COMMUNICATING

the
value
of
SUPPLY CHAIN MANAGEMENT
to your CEO

Karl B. Manrodt, PhD

Brian Gibson, PhD
Stephen Rutner, PhD
 TABLE OF CONTENTS
Introduction......................................................................................................... 4
Research Methodology....................................................................................... 4
What Challenges Do CXOs Face? ...................................................................... 5
Revenue Growth/Downward Pricing.............................................................. 5
Globalization .................................................................................................. 5
Technological Change .................................................................................... 5
Regulatory Issues ........................................................................................... 6
Flexibility on a Global Scale ........................................................................... 6
What Is the Role of Supply Chain Professionals in Meeting
these Challenges? .......................................................................................... 7
What Do CXOs Think of Supply Chain Management?....................................... 7
Understanding the Signs of the Times ............................................................... 8
Compelling Events ......................................................................................... 9
Strategic Visionary ....................................................................................... 10
Change Agents............................................................................................. 11
Serendipity ................................................................................................... 11
Preparing for Change ....................................................................................... 12
Stage I – Inactive .......................................................................................... 13
Stage II – Reactive ........................................................................................ 13
Stage III – Proactive...................................................................................... 14
Stage IV – Integration .................................................................................. 15
Stage V – External Alignment ...................................................................... 16
Putting It Together ....................................................................................... 17
Prescription for Success: What to Do on Monday ........................................... 17
Theme 1 – Understand and Adopt the CXO Mindset ................................. 18
Theme 2 – Build and Leverage Relationships .............................................. 19
Theme 3 – Prepare for Compelling Events .................................................. 20
Theme 4 – Articulate Your Impact................................................................ 21
Theme 5 – Keep Things in Perspective ....................................................... 22
Closing Thoughts .............................................................................................. 23
About CSCMP .............................................................................................. 23
About Georgia Southern University............................................................. 23
About Auburn University.............................................................................. 23

© Copyright 2005 by the Council of Supply Chain

Council of Supply Chain Management Professionals
Management Professionals. 2805 Butterfield Road
All rights reserved. No parts of Suite 200
this book may be reproduced Oak Brook, Illinois 60523-1170
in any form or by any means www.cscmp.org
without written permission
from the publisher.
Printed in the United States
ISBN 0-9761747-3-1 of America.

2
 he Council of Supply Chain Management Professionals (CSCMP), Georgia
Southern University, and Auburn University are excited to present this report drawing
from the results of our 2004 exploratory research on understanding how top manage-
ment perceives the value of logistics.

The goal of this research is to articulate how leading firms assess and communicate
the value of logistics and its contribution to corporate objectives. The research also
provides a methodology for logistics professionals to increase awareness of the
importance of supply chain management (SCM) within their firms.

Dramatic changes in the global economic climate are having a profound impact on
organizations and their supply chains. Corporate mergers and acquisitions make the
headlines on a daily basis. RFID technology is constantly improving, while its require-
ments continue to expand.

Security issues are highlighting the importance of logistics processes and freight flows.
New legislation places greater responsibility on corporate officers to truly understand
not just what value they provide to customers, but how that value is delivered. As a
result, CEOs, CFOs, and COOs are beginning to realize that visibility in the supply
chain is a critical component to achieving world-class excellence.

The findings of our study indicate that upper-level management has begun the journey
towards a greater understanding of supply chain management in many organizations.
Some leaders have immersed themselves in the discipline, becoming supply chain ex-
perts themselves. Others have created new positions and hired professionals to lead
the supply chain transformation process.

One of the key learnings of this study is a better understanding of how logistics pro-
fessionals can prepare themselves as their company’s “C-”level’s perception and in-
volvement in supply chain management evolves. In addition, the report identifies key
trigger events that can signal a willingness to move toward an aligned supply chain.

This report is written for any C-level executive (CXO) and for senior logistics or sup-
ply chain management professionals. It serves as a call to develop integrated and
aligned supply chains. As is the case with all successful corporate transformation,
the support of the C-level executive is absolutely essential for success.

It is our belief, based on the research conducted to date, that the time is ripe for CXOs
to invest the time and resources that will lead to a more complete understanding of
their supply chains. This is an investment that could cause a fundamental shift in how
a firm delivers value to its customers. As such, it is an investment that will be made
over many years.

Finally, we would like to acknowledge the study participants who made this report
possible. These individuals devoted time and energy to the project to share their in-
sights and their expertise in order to benefit the entire profession.

We hope you will find this report helpful as you continue your supply chain journey.
If you have not started that journey yet, we hope this information will provide an
impetus for the quest towards supply chain excellence.

Sincerely,

Karl B. Manrodt, PhD Brian Gibson, PhD Stephen Rutner, PhD

3
 INTRODUCTION
Our journey in understanding the corporate value of logistics be-
gan by asking one simple question: Does it really matter what
C-level officers think about logistics and supply chain manage-
ment? Our working hypothesis was that it did matter, as these are
the individuals who map the strategic direction of a company and
determine how resources will be expended.
RESEARCH METHODOLOGY
Our journey to answer the three core research
questions began in the spring of 2004. The
CSCMP Research Project Oversight Committee
conducted an extensive literature review to under-
stand the value logistics provides to an organiza-
tion and how it is perceived by the CXO.

Don’t understand the importance of logistics and This was followed by interviews with key thought
supply chain management? leaders in the discipline. These leaders were iden-
tified from the literature review, our prior involve-
”I’d love to compete with you.” ment with them, and from recommendations pro-
Len Schlesinger vided by the CSCMP Research Project Oversight
Vice Chairman and COO Committee. Interviews were conducted between
Limited Brands, Inc. June and September 2004. The names of the ex-
perts that we interviewed are listed below.

