From obscurity to superhero: Chief supply chain officer is now the toughest job in the C-suite
At most companies, the glory in the C-suite has typically gone to the executives who dream up new products, plot bold market expansions, or out-innovate the competition with money-gushing patents. Think Target’s chief merchant or Tesla’s CFO.
But this is 2021.
And now, the pandemic and its multitudes of mundane problems have combined to make getting items onto store shelves or to shoppers’ doors a much more complex operation. The wildly fluctuating demand for consumer goods in 2020, followed by the Suez Canal debacle last winter and lately flotillas of ships idling in major West Coast ports have only added to corporations’ headaches. As a result, a new hero on many leadership teams has emerged: the chief supply chain officer.
“There has been a great identification of supply chain management as being a core competency within companies that creates competitive advantage if done well,” says Melissa Hadhazy, a senior client partner at Korn Ferry, the executive search and consulting firm. The CSCO role has become an ever more crucial one at many companies as the focus has gone well beyond cost control in production and shipping that long dominated the job and into one that increasingly shapes strategy, she adds.
And corporate America agrees. The rise of the CSCO has been brewing for a while, largely as companies have diversified production locales and because of the complexities of e-commerce that have involved faster delivery times and far more nodes in a distribution system. A study in the Journal of Operations Management in 2016 found that 71 new CSCO roles had been created at S&P 1500 firms between 2000 and 2012. Now, according to an analysis of S&P 500 filings and websites by Equilar and Fortune, 85 companies have a CSCO or someone with a title filling a similar role.
The outbreak of COVID has only reaccelerated the rise of the CSCO: For instance, late last year, Nordstrom made chief supply chain officer Alexis DePree a member of the luxury chain’s executive team, meaning she reports directly to the CEO. Earlier in 2021, Kohl’s added CSCO to its chief technology officer Paul Gaffney’s portfolio of responsibilities because of the growing impact of tech on supply chain management.
The current chaos justifies this shift: Bloomberg recently reported that Apple is now likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units because of a shortage of chips. Nike recently told investors it had lost 10 weeks of production from its Vietnam suppliers this summer, one factor that led it to lower its sales forecast for the current fiscal year: CEO John Donahoe said that getting merchandise from Asia to North America was taking 80 days now, double the usual time because of container shortages, port congestion, rail congestion, and labor shortages.
Tougher than just moving boxes around
Macy’s CSCO Dennis Mullahy is not surprised that so many companies are elevating their CSCO’s profile, and says the job was changing a lot already even before the pandemic.
“For a long time, supply chain was viewed as kind of an operational activity, about moving boxes from point A to point B,” says Mullahy. And that goal was to do so at as low a cost as possible. Now, he says, the focus is on “how do we get inventory into locations where we think it is going to generate the highest sales for us and the best profitability?”
In fact, the most important metric by which he measures his team’s performance now is inventory availability as well as productivity. In other words, in the past, it could be tempting to overbuy to make sure there was enough merchandise at all nodes in a distribution network, lest Macy’s risk missing out on sales. Now it’s about making sure Macy’s gets the optimal amount of merchandise and knows where to place it and move it around to increase odds of a sale and reduce the risk of having to liquidate items at clearance prices because it over-ordered. “Running the lowest cost operation doesn’t necessarily give you the highest margin,” Mullahy says.
Since goods go back and forth between stores and e-commerce facilities, merchandise has become one single “fungible pool of inventory,” says Kohl’s Gaffney, who earlier in his career led supply chain efforts at Staples. There is also now a higher level of robot sophistication and the emergence of more accurate demand forecasting compared with a few years ago. “You don’t pull that off without some significant technology,” Gaffney notes.
The pandemic has turbocharged the growth of e-commerce: Many retailers, including Gap Inc. and Nordstrom, have said their e-commerce sales in 2020 hit levels initially forecast for 2023. And since Macy’s, like many major retailers from Gap Inc. to Target to Petco, uses its stores as e-commerce nodes, that means correctly allocating merchandise to distribution centers as well as stores, which now ship a big chunk of online orders, is crucial. “It really requires you to be a very agile and nimble organization,” Mullahy adds. So important is supply chain management that Mullahy says he speaks to Macy’s CEO Jeff Gennette several times a week.
It’s not just about missing out on sales: Retailers and brands rely increasingly on satisfied and repeat customers, and disappointing them with an unreliable supply chain is a more costly mistake than ever given how many choices consumers now have.
Another way COVID has disrupted the CSCO’s work: changing the assortment. A Gartner study in May found that many consumer packaged companies have reduced their product assortment by up to one-quarter to simplify operations, speed up production and delivery, and make it easier for their retail clients to restock shelves.
So as companies scramble to source from different places, CSCOs are finding themselves having to be flexible in moving production around to different facilities, or choosing different points of entry into the U.S. “One of the most important things today is having factories or manufacturing partners that have multicountry capability, so if Korea shuts down, I can move stuff over to Bangladesh,” Macy’s Mullahy says. Kohl’s Gaffney notes that you now need to know in real time at any time where every container is.
Given how much more complex supply chain management has become, CSCOs have to work across the company, with the procurement, planning, manufacturing, finance, customer loyalty, and product development teams even more than they did in the past. And that is a key reason more CSCOs report directly to the CEO. It’s a signal to the other executives and the company as a whole that supply chain is not some boring utility, but a key ingredient to ensuring a company succeeds.
“We’re seeing CSCOs being recognized by their boards as people who help drive the overall priority of growth,” says Simon Bailey, senior director analyst at Gartner.
CSCOs also are increasingly responsible for another growing area: helping a company hit its ESG (environmental, social, and governance) goals of good corporate citizenship. That means choosing transportation methods with a smaller carbon footprint, squeezing efficiencies from production, etc. And since executive compensation is increasingly tied to hitting those ESG goals, the CSCO can affect the C-suite’s pocketbook quite directly.
“You can’t claim ESG and sustainability and carbon net zero and so on if your supply chain isn’t sustainable,” says Korn Ferry’s Hadhazy. What’s more, she adds, the CSCO can choose suppliers that are women- or minority-owned businesses to improve ESG adherence.
It’s clear that awareness of the supply chain problem has gone mainstream: A barista at a Manhattan Starbucks store recently explained to a customer that it wasn’t selling oatmeal because “supply chain issues” meant the chain hadn’t received the right lids. Executives and analysts don’t expect the chaos to ease until at least February, but companies will have to remain agile to deal with whatever comes next, and something unfailingly will.
“A chief supply chain officer is somebody who can live in a constant state of disruption,” says Hadhazy.
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This story is part of Fortune‘s Leadership Report on the issues and trends reshaping the C-suite now.