Why the Fourth Industrial Revolution Requires More Supply Chain CEOs

businessman looking at hand drawn business concept sketch

By Wolfgang Lehmacher

CEOs need to transform businesses – an imperative which is increasingly relevant in the Fourth Industrial Revolution. Apparently, as the supply chain stretches across the entire business operation, the flow and transformation of materials and parts into goods and value to customers brings CEOs to the test. How then can CEOs lead change in times of disruption and uncertainty brought about by rapid technological advancement?

 

The supply chain is the backbone of the economy and the lifeline of any business. Recently, several chief executive officers (CEOs) from larger players like John Deere, Tyson Foods, and General Mills stated that their financial performance was hurt by the inefficiency of supply chains. The chain has to deliver the value promised to customers and society – visibility is therefore a king. According to the Geodis 2017 Supply Chain Worldwide Survey, supply chain visibility is the third most important priority in 2017, up from the fifth place in 2015. However, only 6% of the 623 respondents said they had achieved full visibility across the chain.1 As the supply chain stretches across the entire business operation, the flow and transformation of materials and parts into goods and value to customers brings CEOs to the test. Furthermore, in the Fourth Industrial Revolution, it is the supply chain that is the ultimate strategic differentiator. Companies that fail to transform their supply-driven chains into intelligent customer-centric systems will struggle to succeed – sooner than later.

Times are volatile and uncertain in the Fourth Industrial Revolution. CEOs need operational knowledge and strategic insight to be able to balance short with mid to long-term interests and requirements. This balancing is the daily task and challenge of chief supply chain officers (CSCOs). They know what it takes to deliver value to customers, today and tomorrow, consistently over and over again. Supply chain professionals need to not only know the business but also what is happening along the chain. They gather this knowledge during their effort of integrating suppliers and collaborating with customers, which often are spread across multiple industries.

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The Fourth Industrial Revolution 2

The arrival of the cyber-physical world or the rapid convergence of the biological, physical and digital spheres is dubbed the Fourth Industrial Revolution.

Disruptions are not anymore confined to industries, countries or even regions. One single innovation has the power to impact entire global structures.

The internet of things generates the digital twin of the physical world. While machines interact increasingly with machines, voice and facial recognition are changing the interaction between humans and things. One day, everything will be connected with everything. We are in the process of creating a global super robot, but we will continue to need human supervision nonetheless.

We live and operate in interconnected systems of systems. Consequently, disruptions are not anymore confined to industries, countries or even regions. One single innovation has the power to impact entire global structures. In the connected world, opportunities and threats emerge no longer within sectors alone but also at the intersections between systems. Consumer expectation, for example, spills over. What is offered in one industry is expected to be provided in other parts of the economy too. One result is the Uber of “everything” – easy to use, transparent and cheaper.

The forces impacting and shaping multiple systems and their interplay need to be understood by CEOs. Leaders are required to learn how adjacent systems work and develop. Otherwise, operations risk to fail and predictions might fall short.

 

CEOs perform and transform

The CEO is responsible for the performance and 100 percent of the revenues and profits – not only today but also tomorrow. CEOs are drivers of performance as well as change-makers who mastermind and orchestrate organisational transformation. Managing transformation is crucial in the Fourth Industrial Revolution.

CEOs need to hold the qualities, knowledge, skills, and the experience required to lead organisations or major parts thereof towards continuous success. CEOs must configure, guide, encourage, and evaluate teams and business partners. It is key to CEOs to mitigate risks and capture opportunities. Achieving these goals requires business acumen and foresight.

These abilities are only partially rooted in the individuals’ education and training. While top programmes prepare for a management career, there are examples of CEOs, and in particular entrepreneur leaders who skipped the academic path, at least partially – among the most popular dropouts are Bill Gates and Steve Jobs. Their success shows the importance of personal qualities and experience. Structured learning in schools and universities, however, still makes life and the moving up the career ladder in general a little bit easier – at least for most of us.

CEOs can hardly perform without practical hands-on business experience. Hence, future CEOs require entry positions that help them to understand the nuts and bolts of the business and career paths that allow them to gradually acquire and demonstrate the physical and cognitive capabilities needed to perform in the most senior roles in the organisations. Supply chain management provides the necessary breadth and depth for the leadership-learning journey.

