Opening the CEO's eyes to supply chain value

Most supply chain professionals recognize that their work is crucial to their companies' ability to not just survive but also to prosper in the current sluggish economy. Their CEOs, however, may take a little more convincing. That's just one of the many reasons why it's important to link supply chain operations to corporate financial performance, says Reuben Slone. Slone has spent a good part of his career working toward this goal at leading companies such as General Motors, Whirlpool, and now as executive vice president of supply chain for OfficeMax.

To share his ideas with supply chain professionals at other companies, Slone teamed up with University of Tennessee professors J. Paul Dittmann and the late John T. Mentzer to write the book, The New Supply Chain Agenda: The 5 Steps That Drive Real Value. Published by Harvard Business Press, the book outlines the tenets of a successful supply chain strategy and describes how the supply chain can drive shareholder value.

In a recent interview with Editor James Cooke, Slone discussed some of the book's key ideas.

Given your experience as a supply chain executive for a number of leading companies, what do you believe is the biggest misconception that top management has about the role of supply chains?
Senior executives don't always see the relationship between supply chain effectiveness and the overarching goal of driving shareholder value. They instead simply see their supply chain as a transactional operation and a cost center. It is our responsibility as supply chain managers to show the connection between our work and the overall financial health of the firm.

Why do some CEOs understand supply chains while others do not?
Some CEOs rise through operations and have a more intuitive understanding of the supply chain. Some have been forced to learn about it by outside stock analysts who bombard them with questions about their supply chain. And some have been trained by internal supply chain executives who are clever enough to translate their work into the language of the executive suite.

In your book, you talk about the need to show the relationship between supply chain practices and shareholder return. Can you briefly describe how OfficeMax links economic profit to supply chain initiatives?
Our focus is availability, inventory reduction, and cost reduction, in that order. When we do that, we help the company not only drive revenue but also shore up the balance sheet and the income statement. That supports the overall economic health of the firm and drives economic profit—and ultimately shareholder value—over time.

Your book also discusses the importance of hiring the right talent. You mention that companies need supply chain leaders who are "system thinkers." Can you elaborate on what you mean by that and why it's important?
When we use the term "systems," we are not referring to information technology. Instead, we mean the need to understand all of the interconnections among the links in the supply chain. Comprehending the supply chain as a system means that we can have a way of determining the impact on one link in the chain when we make changes in another area. For example, when we drive shorter response times from our suppliers, we will see both lower inventory and higher availability for our customers.

The book has a chapter on selecting appropriate technology for the supply chain. Is there any particular technology that supply chain managers should be considering for adoption?
We break technology into four buckets: software, e-business tools, visibility and productivity tools, and process advances. Of those, we believe that process advances should be prominent in any technology strategy, and they should be applied first. In particular, the application of process tools such as Lean and Six Sigma to the extended supply chain can lead to breakthrough results.

What has been your most important career accomplishment to date as a supply chain executive?
We have made major supply chain improvements at OfficeMax that have been critical to completing the company's turnaround. For example, over the past five years, we improved store out-of-stocks from more than 200 "outs" per store to less than 85, and we maintained a next-day delivery [rate] to our contract customers of over 99 percent on all items while taking out over $250 million in inventory and $118 million in operating expense. This work in improving availability while optimizing inventory levels and cost has resulted in a major contribution to economic profit and helped OfficeMax survive the Great Recession.

I must also add the three-year achievement of writing The New Supply Chain Agenda with my co-authors Paul Dittmann and Tom Mentzer. Sadly, Tom lost his three-year battle with melanoma in March just as the book was being printed.

In a tough economy, what's the one thing supply chain leaders must do to help their companies survive and prosper?
To do their job, they need to develop and implement a disciplined strategy to aggressively drive economic profit for their firms. Further, to be relevant, they need to be able to communicate that strategy in the language of the boardroom and investor.

Beyond that, they have a window of opportunity to foster better collaboration with customers and suppliers and to make tough decisions that would be much more difficult in easier times, like closing a favorite distribution center or reducing stock-keeping units.