THE CHIEF SUPPLY

CHAIN OFFICER REPORT

2012

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 1

THE CHIEF SUPPLY
CHAIN OFFICER REPORT
2012

A research study by:

Dr Hau Lee, Chairman, SCM World, and Thoma Professor of Operations,

Information and Technology, Stanford Graduate School of Business

Kevin O’Marah, Head of Faculty, SCM World

Geraint John, Senior Vice President, Research, SCM World

FOREWORD

Approaching 2013, we see a number of important trends in supply chain management. The collective
insights from 1,400 leaders who participated in this SCM World research demonstrate that we live in a
world where change is constant, and where groundbreaking approaches must be embraced to effectively
compete and win in today’s volatile global economy.

The report’s findings are a loud call to action for everyone in our discipline. Individually and collectively,
we must establish tight strategic alignment between our supply chains and businesses. We must harness
digital commerce systems to serve new market niches and maximise profitable growth by delivering
unprecedented operational flexibility. We must define and execute world-class social and environmental
responsibility practices. We must construct more robust risk management systems to persevere through
supply disruptions and adverse market conditions. And finally, we must fully embrace the idea that
world-class talent is a powerful engine of business innovation and competitive advantage.

This is a complex and interconnected set of challenges. Each one requires its own focused transformation
plan. However, broad operating principles can guide us in harmonising these plans and meeting the
demands of today’s chaotic world. At Lenovo, there are two in particular on which we rely very heavily
– driving speed of execution and customer focus.

Increasing speed demands a sustained focus on continuous improvement, a strong risk management
process and the talent to make good decisions quickly. These capabilities enable the flexibility and
agility needed to quickly adjust product mixes and routes to market in response to all types of business
conditions, including periods of supply disruption, while serving the “tail” of demand.

Being a customer-centric supply chain means having clear metrics tightly aligned with real experience.
Collaboration skills also are critical, as supply chain professionals must execute across marketing, product
development and sales, as well as external suppliers, to deliver a truly world-class customer experience.

Finally, our organizations cannot address the challenges of the day without great talent. This is a personal
passion of mine because, as former US Secretary of State Colin Powell once said, “no battle plan
survives contact with the enemy”. You need people with the skill, knowledge and intuition to improvise
in responding to unpredictable scenarios with groundbreaking business innovation. That is why talent
development is a core pillar of Lenovo’s supply chain strategy and why we make significant investments
in this area.

This Chief Supply Chain Officer Report advances a common view of our path forward to supply chain
excellence and strategic relevance in our industries. And many of the best practices to advance our
discipline will come from knowledge sharing and collaboration within our professional community.
Lenovo is proud to be a part of this process, and we look forward to tackling our opportunities and
challenges strengthened by this spirit of partnership.

Gerry P. Smith
Senior Vice President
Global Supply Chain & Global Services
Lenovo Group
 CONTENTS

FOREWORD 4

EXECUTIVE SUMMARY 6

INTRODUCTION 13

STRATEGY ALIGNMENT AND VALUE CREATION 14

DIGITAL CONSUMERS AND eCOMMERCE 20

SOCIAL AND ENVIRONMENTAL RESPONSIBILITY 29

RISK MANAGEMENT 36

TALENT MANAGEMENT 41

CONCLUSIONS 49

ABOUT THE RESEARCH 50

This document is the result of primary research performed by RaptureWorld Ltd. RaptureWorld’s methodologies
provide for objective, fact-based research and represent the best analysis available at the time of publication.
Unless otherwise noted, the entire contents of this publication are copyrighted by RaptureWorld Ltd and may not
be reproduced, distributed, archived or transmitted in any form or by any means without prior written consent by
RaptureWorld Ltd (6443794).

© 2012 SCM World, a RaptureWorld Company. All rights reserved.

 EXECUTIVE SUMMARY

This is the third consecutive year that SCM STRATEGY ALIGNMENT AND VALUE
World has published its annual Chief Supply CREATION
Chain Officer Report. In July 2012 almost 1,400
practitioners from a wide range of industries and • Operating cost reduction is still the
geographies – more than twice as many as in 2011 foundation of supply chain excellence, with
– completed a 40-question survey covering five almost two-thirds of survey respondents
main topics: saying it is “very important”. But increasingly,
companies are using high-performing supply
1. Strategy alignment and value creation chains as a way to support the company’s
2. Digital consumers and eCommerce business strategy. This enables value creation
3. Social and environmental responsibility and provides competitive advantage. Hence,
4. Risk management supply chain strategy and business strategy
5. Talent management must be aligned.

The key findings contained in this report can be • The importance of aligning supply chain
summarised as follows: strategy and business strategy has led to the
recognition and appreciation of the supply
chain function as an integral part of the
company’s business leadership. Over half of
the respondents agree that their supply chain
is viewed as an integral function for business
success. Hence, supply chain and strategy
alignment is also linked with organisational
alignment within the firm.

• There are many ways in which high-

performing supply chains can support value
creation and competitive advantage. Leading
the way, according to our survey participants,
is the ability of high-performing supply
chains to enhance customer service, leading
to customer loyalty. The driving factors for
great value to be gained from enhanced
customer service are the ability of customer
service to generate repeat purchases and
customer service becoming an important
criterion in determining the customer’s
purchasing decisions.

• The other important ways in which high-

performing supply chains can support
value creation and competitive advantage
provision include stronger supplier
relationships, acceleration of new product
introduction, and business expansion in
existing and new markets. More than two-
thirds of respondents say these deliver high
or very high value in their companies.
6 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012
 EXECUTIVE SUMMARY

• This year’s results are a reconfirmation of Do your CEO and executive management team appreciate the
alignment of business strategy and supply chain strategy?
last year’s. And the trend is continuing for
companies to use supply chain excellence as Absolutely. Supply chain
a means for creating value and competitive 2 is understood as an

advantage. Companies where supply chain

8 equally important part
of business success
as sales & marketing
management is still viewed as a supporting or R&D/product
development
function, or where supply chain management Yes, but only as an
enabler of product or
is only viewed as a way to reduce operating sales-driven business
strategies
costs, have a lot of catching up to do, as they 31 59 Not really. Supply chain
are missing great opportunities. is understood primarily
as a cost center that
affects margins
No. Supply chain is
DIGITAL CONSUMERS AND eCOMMERCE strictly seen as a function
meant to service the
business
• Digital demand and eCommerce appear to % of respondents
n=1,373
be driving complexity from the consumer
upstream into the supply chain in every
way possible, including packaging, pricing,
SKU counts, distribution networks and even Value created by a high-performing supply chain

manufacturing strategies. The sensitivity

to this pressure is much higher closest to Enhanced customer service and customer loyalty
3 15 40 41
consumers (retail, distribution, consumer Stronger supplier relationships
products) suggesting that tier suppliers 1 4 19 46 31
Accelerated new product introduction
upstream may lack the agility needed to meet 1 5 20 43 31
fast-changing demand patterns. Expansion of business to new market segments in existing/new regions
2 8 22 40 29
Expanded offerings of value-added services
• The influence of eCommerce and digital/ 1 8 30 41 20
Facilitation of premium pricing
mobile consumers is expected to increase 2 10 31 38 19
complexity of demand at the point of Leverage opportunities created by external supply disruptions
6 17 30 30 18
fulfilment. By a ratio of 4:1 respondents
% of respondents
expect consumers to be increasingly
No value whatsoever Moderate value Very high value
receptive to offers trading price, convenience Little value High value n=1,379
Note: Figures may not add up to 100
and selection against each other rather than because of rounding

merely seeking the lowest possible price.

