

17 27 28 4 24

Expansion of business to new market segments within existing/new geographies

32 41 20 6 2

Accelerated new product introduction

31 41 21 4 3


Q1 How important is it for your company’s business strategy to focus on supply chain improvements for the following?

Operating cost reduction

Value creation through increasing revenue

Competitive advantage through differentiated customer service capabilities

Competitive advantage through strategic supplier engagement

Value creation through long-term equity improvement (such as enhancing brand equity)

Very important Important Neither important nor unimportant

Somewhat unimportant

Not at all important

68 28 2

40 751

43 45 8 3

43 46 8 3

34 46 15 4 2

1

1 1

1

1


Q2 Do you believe your CEO and executive management team appreciate the alignment of business strategy and supply chain strategy?

Absolutely. Supply chain is understood as an equally important part of business success as sales & marketing or R&D/product development

Not really. Supply chain is understood primarily as a cost centre that affects margins

No. Supply chain is strictly seen as a function meant to service the business

Yes, but only as an enabler of product or sales-driven business strategies


52

8 3

37


DIGITAL DEMAND & E-COMMERCE

Q5 In response to demands from today’s e-commerce and mobile-enabled customers, is your supply chain supporting:

Much larger SKU assortments

Little or no change in SKU assortments

Smaller SKU assortments

Some SKU expansion


9 17

38

36

Q4 Within the context of your company/industry, do you believe that e-commerce and mobile-enabled customers are:

More receptive to offers trading product choice, price point, availability, and convenience against each other (i.e., willing to pay a premium for valued service, or accept inconvenience in return for lower price)

The same as regards offers trading product choice, price point, availability and convenience against each other

Less receptive to offers trading product choice, price point, availability and convenience against each other (i.e., only interested in lowest price)


3547

18

Q6 In response to demands from today’s e-commerce and mobile-enabled customers, is your supply chain building:

Larger, more centralised distribution centres

The same type of distribution centres

Smaller, more local distribution centres


4634

20

Q7 In response to demands from today’s e-commerce and mobile-enabled customers, is your supply chain:

Building direct-to-customer fulfilment capabilities

Seeing little or no change to existing channels for customer fulfilment

Relying on e-commerce retailers for customer fulfilment


48

36

16

Q8 What effect, if any, is social media (Twitter, Facebook, expert blogs/chatrooms, etc) having on your company’s supply chains today?


Provide advance warning of potential supply disruptions

(e.g., supplier failure)

Source of real-time customer feedback 38

Inform product enhancement/innovation priorities 29

Give visibility of social/environmental/labour practices 26

Improved communication with trading partners 19

17

Improved demand sensing and forecasting (e.g., for “hot” products) 15

No effect 37

Source of real-time customer feedback 56

Improved demand sensing and forecasting (e.g., for “hot” products) 46

Inform product enhancement/innovation priorities 45

Improved communication with trading partners 42

Give visibility of social/environmental/labour practices 39

Provide advance warning of potential supply disruptions (e.g., supplier failure) 39

No effect 14

Q9 How do you expect social media to inform your company’s supply chain management practices in the future?



SOCIAL & ENVIRONMENTAL RESPONSIBILITY


Create a positive customer image and enhance brand equity

Reduce costs and/or increase efficiency (e.g., through better use

of energy, raw materials)

80

47

Satisfy government regulations 47

Ensure no disruption of supply 29

Increase sales revenue 24

Fend off shareholder or external PR concerns 23

Q10 What is your best judgment of your brand’s motivations for investing in SER?

Q13 What value has been generated so far from addressing your most important SER issues?

45 26 19 9

43 36 11 10

25 25 23 27

23 25 23 29

19 15 51 16

29 21 41 8

33 31 28 8

52 21 17 9

21 33 33 13

27 30 32 10

Product innovation (e.g., greener, more efficient)

Hazardous materials

Resource scarcity (e.g., water)

Product integrity

Emissions (e.g., carbon)

Supplier diversity

Ethical issues (e.g., labour practices, conflict minerals)

Waste management (e.g., recycling, closed loops)

Health and safety

Energy efficiency

% of responses for each issue (shown in order of importance)n=736

‘Soft value’ (e.g., PR, better supplier relations)

Compliance with regulations/strategy

Bottom-line results (cost savings) Top-line results (growth/revenue increase)

Q12 At what level have you planned or implemented SER activities?

