Supply chain disruptions keep on coming, but companies seem to be reducing their efforts to enhance resilience. Is it time for CEO’s to step in and get involved in their supply chain? Research suggests that CEO’s with prior experience in high-level supply chain roles might be the key to building more resilient supply chains and drive better financial results. How CEO’s with supply chain experience drive bottom line success.
Supply chain disruptions are nothing new but recently seem to be coming at companies in a more frequent and severe way. From missile attacks on commercial shipping in the Red Sea to automotive production delays following floods in Europe, global supply chains continue to experience instability. Meanwhile, trade tensions are choking the movement of semiconductor products, manufacturing equipment, and critical materials.
Therefore, these recent global events have compelled many CEO’s to directly reckon with supply chain issues. Safeguarding and restructuring supply chains are key to their company’s success but which CEO’s are more successful? Harvard Business Review (HBR) performed a close examination of S&P 500 CEO career trajectories, as well as an analysis of financial performance metrics.
Reduced resilience efforts
According to the latest McKinsey Global Supply Chain Leader Survey, nine in ten respondents reported encountering supply chain challenges in 2024. Despite these issues, there are signs that companies are reducing their efforts to enhance supply chain resilience. This leaves them potentially vulnerable to future disruptions. The survey reveals significant gaps in organizations’ abilities to identify and mitigate supply chain risks. Some important highlights out of the survey are:
- 73% of survey respondents report progress on dual sourcing, and 60% are regionalizing their supply chains. The share of companies with comprehensive visibility of their tier-one suppliers has reached 60%, marking a consecutive annual increase of ten percentage points.
- The share of companies with good visibility into deeper supply chain levels has declined by seven percentage points for the second year.
- Two-thirds of surveyed companies are investing in advanced planning and -scheduling (APS) systems, and only 10% have completed their deployments.
- One-third of respondents lack quantified business cases for APS systems, and 15% report that implementations have not met business objectives
- Companies take an average of two weeks to plan and execute a response after a supply chain disruption.
- Only 9% of companies report their supply chains are currently compliant, and 30% admit they are behind in compliance efforts.
There are also plenty of signs that the revolution in supply chain resilience is losing momentum. The percentage of respondents pursuing dual-sourcing, regionalization, or nearshoring strategies has remained flat over the past two years. Overall investment in supply chain digitization is leveling off after rapid growth between 2020 and 2023.
There is more attention needed for Supply chain, CEO’s need to get more involved. The HBR report suggests that CEO’s with prior experience in high-level supply-chain roles might be the key to building more resilient supply chains and weathering unanticipated disruptions. But why CEO’s with supply chain Experience drive bottom line success?
Which CEOs drive success?
Many S&P 500 CEO’s ascend to the top of the corporate hierarchy after cutting their teeth through leadership roles in functional areas such as finance, strategy, and technology. But in recent years, a small but growing group of CEO’s have made the jump to the top after holding high-level roles in supply chain management (SCM).
HBR found that firms led by CEO’s with SCM experience mention supply-chain-related terminology more often in their annual reports. They also found these leaders took a more proactive approach to addressing potential supply-chain challenges, and in leveraging the supply-chain function to generate new business opportunities.
In the words of Bob Biesterfeld, CH Robinson’s CEO and a supply-chain expert, Covid-19 made supply chain resiliency top-of-mind for all businesses: “[T]he rest of the world learned what we already knew: the global supply chain and the people who make it work are vital to the world’s economy.”
HBR found that firms led by CEO’s with SCM experience were more effective in maintaining profitability levels. At the same time these firms increased sales and keept costs low during the height of the crisis. Their peer firms (led by CEO’s without SCM experience) were also able to keep profitability levels steady. However, in many cases they did so at the expense of higher costs (such as increased inventory of products) or declining total sales. So, how do CEO’s with supply chain experience drive bottom line success?
How CEOs with supply chain experience drive success?
HBR believes the stronger performance of firms led by CEO’s with SCM experience can be attributed to the following reasons:
- Early detection and quick response to disruptions: Having a background in SCM enables CEO’s to recognize emerging issues in global supply chains and react early to avert major disruptions. For example, Hanes Brands, the multinational clothing company, was steered into the pandemic by CEO Gerald Evans, Jr. He had previously served as the division president of global supply chain. Under his leadership, the company nimbly shifted its operations to “quickly pivot to large-scale production of personal protective equipment (‘PPE’)” for governments, organizations, and consumers.
- Heightened focus on supply-chain matters: Each day, countless tasks compete for a CEO’s attention. CEO’s with SCM experience are more likely to have an inherent appreciation for the business-critical nature of the supply-chain function and to prioritize it accordingly. During the pandemic, these CEOs were more likely to carve out the time needed to tackle supply-chain issues and allow decisions to be made in a timely fashion.
- Comprehensive understanding of underlying business operations: As noted by Sascha Menges, CEO of German industrial tool and hardware manufacturer Festool/TTS Tooltechnic, supply-chain roles permit individuals to witness “constant changes in day-to-day operations”. At the same time, it provides them with the capabilities to “intuitively understand how the underlying business works.” These attributes became indispensable as CEO’s sought to develop creative new ways of doing things to navigate pandemic-related supply chain disruptions
Recent events have shown that massive supply-chain disruptions are becoming a persistent issue. CEO’s with SCM experience may be the key to success. Boards must now more than ever recognize the value of CEO’s with SCM experience
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