This effect is also most pronounced closest Future effect of eCommerce and mobile-enabled customer
on SKU assortments
to the consumer (in retail) and less powerful
further upstream in the supply chain.

• Digital demand and eCommerce are 13

also expected to increase SKU counts as 25
Drive much larger SKU
assortments as brands
opportunities to serve the “long tail” of pursue ever smaller niches
of demand
demand are exploited. Again, the effect is
Drive some SKU expansion
significantly greater among respondents 26 as brands pursue some
smaller niches of demand
closest to the consumer.
Have little or no effect on
SKU assortments
• Three-quarters of all respondents expect
Drive smaller SKU
changes to their distribution networks to assortments as brands

be driven by digital demand. Opinions split 36 simplify to cut costs in

response to price pressure

evenly between those who see a case for

% of respondents
n=1,337

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 7

 EXECUTIVE SUMMARY

Social media is smaller, more local distribution centres and respondents shy away from mining sources
playing little role those who expect larger, centralised, more such as search histories or social networking
today in supply flexible multi-mode distribution centres. It activity. Rich demand data may exist, but
chain strategies, appears likely that some hybrid of the two using it to design a supply response seems
but in the future may become common. inappropriate to many.
will be a source
of customer
feedback, • Three-quarters of all respondents also SOCIAL AND ENVIRONMENTAL
inform product expect changes in their manufacturing RESPONSIBILITY
innovation and strategies. Respondents in the hi-tech sector
warn of supply are the most certain that manufacturing • Positive customer image and brand
disruptions. strategies will change (only 16% see “little or equity remains the key driver for social
no effect”), while chemicals reject this idea and environmental responsibility (SER)
(54% see “little or no effect”). initiatives, with 71% of survey respondents
saying this is a board-level motivation.
• A majority (56%) expect brands to develop Companies can use SER to strengthen their
their own direct-to-customer fulfilment customer relationships and enhance their
systems, while a quarter anticipates reliance value propositions.
on eCommerce specialists such as Amazon.
One-fifth sees little reason to change. • SER efforts start with visibility of SER
performance inside the company as well
• Social media is playing little role today in as the extended supply network. While
supply chain strategies (47% see “no effect”), progress has been made, companies are
but in the future many see opportunities still far from having good visibility of their
to get customer feedback (56%), inform suppliers and the extended supply network
product innovation (46%) or warn of supply – only a quarter say they currently have this.
disruptions (41%).
• Companies have stepped up their action in
• Seeking demand insight in emerging data response to SER violations by suppliers. A
sets elicits some concern about privacy. Most third do not give suppliers warnings before

Views on the use of customer data The board’s motivations for investing in SER

Customer transaction
data should be mined to 4.08 Create a positive customer
image and enhance
71
understand buying behaviour
3.75 brand equity 75

Satisfy government 49
regulations
42
Customer webstore data
(cookies, eCommerce 3.55
history) should be mined to
3.27
Reduce costs and/or increase 43
understand buying behaviour efficiency (e.g., through better
use of energy, raw materials) 32

Ensure no disruption 37
Customer geospatial data
(mobile GPS) should be 3.20 of supply
30
mined to understand buying
behaviour 2.98
Fend off shareholder or 28
external PR concerns
22
Customer private web data
(Google search, Facebook, 2.89 17
At an aggregate level
2.69
etc) should be mined to Increase sales revenue 2012
understand buying behaviour
At an individual level 31 2011

Disagree Neutral Agree % of respondents

Weighted average rating, 1-5 scale
n=1,346 n=1,281

8 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 EXECUTIVE SUMMARY

reacting and taking often punitive actions. both about price pressure or customers Companies are
And these punitive actions have shifted to appearing not to care, and a lack of resources beginning to
a more severe kind – immediate termination for SER efforts. realise more
of the business relationship is now more significant
common than it was a year ago. • Despite the challenges, most companies are benefits from
their SER efforts
still pushing forward with their investments
than they did in
• Positive incentives are still necessary to in SER efforts. Such investments are multi- previous years.
improve SER performance in the long run. dimensional, involving internal operations,
Punitive actions will hopefully induce more product design, supply network and
compliance, but getting commitment requires customers. The trend towards increased
a collaborative effort, with the company SER initiatives seems to be unstoppable.
willing to invest and work with suppliers for
real improvements. Preferred supplier status RISK MANAGEMENT
and increased business are the two most
popular incentives, as they were in 2011. • The impact of last year’s natural disasters in
Japan and Thailand is strongly in evidence,
• The SER journey for many companies is with shortages of raw materials and
maturing, and companies are beginning to components heading the list of risks that
realise more significant benefits from their survey respondents are most concerned
SER efforts than in previous years. More about. The hi-tech sector, in particular, is
than half of survey respondents report very concerned about this, as are almost half
good or substantial results in complying of those based in the Asia-Pacific region –
with government regulations and laws, and twice the level of European respondents.
in improving both supplier relationships and
customer satisfaction. • More than two-thirds of supply chain
executives are also concerned about
• Measuring benefits continues to be a shipping disruptions, incidents at supplier
challenge for almost 6 out of 10 respondents, facilities and the failure of key suppliers
however. And more than half are concerned when they consider the potential of supply-

Penalties for breach of SER standards Impact of supply- and demand-side disruptions in the past two years

14 Loss of sales/revenue 45 47

Warning first,
followed by 58 Lower profits 35 39
62
42 Delays to new projects/product
44 28
introduction/growth plans

Loss of customers 19 33
41
13 Higher cost of capital 27 14
No warning,
immediate action
taken in the form of
53 Damage to image, reputation
19 16
or brand
Supply-side disruption
47 34
Demand-side disruption
Lower share price 14 19
% of respondents
n=1,227
Failure to meet legal or 13 8
Monetary fines regulatory requirements
Reduced business
Termination of business relationship None 16 15 % of respondents
n=1,240