Whole value chain

Extended supplier network

Key suppliers

Internal operations

Activities fully implemented Currently implementing activities

Planning future activities No activities planned

21 46 22 12

10 35 34 21

10 37 34 19

34 49 12 5


Health and safety 1.40

Ethical issues (e.g., labour practices, conflict minerals) 0.87

Product integrity 0.79

Product innovation (e.g., greener, more efficient) 0.64

Energy efficiency 0.56

Waste management (e.g., recycling, closed loops) 0.47

Emissions (e.g., carbon) 0.42

Hazardous materials 0.35

Supplier diversity 0.26

Resource scarcity (e.g., water) 0.24Weighted average rating (0-3, where 3=max score)n=746

Q11 Which of the following SER issues are most important in your supply chain? (Please rank your top 3, where 1=most important)


RISK MANAGEMENT

Q14 How concerned are you about the following risks within your supply and demand chains in 2013-14?

37 35 18 7 2

31 43 17 7 3

28 39 19 11 4

25 42 21 7 5

24 36 24 11 5

22 44 22 9 3

22 30 22 14 13

22 43 21 10 5

21 40 21 13 5

18 35 24 17 7

13 39 25 17 7

13 44 26 14 4

8 31 29 18 15

21 32 24 13 10

Safety/quality incidents

Commodity price volatility

Supply shortage of raw materials/components

Legal/regulatory issues (e.g., trade policy, tax)

Data security/IT incidents

Shipping/logistics disruptions

Counterfeit products

Inability of customer to fulfil production/sales targets

Breach of intellectual property rights

Financial failure of critical supplier

Financial failure of critical customer

Natural disaster affecting supplier facilities (e.g., earthquake, flood)

Other incident at supplier facilities (e.g., fire, strike, technical problems)

War, terrorism or other geopolitical issues


Somewhat concernedVery concerned Neither concerned nor unconcerned

Not at all concernedSomewhat unconcerned

Q15 Which of the following strategies/tactics does your company use to mitigate the impact of potential supply or demand chain risks, and how effective are these?


Used and moderately effectiveUsed and very effective

Used and marginally effective Not used at all

Dual or multiple sourcing of key materials/components/products

Regular audits of key suppliers

Hold safety stocks of key materials/components/products

Performance-based contracts with key suppliers

Evaluate business continuity plans of key suppliers

Implement and test business continuity plans internally

Diversify customer base/product range

Commodity hedging (e.g., financial instruments)

Expand into new/undeveloped markets

Risk registers/reporting/governance

Maintain spare in-house production capacity

Predictive risk analysis

Supply chain risk insurance

Mutual aid contingency plans (e.g., with competitors, distributors) to maintain supply in a crisis situation

39 38 15 3 5

32 39 19 5 6

29 42 18 3 7

25 40 20 5 10

22 35 25 6 13

21 33 24 9 14

20 39 21 5 15

18 31 21 5 25

16 34 27 6 18

16 34 27 7 17

14 31 21 7 28

13 34 26 10 21

11 21 24 8 36

10 25 18 6 41

Ask Tier 1 suppliers 63

Internal information systems 50

Sub-tier supplier audits 49

Third-party newsfeeds/reports 49

Industry consortiums 34

Social media analysis 15

Other 6

None 2 % of respondents n=432

Q17 Which of the following methods do you use to get visibility of potential risks at the sub-tier (below Tier 1) supplier level?

Tier 1 suppliers only

Tier 1, 2 and 3+ suppliers

Tier 1 and 2 suppliers


13

41

46

Q16 At what level do you have good visibility of potential risks within your supply base?

Used but ineffective


TALENT MANAGEMENT

Q19 How has the acquisition and development of supply chain talent in your company changed in the past two years?

Become more difficult

About the same

Become easier


4437

19

Q20 At which level is talent management an issue?

More of a problem at senior leadership positions

More of a problem at entry-level positions

Similar across all levels

More of a problem at mid-level functional positions


18

42

28

12

21 55 15 7 3

20 56 15 6 3

20 35 24 11 10

17 53 20 7 4

16 46 23 12 4

10 52 22 12 4

8 41 28 14 9

Offering talented staff a compelling career progression

Finding talent

Willingness of talent to relocate internationally (e.g., to China, Mexico)

Hiring talent

Retaining talent

Developing skills among existing staff

Measuring and differentiating talent among existing staff

Q21 How challenging are the following issues in respect of knowledge workers?


