Supply chain reaches the C-level

In the past 50 years, our profession has changed so much. But perhaps the biggest change has been that we have moved from seeing distribution and logistics as a tactical cost center to considering supply chain management as a "strategic weapon" that can provide value to the customer. This concept of the supply chain as a competitive advantage has been talked about so much that it has become a cliché. But it's important to remember that until fairly recently it was a revolutionary idea.

In this excerpt from the video series "Supply Chain Pioneers," five supply chain pioneers who witnessed this revolution reflect on how it all happened.

Ann Drake, chairman and CEO of DSC Logistics, has been involved with CSCMP for more than 25 years and was the 2012 recipient of the CSCMP Distinguished Service Award.

Ralph Drayer is founder and chairman of the consulting firm Supply Chain Insights and formerly was vice president, customer service and logistics at Procter & Gamble. He received the Distinguished Service Award in 2001.

Independent consultant and former CSCMP Board of Directors Chair Nancy Haslip has led supply chain operations and strategy for companies in the financial services, high tech, and health-care industries worldwide.

Frederick "Rick" Schorr has four decades of experience in third-party warehousing, distribution, and logistics. He is also a 35-year member of CSCMP and served as the group's president in 1987.

Justin Zubrod has 30-plus years in transportation and is currently the head of his own firm, Justin Zubrod and Co. Previously he worked with Booz Allen Hamilton and A.T. Kearney.

The following is an excerpt of that conversation, which was led by Mitch Mac Donald, group editorial director for CSCMP's Supply Chain Quarterly.

In your experience, how and when did supply chain and logistics evolve from being seen as a cost center or a "necessary evil" to something that could actually drive bottom-line growth?
Drake: Well it seems to me that it was a long, slow evolution, because I remember discussing that concept in the mid '90s. I actually came from outside the industry in the late '80s. As I tried to learn everything there was to learn about the discipline ... it was pretty clear that even though [supply chain management] was having a big impact on an organization's service, on its costs, and on the whole idea of response to the customer, it was viewed as a cost center. I think the evolution from cost center to competitive advantage probably started in the late '80s, but it took well into the end of the '90s before anyone really believed it, and you could have a dialogue about it and could talk to someone about it.

Drayer: I have a very real example. I was fortunate to work for a great manufacturing leader at Procter & Gamble who realized that we weren't going to be successful simply by cutting costs any longer. We had to fundamentally change the cost structure. To change the cost structure, we had to start looking across the entire chain of activities and expenses, as opposed to just focusing on what went on within the four walls of the plant during the conversion process. One of the very early tools he used was to demonstrate all the costs and time that was absorbed from the time we purchased corrugated for a carton of Pearl shampoo until we realized any value from that point of sale. It was shocking to see all the time and attention being focused on this little piece of the supply chain at the manufacturing facility. I think we had some 45 weeks tied up in the purchase of that carton before we got any value at the other end. That changed everything at Procter & Gamble.

Haslip: I was in manufacturing for a computer company at that time. The concept [of supply chain management driving growth] was widely talked about, but the activities were very tactical in nature, as opposed to the strategic side of it. However, as time began to pass, the socialization of that idea began to find its way into everyday work. We began to see it truly as a way of being able to do the customization that the customers were requesting, and we began to see its added value. It began to get noticed throughout the corporation at the very highest levels. It started out softly but then picked up momentum and became the big thing.

How did supply chain management start getting noticed by the C-suite?
Zubrod: I think there have been a number of reasons why supply chain management has gradually moved its way up to the top floor and a bigger role. It's not just the fact that people started thinking differently about it. ... I think technology helped when we began to see a lot more about when things were moving and when they weren't.

When I came into transportation back in the '70s and '80s ... we were vendors, and all we were told was, "Keep the costs down, keep the costs down." We were regulated on price, not service. Gradually over time, the dialogue in transportation became more about service and about being timely and not making mistakes. Costs are still important, but I think with better information and better accounting and more savvy people in the different supply chain areas, it has become more about service.