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 9

 EXECUTIVE SUMMARY

A move back and demand-side disruptions to negatively during the past two years. Almost half have
toward high- impact their businesses during the next 12 suffered a loss of sales/revenue and more
wage countries months. And more than a quarter are very than a third have seen lower profits from
may make sense concerned about regulatory issues and both upstream and downstream events in
for organisations counterfeit products. their value chains. A third have also lost
working to
customers and 44% have suffered delays
balance their
talent portfolios. • Better and more frequent communication to product introductions, new projects or
with suppliers is the most popular method growth plans as a result of supply risks
of identifying potential risks – a trend becoming live issues.
that accelerated during the 2008 financial
crisis and is now an integral part of TALENT MANAGEMENT
many companies’ supplier relationship
management programmes. This is followed • Supply chain talent management has become
by more formal and structured risk tools even more problematic in the past year,
such as supply chain risk mapping, business with companies experiencing increasing
impact analysis and scenario planning. levels of difficulty in finding, hiring and
retaining skilled people. Some improvement
• Dual or multi-sourcing of key materials, can be seen in the area of providing “a
components and products is the most widely compelling career progression”, which saw
used approach to mitigating risk, with more a drop in the share of respondents who feel
than three-quarters of respondents (and this is extremely challenging. It may be the
94% in the chemicals sector) doing this on case that even mild economic growth has
the supply side. Audits of key suppliers and tightened talent markets, while leadership
holding safety stocks are also common, with has worked to improve opportunities for
two-thirds of companies using these tactics those willing to commit.
as part of their risk management efforts.
• In addition to tighter competition for
• More than 8 out of 10 companies have been talent, it seems the pain of lost talent has
hit by supply- and demand-side disruptions also worsened. More respondents say the

Challenges in respect of knowledge workers Impact when talented staff are lost

4.50
*1-5 scale, where above 3.00 = challenging
4.50
*1-5 scale, where above 3.00 = challenging

4.00
Weighted average rating*
Weighted average rating*

4.00

3.50

3.50
3.00

3.00
2.50
Finding Hiring Developing Relocating Measuring Career Retaining Lost production Lost process IP Lost product IP Cost of transition
talent talent talent talent talent progression talent

EMEA APAC Americas n=1,302 EMEA APAC Americas n=1,294

10 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 EXECUTIVE SUMMARY

problems arise from disruption and the cost Best value talent markets
of transition than from lost know-how – a
reversal from 2011.
US 2.61
• Geographic cuts of this data show that the Germany 2.13
problems are most severe in Asia, where India 2.12
retention is a prominent issue and penalties 2.11
China
for lost talent hurt most.
UK 2.01

Singapore 1.89
• China is clearly no longer a “low-cost
Brazil 1.82
country” in the traditional sense. Knowledge
Eastern Europe 1.77
workers in China are generally not seen as
1.60
lacking in technical or business skills, but Japan

do pose problems in terms of rising costs Taiwan 1.59

and poor retention. The implications for Mexico 1.58

talent management in a global supply chain Netherlands 1.55

strategy include a need to diversify away France 1.41 Weighted average rating
(1-5, where 5=highest value)
from Asia, and China in particular, as tighter South Korea 1.38 n=1,172

labour markets increase the risk of damaging

departures among key staff.

• Comparing opinions of overall “value for Biggest risk talent markets

money” and “biggest risk” talent markets

suggests a move back toward high-wage
China 2.98
countries may make sense for organisations
US 2.11
working to balance their talent portfolio.
India 2.05

Brazil 2.03

Mexico 1.98

UK 1.74

Eastern Europe 1.72

Taiwan 1.72

Germany 1.69

Singapore 1.66

France 1.60

Japan 1.59

South Korea 1.58 Weighted average rating

(1-5, where 5=highest value)
Netherlands 1.22 n=1,108

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 11

12 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012
 INTRODUCTION

Images of Apple CEO Tim Cook unveiling the company’s latest iPhone stand as a milestone for many
in the world of supply chain. Having built his career in materials management and fulfilment, Cook’s
ascendance to the leadership of the world’s most valuable company speaks volumes about the potential
for supply chain to impact business.

Despite this symbolic achievement, the supply chain management discipline is still in its early years.
Wikipedia credits the coining of the term to a Booz Allen Hamilton consultant named Keith Oliver as
quoted in a Financial Times article in 1982. Thirty years has seen some progress toward general acceptance
of what supply chain means and how it relates to business, but few would argue the journey is anywhere
near its end.

Since 1982 so much has changed in the shape of the global economy that the principles underpinning
what we mean by “supply chain” have had little opportunity to stabilise. Today’s chief supply chain
officers (CSCOs) are wrestling with new types of consumer demand, wider accountability for impacts
on the environment and society, and heightened exposure to risks, both natural and man-made. At one
level, the challenge includes finding and co-ordinating skilled people to handle the ongoing quest for
better performance; at another, assuring that supply chain strategies are aligned with business strategies.
The survey on which this report is based polled the worldwide professional community to get a picture
of how these forces are affecting our work now and in the future.

As well as crystallising a view of the top issues facing senior supply chain leaders as they begin to plan
for 2013, the purpose of this research effort was to assemble a data set large enough to allow almost any
question about the state of supply chain in 2012 to be answered with at least some factual basis. Our
respondent base consists of almost 1,400 practitioners answering over 40 questions each. This means
detailed cuts by industry, location, job function and job level, as well as by opinion, are possible. Our
hope is that individual SCM World community members, all of whom will have access to aggregate data,
can get the facts they need to benchmark their plans against peers and, when necessary, make the case
for change within their own organisations.

We would like to thank everyone who took part in this year’s study, E2open for once again sponsoring
it, and Gerry Smith at Lenovo for writing the Foreword. Your support has been invaluable and is
much appreciated.

Dr Hau Lee
Chairman, SCM World
and Thoma Professor of Operations, Information and Technology,
Stanford Graduate School of Business