Somewhat challengingExtremely challenging Neither challenging nor unchallenging

Not at all challengingSomewhat unchallenging

25 41 15 11 7

21 51 18 6 4

15 35 23 16 12

10 32 23 18 18

18 18 32 4 28

Lost process intellectual property

Cost of transition to replacement

Lost product intellectual property

Lost production

Other

Q22 How concerned are you about the following impacts of talent being lost (retired, hired away, otherwise departed)?


Somewhat concernedVery concerned Neither concerned nor unconcerned

Not at all concernedSomewhat unconcerned



n=331n=497

Nice to haveEssential Not part of supply chain

Planning

87 11

Delivery/logistics

82 17

Performance management

76 21 3

Sourcing

73 22 4

Change management

73 24 4

Customer management

61 26 12

New product development & launch

53 34 14

Technology enablement

50 42 7

Manufacturing

50 34 15

Governance

46 46 9

Post-sales support

29 45 26

Q23 How do you rate the importance of the following skills/capabilities for supply chain talent in your company?

Q24 How do you measure talent?

Primarily quantitatively

Both in roughly equal measure

Primarily qualitatively


8

25

67

Q25 What percentage of your fully loaded personnel costs do you spend on training/skill development/external education?

None

2-5%

5%+

0-2%


12

43

3

42

Q26 How do you measure return on investment on training expenditures?

We don’t

We track performance improvements of trained staff

Other

We track completion/utilisation rates


24

53

21

2

Q28 In terms of universities/business schools as markers of supply chain talent, please name your top 3, where 1=most valuable

Top 15 schools (minimum of five rankings each)

Q27 In terms of association certifications (e.g., APICS, ISM, SCC) as markers of supply chain talent, please name your top 3, where 1=most valuable

Schools Top 1 Top 2 Top 3 Total

Michigan State University 28 26 10 64

Massachusetts Institute of Technology 26 9 16 51

Pennsylvania State University 19 12 15 46

Arizona State University 13 16 4 33

Stanford University 15 7 10 32

Georgia Institute of Technology 12 10 7 29

Cranfield University 16 7 3 26

University of Tennessee 5 5 8 18

Harvard University 10 3 2 15

Ohio State University 4 6 5 15

Purdue University 3 3 3 9

INSEAD 3 2 2 7

Rutgers University 2 4 1 7

Warwick Business School 2 4 0 6

University of Southern California 3 1 1 5

Certifications Top 1 Top 2 Top 3

APICS-The Association for Operations Management (CPIM/CSCP)

229 76 18

Supply Chain Council (SCOR Professional) 56 62 76

Institute for Supply Management (CPSM/CSM/CPSD) 44 56 42

Council of Supply Chain Management Professionals (SCPro Certification)

35 30 33

Chartered Institute of Purchasing and Supply (CIPS qualifications)

22 28 14

Project Manager Professional (PMI certifications) 20 52 38

Chartered Institute of Logistics and Transport (international qualifications)

14 15 12

Purchasing Management Association of Canada (SCMP Designation Program)

13 9 10

Hazard Analysis and Critical Control Point (HACCP) 12 13 9

Certified Management Accountant (CMA) 9 9 11

PRINCE2 8 14 9

Association for Healthcare Resource & Materials Management (CMRP Certification)

6 5 1

Association for Project Management (APM qualifications) 4 8 12

American Society of Transportation & Logistics (DLP/CTL/PLS/GLA )

1 3 6

Canadian International Freight Forwarders Association (certificate programs)

1 0 2

International Featured Standards (IFS) 1 4 4

Certified Financial Planner (CFP) 0 7 3

Other 40 26 29

2

1


ABOUT SCM WORLD

SCM World is the leading global community

of senior supply chain professionals.

Harnessing the collective brainpower of the

most forward-thinking practitioners from

the world’s foremost companies, SCM World

accelerates learning for supply chain leaders

and their rising stars.

SCM World offers a dynamic content agenda

of practitioner-driven webinars, research

projects, data insights, peer exchanges and

events. This programme brings a structure

to the process of identifying, disseminating

and implementing innovative cross-industry

practices, aligned against internal learning

priorities and strategic objectives.

Over 150 companies participate in and

contribute to the SCM World community,

including P&G, General Mills, Nestlé,

Samsung, Lenovo, Nike, Walgreens, Merck,

Jaguar Land Rover, Raytheon, Chevron, BASF,

GlaxoSmithKline, Intel and AT&T.

www.scmworld.com

For more information about our research programme, contact:

Geraint John

Senior Vice President, Research

+44 (0) 20 3747 6200

[email protected]

2 London Bridge

London SE1 9RA

United Kingdom

+44 (0) 20 3747 6200

www.scmworld.com

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