Haslip: Well, I think in the beginning, we sort of looked only at a part of the supply chain. Then, as we developed as a profession, we began to extend that to include the entire supply chain. And because we had such a holistic view of that supply chain, it encompassed the same parameters that [top executives were] concerned with. So our interests lined up perfectly with what the C-suite's were.

Drayer: Nancy, you're right, when they talk about logistics and the C-suite, it is mostly interpreted as ascension. But I think your point is an important one. It was first an expansion. It was more and more coming in laterally to logistics and making the connection to customer service and sales, and then to operations planning and so forth.

Haslip: And then the person who is the leader of that activity is seen as a legitimate contender for the top slots in the company, because they are already thinking in that holistic, inclusive way about what the company does.

Drake: I can remember when Nick LaHowchic was made president of the whole logistics division at Becton Dickinson and sat right at a seat parallel with the various business-unit heads in the late '90s. We were all so excited for him because we thought, "This is the first time this has ever happened"—that someone saw logistics as an equal to the manufacturing business-unit organizations.

Another notable ascent that got a lot of press at the time was H. Lee Scott moving out of the logistics operations within Walmart to become the CEO. Is this a growing trend?
Haslip: I really think that the CEOs of the 21st century are going to come from logistics and supply chain because they will have had such broad experience and such breadth of understanding in how to make the whole enterprise work. I think that they will be the ones, rather than just the business-unit heads or just the marketing people. I think that it will be a really exciting time for the young people who will be able to become leaders of all kinds of companies and corporations because of their supply chain experience. ... Even if their expertise is in a different area, they won't get to that C-Suite until they have mastered the supply chain functionality.

Schorr: Look at companies like Amazon, which is a whole new paradigm. They, of course, have the price advantage. They have the ability to order electronically, but what really sets them apart is their ability to deliver on time, very quickly. I know recently our coffeepot burned out, so I went on Amazon and ordered a new one, and they delivered it the next morning by FedEx, prior to the time I wanted a cup of coffee. Pretty amazing, if you think about it.

Zubrod: Talk to companies like Amazon and many others about supply chain, and I would bet everyone in the C-suite has a full understanding of their supply chain. They are all about customer-value delivery. ... We can be all happy and feel good about this, but at the end of the day, I think all too many of the expanded supply chain officers in these companies are still implementers. I think we have some more reach, and that will help us ascend to the C-suite in terms of being at the front end of strategy as opposed to implementing it at the back end.

[In terms of] building bridges, I think we have done a great job getting close to accounting. [But] we've got to get closer to finance—think of exchange rates and supply chain playing on a broader stage and in a much bigger role in terms of the influx and flow of cash within a company. I also think there is a whole lot that the supply chain can still do in terms of [working with human resources]. You know, we compete for two things. We compete for customers and markets, and we compete for talent. I think the C-suite and the supply chain officers can benefit from building stronger bridges with the HR function.

So, are we there yet? Does the supply chain finally have a seat, a voice at the boardroom level?
Drake: I would say there is no question that we are not there. It does vary from organization to organization. It varies from silo to silo, but there is no question about the fact that we have a long way to go before the function is at the table with all the other functions in most corporations.

Drayer: We are not fully there yet. Some companies are. More companies will be, and I find it very exciting today to still be involved in this profession. I love enterprise management. I really believe we are headed toward a virtual corporation where supply chain is no longer viewed as a function but as a transformative process that continues to improve itself.

Schorr: I agree, and I would also say that I see more and more corporations understanding that this is a missing piece that they have to improve. I see that not just in the United States but overseas. Those corporations have been focused so much on creating something and figuring out how to make it as cheaply as possible that there is a whole costing thing that they have not gone through yet. When they do, I think it bodes well for the industry.

Zubrod: I would agree with everything you said, but we are also beginning to bump into a generation that couldn't care less about being at the table. They work in rather open and free organizations, and rank is not that important. So I am not sure if we should aspire to the C-suite. I think how we engage that generation, which brings so much potential in terms of tools and how they communicate and how they interact, will take supply chain in a very different direction, which is kind of fun and exciting.