Fortunately, one of our first interviews was with Mr. Len Schlesing-
er, vice chairman and COO of Limited Brands, Inc. We asked him Expert Company
what he would say to another COO who didn’t really understand
the importance and criticality of logistics and supply chain man- Joe Andraski Managing Director
agement. His answer was brief, but brilliant: “I’d love to compete Voluntary Interindustry
with you.” Commerce Standards
Association (VICS)any
Leading firms are beginning to awaken to the importance of logis-
tics and supply chain management. These organizations are realiz- C. John Langley Jr., Professor of Supply
ing that understanding these two functions are crucial to differen- PhD Chain Management
tiating themselves in the marketplace, being responsive to market Georgia Institute of
changes, and lowering costs while increasing customer satisfaction. Technology
This led us to ask three core questions:
Gene Long President
1. What are CEOs’ and C-level executives’ perceptions of logistics? UPS Supply Chain
2. How do leading firms assess, measure, quantify, and communi- Solutions Consulting
cate the value of logistics and its contribution to corporate ob- Services
jectives?
David MacEachern Consultant
3. How can logistics and supply chain professionals increase the SpencerStuart, Inc.
visibility of the discipline at the CXO level?
Paul Matthews Senior Vice President
These three questions resulted in this report. Limited Logistics
Services, Inc.
Following a brief overview of the research methodology and an in-
troduction of the study participants, the main body of the report is Steven McAlexander Vice President of
divided into four sections. Logistics
Borders Group, Inc.
• The first section contains the results of an extensive literature
review and summarizes the results of 11 interviews with key Peter Moore Vice President–Supply
logistics professionals. Chain
Bacou-Dalloz
• The second section identifies key events that can propel an or-
ganization to a greater awareness of the importance of logistics Vinod Singhal, PhD Professor of Operations
and supply chain management. Management
• The third section presents a time-based model for understand- Georgia Institute of
ing the evolution of supply chain awareness and value creation. Technology
Readers can use this model to assess current CXO perceptions
Rich Thompson Senior Vice President
of supply chain management, and identify the actions needed to
Schreiber Foods, Inc.
enhance supply chain performance and recognition.
• In the fourth section, we conclude with our research-driven pre- Stephen Timme, PhD President
scription for success, which is presented as a series of themes FinListics, Inc.
and questions. Gene Tyndall Managing Partner
Supply Chain Executive
Advisors, LLC
4
The research team’s goal for the ini-
tial phases of the study was to iden-
tify corporations and CXOs that had
already begun the journey of under-
standing the value of supply chain
management. We believe that these
unique organizations and individu-
als are in the minority as of this writ-
ing. Seven different companies and 14
CXOs were interviewed. Case study
interviews were conducted from July
to December 2004. While some inter-
views were done in person, most were
conducted via conference call. A com-
pilation of participating case study
companies is listed below.
Case Study Participants
ConAgra Foods, Inc.
Honeywell, Inc.
Limited Brands, Inc.
Manufacturer—consumer products
RadioShack
Verbatim
Whirlpool
We would be remiss if we did not
mention the energy and effort put
forth by the CSCMP Research Project
Oversight Committee members who
diligently guided this project from
start to finish. Their commitment and
level of involvement went beyond
merely reviewing the material—they
became active participants in the en-
tire research process. Special recogni-
tion is due Rick Jackson, executive
vice president–logistics at Limited Lo-
gistics Services, Inc., who chaired the
committee.
CSCMP Research Project
Oversight Committee
Richard Jackson
Executive Vice President–Logistics,
Limited Logistics Services, Inc.
Robert B. Silverman
President
Gross & Associates
David Durtsche
Senior Partner
Tranzact Technologies
C. John Langley, PhD
Professor of Supply Chain
Management
Georgia Institute of Technology
Nancy Nix, PhD
Director Supply & Value Chain Center
Texas Christian University
WHAT CHALLENGES DO CXOS FACE?
In order to set the stage, it is helpful
Challenges Facing the CXO
to understand the issues CXOs are
facing today, and how these issues Revenue Growth/Downward Pricing
impact their perceptions of supply Globalization
chain management. Technological Change
Regulatory Issues
REVENUE GROWTH/ Flexibility on a Global Scale
DOWNWARD PRICING
One of the clear messages from our experts was that most companies are emerg-
ing from a difficult economic period. As the impact of the recession continues to
fade, the challenge is to identify profitable growth opportunities that make sense
for a company. According to a study done by IBM Business Consulting Services,
CEOs are working to balance both cost reduction and revenue growth. 80% of
its 456 respondents said they would be focusing on revenue growth for the next
three years.
“Revenue growth is the key. Our company, like most players in
our sector, is beyond the cost-cutting stage. That has been the
trend for the past two years. Now it is about growing the top line
while keeping the bottom line in check. In other words, we are
seeking managed growth with an eye on costs.”
Your Turn:
The Global CEO Study
IBM Business Consulting, 2004
Two obstacles stand in the way of this revenue growth strategy. First, as noted in
the sidebar above, most firms have been in a cost-cutting phase. Some organiza-
tions have even suggested that cuts have gone too far, and that now companies
are attempting to “repair the damage.”
Second, buyers have become smarter yet more demanding, which places greater
downward pressures on prices and profitability. According to Stephen Timme,
PhD, president of FinListics, Inc., profit margins have steadily eroded for the last
five years. In one example, a company had to deal with the fact that its margins
had been permanently reduced to a low single digit. As Dr. Timme noted, the
question that the executive team faced was not how to increase the margin, but
rather, how to live on that decreased level of profitability.
GLOBALIZATION
The quest for a balance between growth and cost cutting has forced many com-
panies to enter international markets. This represents expanded opportunities to
grow a business, source raw materials, outsource value-added processes, or some
combination of all three. To a great extent, the focus on cost containment has
been generated by overseas competitors who can produce at a lower cost point.
Without global operations, companies cannot successfully compete on price
alone. If a company cannot—or chooses not—to globalize its operations, it must
find other areas to improve upon in order to remain competitive.
TECHNOLOGICAL CHANGE
As one expert noted, “Technology is way ahead of itself. It is moving faster than
our ability to adopt it in our organization.”
The speed of technological change has to be coupled with an organization’s abil-
ity to absorb and effectively apply the tools. There has to be some modicum of
stability in the process that enables a company to improve its efficiency, reduce
costs, and remain externally oriented to meet the needs or demands of the cus-
tomer (i.e., RFID, ERP, etc.).
5
 Unfortunately, technology is not a sil-
ver bullet. In fact, many experts have
suggested that companies that have
invested in IT have not seen a desired
return. As Dr. Vinod Singhal of Geor-
gia Tech pointed out, “One big prob-
lem is that supply chain management
software has been oversold. This has
led to a lack of credibility.”
As with revenue growth, CXOs are
struggling to find technology-based
tools that provide a balanced solu-
tion between two key requirements—
greater efficiency and enhanced com-
petitiveness. Thus, CXOs require that
supply chain technology providers
must demonstrate that their tools can
be readily assimilated into the orga-
nization and will enable it to be more
efficient and more competitive.
REGULATORY ISSUES
As a result of September 11th, domestic
and global security issues are becom-
ing a critical issue as well to supply
chain professionals and other senior
managers. The challenges of securing
the supply chain, complying with in-
creased documentation and inspection
requirements, and monitoring extend-
ed supply chains must be addressed
while ensuring fast, cost-effective serv-
ice to customers. Certainly, this is
another difficult balancing act that
requires successful collaboration be-
tween supply chain professionals and
senior management, often across mul-
tiple organizations and countries.
Additional regulations established in
June 2003 by the United States Con-
gress are also having a significant im-
pact on organizations. The Sarbanes-
Oxley (SOX) legislation was the result
of financial mismanagement of firms
like WorldCom and Enron. The goal
of this legislation was to “protect in-
vestors by improving the accuracy
and reliability of corporate disclosures
made pursuant to the securities laws.”
Section 404 of the Act is the “Man-
agement Assessment of Internal Con-
trols” which effectively requires that
the CFO and CEO attest to the accu-
racy of, not only the financial state-
ments, but the control systems that
feed the financial reports as well. In
addition, any material events that may
6
impact the financial performance of the company must be disclosed “to the pub-
lic on a rapid and current basis.” While still unclear, some experts have suggest-
ed that 48 hours is the standard for disclosing these disruptions.
NOTE:
Not all quotes are attributed to an individual. They come from
study participants, as well as attendees to presentations of our
early findings. We appreciate their candor, and in some cases,
their desire to remain anonymous.
The cost to comply with Sarbanes-Oxley will be significant. AMR Research es-
timated that Fortune 1000 companies would spend $2.5 billion on compliance
in 2004. Failure to comply will result in severe penalties for top management:
“Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies,
or makes a false entry…shall be fined…imprisoned…or both.”
Therefore, supply chain professionals can impact the company with inventory
and other logistics problems. For example, the Delphi “brake” strike that forced
the closure of multiple JIT General Motors plants for lack of brake pads would
be a SOX-reportable event. This means that CXOs must become more actively
involved in the supply chain process and its possible influence on the overall
financial stability of their organizations.
FLEXIBILITY ON A GLOBAL SCALE
If these are the challenges of today, what will CXOs face in the future? How will
they meet these challenges? How can they prepare their companies to succeed in
a world of uncertainty? These questions are only heightened by the risks associ-
ated with disruptions in the supply chain.
Today’s corporate strategy must prepare for global supply chain disruptions by
developing contingency plans. How will a company deal with issues like port
congestion, trucking capacity, or challenges in rail service? How will an act of
terrorism impact inbound materials? “Most of today’s contingency plans have
to take into account the supply chain, which brings it to the attention of the
CXO,” says David Durtsche, senior partner at Tranzact Technologies.
“We have invested billions in technologies and new processes
and practices, but much too little in people. It is clear that two
companies can sell similar products, employ similar technolo-
gies, and adopt similar business practices, yet differ greatly in
performance. Why? The answer lies in their respective cultures
and talent. People manage supply chains, and people provide
true customer service.”
Gene Tyndall
Managing Partner
Supply Chain Executive Advisors, LLC
While a solid strategy, the right technological capabilities, and a sound contin-
gency plan is important, a foundation must include the right people with the
right skills in the right place. As IBM’s study CEO suggests, “the quality of peo-
ple remains the principal asset in the struggle to differentiate an organization in a
rapidly changing world, one in which the process of commoditization can appear
to be an inexorable process.”
Paul Matthews, senior vice president of Limited Logistics Services, Inc. and one
of our experts, also identified people as being the starting point for any supply
chain transformation. He and numerous other experts suggested that companies
must reenergize efforts to develop and retain their greatest asset—people.
WHAT IS THE ROLE OF
SUPPLY CHAIN PROFES-
SIONALS IN MEETING
THESE CHALLENGES?
All five CXO challenges (Revenue
Growth/Downward Pricing, Global-
ization, Technological Change, Reg-
ulatory Issues, and Flexibility on a
Global Scale) are impacted or affected
by how well the supply chain is man-
aged.
Revenue growth can be achieved
through differentiated supply chain
processes, even when products are
viewed as commodities. Success in
global markets and the ability to
efficiently source materials or sell
products on a global scale are largely
dependent on the supply chain capa-
bilities and processes used to man-
age them. Also, the ability to manage
global operations is greatly enhanced
by supply chain visibility technology
that provides greater control over
products from source to marketplace,
regardless of their locations.
In addition, many supply chain man-
agers have considerable experience
with regulatory matters and working
within seemingly fluid regulatory en-
vironments. An example is the ever-
changing domestic and global busi-
ness environments that have been im-
pacted by greater environmental regu-
lations, changing import/export rules,
new security-related requirements,
and the uncertainty regarding opera-
tor hours of service. Experienced sup-
ply chain managers can provide flex-
ible, creative responses to the chal-
lenges presented by new and changing
regulations.
The overall result is that supply chain
management professionals may be
uniquely qualified to support the chal-
lenges facing boardroom officers. The
next important question then, is if the
supply chain is important to corpo-
rate leaders, what is their view of its
value?
WHAT DO CXOS THINK OF SUPPLY CHAIN MANAGEMENT?
Many supply chain professionals would argue that a company’s success—all
things being equal—depends on supply chain excellence. However, this may not
be in sync with CXOs’ views of supply chain management. Therefore, the key
question is: What do CXOs think and know about supply chain management?
Our experts’ opinions were split regard-
ing the supply chain management aware-
“The good CXOs are asking ness levels of CXOs and their actual un-
questions. They are asking to derstanding of supply chain issues. Some
see the operational metrics experts indicated that the awareness and
for themselves.” appreciation levels are growing and con-
Peter Moore tinue to move in a positive direction.
Vice President–Supply Chain Others were not convinced that a strong
Bacou-Dalloz
transformation of CXO perspectives has
occurred. They stated that two problems
contribute to the lack of consensus.
The first problem is one of definition. Many people have difficulty identifying the
scope and boundaries of supply chain management. As one expert commented,
“When you talk about finance or HRM, there are teams or divisions with clear
functions. When you talk about SCM, it is not clear how they organize around
that. The problem is not the lack of appreciation; the problem is organization
and understanding. There is a world of difference in how they define the supply
chain and how they organize their company to support it. The issue is how you
align your organization at the CXO level. To whom do you turn?”
To solve this problem, many com-
“The issue is not that CXOs don’t panies are creating new positions
understand the importance of to bring the disparate supply chain
supply chain. The issue is whether pieces together. Some companies
they recognize all of what is in- have created a chief logistics officer
volved in the supply chain and (CLO) position. Others are realign-
how to go about effecting it.” ing responsibilities under the control
Richard H. Thompson of a single executive or group. How-
Senior Vice President ever, these supply chain changes may
Schreiber Foods, Inc. not necessarily be reflected in an in-
dividual’s or a department’s title.
One expert agreed that while more CLOs were being developed, this was often
a reactive move rather than a proactive, strategic one. As David MacEachern, a
consultant with SpencerStuart, Inc., advised the research team, “Don’t get too
tied up with titles. Certainly, the individual may want a new title to go with the
added responsibilities. But, at the end of the day, it’s what they’re doing and who
they report to that matters.”
The second problem is the traditional outlook CXOs have on logistics and sup-
ply chain management. Historically, senior management viewed logistics merely
as a cost center. As one expert stated, “CXOs don’t appreciate the complexity
of the global supply chain.”
Others have suggested that the discipline is too broad for CXOs; they need
something more direct and concrete. The 2004 IBM study on CEOs discussed
earlier in this report echoes these concerns as it does not contain a single men-
tion of logistics or supply chain management.
“We’re not viewing the supply chain as a cost-saving
opportunity as such; we’re viewing it as a strategic asset.”
CFO of Labatt USA
UPS Consulting – CFOs and the Supply Chain
7
 The good news is that there are signs that this traditional position is changing. UNDERSTANDING THE
As Gene Long, president of UPS Supply Chain Solutions Consulting Services, re-
marked, “CXOs are definitely aware of the importance of supply chain manage-
SIGNS OF THE TIMES
ment today. This is due in part to the popular press reporting on the big players Each of the research efforts undertak-
that have used supply chain management as a means to move ahead and differen- en generated valuable information. In-
tiate themselves in the competitive marketplace.” Another expert suggested that dividually, they revealed different fac-
pressure from customers for low-cost excellence requires organizations to fulfill ets of the corporate value of logistics,
demand effectively as well as efficiently. CXOs are being forced to think about logis- and provided clues as to how these
tics and supply chain management from a strategic, revenue-enhancing perspective. views of supply chain management
have evolved over time.