Kevin O’Marah
Head of Faculty, SCM World

Geraint John
Senior Vice President, Research, SCM World

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 13

 1: STRATEGY ALIGNMENT
AND VALUE CREATION
The design and operation of a company’s supply Last year’s Chief Supply Chain Officer Survey
chain is critical to its business performance. was one of the first attempts to dive deeply into
However, it is important that the supply chain these issues. In 2012 we continue this exploration,
strategy is aligned with the corporate strategy of in order to more concretely understand how the
the firm. The orchestration of the supply chain role of supply chain is evolving, and how value
should support the company’s attainment of its can be created through excellence in supply
strategic goals. Likewise, a company may have to chain management.
refine these goals in light of the constraints faced
by its supply chain. The ideal situation is that the A MIXTURE OF COST REDUCTION AND
supply chain can be developed in a way that aligns VALUE ENHANCEMENT
completely with the company’s strategic goals.
As in 2011, the main way that supply chain
This alignment also means that the supply chain improvement is contributing to business strategy
is making major contributions towards the is through operating cost reduction. Almost two-
attainment of those goals. The role of supply thirds of survey respondents say this contribution
chain management in this process can be viewed is “very important”, with another third saying
as twofold. Traditionally, it is a supportive role – a “important” (see Figure 1). Those in the hi-tech
supply chain enables the goals to be accomplished sector express this view most strongly, with 7
with the highest efficiency, often defined to out of 10 rating it very important. This contrasts
be cost and time. The second role, which is with just 44% in the chemicals sector who say
increasingly the modern view of supply chain the same. This gulf can be explained by the fact
management, is that the supply chain enables the that in hi-tech industries new products can be
company to set even higher goals or expand its commoditised quickly, due to the shortening of
strategic directions. product lifecycles. Fierce competition requires
companies to be both innovative in new product
A value-creation view of supply chain management introduction on the one hand, and be extremely
requires supply chain executives to work closely as cost efficient on the other. Hence, operating
an integrated part of the company’s top executive cost reduction through effective supply chain
team. The supply chain function is not in the management is critical. In chemicals, however,
background in driving the company’s strategic product margins are still high and it is the control
performance; rather, it becomes part of the of source materials that matters the most. Supply
steering team in the executive suite, building value chain management is concerned more with
through strategic alignment. reliable supply than with operating cost reduction.

While there has been anecdotal evidence and small Cost reduction may still be regarded as the
sample studies showing that some companies fundamental role of supply chain management by
have started to view supply chain management practitioners, but a strong supply chain supports
as an integral part of the top management team, a firm’s business strategy in other ways too. Just
and that supply chain has begun to assume more over half of our sample believes it has a very
of the value-creating role, how this trend is important role in increasing revenue, with 93%
developing among a wider pool of companies is in total seeing this as an important role. Again,
still not well known. In addition, how exactly does respondents from hi-tech firms are most strident
supply chain management create value? In what on this point.
ways does supply chain management influence
key strategic levers that allow value to be created? Just a few percentage points behind is competitive
What are the key factors that could drive such advantage through differentiated customer
value-creation levers? These issues have not been service, with almost 9 out of 10 identifying
well understood. this as a means through which supply chain

14 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 STRATEGY ALIGNMENT AND VALUE CREATION

can drive improvements. The logistics sector HOW HIGH-PERFORMING SUPPLY Cost reduction
leads the way here, with 56% saying this is very CHAINS DRIVE VALUE may still be
important. This is followed by 84% who rate regarded as the
competitive advantage through strategic supplier High-performing supply chains can enable fundamental
engagement as important (with the healthcare and companies to create value in multiple ways. supply chain
pharmaceutical sectors being the most dominant); Examples include accelerated new product role, but a
while 77% of respondents assign importance introduction, the facilitation of premium pricing, strong supply
to value creation through long-term equity enhanced customer service and loyalty, expansion chain supports
improvement – up from 61% in 2011, with the to new market segments and stronger supplier a company’s
food and beverage industry a full 20 percentage relationships. This year’s CSCO survey shows business
points above this all-sector average. that the majority of supply chain executives strategy in
believe that high value is delivered for their
other ways too.
Relative to last year, the gap between those who companies in these and other areas (see Figure 3).
view supply chain improvement as important for
operational cost reduction and those who see it as Enhanced customer service leading to customer
important for creating value in these other forms loyalty is top of the list, with 41% believing it
has reduced. This confirms that, increasingly, has produced “very high value” and a further
supply chain management is not only important 40% saying “high value”. This is a similar finding
for operational excellence, but is also being used to 2011. Supply chain excellence improves
by companies to create value. customer service, strengthens the customer
relationship and builds customer intimacy and
Supply chain management’s growing role as a loyalty, which ultimately leads to increased
value creator can be related to the observation revenue and the development of competitive
that the supply chain function is also increasingly advantage. Again, those practitioners working
viewed as an integral part of a company’s strategic in logistics and distribution firms are the most
management. We asked participants how their bullish, with 9 out of 10 convinced that the
CEO and executive team see the position of supply supply chain function has had a strongly positive
chain. A clear majority (59%) say it is viewed as impact in this area.
equally important as other major functions such as
R&D, marketing, sales and product development.
Among those in logistics firms, more than two- Figure 1: Supply chain value contribution
thirds believe this is the case. How important is it for your company’s business strategy to
focus on supply chain improvements for the following?

This compares with 31% who say supply chain is Operating cost reduction
viewed as an enabler of product or sales-driven 12 33 64
business strategies (see Figure 2). Almost half Value creation through increasing revenue
of respondents in the retail sector agree that this 1 6 42 51

is the case. The remaining 10% of the sample Competitive advantage through differentiated customer service capabilities

overall say that supply chain is viewed primarily 2 9 41 48

as either a cost centre or as a support function to Competitive advantage through strategic supplier engagement
3 12 42 42
serve the business. So it is gratifying to see that the
Value creation through long-term equity improvement (e.g., brand equity)
majority of companies appear to see supply chain
4 18 40 37
as an integral part of business strategy. The rising
importance and recognition of the supply chain
function is also linked to the earlier observation Not at all important
Somewhat unimportant
that supply chain’s role is increasingly about value
Neither % of respondents
creation and building competitive advantage, as Important n=1,381
Note: Figures may not add up to
opposed to purely operational cost reduction. Very important 100 because of rounding

