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Thinking like a CEO to Make the Case for Supply Chain Investment
Aligning CXOs and supply chain executives on the road to significant gains from global supply chain management
Alex Thompson of TradeBeam
By Alex Thompson
In order to help supply chain executives make the case for investment in supply chain management, it is important to first answer two fundamental questions:
Firstly: What is the value of SCM to corporations?
To answer this question, TradeBeam and Stanford University conducted a study in 2009 titled "How Enterprises and Trading Partners Stand to Gain from Global Trade Management: A New Process Model for the China-to-US Trade Lane." We found that importers stand to gain savings equal to 1.4 percent to 4.3 percent of total sales by improving the efficiency of their supply chains with automation and accompanying processes and skills. Exporters receive similar benefits, from 1.7 percent to 2.3 percent of total sales. These savings can yield a profit increase of up to 70 percent for an importer and 40 percent for an exporter. Driving these bottom line savings and overall improvements in operational efficiency are improvements in key working capital and cycle time metrics such as days sales outstanding and the order-to-receipt cycle.
Secondly: What do "CXOs" believe is the value of SCM to corporations?
Judging by the relative inefficiency of global supply chains compared with their domestic and regional counterparts, which is a result of underinvestment, there are two likely CXO views regarding the perceived value of SCM to corporations:
Given these viewpoints, it is important to articulate the value of SCM with hard evidence, and to demonstrate how global supply chain investments serve as enablers for the other benefits of globalization, namely low-cost country sourcing and the potential for gaining market share in emerging markets.
So what can supply chain executives do to make the case for more investment in global SCM? Well, with a better understanding of the value of SCM, as well as the decision-making mindset of CXOs, supply chain leaders should begin to follow a highly structured, rigorous plan that is no different in principle from how an executive in any department should strive to gain acceptance for corporate projects.
Following is a representative multi-step plan, tailored to supply chain executives:
In order to help supply chain executives make the case for investment in supply chain management, it is important to first answer two fundamental questions:
Firstly: What is the value of SCM to corporations?
To answer this question, TradeBeam and Stanford University conducted a study in 2009 titled "How Enterprises and Trading Partners Stand to Gain from Global Trade Management: A New Process Model for the China-to-US Trade Lane." We found that importers stand to gain savings equal to 1.4 percent to 4.3 percent of total sales by improving the efficiency of their supply chains with automation and accompanying processes and skills. Exporters receive similar benefits, from 1.7 percent to 2.3 percent of total sales. These savings can yield a profit increase of up to 70 percent for an importer and 40 percent for an exporter. Driving these bottom line savings and overall improvements in operational efficiency are improvements in key working capital and cycle time metrics such as days sales outstanding and the order-to-receipt cycle.
Secondly: What do "CXOs" believe is the value of SCM to corporations?
Judging by the relative inefficiency of global supply chains compared with their domestic and regional counterparts, which is a result of underinvestment, there are two likely CXO views regarding the perceived value of SCM to corporations:
- They don't believe the benefits of global SCM investment (automation and accompanying processes and skills) will be as large as noted above; or,
- They are focused on getting the most out of the high-level advantages of globalization (lower material and labor costs and new revenue markets) and are postponing lower-margin investments in the supply chain to a later date.
Given these viewpoints, it is important to articulate the value of SCM with hard evidence, and to demonstrate how global supply chain investments serve as enablers for the other benefits of globalization, namely low-cost country sourcing and the potential for gaining market share in emerging markets.
So what can supply chain executives do to make the case for more investment in global SCM? Well, with a better understanding of the value of SCM, as well as the decision-making mindset of CXOs, supply chain leaders should begin to follow a highly structured, rigorous plan that is no different in principle from how an executive in any department should strive to gain acceptance for corporate projects.
Following is a representative multi-step plan, tailored to supply chain executives:
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