Supply Chain Within Borders Group In order to appreciate this evolution-

ary process, it helps to identify the cat-
“There are no cash registers at a DC, but when you are in the growth alysts of change. Understanding these
mode, you need to understand that logistics expenditures will help agents for change provide a more ac-
support growth.” Steve McAlexander, vice president of logistics at curate assessment of a CXO’s current
Borders Group, Inc., understands how logistics and supply chain perspective regarding logistics and
management impact growth at his company. Better yet, so does the supply chain management, as well as
senior management team. where that perspective may be headed.
In other words, given a CXO’s view of
Borders operates in an extremely competitive market. Time to mar- supply chain management today, what
ket is absolutely critical; missing a single trend can have a significant resources and capabilities should be
impact on sales, market share, and growth. Getting products through assembled to bolster value perceptions
the supply chain and on store shelves is the task for logistics.
of the discipline in the future?
In order to understand how well the company is competing, the se-
A research goal was to learn how a
nior management team, which includes logistics, meets once a week
CXO—as well as the rest of an or-
to go over the prior week’s results. Trends are analyzed. Functional
ganization—gained awareness of the
metrics are reviewed. All results are discussed in light of how they
importance of supply chain manage-
have impacted or will impact sales, and how they combine with other
ment within their firm. These shaping
factors to ultimately influence the company’s overall performance as
experiences can be thought of as trig-
a publicly held organization.
ger events.
Having logistics at the table is relatively new. Now, it is a part of the
Typically, logistics and supply chain
business. Everyone understands the impact that logistics and supply
management don’t hold the rapt at-
chain management can have on the company—and how it can help
tention of CXOs. In many situations,
expand the market it competes in.
the area is transparent to senior man-
agement. As long as the supply chain
is running smoothly (or appears to be
Although some organizations have effectively addressed these problems and se- running without major problems), it
nior management understanding and appreciation of supply chain management is not on the CXO’s radar screen, ac-
has improved, not all organizations have reached this milestone. Many logistics cording to interviewees.
and supply chain management professionals still face these major questions:

• How do I introduce the concepts of supply chain management to the CXO “No one cares about
level of my organization? supply chain management
until there is a problem.”
• How can I ensure that CXOs see the positive, strategic role that supply chain
management can play in my organization?
Supply Chain Executive
• How can I, as a supply chain manager, build awareness of the value I provide
to my organization?
This is not meant to downplay the im-
With these questions in mind, the research team conducted several case studies. portance of logistics within an organi-
Our goal was to gain insight into organizations that have succeeded in making zation, but to realistically portray the
supply chain management a CXO priority. We sought to understand the process, limited time that many CXOs devote
timeframe, and people involved in transforming the CXO value perspective of to this area. Given their need to focus
supply chain management. on strategic planning, compliance is-
sues, revenue generation, quarterly
This knowledge, combined with the insights of the case study participants and reports, etc., there’s little time left for
expert interviewees, provides guidance for those managers seeking to boost the CXOs to consider supply chain issues.
relevance and importance of supply chain management within their firms.

8
This assessment does not suggest that
logistics and supply chain issues never
cross a CXO’s mind. It merely indi-
cates that a CXO’s involvement with
logistical matters tends to be intermit-
tent, and, as a result, opportunities to
demonstrate the value of supply chain
management can be few and far be-
tween.
Thus, when CXOs have logistics is-
sues thrust upon their plates, supply
chain professionals must be ready to
respond effectively. Key individuals
must take appropriate actions to fix
problems, deliver value, and facilitate
change in order to bolster CXO per-
ceptions of logistics and supply chain
management.
As is often the case, much depends
on how we respond to the challenges
and opportunities that are presented
to us. Many times, we may not even
know how our actions will eventually
affect a situation. World-class leaders
have the ability to understand their
environment, and use it to leverage
change in their organization.
In some cases, these events can be
initiated by supply chain profession-
als. Several of our study participants
discussed unique situations that pro-
vided opportunities for supply chain
professionals to showcase the impact
that SCM could have on their compa-
nies. One executive used “voice of the
customer” interviews to demonstrate
to his marketing and manufacturing
peers how effective logistics opera-
tions could create market share.
Another executive utilized planning
meetings to show his non-supply
chain counterparts the supply chain
costs in their existing activities, as
well as options for reducing the per-
centage of those costs to net sales.
Whether you approach it from a reve-
nue growth perspective or from a cost
reduction focus, it’s critical to provide
tangible evidence that demonstrates
how supply chain management will
have a positive impact on the entire
organization.
In other cases, these trigger events
are beyond the control of the supply
chain professional, or even the com-
pany itself. Either way, one has to recognize the event, understand its potential
impact on the organization, and determine how to best use this event to move
the company into a better position to compete in the future
Our analysis suggests that these trigger events present unique opportunities to
develop CXO interest in logistics and support for supply chain initiatives. Each
of them acts as a catalyst for change in the company. These trigger events typi-
cally fall into one of the following four groups:
• Compelling events • Change agents
• Strategic visionary • Serendipity
COMPELLING EVENTS
A compelling event is an unusual occurrence that
is recognized as being “company-altering” by most
members in an organization.
It may be an internal event, such as a product failure, software selection, or im-
plementation. Or, it may be external events like labor disputes, service disrup-
tions, or regulatory changes that demand innovative solutions and supply chain
flexibility. Effective, timely responses to a compelling event via supply chain ini-
tiatives resonate clearly with CXOs who possess a greater appreciation of the
function.
If your company’s existence or your own professional livelihood is being chal-
lenged, those are, without a doubt, compelling events. According to Rueben
Slone, vice president, global supply chain CTO of Whirlpool Corporation, his
company was experiencing demand growth, introducing new products, and gen-
erally riding high except in one area—its supply chain.
Frustrated by excessive finished goods inventory, mediocre fill rates, spotty serv-
ice, and high logistics costs, the president/COO lost his patience. He called his
top supply chain professionals to his office and gave them a two-word mandate:
“Fix it.”
That meeting led to the development and implementation of a strategy that in-
cluded new information technologies, logistics processes, changing roles, and the
addition of new talent. Over the last four years, Whirlpool worked to turn its
supply chain from a liability into a recognized competitive advantage all because
of the COO’s mandate, support, and vision.
Whirlpool is not alone in dealing with these types of challenges; Verbatim also
faced a “company-altering” event. This company develops and markets innova-
tive, high-quality products for storing, moving, and using digital content. Origi-
nally, Verbatim was a manufacturer that focused on industrial applications, but
over time, the company shifted to a consumer electronics emphasis. With this
change came offshore contract manufacturing and concentration on retail supply
chains.
These vastly different operating environments thrust Verbatim into a situation
where the ability to effectively manage the flow of short life cycle products
across extended supply chains impacted its very survival. The company had to
quickly develop supply chain management competencies to handle the vendor-
managed inventory requirements, service level expectations, and RFID demands
of its primary customers.
9