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 15

 STRATEGY ALIGNMENT AND VALUE CREATION

Customers are In second place are stronger supplier relationships. given its rapid product churn, hi tech also views
willing to pay a More than three-quarters of survey participants supply chain as most critical in faster new product
premium price (77%) believe that these have resulted from introduction – 83% of practitioners working in
if they value high performance in the supply chain – a rise this sector believe the function adds high or very
speed, flexibility of seven points year on year. The hi-tech sector high value here.
and reliable
is fully 10 percentage points higher than the all-
supply. Supply
chain excellence sector average, with 87% ranking it as a high-value In the current economic climate, countries such
must therefore outcome. In that industry, as well as many others, as China, Brazil, India, Turkey and Mexico are
encompass such the ability to obtain supply when faced with experiencing faster growth than the more mature
levers. disruptions or capacity shortages, to collaborate markets of North America, Europe and Japan.
with suppliers in product development, and to Hence, it is important for western companies to
integrate better through information sharing and find ways to expand their business in these newer
co-ordination can all be sources of competitive markets. For the second year in a row, more than
advantage and value. When Microsoft entered into two-thirds of our respondents say that supply
the game console market, for example, it relied on chain excellence is providing an important means
Flextronics, Nvidia and Intel heavily to develop to support such expansion for their companies.
the supply chain for its product development
effort. More recently, Cisco worked closely with Although leveraging opportunities created by
Foxconn on the successful launch of its Viking supply disruptions ranks last on our list of
router product. value drivers, this has actually changed most
significantly in the space of 12 months. In 2012,
It’s a similar picture on accelerated new product 48% of those surveyed say this is of high or
introduction, which completes the top three very high value – up from 40% last year. At the
sources of supply chain value in this year’s same time, the proportion saying it creates little
survey. Supply chain provides the backbone or no value has fallen from 27% in 2011 to 23%
for such time-critical activities, including in the today. Experiences garnered in the aftermath
ability to ramp up production quickly, and its of the major disruptions in Japan and Thailand
role in enabling greater speed here has always last year have no doubt convinced more supply
been widely accepted. Not surprisingly, perhaps, chain professionals that such events tend to
reward those whose strategies, plans and supplier
Figure 2: Appreciation of supply chain’s role communications are more finely tuned (for more
Do you believe your CEO and executive management team on this, see Section 4).
appreciate the alignment of business strategy and supply
chain strategy?
Absolutely. Supply chain There were some other ways mentioned by
is understood as an
equally important part respondents on how value is created from high-
2 of business success
performing supply chains. The bulk of these
8 as sales & marketing
or R&D/product
development concerned the ability of the supply chain to
Yes, but only as an
reduce cost and be lean. This, in turn, leads to
enabler of product or better utilisation of capital, reduced inventory
sales-driven business
strategies and cycle time improvement. This is value related
31 59 to operational cost reduction, one of the key
Not really. Supply chain
is understood primarily contributions of supply chain management
as a cost centre that
affects margins indicated earlier. The other key ways mentioned
related to product quality improvements, which
No. Supply chain is can be considered as a lever to enable new
strictly seen as a function
meant to service the product introduction, premium pricing and
business
market expansion.
% of respondents
n=1,373

16 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 STRATEGY ALIGNMENT AND VALUE CREATION

VALUE-CREATING ELEMENTS OF SUPPLY local distribution partners, effective warehouse Building greater
CHAIN EXCELLENCE and trade management processes, and so on. customer
Other levers, such as the ability to customise for loyalty through
local needs, the use of local manufacturing or customer service
In the survey, respondents who rated the
sourcing capacity, and after-sales service support, is the most highly
dimensions described above as either high value or rated means for
very high value were then asked about the specific are valued highly by the hi-tech sector.
value creation
attributes within each area that helped to deliver through supply
that value. Figure 4 shows the most relevant Customers are willing to pay a premium price if chain excellence.
factors for value creation through supply chain they value speed, flexibility and reliable supply.
excellence – those rated as “extremely relevant” Supply chain excellence must therefore encompass
by more than half of survey respondents. such levers. The hi-tech sector, as expected, values
speed in the form of quick response, while the
As indicated, building customer loyalty through retail sector values reliable supply in the form
customer service is the most highly rated means on on-time and dependable delivery. Customers
for value creation through supply chain excellence. of logistics providers, however, value flexibility
The factors for success come from the ability to in delivery schedule change offered by these
convert customer loyalty into revenue gains. These providers. And food and beverage respondents,
factors naturally depend on whether customers use as part of the consumer products sector, values
customer service as a purchasing decision criterion flexibility in order quantity change.
(rated most highly by hi-tech respondents), and
whether a positive experience leads to a repeat For expanded offerings of value-added services
purchase (rated highest among retail respondents). to be a source of value creation, the key has to
Assuming that these factors are in place, then be that the customers see this as important, so
strong value creation potential can result. that one can differentiate oneself from the
competition. Our survey results indicate that the
In the case of new product introduction, it is all logistics and distribution industry has the highest
about managing time. Supply chain management proportion of respondents who see the offering
can be a way to speed up the new product of such value-added services as a source of
development process (through strong integration competitive differentiation for their companies.
of the supply chain and product development
teams), provide timely and cost-effective Figure 3: Value of a high-performing supply chain
At your company, what is your assessment of the value
launches, enable flexibility in product ramp-up, created by having a high-performing supply chain?
and orchestrate the phasing in of new products
and the phasing out of existing products. Here, Enhanced customer service and customer loyalty
3 15 40 41
hi-tech companies again view such levers as more
Stronger supplier relationships
highly relevant than those in other sectors. 1 4 19 46 31
Accelerated new product introduction
1 5 20 43 31
For new geographical market expansion, efficient Expansion of business to new market segments in existing/new regions
distribution of products to customers and the 2 8 22 40 29
Expanded offerings of value-added services
ability to satisfy local regulatory requirements 1 8 30 41 20
are both viewed as highly relevant, particularly Facilitation of premium pricing
2 10 31 38 19
in the CPG, healthcare and pharmaceutical Leverage opportunities created by external supply disruptions
sectors. Since many of the new markets are likely 6 17 30 30 18

to be in emerging economies where logistics

No value whatsoever
and distribution infrastructures are not as well
Little value
developed, successful penetration requires the Moderate value % of respondents
ability to establish efficient channels. This requires High value
n=1,379
Note: Figures may not add up to
100 because of rounding
well-managed information systems, the use of Very high value

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 17

 STRATEGY ALIGNMENT AND VALUE CREATION

Supply chain Exploiting opportunities presented by supply cost efficiency gives rise to quick response, lean
management chain disruptions, meanwhile, requires an processes, excellent service, cycle time reduction,
is no longer ability to generate quick response times and favourable terms and conditions and speed in
the engine in have contingency plans in place (with the retail new product introduction (NPI). All of these
the back of the levers are based on a supply chain being fast and
sector valuing this the most), and collaborative
company, but
relationships with partners and visibility of gaps cost efficient.
at the front
supporting created by external disruptions (with the hi-tech
and enabling sector valuing this the most). Flexibility and agility are related to the company’s
business growth. ability to respond to unexpected situations, or to
Lastly, value can be created through strategic provide a bigger range of services. Hence, they
supplier relationships. This can be achieved are the anchor to support levers such as expanded
through the suppliers giving priority and and differentiated customer service, flexibility
loyalty to the company, collaboration on in responding to customers’ needs in delivery
design improvements or favourable terms and schedule, quantity and product mix, the complex
conditions. Again, our survey data suggests processes of transition management, product
that companies in the hi-tech sector put a ramp flexibilities, and providing contingency
slightly greater emphasis on these levers than plans to unexpected disruptions. Reliability and
do their peers. accuracy are means to provide on-time delivery,
on-schedule NPI, dependable customer service,
The levers described above are all based on supply consistency in distribution in new markets, and
chain excellence, which is anchored on core the dependency needed in contingency plans.
competencies such as time and cost efficiency,
flexibility and agility, reliability and accuracy, and Lastly, the ability to collaborate with partners is
collaboration. As illustrated in Figure 5, time and the foundation for the levers of collaboration

Figure 4: Most relevant factors for value creation through supply chain excellence

Value creation channel Value creation levers % of respondents saying

‘extremely relevant’

New product introduction On-schedule product introduction 63%

Ability to ramp up fast 63%
Product development cycle time reduction 58%
Ability to manage product transitions 54%