 

Supply chain professionals are strategic assets

The supply chain is highly pressured by the effects of the Fourth Industrial Revolution and the arrival of the digital economy and society. With on the one hand digitally empowered consumers with ever-increasing expectations, who on top have the world under their fingertips, and on the other hand the limited demand planning data and exposed global supplier and manufacturing networks, personal qualities and experience are required to perform in this dynamic challenging environment. As re-design is almost a routine, CSCOs know what it takes to continuously transform organisations.

Chief supply chain professionals are architects and orchestrators. They organise stakeholders along the chain; from suppliers to manufacturers, to logistics companies, to wholesale and retail networks. This requires design thinking and regular communication with all the parties involved. Leading players use digital platforms to facilitate their effort, such as in posting their requirements and suppliers.

Chief supply chain officers are strategic to any company that aims at being customer-centric. Supply chain experts provide advice on product design to avoid supply chain challenges later on, e.g. damages and other disadvantages due to unsuitable packaging. Optimising package design and materials requires that the needs and impacts of the entire system are understood,3 including the environmental impact. CSCOs know how to design demand-driven networks and customer touch points to differentiate the organisation from competition. Superior customer experience increases the number of repeat purchases and drives recurring earnings.

Information is key. It is the CSCO who needs to prepare the organisation for disruptions, for example, for the severe effects of the increasing number of natural disasters brought about by climate change and global warming, which have quadrupled since 1970. Another risk is looming from cyber threats. Attacks like Wannacry and NotPetya have unveiled the vulnerability of the supply chain – resulting primarily from the endless number of interfaces with external partners and customers.

The NotPetya ransomware outbreak alone costed the terminal business of Maersk, the world’s largest shipping line $200 million, and the pharmaceutical giant Merck more than $300 million.4  Supply concentration threatens supply chain performance too. This became apparent in 2011 with the Fukushima tsunami that hit Japan on March 11 and the Thailand flooding, which impacted 1,886,000 households and 2,500,000 people.5  For example Nidec, a component supplier in Thailand, was producing at the time of the flooding around 70 percent of the world’s hard drive motors used by Western Digital and Seagate, Samsung, Hitachi GST and Toshiba. The disaster led to out of stock situations, with customer disappointments and frustrations as a result.

AI-based tools help to anticipate and avoid such disruptions. Flex, the technological manufacturer, for example, uses AI-based tools to manage risk in a network of around 14,000 suppliers. Supply chain excellence and resilience requires a good grip on what technologies can bring to the supply and demand network eco-system.

While the internet of things is vital for visibility, for example, artificial intelligence (AI) promises to bring breakthroughs in demand forecasting. Anticipating consumer behaviour and purchases will allow CSCOs to align production with demand and preposition goods. This will reduce cost and waste and improve customer experience. So does additive manufacturing, known also as 3D-printing, which allows to tailor products to individual wants in the shortest possible time.

 

CSCOs operate the business engine

The Chief Supply Chain Officer is responsible for all vital functions of the business. Many CSCOs control more than 50 percent of the organisational spending. They know where the money is made and lost. They ensure that the company delivers the orders to customers as promised – and this, under all circumstances. Whether during a typhoon and flooding or Thanksgiving, Singles’ day and year end peak. CSCOs keep the “engine” going and the “deck” clean. Quality control is mantra, cost reduction is obsession; highest throughput and fluidity is the CSCO’s goals. CSCOs determine what CEOs see on their operational dashboards.

Great CSCOs speak CEO language. They drive the most relevant key performance indicators (KPIs) by focussing on the respective critical success factors. CSCOs lower inventories and accelerate the flow of goods and finances to increase cash flow. They impact revenues, i.e. prices and volumes through on-time deliveries, low damage and theft rates and excellent customer and after sales services. Happy customers are easier to convince to pay their invoices on time, important for the company’s liquidity.

The winners in the Fourth Industrial Revolution will be the data-driven companies – those that use data to optimise all parts of the business and ensure best experiences for customers, who are becoming increasingly digital-savvy. 

In order to achieve their goals, CSCOs require visibility. They appreciate numbers, as there is no other way to effectively and efficiently manage larger demand and supply networks. Data is the red line throughout the effort of digitisation. Only data, provided by the internet of things (IoT) and used by powerful AI-based tools brings the expected high return on automation and robotics. Distributed ledger technology announces itself as the tool that will raise the level of trust by ensuring the authenticity of data. The winners in the Fourth Industrial Revolution will be the data-driven companies – those that use data to optimise all parts of the business and ensure best experiences for customers, who are becoming increasingly digital-savvy.