“Enlightened firms are starting
to make more demands on
themselves – and, on their
suppliers.”
Joe Andraski
Managing Director
VICS
While this compelling event chal-
lenged the organization, its extended
commitment to supply chain manage-
ment helped it to respond appropri-
ately and, not only keep pace with the
competition, but gain competitive ad-
vantage in many markets.
A key point is that compelling events
do not need to be negative. An ex-
ample could be a new product launch
that goes better than expected, result-
ing in increased backorders. It could
also be a customer who wants to work
more closely with his suppliers. It is
not merely whether the event is “good
or bad,” but rather, understanding the
event, and using it to reposition the
firm into an improved economic and
operational position.
STRATEGIC VISIONARY
The second agent for change is the
strategic visionary.
A strategic visionary is an indi-
vidual with CXO responsibilities
who emerges as a champion of
the logistics area.
This person recognizes (either immedi-
ately or over time) the value of greater
supply chain capabilities to address fu-
ture challenges. These challenges may
be capacity constraints, growth oppor-
tunities, cost pressures, or other fac-
tors that can only be efficiently solved
through greater logistical coordina-
tion. A strategic visionary understands
that providing the proper resources,
authority, and support to his logistics
staff will allow the organization to
prosper despite these challenges.
10
One such visionary CEO leads a manufacturing firm in the consumer products
sector. Rather than wait for problems to occur, this executive adopted a proac-
tive approach to logistics and supply chain management. He and his manage-
ment team viewed supply chain management as a key building block upon which
growth could be achieved and common problems addressed. This is especially
true for a consumer goods manufacturer whose supply base and retail customers
span the globe.
On an annual retreat several years ago, the leaders of this manufacturing com-
pany set growth goals for the next five years. These goals were translated into
operational objectives. Following this exercise, it became apparent to the CEO
that his company did not have the proper supply chain structure, resources, or
skill set to achieve the growth objectives.
A number of steps were taken. One person was empowered to manage supply
chain processes, the company invested in logistics capabilities (during lean eco-
nomic times), they focused on key customers via account prioritization, and they
analyzed important metrics like customer completion rates (analogous to the per-
fect order metric) to rectify the situation. These enhanced capabilities helped the
organization attain its five-year sales growth forecast in less than two years.
Sometimes it takes a strategic visionary to understand a compelling event. In the
early 2000s, RadioShack experienced weaker than historically achieved profit-
ability. This could have been explained away by citing the recent recession. But
the COO recognized that there were deeper issues, and sought to create “organi-
zational dissatisfaction” to facilitate needed changes.
He identified the supply chain as an area that required transformation. Recogniz-
ing that the supply chain was fragmented and being managed by different parts
of the organization, he created a company-wide strategic supply chain project.
His goal was to bring to light inefficient practices, to show how everyone had
a hand in the problem, and to provide the motivation to change.
Not Limited On Growth
In a strategic shift to avoid competition with discount retailers, Lim-
ited Brands, Inc. wanted to focus on innovative, fresh product lines
that would generate higher margins. However, its existing supply chain
methods and information capabilities could not support the speed-to-
market requirements of the new merchandising strategy. The COO rec-
ognized this supply chain capabilities-strategic direction disconnect and
championed efforts to enhance key supply chain processes. The retailer
is now working toward integrated brand delivery, seeking to handle all
merchandise processing tasks within the logistics system, and building
a multimillion dollar logistics information system to support the antici-
pated growth of the organization.
“This is a critical point,” stresses Mike Kowal, executive vice president of supply
chain at RadioShack. “Everyone at the senior level was involved. No one could
run and hide. The goal was to show the internal problems—and fix them.”
Outcomes of the project included the development of company-wide key perfor-
mance indicators (KPIs), the use of strategic sourcing tools, efforts to simplify,
rationalize, and automate supply chain processes, and the creation of a new exec-
utive vice president of supply chain management with the backing to achieve the
supply chain improvement mandate. In this case, the executive VP was both the
strategic visionary and the internal champion who ended up being a change agent
for RadioShack.
CHANGE AGENTS SERENDIPITY
The addition of a change agent can also propel the logistics function to a more Change happens. Sometimes, change
valued level within an organization. accidentally leads to fortunate dis-
coveries or opportunities across the
A change agent can support the visionary, and enable him supply chain. Often, the awareness of
to realize the goals set for the logistics and supply chain supply chain management within an
management functions—goals that may not have been organization arises more by happen-
grasped by the visionary alone. stance than by plan. The critical issue
for supply chain managers is not how
these lucky opportunities surface, but
Typically, outsiders with significant logistics, supply chain, or operations expe- to be ready for them. If luck is best
rience are brought in at senior levels to institute major changes and enhance- defined as “preparation meeting op-
ment of supply chain processes. These individuals assume or support the roles portunity,” then supply chain man-
of supply chain champion, strategic visionary, and/or change agent. Their exter- agers must put themselves in a ready,
nal experiences enable them to offer a fresh perspective on a situation, ask criti- well-organized position to seize these
cal questions, bring supply chain credibility, and make the case for transforming opportunities to make supply chain
supply chain capabilities in both financial and operational terms. improvements.
ConAgra Foods, Inc. is in the midst of a strategic transformation from a highly
diverse and fragmented commodity-based food company to a streamlined port-
Serendipity: making fortunate
folio of businesses and products that focus on higher margin-branded and value- discoveries accidentally
added packaged foods.
While most serendipitous events can’t
“The best supply chain leaders are great change agents. be manufactured, they can be lever-
They are forced to play in everyone else’s traditional aged. Honeywell International, Inc.,
‘sand boxes’ and stir things up.” the parent company of Honeywell
Richard H. Thompson Automation and Control Solutions,
Senior Vice President recently hired David Cote as CEO.
Schreiber Foods, Inc.
Mr. Cote led cycle-time reduction ini-
tiatives in his previous organization
ConAgra Foods’ visionary CEO, Bruce Rohde, recognized the need for one in- and continues to maintain an intense
dividual to control and coordinate the supply chain activities of the newly struc- focus on timely deliveries to custom-
tured organization. Rather than relying on existing personnel who often cling to ers in his new role.
traditional methods and a “that’s the way we’ve always done it” mentality, the
CEO created a new position, senior vice president of integrated logistics. Rohde “You’ve got to be in the right
brought in a supply chain professional with food industry experience from the
place at the right time. But you
outside named Rick Blasgen.
also have to build the baseline
Blasgen is working to transform multiple channels and order systems into a sin- – effective logistics processes
gle system that consolidates customer requests into “one order, one invoice, one and talented logistics people.”
delivery.” This new supply chain configuration will create efficiencies for the
company and enhance customer satisfaction. Supply Chain Executive