Premium pricing Customer value of on-time, dependable delivery 72%

Customer value of quick response 61%
Customer value of your flexibility in delivery schedule change 56%
Customer value of your flexibility in order quantity change 53%

Expanded offering of value-added services Differentiation from competition with value-added services 61%

High levels of customer service Strength of customer service and repeat purchase 58%
Importance of service as a criterion of customer purchase decision 54%

New or existing geographical market Distribution efficiency in new markets 65%

expansion Flexibility to satisfy local regulatory constraints 63%

Exploit opportunities from external Response time to react 74%

disruptions Existence of contingency plans for supply chain reactions 72%
Strength of collaborative relationships 63%
Visibility of needs or gaps resulting from external disruptions 65%

Strategic supplier relationships Supplier giving you priority in times of tight supply 70%
Strength of supplier loyalty 58%
Supplier collaboration on design improvements 57%
Supplier willing to take favourable terms 55%

18 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 STRATEGY ALIGNMENT AND VALUE CREATION

with suppliers on design improvements, the chain management to deliver tangible business
ability to work with partners for quick response results, and accordingly align their organisations
in times of disruptions, gaining visibility in the such that supply chain management is an
supply chain, and working with local partners for integral part of the executive suite. Supply chain
new market expansion. management is no longer the engine in the back
of the company, but at the front supporting and
It is clear from this year’s CSCO survey that enabling business growth.
supply chain management has come a long way
within companies. It is still the backbone for
operational cost reduction, and the supportive
role of supply chain for business performance
is still the foundation. But from 2011 to 2012
we have seen how companies are increasingly
appreciating the need to align their supply chain
strategies with their business strategies. This is
because high-performing supply chains can also
enable companies to create value and develop a
competitive advantage.

There are many channels in which value and

competitive advantage can be created via supply
chain excellence, and different industry sectors
are experiencing differential value in each. Many
more companies are realising the power of supply

Figure 5: Strategy alignment and value creation

Supply chain competency Value creation levers Value creation channels Strategy alignment

Service & repeat purchase &

Enhanced customer service
procurement criteria

Supply priority & loyalty

Operating cost reduction
Design collaborations Strategic supplier relationships
Time/cost efficiency Favourable terms

NPI speed, ramp speed

Accelerated new product intro
Transitions management Value creation:
Flexibility & agility • Revenue increase
Distribution efficiency
New market expansion • Long-term equity
Flexibility for local needs
improvement
Differentiation from services
Reliability & accuracy Expanded value-added services
On-time delivery
Quick response Competitive advantage:
Facilitation of premium pricing • Differentiated service
Flexibility in time & quantity
Collaboration • Strategic supplier
Response time engagement
Collaborative relationships Leverage disruption opportunities
Contingency plans, visibility

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 19

 2: DIGITAL CONSUMERS
AND eCOMMERCE
The newly One of the most disruptive and fast-moving as choice, convenience and availability than to
empowered transitions impacting supply chains is the simply push for discounts. Our survey question
consumer emergence of digitally empowered consumers. even went so far as to explicitly call out that this
is suddenly The transition involves far more than just receptivity to such trade-offs meant a willingness
expecting a lot online shopping via web stores. In fact, the to “pay a premium for valued service”. Digital
more from the
digital revolution encompasses everything from consumers want choice, not just cheap.
global supply
chain and is communication and social interaction to opinion
able to shift shaping and spatial tracking. It also permeates On the one hand this is good news. Consumer
allegiances very the physical space of supply chain by adding demand that can be effectively interpreted along
quickly if those new points of sale (home computers, mobile these types of trade-offs can be served in some
expectations are devices), new retail functions (in-store kiosks, cases with higher-priced solution bundles and in
not met.
smart shelves) and new logistics considerations other cases with bargain basement, stripped down
(direct-to-consumer fulfilment, in-store returns). assortments. The problem is that supply chains
Add the emerging potential for smart appliances, built to take standard orders or simply replenish a
vehicles and infrastructure to the mix and it shelf are unlikely to be able to take and execute a
becomes clear that digitisation of consumer complex order that may include extra packaging,
demand will force some radical changes in assembly, shipping or professional service. The
supply chains. added complexity of fulfilling not only item/
location/quantity combinations but also several
KING CUSTOMER MEANS MORE other variations could pose serious problems
COMPLEXITY FOR SUPPLY CHAINS for supply chain systems. More complexity in
demand must be met with more capability in
Google any item and within a second thousands supply.
of options fill your screen. Where once the
consumer knew little or nothing about what was The data collected on this question also shows
available until they entered a retail store, today clearly that those closest to the consumer see this
almost all have searched for what they want surge in complexity far more decisively than do
online before leaving the home. Further, they are those further up the chain. Retailers are most
likely to do more research on their smartphones sensitive to this issue. By a ratio of more than
once they’re in the mall perusing the shelves. 8:1 they expect consumers to be more receptive
This newly empowered consumer is suddenly to complex offers. Logistics and distribution
expecting a lot more from the global supply businesses, which are often handling the complex
chain and is able to shift allegiances very quickly fulfilment requirements being driven by digital
if those expectations are not met. consumers, are second in most heavily leaning
toward consumers’ receptivity to premium prices
One school of thought says that this surge in for value-added services.
consumer power will take shape as a relentless
push for ever lower prices. Amazon has shaken Beyond these sectors, CPG, hi tech and food
much of traditional retail by collapsing margins & beverages are all clearly anticipating more
across many categories. Other innovations such as subtlety in consumer demand, while healthcare,
Groupon’s daily deal approach and eBay’s auction pharmaceuticals and chemicals firms are much
system all seem to point toward low prices as the less sensitive to this trend (see Figure 7).
dominant trend fostered by eCommerce. The
data, however, rejects this premise. In fact, by a The implications of this data, especially when cut
ratio of 4:1 overall, supply chain executives across by industry sector, suggest that consumer-facing
industries see this new digital consumer as more businesses will feel pain as their customers push
likely to weigh price against other factors such for more specialised fulfilment, while suppliers’

20 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 DIGITAL CONSUMERS AND eCOMMERCE

operations remain tuned to a cost competition, Figure 6: Consumer demand variability

mass production mentality. Retailers or consumer Within the context of your industry, do you believe the eCommerce and mobile-enabled
customer of the future will be:
products firms hoping to offer selections ranging
from bargain basement configurations to high- More receptive to offers
trading product choice,
end pack types may find less flexibility in the price point, availability
and convenience against
supply base than they need.
25 each other (i.e., willing
to pay a premium for
valued service, or accept
DEMAND COMPLEXITY REACHES BACK inconvenience in return
for lower price)
INTO THE SUPPLY CHAIN Less receptive to offers
trading product choice,
61 price point, availability and
To pursue the notion of supply chain complexity convenience against each
other (i.e., only interested
increasing with digital demand we also asked what in lowest price)

supply chain professionals expected in terms of

14 The same as regards
offers trading product
SKU assortments, distribution network design, choice, price point,
availability and
manufacturing strategies, and direct-to-consumer convenience against
each other
fulfilment. In each case, the data shows that those
% of respondents
closest to the consumer are expecting more of n=1,335

the global supply chain than are those upstream.

