In 2021, supply chain leaders suddenly got seats at executive tables. CEOs became supply chain experts overnight due to material shortages. In some companies, the supply chain leader kept their newly-acquired position close to leadership, but in others we faded back into the background over the last five years. (Yes, it’s been that long!) It was always funny to me being in the supply chain at a utility; we were doubly invisible. No one remembers the power company exists until the lights don’t turn on. No one remembers the supply chain exists until their parts don’t arrive. As with any major business change, I’m left wondering where the right balance is. What should CEOs actually know about their supply chains? What should the CEO be asking to understand if the supply chain processes, technology, and people are helping or hurting the business? Today’s article is about this balance, including some concrete questions a CEO (or maybe COO) should be asking before our next COVID-style supply chain crisis.
What a CEO Shouldn’t Know About Their Supply Chain
CEOs are strategic, not transactional. Therefore, they shouldn’t be tracking PO processes, inventory details, or even supplier issues. I’ve seen multiple times where a disgruntled supplier reaches out to a CEO for a resolution, sometimes due to a prior personal relationship.
I’ve also had CEOs that got too deep into their supply chains and made a big mess. Prior to my joining the company, I had a CEO commit to purchasing a very large quantity of wire harnesses from a supplier in order to save a bunch of money on a volume discount. He even directed my predecessor to issue a purchase order, which is a binding contract. The supplier promptly made the harnesses and put them in storage, which caused a couple of big problems. First, those harnesses became locked in that particular design, and any engineering changes suddenly required extensive rework or even scrapping that particular harness at a huge cost. Second, that commitment tied up a huge amount of cash for a company that didn’t have cash to spare. It’s worth noting my predecessor argued hard not to cut that PO and was overridden, so it’s not the supply chain leader’s fault. Ultimately that company failed, largely due to a lack of cash flow. Regardless, a CEO who starts making supply chain decisions can impact more than just the supply chain.
What a CEO Should Know About Their Supply Chain
Just because a CEO shouldn’t perform supply chain functions doesn’t mean they shouldn’t know some of the basics, similar to how they need to understand the basics of a profit-and-loss statement or a balance sheet. (Side note: A supply chain leader should also understand the basics of a PnL and a balance sheet!) A CEO should know:
- Supply chain spend – Just as every CEO should know their revenue number cold, they should also know revenue’s counterpart: spend. Profit margins are dependent on supply chain spend in addition to other expenses (mostly labor), and solid margins are everything for a business.
- Major risks – Every supply chain is a little different, and a CEO should know their major risks. If there’s a hurricane in Houston, does your chemical-processing factory shut down due to lack of supply? How much of your cash flow is tied up in inventory? Are your critical suppliers under contract?
- Supply chain capability – This one is about process and technology capabilities, but it’s really about people. Unless the company is very small, it’s unlikely the CEO knows every member of the supply chain team. But they need to know if their supply chain leader is capable and the right fit for the organization. The most common leadership gap I see is that the supply chain leader doesn’t have a successor. A successor doesn’t have to come within the team, but a mark of excellent leadership is having a successor identified and on the path toward leadership.
- Alignment – Whether a business is aligned is a bit of a corporate buzzword, but the sentiment behind the word “alignment” still rings true. I commonly see a supply chain team desperately chasing savings because they report to the CFO, yet the end customers always order from the supplier who can deliver fastest. Or the customers always choose the least expensive option and yet the supply chain team consistently pays a little more for higher quality. A CEO has to understand their supply chain’s performance and if it’s aligned with what the organization needs.
The Four Questions CEOs Should Ask
As an executive, a CEO should generally ask the questions they already know the answer to. If the CEO already knows what they should know above, they should also generally know the answers to these questions. If the CEO doesn’t know the answer, they may need to start asking until they do (and there’s no shame in that), or get some help from their team or a third party to get answers. Here’s the questions to answer:
- What is our total supply chain spend? Follow up questions: Has it dramatically increased or decreased in the last few years? How concentrated is it in our top few suppliers?
- How is our relationship with our top strategic suppliers? Follow up questions: Do they have contracts in place? If any of them has a major disaster tomorrow, do we have an alternate supply?
- Is our supply chain leader capable and a good fit for our organization? Follow up questions: Do they have a clear successor? How is their relationship with the operations teams?
- Does our supply chain team prioritize cost, quality, or lead time? Follow up questions: Does that align with our end customer’s goal of X? Is the supply chain tech stack/software in alignment with that priority (and are other departments’ tech stacks aligned with that priority)?
If a CEO can’t get answers to these questions, or worse, gets a different answer depending on who they ask, it’s bad news. Work on alignment first, then the other major components. Similarly, a supply chain that is busy instead of productive is a warning sign. Likely a very “busy” supply chain needs a CEO who is just a little more engaged so that CEO can give calm strategic direction. Ultimately a CEO doesn’t need to run the supply chain, but they do need to understand it well enough to trust (or fix) it.
If you’d like to talk about your CEO visibility, alignment, or anything else, let’s chat. If you’d like to get these articles weekly straight to your inbox and never miss one, sign up for my newsletter.
My book, Transform Procurement: The Value of E-auctions is available in ebook, paperback and even hardcover format: https://www.amazon.com/dp/B0F79T6F25. My chapter in the powerful anthology Femme Led: Hard-Learned Lessons from Women in Leadership is now available in ebook and paperback format: https://a.co/d/0bOzma8F
This post was written entirely by me and not by AI. The article summaries, title, and graphic may all have used AI to assist/generate ideas/edit, but the article content is fully human.