It is interesting to note that in a majority of our case studies, the strategic vision-
ary was in place at the firm first, then hired a change agent or created a new po- Every plant manager whose site is in
sition in which the change agent could succeed. the bottom 10% of the organization
for on-time delivery performance re-
In only one case, the change agent had been in place in the company for several ceives a personal letter from the CEO.
years. The logistics leadership had tried to build momentum and interest in the This focus creates a legitimate rallying
concept of integration, but ran into resistance from the division presidents. They point around which Honeywell sup-
were intrigued but didn’t see the full value. As such, the idea of internal supply ply chain management executives can
chain integration remained an idea, not a reality. Not to be deterred, the logistics promote the value of their efforts and
leaders stuck with the idea, built a foundation, and worked to educate people initiatives to peer executives within
“below the radar screen.” the organization.
As the company experienced significant sales growth, it became clear that cur- Most of the organizations studied in
rent systems wouldn’t support the growth or the desired speed to market for new this research had experienced more
products. New processes were needed and the logistics team used this opportu- than one trigger event, sometimes si-
nity to sell their integration vision again. multaneously. The primary advice of
the participants was to adopt the Boy
By showing that investment in the supply chain could add value as an enabler of
Scout motto: “Be prepared.”
growth (rather than becoming a barrier to growth down the road with no invest-
ment), they gained the support and resources needed to move forward.
11
 While it’s often not possible to predict
when trigger events will occur, com-
panies must prepare for them (i.e., de-
velop contingency plans for likely trig-
ger events). Developing the ability to
recognize trigger events quickly, seiz-
ing the opportunities that they pres-
ent, and taking appropriate action are
all critical to the development of sup-
ply chain excellence and CXO recog-
nition.
But what does it really mean to “Be
prepared?” Certainly, recognizing
a trigger event is the first step. Tak-
ing appropriate action after the event
is also helpful. Yet, how can supply
chain professionals be proactive and
prepare themselves for potential
change?
One clear step in this process is to un-
derstand the capabilities of a supply
chain-focused organization and con-
duct a self-assessment of current capa-
bilities. To accomplish this task, sup-
ply chain professionals need a model
that describes how supply chain capa-
bilities and relevant CXO value per-
ceptions evolve over time in typical
organizations. The development of
this tool is discussed next.
PREPARING FOR CHANGE
As the research team worked its way through the interviews and case studies, it
became clear that CXO recognition of logistics and supply chain value is not an
immediate phenomenon. Even when a trigger event thrusts a logistics organiza-
tion into the spotlight, CXO attention may be fleeting and may focus on only
one issue or aspect of logistics.
True comprehension of the benefits that strong logistics and supply chain man-
agement capabilities bring to an organization develops over time. In fact, we
found that as supply chain management capabilities, knowledge, and relation-
ships mature within an organization, the CXO acceptance and appreciation of
supply chain value generally evolves at a steady, prudent pace. It is not typical
to see CXOs jump onto the supply chain “bandwagon” and immediately make
it their strategic priority.
Furthermore, the recognition of the value of supply chain management does not
happen in a vacuum. In fact, the logistics organization has to be present and sup-
portive of the mission of the entire organization. In other words, the logistics ca-
pabilities of the organization must be present and viable if they are to credibly
respond to the requests of senior management.
We hypothesize that logistics capabilities will not match the needs of senior
management in the initial steps towards recognizing the importance of supply
chain management. This is especially the case as a company progresses from
Stage I to Stage II.
Our analysis of this evolutionary aspect of supply chain value perceptions was
supplemented by the 1984 CLM (now CSCMP) study, Measuring and Improv-
ing Productivity in Physical Distribution, authored by A.T. Kearney. The original
study described four stages of logistics productivity improvement sophistication,
and provided a template for organizations to develop and expand logistics pro-
ductivity improvement programs. This model was adapted for this study and is
used to describe the evolution of supply chain capabilities and value perceptions.

Five-Stage Model of Supply Chain Awareness

Internal/functional Converse with Report up to On equal footing

Relationships
“Logistics only” impacted areas C level with C-level peers
Deal with crisis Provide reliable Leverage Facilitate growth
Role of Logistics
“Put out fires” services opportunities and drive earnings
Historic functional Meeting goals Logistics Corporate
Metrics Focus
performance and standards effectiveness value-added
Avoid notice, Comply with Leverage Proactive
Logistics Culture
no confrontation customer needs best practices innovation
Functional Logistics Business Compelling
Key Driver
survival efficiency strategy vision

12
STAGE I – INACTIVE
In Stage I, a company’s appreciation of logistics and supply chain value is dor-
mant. CXOs tend to have little interest in or awareness of logistics or its cost con- Stage I companies have little
siderations because they are perceived to have limited effect on the success of the interest in or awareness of logistics
organization. Logistics costs are typically dispersed among other functional areas and supply chain management.
(e.g., manufacturing or purchasing). For this reason, CXOs may not recognize
service failures as logistical issues. Hence, this area receives limited attention
or investment from these organizations.

In these companies, logistics competencies tend to be dramatically underdevel-

oped. No effort is made to build a capable logistics infrastructure, important lo-
gistical functions may not exist in the organization, and the individuals with re-
sponsibilities for logistics activities have little relevant background or expertise.
“Our previous CEO knew marketing
After all, from the senior management’s perspective, logistics merely handles the and sales, but had no idea what
task of moving products—how difficult can that be? As a result, logistics is very to do on the operations side of the
much an afterthought—no performance metrics are monitored, strategies are not business.”
developed, and no one of significance in the organization focuses on these “back-
room functions.” Supply Chain Executive

While it may seem hard to imagine that organizations like this still exist, there
are many out there. Most of us have heard the stories and visited firms where
the importance of logistics and supply chain management is not understood or
appreciated.

One example from our research revolves around a logistics vice president who
was hired a few years ago to integrate the logistics processes of a multibillion
dollar division of a Fortune 500 company. This change agent quickly learned
that it would be necessary to place integration on the back burner as more
basic issues were present.

For example, no one could tell this logistics VP the location or number of dis-
tribution centers the company had, or even the number of people working in
logistics and transportation. He first needed to build stability and a baseline of
accountability and control in a decentralized, uncoordinated function that had
received little investment in over ten years.

The organization is now in the midst of a “journey to competitive advantage

through logistics” that will take five years, according to the vice president. Suc-
cess will only occur if he can get the CXOs to “understand the value of having
a truly integrated supply chain” and provide the resources necessary to develop
logistics talent.

STAGE II – REACTIVE
At the second level, CXOs begin to gain awareness of logistics. The focus tends “Top management is intrigued
to be cost-oriented with limited thought given to either possible strategic benefits by logistics, but they don’t
or the value of logistics. Furthermore, the concept of supply chain management necessarily see the value of it.”
is not considered. Customer requirements and service failures garner modest at-
tention in this stage, but support for problem detection and elimination of root Supply Chain Executive
causes is not provided by senior managers. Their focus remains squarely on effi-
ciency rather than effectiveness or value creation.

Although Stage II organizations begin to develop stronger service capabilities,

they tend to be functionally-oriented, with little coordination between transpor-
Stage II represents companies that
tation, procurement, distribution, and other logistics processes. This results in
are beginning to gain awareness
a fragmented logistics strategy that permeates the organization.
of logistics and supply chain
Narrowly-defined metrics, insular cost-control initiatives, and limited trade-off management. This focus is
analysis between areas lead to sub-optimal logistical performance in an organiza- internal, and cost-related.
tion. Additionally, the lack of centralized control forces each area to react to
13
 actions taken by other areas rather than work from a coordinated strategy.
This often forces the functions to operate in a crisis mode with little knowledge
of actual service requirements and levels due to internal processes. When service
failures occur, it is difficult to get to the root cause of problems because “every-
one is playing the blame game,” according to one interviewee.
It is possible for a company to be in Stage II and still be highly successful. The
organization could be cash-rich which would hide problems like low inventory
turns and poor logistics productivity. It could be manufacturing a unique product
with few competitors. Or, the cost of logistics as a percent of cost-of-goods sold
could be so small that it relegates logistics to an afterthought. As one CSCMP
Annual Conference attendee noted, “It’s hard to get my CEO excited about sup-
ply chain management when I represent 1% of his cost. To him, I’m a rounding
error.”
In one of our exploratory case studies, it was the COO who moved his compa-
ny towards Stage III. He began to take an active, focused role in building sup-
ply chain awareness throughout the organization, and was able to transcend the
company’s reactive posture.
The starting point was a project where all of the senior managers were placed
in cross-functional teams to study different supply chain processes. This project
brought to light redundant processes and served as a catalyst for change. Along
with other initiatives, this exercise gave them insights into the benefits of logistics
process integration and managing their global supply chain.

STAGE III – PROACTIVE Stage III companies are beginning

Of all of the stages discussed so far, Stage III is the most critical. It is the starting to understand logistics and supply
point for firms to integrate their logistics functions and learn how supply chain chain management, and are making
management can impact the organization. decisions based on that knowledge.

If a company continues to evolve, CXO attention shifts from a strictly cost-con-

trol perspective to a greater appreciation of the benefits that strong logistics and
supply chain management capabilities bring to the organization. The company
may begin to make proactive investments in logistics and facilitate the integration
of activities by hiring experienced senior-level logistics professionals.