Figure 7: Customer receptiveness to variable offers vs lowest price only
Overall, respondents see an increase in SKU
complexity with 25% agreeing that “eCommerce Retail 8.25
and mobile-enabled customers will drive much Logistics & 7.43
Distribution
larger SKU assortments as brands pursue ever
smaller niches of demand”. The opposite answer, Food & Beverage 5.2
that these customers will “drive smaller SKU Hi Tech 5.07
assortments as brands simplify to cut costs in
response to price pressure”, was chosen by half CPG 4.78

as many (13%), while more than a third said the Industrial 3.76
drive would be toward “some SKU expansion”
Chemical 2.55
and another quarter saw little or no effect.
Healthcare & Ratio of variable offer to lowest price
Pharmaceutical
1.21 n=1,335

Cut by industry, this data confirms the pattern

that those closest to consumers expect the Figure 8: SKU complexity
Within the context of your industry, do you believe the eCommerce and mobile-enabled
greatest pressure to offer more variety (see Figure customer of the future will drive larger or smaller SKU assortments?
9). Retailers and distribution businesses, for
instance, are most likely to say they expect “much
larger” SKU assortments, perhaps because they
are already experiencing this trend. A Wells Fargo 13
investment research report last year claimed that 25
Drive much larger SKU
assortments as brands
Amazon offered 80 times the number of items pursue ever smaller niches
of demand
as did Wal-Mart.com, suggesting that the bar for
Drive some SKU expansion
variety is getting higher quickly. Other sectors 26 as brands pursue some
smaller niches of demand
with close consumer ties such as CPG and hi
tech also anticipate more SKU expansion than Have little or no effect on
SKU assortments
chemicals and industrials. Some of this SKU
Drive smaller SKU
expansion may come in the final stages of the assortments as brands

value chain with minor packaging differentiation 36 simplify to cut costs in

response to price pressure

% of respondents
n=1,337

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 21

 DIGITAL CONSUMERS AND eCOMMERCE

or other late stage bill of materials variation, but inventory. Complexity may be on the rise with
one wonders whether tier suppliers upstream are digital demand, but not all businesses plan to
ready for the differential demand pressures that tackle it in the same way.
this consumer trend implies.
Not all respondents feel the pressure. Half of all
An interesting observation in the data here chemicals companies, for instance, see little or
shows that hi-tech and distribution firms are no change and healthcare and pharmaceuticals
most clearly expecting at least some impact on respondents are similarly more likely to say
SKU assortments from the digital consumer. they expect no change than either an increase
Logistics and distribution respondents who or decrease. For chemicals supply chains this
are most likely to say they expect “much larger makes sense as they are, to a large degree, limited
SKU assortments” are also least likely (16%) to by asset-intensive production facilities that
say they expect “little or no impact”. Clearly, cannot readily increase variety without capital
eCommerce is changing their world. Hi-tech expenditures. Healthcare supply chains, however,
respondents are similarly unlikely (17%) to say which are increasingly impacted by new channels
they expect little or no change, but interestingly like Express Scripts online drug ordering, may be
are the most likely of all to see a drive toward overlooking a wave of change at their peril.
smaller SKU assortments (18%).
Putting some rough estimates around this opinion
This finding may reflect a level of sophistication data shows that those closer to consumers see
associated with the steeper learning curve in SKU counts increasing by 15-20%, while tier
hi tech exemplified by the case of Motorola, suppliers look for closer to a 5-10% increase
which under new leadership recently installed by (see Figure 10). Somewhere in here agility must
Google is reportedly planning to “cut the number make up the difference. If the 1,350-plus supply
of devices [it] makes from the 27 it introduced chain professionals in our sample are right, we
last year to just a few”1. Apple, whose product should anticipate at least a 10% increase in the
line-up is famously simple, seems to be able to total number of unique items available for sale
succeed by pushing its complexity into the post- in the near future. Coupled with the data above
1
New York Times, 13 August 2012 purchase content assortment rather than physical indicating consumers’ desire for more variation

Figure 9: SKU complexity by industry Figure 10: Overall SKU change

Within the context of your industry, do you believe the eCommerce and mobile-enabled customer Estimated % change
of the future will drive larger or smaller SKU assortments?

50%
Chemicals
5
Healthcare
40% & Pharma 6
Industrial
9
30% Food &
Beverage 13
20%
Hi Tech
16
CPG
17
10%
Retail
18
Logistics &
Distribution 21
Chemicals CPG Food & Healthcare Hi Tech Industrial Logistics & Retail
Beverage & Pharma Distribution

Much larger (+50%) Little or no change

% of respondents
Somewhat larger (10%) Smaller (-10%) n=1,337 n=1,337

22 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 DIGITAL CONSUMERS AND eCOMMERCE

in sale offers it looks likely that supply chains’ chain) to share DC facilities across suppliers in If the 1,385
fulfilment duties are set to become dramatically order to have more nodes of supply closer to supply chain
more challenging. stores with tighter delivery windows and smaller professionals
shipments. A similar argument may apply to fresh in our sample
THE DISTRIBUTION CENTRE OF THE food businesses like Sysco whose network must are right, we
should anticipate
FUTURE: BIGGER AND SMALLER manage multiple temperature zones and deliver
at least a 10%
prepared items as well as packaged items. increase in
In terms of distribution networks, eCommerce the number of
and the digital consumer are also driving change. Closer examination of the data reveals a unique items on
The most obvious element of this change has difference between consumer-facing businesses sale in the near
been the Amazon phenomenon where direct- and tier suppliers with some mild bias in favour future.
to-consumer, non-store retail has upended the of larger, more centralised distribution centres
economics of consumer spending by building in the eyes of those closest to the consumer.
dozens of new warehouses in the past few years. There also seems to be some mild correlation
The trend could be toward “gigantism” (a term between those who say they expect much more
used to describe supply chains in mining) with SKU variety and those anticipating the bigger
examples like Marks & Spencer’s East Midlands DCs. Interviews around this topic suggest that
distribution centre in the UK which consolidates the likely answer for most, regardless of industry,
all fulfilment of stores in-region, eCommerce is a bit of both.
worldwide and international sales arising as a
means to provide the agility demanded of supply One takeaway may lie in seeing the link between
chains by the digital consumer. wide product assortments and mega-scale in
warehouse management as a means of delivering
A counter argument can be made for smaller, on the “long tail” supply chain. Another may be
more local distribution centres (DCs) which that complex value-added services able to justify
may allow quick turnaround response and premium pricing are best served at the local level.
higher-touch customer service support. One CPG and food & beverages were the only two
such example is an effort made by Seven and I sectors more likely to bet on smaller, local DCs
Holdings (parent company of the 7-Eleven stores than on larger, centralised DCs. Long-tail supply

