Interview: Making Supply Chain Matter

Supply chain is earning increasing recognition as a critical function that can drive competitive advantage. In fact, this magazine reported in early 2006 on a survey of nearly 500 CEOs at midsize and large enterprises that showed a whopping 93 percent of chief executives view supply chain management as critical or very critical to their companies' overall business strategies. Yet while 75 percent of the CEOs in the survey said that they are primarily focused on top-line growth, 82 percent said that their supply chains are focused on cost reduction. This misalignment of goals suggests a substantial disconnect between supply chain and the overall business.

One way to ensure that supply chain is aligning its goals with those of the broader business is to make certain that supply chain has a "seat at the table" with other senior executives from across the enterprise when strategic decisions are made affecting the company as a whole and supply chain in particular. To learn how the supply chain function at The Dow Chemical Company ensures its seat at the executive table, Supply & Demand Chain Executive recently spoke with Jim Varilek, vice president of supply chain for The Dow Chemical Company. Varilek assumed this position in February 2006, but he has been with Dow since 1982, and we started our conversation by asking about his background with the company.

Jim Varilek: My background primarily is on the business side. I started with the company in marketing and sales, then worked in marketing management and product management. At Dow in the late 1980s, product management was actually where a lot of the supply chain activity would reside, including the planning activity, inventory and logistics management, and so forth. I spent a number of years in our polyethylene business and then went on to our corporate strategic development area and did value-based management work. After that I went onto business director roles in our Epoxy business, general manager of our Advanced Electronic Materials business, and most recently into our Chlorinated Organics business. So stepping into running a function was something new for me.

Supply & Demand Chain Executive: Coming from the business side, what is it that you bring to the table in running the supply chain function?

Varilek: As a function, we're clearly driven by our corporate strategy. With my business background, we're tying together the activities of the function with the business strategy more closely. We're trying to get more business connectivity with the function. What I mean by "connectivity" is ensuring that we're talking the same language as the business. Sometimes, when we're talking in supply chain, whether it is about systems or rail car turns or services, we need to translate that into value contribution to the businesses, whether in terms of enabling growth or reducing cost or improving service. That's where I'm trying to take things.

S&DCE: How important is it in your view for supply chain to have a voice in the strategic planning process within Dow?

Varilek: It's absolutely important. At Dow, supply chain does have a "seat at the table" at both the business level and at the corporate level. In each of our businesses, we have multi-functional business management teams that include our business directors, marketing, manufacturing leaders and our business supply chain directors. As business strategy is developed, our expectation is that the business supply chain directors actually influence that strategy, bringing their expertise and the expertise of the supply chain function to the businesses to make sure that the strategy is effectively implemented.

At a corporate level, we have [Dow Corporate Vice President of Shared Services and Chief Information Officer] David Kepler, who is my boss and who sits on the Office of the Chief Executive [OCE, an executive leadership team that is responsible for managing the corporation as a whole, including governance and enterprise-wide issues, and for assuring that Dow delivers on its strategic priorities]. Shared services is a combination of IT, customer service, supply chain and purchasing. David has all those under his umbrella, and he represents all those functions, including supply chain, on the OCE. So we do have a seat at the table both at the business level and at the corporate level.

S&DCE: Why is it important to Dow that supply chain have that connectivity to the businesses?

Varilek: Having a strong supply chain is important for our existing business as it's defined today. Clearly we've got a shifting competitive environment, and we have to maintain efficiency and cost advantage. That's how most people would traditionally view the supply chain. But there's another element that's becoming increasingly important, and that's safety and security. In our business we need a strong supply chain to make sure that we can effectively deal with the changing regulations and requirements for safety and security. We don't view ourselves just as a participant in this process; we try to drive it as well. We want to drive change so that we are on the leading edge on safety and security. That's part of our corporate culture, and we're extending that into the supply chain.

We also have very aggressive plans to grow our company, both in terms of what we call our market-facing units but also in terms of geographic growth — in India, China, Asia, Latin America, Eastern Europe and so forth. With those growth plans, there's a huge requirement to design supply chains to readjust to our product flow based on new plant builds, new emerging markets and shifting infrastructure in these emerging geographies. That presents a huge challenge, because you've got to get it right now, in terms of the design of the supply chain, four or five years in advance of building a new asset. It's absolutely important, because how you design the supply chain also has an effect on what kinds of assets you build from a plant standpoint and from an infrastructure standpoint.

S&DCE: You have to think both strategically and tactically within the supply chain function.

Varilek: Absolutely.

S&DCE: As somebody who's been at Dow for some time and has seen the evolution of a supply chain within the organization, could you talk about what you see as the challenges involved in having supply chain gain the sort of strategic role it has at Dow?

Varilek: The challenges in elevating the importance of the function and having that seat at the table are that the skill requirements increase, the connectivity that you need to have with the rest of the organization increases and your accountability increases. In terms of accountability, the effectiveness of a supply chain is measured not just in terms of cost and cost delivery but also in terms of enabling new business models, new growth and new capabilities. So you have to be able to not only deliver results but also articulate those results in a meaningful fashion to the leaders of the corporation.

S&DCE: What advice do you offer to other supply chain executives who are trying to gain a more strategic role for themselves and for their function within the enterprise? What steps can they take to ensure that they get that seat at the table?

Varilek: You have to speak in terms of what's going to bring value to the business. At the end of the day, companies are in business to make money. They are there to deliver a service or product to their customer base. If we always keep that in mind, then whatever we're trying to do in supply chain, we have to create a value proposition. Because the supply chain doesn't deliver value in and of itself; it delivers value through the businesses. And if we're not effectively putting a value proposition in front of the businesses, we're going to have a hard time getting that seat at the table — or, even if you have a seat at the table, you're not going to get the influence. But if you can articulate and develop a value proposition based on the capabilities that you bring to the table as a function, if you can tell a business that you can help enable growth and create this competitive advantage versus another company, then you're going to get people to listen. Or if you say, "I can optimize this supply chain and we can lower your costs by X percent and that will open up this whole new area and this whole new market," that will get their attention. If you can create that value proposition, then you'll get the recognition of what you can bring to the table.

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