In other instances, the company may consolidate functional responsibilities and

promote internally, with the expectation that these employees will learn about
logistics. In most cases, the senior-level logistics or supply chain manager reports
to the CXO level, and may be a member of the senior management team. In both
cases, they provide input into the company’s strategy, and how that strategy will “Executives are beginning to
be implemented. understand that logistics can
The critical step in Stage III is for CXOs to provide their logistics executives with add value through speed and
explicit authority over that function, as well as the traction to move initiatives efficiency. They’re starting
forward. The ability to act from a CXO-supported position makes it possible for to believe that we can take
logistics executives to develop and implement coordinated, proactive logistics ca- problems off their plate and
pabilities. reduce the firefighting.”

CXO support and a proactive perspective are beneficial, but they also raise the Supply Chain Executive
stakes for logistics professionals who may be blinded by the glare of the spotlight
if they fail to deliver on key promises. Logistics leaders in Stage III organizations
must develop a coordinated logistics strategy that concentrates on proper process
alignment and detailed functional trade-off analysis with a focus on stability and
accountability. They must interact with non-logistics functions like manufactur-
ing and marketing to determine internal and external customer requirements and
provide support for their initiatives.

14
Stage III also demands a cultural shift in management style for supply chain man-
agers. Intuition and experience are integral elements of the decision-making
process, but these alone are not enough. Decisions must be supported by objec-
tive data, and results must be evaluated against customer-driven goals and ob-
jectives. Dr. Stephen Timme’s insight on supply chain professionals is especially
“The overarching vision is that
relevant for Stage III and higher companies: “They need to understand how to
manage inventories, and give cash back to the company.”
we could not survive with a
fragmented approach. But we
Many of the organizations in our exploratory research evolved to the Stage III have to articulate that it isn’t
level and are laying the foundation for further growth. An excellent example is just about buildings and get-
ConAgra Foods. As senior vice president of integrated logistics, Rick Blasgen has ting to one system. It’s about
been tasked to develop a unified supply chain. enabling customers to get our
products through their systems
Under his direction, ConAgra Foods is working to consolidate the supply chains more efficiently, thereby gener-
of multiple food groups into one network over the next 18 months. It must be
ating more profit on our prod-
capable of serving customers more quickly, accurately, and efficiently with a sin-
ucts.”
gle order and delivery and one invoice.

Ultimately, ConAgra Foods’ logistics strategy is to go to market with a “common, Rick Blasgen
Senior Vice President of
fundamental, logistics capabilities under one roof” approach that allows the Integrated Logistics
company to help customers from a supply chain strategy standpoint. The orga- ConAgra Foods, Inc.
nization is more metrics-driven, with a goal of harmonizing metrics across the
company.

STAGE IV – INTEGRATION
As awareness of the value-adding potential of logistics and supply chain capabili-
ties grows within an organization, a transformation begins to take place. It is at
this stage that the CXO has a better understanding of logistics and the impact
that it has on the organization.

Logistics is no longer viewed as a cost center that warrants little strategic atten-
tion. Instead, CXOs see logistics as a key component of the organization’s strat-
egies and they involve their logistics executives in formal planning processes.
CXOs also begin to recognize logistics as a way to differentiate their organiza-
tion from the competition. This leads to a greater interest in the area and invest-
ment of both resources and time on the part of the CXOs and the company.

Logistics and supply chain professionals should recognize that attaining this level “Logistics has become a board-
of CXO awareness is the exception rather than the rule. It takes significant time room conversation and more of
(years, according to most interviewees), process sophistication, and proven per-
a strategic asset. It’s now part
formance to achieve the Stage IV value proposition.
of the company strategy.”
Moving forward demands that logistics leaders shift their efforts from efficiency
and reliability-focused initiatives to effectiveness, value creation, and alignment
with the business strategy. This requires that logistics capabilities and planning
become intertwined with other core functions. To accomplish this, firms must
work on information sharing, complex trade-off analysis, and performance
measurement.

Stage IV also demands that logistics leaders adopt appropriate best practices,
monitor multifaceted (e.g., perfect orders) and detailed breakdown (e.g., ABC
segmentation) key performance indicators, and understand service/expense
relationships via activity-based costing.

Developing the above-mentioned logistical capabilities is necessary, but not suf-

ficient to bring CXO value recognition to the Stage IV level. As we have men-
tioned more than once, CXOs have very full plates and logistics may not be a
priority. It is up to logistics leaders to instill a sustained level of attention and
interest when a significant (and often serendipitous) opportunity arises.

15
 They must be patient opportunists who can take on situations avoided by other
business functions, create positive results, and begin to market the outcomes in
the primary vernacular of CXOs—growth of revenue and earnings.

There are three additional characteristics of Stage IV companies that are worth
discussing. First, the company’s logistics infrastructure is no longer embryonic
“Our strategy is the direct busi-
but is on a growth path. A senior logistics or supply chain professional is in place
ness model: bringing great value
to manage the various components of the process. Responsibilities are less cen-
to customers through a unique and
tralized than before; where a decentralized structure is used, there is still a man-
ager responsible for all of the logistics and supply chain costs and initiatives.
world-class supply chain, customer
intimacy, and great support.”
Second, the CXO and the logistics and supply chain professional understands
that the transformation process at this stage and the next will take years. Surpris- Kevin Rollins
ingly, many of the case study participants said that they knew their investment in President and CEO
Dell, Inc.
supply chain management would take three or more years to yield the expected Fortune interview 4/19/2004
results.

Third, Stage IV companies begin to make a distinction between logistics and sup-
ply chain management. There is a real distinction between the two terms. Logis-
tics refers more to the internal aspects of the company, while a supply chain is
interested in integrating activities with suppliers and customers. Companies at
Stage IV are beginning to review and study initiatives with key customers and
suppliers to determine ways of managing their integrated supply chain more
efficiently.

STAGE V – EXTERNAL ALIGNMENT “It’s not about logistics or being

The highest echelon of our model, Stage V, takes logistics and supply chain man- cost effective. It’s about getting
agement beyond the four walls of the organization to focus on coordination and seamless and integrated to
synchronization of critical activities with key supply chain partners. drive top-line growth.”
With internal logistics process integration achieved in the previous stage, logistics Gene Tyndall
leaders have an opportunity to work beyond traditional goals and organizational Managing Partner
boundaries. In Stage V, their role dramatically expands to focus on synchronized Supply Chain Executive Advisors, LLC
activities with key suppliers and customers. While many companies are striving
for such capabilities, few have truly achieved this level of sophistication and val-
ue creation.

As organizations actively marshal their Stage V capabilities, putting the entire

package together remains an ongoing effort and future opportunity. The journey
to cross-organizational alignment is not a one- or two-year proposition. It re-
quires a long-term commitment and focus, according to the supply chain leaders “The real key is for C-level execu-
at Limited Brands. “It took us four years to build the case that we could add val- tives to understand the ways in
ue—cost, speed, and efficiencies—to the organization,” said Rick Jackson, execu- which supply chain excellence
tive vice president–logistics. can lead to improved profit-
ability and enhanced market
Moving to Stage V won’t happen overnight. It is not just a matter of asking ques-
tions, but of being able to perform. The logistics infrastructure has to be in place. positioning. As this occurs, sup-
This means the right people with the appropriate skill sets, as well as technologi- ply chain management will rise
cal capabilities that will enable visibility in the supply chain. These investments to the level it deserves – a level
have to be made over time. reserved for those processes
that can help to differentiate an
Those CXOs who really “get it” have taken the time to build a solid foundation organization in the eyes of its
of supply chain knowledge, recognize the complexity of SCM issues, and appreci- customers.”
ate the value that well-aligned, effective supply chains bring to an organization.
These CXOs have established C-level logistics and supply chain positions within C. John Langley Jr., PhD
their companies that have leadership responsibilities, considered the impact of Professor of Supply Chain
Management
their supply chain on proposed strategies, and facilitated supply chain collabora- Georgia Institute of Technology
tion via interaction with their peers at partner organizations.

16
Unique leaders at organizations like Dell, Wal-Mart, Nokia, and a handful of others are actively
engaged in supply chain management strategy development and building competitive advantage
through best-in-class supply chain processes.

PUTTING IT TOGETHER
The preceding discussion covers a great deal of information regarding logistics’ capabilities,
characteristics, and roles. This model can be used to help assess the state of your company’s
logistics operations and the role that it plays in creating internal and external value.
However, two issues must be considered when charting the evolution of your supply chain. First,
no model will completely describe a firm. A company may have some capabilities in two—or
even three—stages. The key is to identify the organization’s general location in the model, as well
as its strengths (capabilities exceeding the general stage) and weaknesses (capabilities that lag the
general stage). This will help illuminate changes and improvements that are needed to increase
the value-creating potential of your organization’s logistics capabilities.
Second, the model is intended to be a broad assessment tool that can be used to chart your prog-
ress toward the ability to create supply chain value. As these abilities evolve, CXO recognition of
logistics as a key contributor to organizational success should advance as well, as highlighted in
the figure below. This chart highlights the relationship between stage progress and CXO recogni-
tion. If the two are not moving in tandem, logistics leaders may need to use their marketing acu-
men to “sell” the value proposition to their C-level leaders.