In summary, the supply chain professionals’ mission is to reduce risks and costs, increase cash flow and revenues, and capture strategic opportunities. They influence top and bottom line as well as brand reputation and enterprise value. CSCOs execute the CEO’s vision – they drive the operational agenda with the long-term goals in mind. The chief supply chain officers need to be strategic and operational at the same time – like their CEOs.

 

Entering the business of leadership

Those wishing to start their career in supply chain management can choose between multiple programmes, for instance offered by Cranfield University, Rotterdam University, ETH Zurich and Copenhagen Business School in Europe, as well as MIT, Michigan State University, Ohio State University and Arizona State University in the United States. Alternatively, they can go broader and study economics and business. Companies are supporting people development through finances but also directly: UPS’ Metropolitan College,6 for example, has helped more than 5,000 night-shift workers earn certificates or degrees for 20 years.

The Fourth Industrial Revolution opens up new pathways to the top of organisations. CEO profiles are shifting. Digitalisation is the driver of new offerings and business models. Today’s nerds might become tomorrow’s leaders. LinkedIn looked at 12,000 CEOs from 20 countries to see what they studied.7 They found that today computer science is the most popular field of study listed on CEO LinkedIn profiles, followed by economics and business. The outcome of this LinkedIn study is possibly influenced by the rise of technology companies.

What CSCOs need to add to their set of competencies to prepare for the very top, is primarily the vision of future customer preferences, products and services.

Many examples show that the door to the C-suite stands open for supply chain professionals. Tim Cook, CEO of Apple, was the former COO of the company. Mary T. Barra, CEO of General Motors, is known for her strong operations and supply chain background. Alan George Lafley, who led consumer goods maker Procter & Gamble for two separate stints took a commission with the U.S. Navy as a supply officer, and Brian Matthew Krzanich, former CEO of Intel served as COO before being promoted to the top position. Considering the similarities between tasks and profiles of CEOs and CSCOs, these careers do not come as a surprise. What CSCOs need to add to their set of competencies to prepare for the very top, is primarily the vision of future customer preferences, products and services.

The Fourth Industrial Revolution has arrived. Operational knowledge and data management capabilities are critical for success – a good sense for the application of advanced technologies too. The awareness and understanding of developments and changes across the entire economy is becoming an imperative. Continual exchange with other domains, industries and geographies is the daily business of supply chain operators. Organisations should leverage their pool of supply chain professionals to navigate the digital era, not only as experts but also as potential candidates for the company’s pipeline of tomorrow’s CEOs.  

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About the Author

Wolfgang Lehmacher is a global executive, consultant and entrepreneur. His career stages include being Head of Supply Chain and Transport Industries at the World Economic Forum, Partner at the global strategy firm CVA, and President and CEO of GeoPost Intercontinental. He is a book author and member of award juries and think tanks.

 

References

1. Supply Chain Worldwide Survey, Geodis, 2017

2. The Next Economic Growth Engine. Scaling Fourth Industrial Revolution Technologies in Production, World Economic Forum in collaboration with McKinsey & Company, 2018, http://www3.weforum.org/docs/WEF_Technology_and_Innovation_The_Next_Economic_Growth_Engine.pdf.

3. Optimizing Packaging for an E-commerce World, Ameripen, American Institute for Packaging and the Environment, 2017, https://cdn.ymaws.com/www.ameripen.org/resource/resmgr/PDFs/White-Paper-Optimizing-Packa.pdf.

4. O’Neill, P, 2017. NotPetya Ransomware Cost Merck More Than $310 million. cyberscoop, https://www.cyberscoop.com/notpetya-ransomware-cost-merck-310-million/.

5. Flood Risks and Impacts: A Case Study of Thailand’s Floods in 2011 And Research Questions for Supply Chain Decision Making, International Journal of Disaster Risk Reduction, 2014, http://water.columbia.edu/files/2014/10/supply_chain_Thailand.pdf.

6. UPS Metropolitan College, https://metro-college.com/

7. Egan, D. 2018. Here Is What It Takes to Become a CEO, According to 12,000 LinkedIn Profiles, Linked in, Talent Blog, https://business.linkedin.com/talent-solutions/blog/trends-and-research/2018/what-12000-ceos-have-in-common.

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