Supply Chain Almost at the Table in 2010

by Kevin O’Marah

A recent Gartner field survey on supply chain organizational structure and budgetary control shows a huge leap forward for the profession during the past five years. In 2005, only 75% of companies had established a formal supply chain organization, with only 52% of these organizations in place for more than two years. By 2010, the numbers increased to 86% with formally organized supply chain organizations, with 86% in existence for more than two years.

Even more interesting were our discoveries on the reporting line: In 2005, it flowed to the CEO or president only 30% of the time and manufacturing 39% of the time. In 2010, these numbers are reversed, with 68% reporting to the CEO or president and only 8% reporting to manufacturing. Supply chain once served the factory, but now it serves the business. Heady stuff.

But before we get too excited about this trend, it’s worth asking whether or not the business really knows what supply chain is all about. The same dataset tells another story — and it’s one of confusion. Whereas titles in finance, sales or IT are generally pretty clear, the same isn’t true for supply chain. Our survey asked what the highest-ranking supply chain executive is called functionally, and answers were all over the map. Only 29% used the label “supply chain” to describe this leader. Nine percent called it “procurement.” Another 9% chose the label “operations,” while 7% said “logistics.” Forty-three percent of respondents were unable to find the functional title for their highest-ranking supply chain executive among these terms.

Also, we’re generally not seeing supply chain people holding the EVP or C-level titles. Despite the large share that report directly to the CEO, most are still holding a VP title. Is it possible that we’ve been given a level of responsibility that’s bigger than our authority? Yes, it’s possible.

The top complaint of supply chain people working through issues with other functions in the business is a sales and operations planning (S&OP) process that’s unbalanced or supported with weak governance. We’re often the ones championing the S&OP effort because we understand the need for constant rebalancing of supply and demand. The CEO seems to want this done; but when push comes to shove, discipline falls by the wayside at quarter end (this happens too often), and somehow the lesson goes unlearned once again.

The most encouraging facts revealed in this research have to do with the expanding view supply chain has of its own role. Fifty-five percent say they’re responsible for customer fulfillment, 59% for strategy and change management and a full 61% are responsible for supply chain technology enablement. In terms of priorities, although the No. 1 overall stated goal is still cost oriented (56% chose “reduce operational costs” as one of their top-five priorities), the No. 2 is “improve customer satisfaction.” And even though they’re lower on the list, competitive imperatives such as product innovation, or “getting new products to market faster,” (28%) and risk management (24%) rated significant awareness.

It’s also worth noting that budget authority for supply chain organizations is generally very large, with over 50% of respondents controlling budgets for transportation equipment and machinery, packaging materials and raw materials, maintenance repair parts and services, third-party logistics services and packaging services. In fact, supply chain organizations that control manufacturing spend 47% of company revenue on average each year on such things.

Supply chain has a lot to do with whether or not a company wins its competitive battles, and it’s trying to get the rest of the business to see this. It’s time we get our story straight.