PRESCRIPTION FOR SUCCESS: WHAT TO DO ON MONDAY

Throughout this project, we talked to supply chain executives and experts about their ideas for
bringing logistics and supply chain management to the attention of CXOs. We discussed what
worked and what didn’t work in their quest to build logistics awareness.

17
 We have also provided examples of THEME 1 – UNDERSTAND AND ADOPT THE CXO MINDSET
their experiences, trials, and tribula-
First and foremost, logisticians must strive to understand the bigger picture of the
tions in dealing with CXOs, and their
organization. The study participants spoke at length about the need to look be-
recommendations to other logisticians
yond day-to-day execution of supply chain processes and think about their long-
for cultivating stronger value percep-
range ramifications for the organization. Supply chain strategies, processes, and
tions among CXOs. As the research
metrics must be connected to the organizational mission, CXO priorities, and
progressed and numerous perspec-
corporate goals. Just as important, logisticians must be able to articulate these
tives were captured, we found that
connections in boardroom vernacular.
the participants’ personal accounts
and advice coalesced into five primary How do you do this? You have to be able to convert logistics lingo into a lan-
themes: guage that hits home with executives. Discussing transportation, inventory, and
procurement with top executives will have a limited impact. Instead, address
• Understand and Adopt the CXO
these issues from the perspective of finance, strategy, and customer service, and
Mindset
a connection will be made.
• Build and Leverage Relationships
• Prepare for Compelling Events
• Articulate Your Impact
Adopting a CXO Mindset
• Keep Things in Perspective
• What is the mission and strategy of the firm?
These themes are prescriptive in na-
o How do logistics/supply chain management support
ture, providing insights, strategies,
the mission?
and imperatives for increasing CXO
awareness of logistics and heightening • What are the three biggest challenges facing the organization?
their value perceptions. Each discus- • How can logistics help address these challenges?
sion is accompanied by a list of ques- • What does the CXO really care about?
tions that can be used to develop a
o Where does logistics/supply chain management come into
current assessment of the roles, capa-
play in these issues?
bilities, and views of logistics within
an organization. These recommenda- o Why should the CXO care about logistics/supply chain
tions and questions can also be used management?
by logistics professionals to formulate • How can logistics and supply chain initiatives enable revenue
realistic, constructive plans for hasten- growth? Responsiveness? Market share, etc?
ing the evolution of supply chain ca- • What supply chain metrics can be converted to represent revenue
pabilities and CXO value perceptions. growth? Responsiveness? Market share, etc?

Supply chain metrics must also be taken beyond performance levels and percent-
age improvements to include their dollar impacts on the organization. Reporting
that, “our fill rate has improved from 91 to 94%” is not sufficient to gain atten-
tion from the executive suite. However, stating, “our 3% point increase in cus-
tomer fill rate generated an additional 6.3 million dollars in revenue” will be
heard and appreciated.

While it is imperative to enhance CXO appreciation for supply chain value, lo-
gisticians must remember that most executives have limited opportunity to deal
with this area. It’s important to “put on their shoes” and recognize that CXOs
don’t always have the time or inclination to pay attention to supply chain issues.

Logisticians need to be realistic about how much “face time” they can expect
with executives and the depth of information they can process. To generate maxi-
mum CXO awareness of what logistics can contribute to the organization, hone
your message so that it succinctly addresses their challenges and needs.

To attain a broader, more CXO-oriented perspective, logistics and supply chain

executives should contemplate and build credible responses to fundamental
questions noted in the text box above, Adopting a CXO Mindset.

18
THEME 2 – BUILD AND LEVERAGE RELATIONSHIPS
Another key opportunity for logisticians is to broaden their influence beyond
the departmental level. The logistics executives we interviewed spoke frequently
about the importance of building coalitions with colleagues in manufacturing,
finance, and marketing. The goal is to cooperate with them rather than taking a
combative, win/lose stance. If these other areas understand what executives are
doing and why, it will be far easier to build the credibility and value of logistics
when it is presented as an opportunity to help the other business functions.

Build and Leverage Relationships

• Who are the influential individuals and what are the important areas
that warrant relationship-building effort?
o Do we currently interact with them?
o Do they know who we are? What we do?
o How can we build credibility with them?
• Do people in other functional areas understand the value of logistics?
o How can we increase their end-to-end awareness of the
supply chain?
o Do they understand how logistics impacts their P&L
statements?
o Do they understand the options that logistics can
provide?
• What role can logistics executives play in promoting coordinated
strategies, forecasts, and game plans?
o Do we understand the goals of the other elements of
the organization?
o How can we contribute to reduce sub-optimization
throughout the company/supply chain, and educate
our peers about these opportunities?

Of course, leveraging relationships is often easier said than done. At times, there
will be resistance to logistics initiatives because they may affect the profit and
loss (P&L) statements of other areas, or bring hidden problems to light. It is
crucial, according to our interviewees, to gain the support of peers by making
them aware of opportunities, developing solutions, and presenting the positive
outcomes. As one vice president of distribution stated, “Enlist your peer group,
don’t embarrass them. And above all, minimize the political battles.”

The good news is that there has never been a better time for logisticians to build
internal and external relationships. Interviewees discussed how speed-to-market
initiatives, Sarbanes-Oxley data validation requirements, and customer demands
are generating more focus on logistics and supply chain management.

These (and other) situations present opportunities for logistic executives to edu-
cate a wide variety of influential people within the organization. And, it is wise
to heed the advice of one expert who told us, “influence is more important than
titles. Make sure that you’re talking and reporting to the decision makers.”

Thinking about the questions in the above text box (Build and Leverage Rela-
tionships) will help logisticians understand how they can build bridges with
other functional areas and external partners.

19
 THEME 3 - PREPARE FOR COMPELLING EVENTS
It is one thing to understand CXO priorities and the company mission, but the
ability to act upon them quickly and appropriately is much more challenging.
Logisticians must be able to recognize compelling trigger events quickly and
marshal their resources to develop and deliver credible solutions.
Such responsive capabilities will give logistics executives a “go to” persona, cre-
ating more “air time” with CXOs who will appreciate the readiness and flexibil-
ity of the logistics and supply chain network. This “air time” will create ideal
opportunities for logisticians to promote supply chain management strategies,
vision, and value to CXOs.
Building a strong network that can adapt to compelling events is not an over-
night process. As the research suggests, it may take years for an organization to
construct a strong foundation of logistics capabilities and performance prior to
taking on dynamic supply chain challenges. In simple terms, you have to learn to
crawl before you can walk, and walk before you run. The evolution to dynamic,
“quick strike” supply chain abilities begins with a thorough knowledge of your
infrastructure (how many facilities you have, where they are located, what they
do, etc.), processes, capacity, and execution. Only then is it possible to develop
appropriate logistics strategies that enhance compelling event readiness.

Prepare for Compelling Events

• What are we doing to monitor critical organizational issues and potential compelling events?
o Is any particular individual responsible for scanning the horizon?
o Do we have ready access to important organizational information and events?
– If we frequently find that logistics is “out of the loop,” how can we improve
our knowledge?
o What is being done with the information when it surfaces?
• What types of compelling events can be solved via superior supply chain management?
• Do these needs require us to modify existing strategies and processes?
• How do we expect these events and customer requirements to change over the next 3-5 years?
• What are we doing to build toward these customer requirements, compelling events, and upcoming
opportunities?
o Do we have a strategic plan in place to build a stronger logistics foundation?
o Have we effectively defined our processes, expectations, and areas of needed
improvement?
o Are we moving toward the ability to compete “supply chain to supply chain?”

A vice president of logistics offered us solid, straightforward advice on this im-

portant learning point. He convincingly stated: “You’ve got to be in the right
place at the right time. But, you also have to build the baseline—effective logistics
processes and talented logistics people.”

Another VP of global supply chain relayed his experiences, “We needed to for-
mulate a battle plan that would include new information technology, processes,
roles, and talents. But before we could begin to imagine those, we needed to
define our strategy.”

Maintaining broad vigilance and preparing longer-range plans often fall to the
bottom of the priority list in the day-to-day firefighting of logistics. Thus, the
questions in the text box above (Prepare for Compelling Events) are intended to
help logistics executives stay focused on expanding their capacity to recognize
and leverage trigger events.

20
THEME 4 – ARTICULATE
YOUR IMPACT
The old adage “perception is reality”
applies to the logistics value proposi-
tion. To build CXO appreciation for
logistics and supply chain manage-
ment, you have to articulate their im-
pact regularly and in ways that make
sense. This means focusing on critical
metrics or KPIs. KPIs play an impor-
tant role in building CXO perceptions
and bringing them in line with reality.
Our experts and executives provided
numerous insights regarding metrics
and value recognition that can be
boiled down to a succinct list of do’s
and don’ts detailed in the upper right-
hand corner of this page.
Do
• Align KPIs with company strate-
gies and goals.
• Use metrics that cross the busi-
ness functions of the organization
and your supply chain.
• Encourage CXOs to judge you on
end-to-end performance.
• Create a baseline to show subse-
quent improvement.
• Derive recommendations and
conclusions from data.
• Show how results impact the bot-
tom line (income statement, stock
price, EPS, etc.).
Don’t
• Assume that CXOs understand the
meaning/interpretation of logistics
and supply chain management KPIs.
• Overwhelm CXOs with numerous
metrics and performance reports.
• Rely exclusively on tactical, func-
tion-driven KPIs.
• Focus strictly on costs without high-
lighting service and revenue impacts.
• Ignore the importance of document-
ing and distributing results of logis-
tics initiatives.
• Benchmark exclusively versus past
years. Incremental internal improve-
ment may not be adequate.

Another important aspect of showing how logistics and

supply chain management add value to your organiza-
tion is the approach you take. Be proactive rather than
waiting for your CXOs to discover logistics on their
own.
Articulate Your Impact
What does it mean to be “proactive?” In addition to per-
forming standard logistics processes flawlessly, you must • What are the key metrics for logistics and supply
make additional efforts to build awareness. Some inter- chain?
viewees we spoke with talked about their ability to gain o Are these metrics aligned with organizational
traction and recognition by solving problems in their or- strategy and structure?
ganizations that nobody else was willing to tackle, re- o How can logistics KPIs be restated to appeal
gardless of the problem’s source. to C-level executives?
Others discussed the value of teaching their peers how • How well do current logistics KPIs reflect the impact
logistics impacted the income statement, how supply they have on the organization in terms of:
chain disruptions were detrimental to the organization’s o financial results?
success, and how improved logistics performance would o service levels and throughput?
promote market share.
o customer market share?
One VP of distribution discovered that Six Sigma tools • Do CXOs in my organization understand the value
helped restructure the supply chain to leverage market of logistics?
share. “By implementing a voice-of-the-customer ini- o What issues capture their attention and drive
tiative, we were able to convert logistics improvements their efforts?
into market share commitments. That got everybody
o What efforts can logisticians make that appeal
on board.”
to CXO interests and contribute to their logis-
Ultimately, these efforts will pay off in improved CXO tics knowledge?
knowledge. One CEO demonstrated his appreciation of • How well do my customers understand the value of
gaining a deeper understanding of logistics value when logistics?
he stated: “Clearly, you get a bump from better logistics o How can we more clearly articulate the impact
performance. A higher in-stock percentage equals less of logistics to our customers?
missed sales opportunities and increased customer confi-
o How can they be enlisted to sell the message
dence.” If every CXO had this level of value recognition,
to our organization?
a key mission of CSCMP and this study would largely
be accomplished.

For organizations that have not yet reached this level of

CXO recognition, some assistance is provided in the list
of questions to the right, Articulate Your Impact. These
should help logisticians hone their message regarding the
impact and value of logistics.
21
 THEME 5 – KEEP THINGS IN PERSPECTIVE
In the first four themes, we focused on how logistics and supply chain management can capture
the spotlight in an organization. While it is important for logisticians to promote their field and
build CXO recognition of the value proposition, it is also important to be aware of some of the
realities regarding this. So, we propose a few caveats.

First, realize that logistics and supply chain management are support functions and logisticians
are key role players in most organizations. Logistics is an enabling function rather than a primary
competency/strategic weapon, even among supply chain leaders like Dell and Wal-Mart.

The role of a logistician is much like an offensive lineman—it’s not a glory-filled position that gen-
erates consideration for the Heisman Trophy. But, without effective performance in this position,
your team cannot win. The expert interviewees’ advice is to understand and accept the role of
logistics in your organization. Work to expand your capabilities and importance within the
boundaries of the organization’s mission and use common sense.

Second, recognize that achieving a logistics value vision among CXOs is not an overnight process.
It is important to adopt the “under-promise and over-perform” concept. As stated earlier, evolving
from Stage I to Stage V in the value model requires time, effort, investment, and patience.

The logistics executives expressed concerns that often, we (or our bosses) tend to promote a great
idea and its impact long before it is functioning properly. While minor logistics strategies and proc-
ess improvements may produce results in months, a major transformation may take 3-5 years to
execute and achieve ROI. If we over promise on the payback period, otherwise effective programs
may be deemed failures by CXOs and the value proposition will be lost.

Finally, assess the potential importance and impact of logistics within the context of your own or-
ganization. It may not be necessary for your company to focus on supply chain integration and
evolve to Stage V. Stage IV may be more appropriate given your size and industry. Also, the level
of CXO recognition of logistics value may be limited by factors that are outside your control and
influence.

Keeping Things in Perspective

• What stage of the evolution model best describes your organization?
o Ideally, what stage must you achieve to effectively support organizational strategies and goals?
o Would the CXOs in your organization agree with your assessment of current stage and ideal
stage?
• In terms of advancing your logistics capabilities and the value produced:
o what capabilities have been put in place?
o what key elements are still missing?
o what areas need to be shored up?
o what level of support can you expect from your CXOs?

As one VP of logistics reflected, “I have to remind myself on occasion not to take myself too seri-
ously. After all, logistics represents only 5-10% of revenue in my organization so I won’t constant-
ly be on the CXOs’ radar screens.” Still, it is important to stay in tune with CXO issues, support
your peers in other areas, and remain vigilant for opportunities to leverage your logistics capabili-
ties for the benefit of the organization.

The key to maintaining a realistic, positive, energized perspective is to conduct a realistic assess-
ment of current capabilities versus the logistics needs of your organization. The questions in the
text box above (Keeping Things in Perspective) should help with this review.

22
CLOSING THOUGHTS
As we discussed at the beginning of this report, the goal of Communicating the Value of Supply Chain
Management to Your CEO was to articulate how leading firms assess and communicate the value of lo-
gistics and its contribution to the corporate objectives. This research provides logistics and supply chain
professionals with a methodology of increasing awareness of the importance of supply chain management
within their firms.

While we hope this report has been helpful, what we have written is not nearly as important as what lo-
gistics and supply chain professionals can do in their place of employment. Changes in perception do not
happen overnight; they are created through a sustained focus on excellence.

Demonstrating how the discipline creates and adds value for an organization has never had a more recep-
tive audience. CXOs are looking for opportunities to create value—a value that can be delivered through
logistics and supply chain management. We trust that this publication will help support you in your
efforts.

In closing, we wish to thank all—individuals and organizations—who contributed to this research. Your
organization can learn from the lessons of other companies. And these individuals’ hard work and experi-
ences will most assuredly help your business improve its logistics process, as well as promote supply chain
awareness.

If you would like more information, please feel free to contact the authors:

Karl Manrodt, PhD (912) 681-0588 kmanrodt@georgiasouthern.edu

Brian Gibson, PhD (334) 844-2460 bgibson@business.auburn.edu
Stephen Rutner, PhD (912) 681-0511 srutner@georgiasouthern.edu

About CSCMP About Georgia Southern About Auburn University

Founded in 1963, the Council of
Supply Chain Management Profes-
sionals (CSCMP) is the preeminent
association for individuals involved
in supply chain management.
CSCMP provides educational, career
development, and networking op-
portunities to its over 9,000 mem-
bers and to the entire profession.
The organization was originally
founded as the National Council of
Physical Distribution Management
(NCPDM) in January 1963. In 1985,
recognizing the growing field of
logistics, the association’s focus
broadened as it changed its name to
the Council of Logistics Management
(CLM). It stayed that way until 2004
when CLM’s Executive Committee
voted to become CSCMP, effective
in 2005.
For more information or to become
a member, visit www.cscmp.org.
University
Georgia Southern University, located
in Statesboro, Georgia, is a major
teaching and research institution. It
has a growing, nationally recognized
logistics program. The faculty pub-
lish in a wide range of topics and are
invited to speak at events across the
globe. The Southern Center for Inter-
modal Transportation offers a wide
range of research services and resides
in the College of Business.
For further information, please visit
www.georgiasouthern.edu
Chartered in 1856, Auburn Univer-
sity is a comprehensive land-grant
institution dedicated to serving
Alabama and the nation through
instruction, research, and exten-
sion services. Recently, US News
and World Report recognized Au-
burn as one of the top 50 business
schools in the United States.
Auburn has a rich 30-year his-
tory of providing high quality lo-
gistics education. Comprehensive
programs are offered to individu-
als at all levels—a logistics major
for undergraduate students, supply
chain concentration for graduate
students, and continuing education
programs for logistics profession-
als. The logistics faculty is involved
in distance education, provides cor-
porate training, conducts indus-
try-based research, and advises the
CSCMP Auburn University Round-
table.

23
2805 Butterfield Road, Suite 200, Oak Brook, IL 60523-1170 USA
Phone (630) 574-0985 • Fax (630) 574-0989 • www.cscmp.org