Figure 11: Distribution centre design Figure 12: Manufacturing strategies

Within the context of your industry, do you believe the Within the context of your industry, do you believe the
eCommerce and mobile-enabled customer of the future will: eCommerce and mobile-enabled customer of the future will:

23
26

35
41

36
% of respondents 39 % of respondents
n=1,336 n=1,338

Require larger, more Require smaller, more Require minimal Drive brands to develop Drive brands to pursue Have little or no effect on
centralised distribution local distribution change to existing mass customisation the lowest possible cost brands’ manufacturing
centres serving many/ centres serving distribution centre manufacturing mass manufacturing strategies
all channels separate channels networks strategies strategies

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 23

 DIGITAL CONSUMERS AND eCOMMERCE

It is telling that chain may work well in a lights-out, automated emerged. Manufacturing strategies based on the
hi-tech firms, warehouse for books, electronics and luxury Henry Ford quip “any colour you want as long as
whose product items but may require kitchens, workshops and a it’s black” may struggle in this new world.
lifecycles are
friendly face for grocery items.
shortest and
learning curves At an aggregate level our respondents are split
steepest, seem MANUFACTURING STRATEGIES on this issue. While only a quarter overall see
most certain that SCHIZOPHRENIA little or no effect on manufacturing strategies,
manufacturing the remainder break almost evenly between those
strategies will Added complexity at the consumers’ point of who agree that the emergence of eCommerce
be impacted
sale implies more variety upstream. If this variety and digital/mobile consumers will “drive brands
by eCommerce
and the digital is limited to final packaging or presentation it to develop mass-customisation manufacturing
consumer. is possible that manufacturing strategies will be strategies” and those who expect “lowest possible
largely unchanged. Otherwise, tier suppliers will cost mass manufacturing strategies” to dominate.
be looked to for more flavours, colours, sizes and
configurations. Of course, powerful consumers Chemicals companies are by far the most
able to search online for the lowest possible prices likely to say their manufacturing strategies
might also force manufacturers of plastics, food will not change (54%), while hi-tech firms are
ingredients, fasteners or electronic components clearly the most convinced that they will see
to streamline production for lower unit costs. changes in manufacturing (16% see “little or no
effect”). Retail is the only industry sector whose
Digital consumer power appears ready to inform respondents are more likely to foresee more mass
product innovation too, potentially helping to customisation in manufacturing than low-cost
forecast demand for “hot” products. Winners mass production. Other sectors generally forecast
often surge ahead of capacity, leaving money change in manufacturing approaches with a mild
on the table, while losers show up as excess bias in favour of lower-cost mass production.
and obsolete inventory write-offs. Spain’s Zara
built a manufacturing and supply chain strategy Here again, we see the same theme of those
explicitly around this problem even before closest to consumers bracing for change while
eCommerce and digital consumers had really those upstream wait to see the impact. It is telling
that hi-tech firms, whose product lifecycles are
Figure 13: Customer fulfilment
shortest and learning curves steepest, seem most
Within the context of your industry, do you believe the eCommerce certain that manufacturing will be impacted by
and mobile-enabled customer of the future will:
eCommerce and the digital consumer.

This group (comprising 336 survey respondents)

is nearly evenly split between believers in low-
Drive brands to develop cost mass production and more variable mass
21 direct-to-customer
fulfilment capabilities customisation, suggesting that the end game may
Drive brands to rely on include significant amounts of both approaches.
eCommerce retailers
for customer fulfilment Certain inputs may well be so commoditised
(memory chips, for instance) that consumers,
56 Have little impact on
existing retail channels
for customer fulfilment no matter how informed or discerning, simply
don’t care. These will likely gravitate to ever more
23 massive, basic production operations. Other
inputs (exterior shells, for instance) could benefit
from unique designs, demanding smaller batch
% of respondents
n=1,334 runs on more flexible production lines.

24 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 DIGITAL CONSUMERS AND eCOMMERCE

DIRECT TO CONSUMER AND CHANGES eCommerce have provided channel fulfilment to An interesting
TO RETAIL many brands for years now. Recently, however, finding may be
some appear to be taking the function back in the relatively low
Perhaps the most obvious implication of house (Marks & Spencer, Target and Clark’s and strangely
eCommerce is that all companies have an shoes have all been cited in media reports within consistent
percentage of
opportunity to make more direct contact with the past year as moving this way). Interviews with
respondents
their customers. For industrial or B2B brands this some large CPG companies have also pointed across industries
connection lends itself to ever deeper product toward supply chain strategists developing their who anticipate
information sharing, forecast collaboration and own direct-to-consumer capabilities as a way relying on
order streamlining, but is essentially just a super- to maintain visibility to demand and sell more eCommerce
powered version of the telephone-and-catalogue product at retail rather than wholesale prices. retailers for
fulfilment.
relationship it replaces. For consumer brands,
the implications reach into order management The execution implications of this movement
and fulfilment and potentially mean significant are profound. While shipping full pallets to
changes to channels. Amazon’s DCs is a familiar process for most
manufacturers, picking, packing and shipping to
When asked about how these trends will affect individual consumers is another matter entirely.
channels, a clear majority overall believe that Secondary packaging, in particular, adds cost and
eCommerce and digital consumers will “drive hassle to consumers who may end up associating
brands to develop direct-to-customer fulfilment brands’ performance in fulfilment with
capabilities”. Nearly a quarter of respondents see satisfaction in consumption of the product itself.
the future driving brands to “rely on eCommerce Also, the added inventory needed to populate a
retailers for customer fulfilment”, suggesting full assortment and quick response supply chain
that many see the need to serve customers with means more cost.
home delivery but that they expect to outsource
this function to specialists like Amazon. Around Getting the execution right while keeping
a fifth of the respondent pool sees little impact costs under control will, in many cases, mean
on existing channels. changes in production processes even further
upstream to allow inventory buffering prior to
Industry cuts show some decisive, if obvious,
differences. Hi tech and retail each believe Figure 14: Social media and supply chains today
overwhelmingly (by a ratio of 6:1) that brands will What effect, if any, is social media (Chatter, Facebook, expert blogs/chatroom, etc)
having on your company’s supply chain strategy today?
develop direct-to-customer fulfilment rather than
leave channels alone. Healthcare, pharmaceutical
and chemicals firms are much more likely than
those in other industries to see the future in
No effect 47
terms of minimal channel change. The takeaway Improved communication with
trading partners 27
suggests that classes of product suitable to classic
online shopping (consumer electronics, apparel) Integrate structured and
23
unstructured information
are gearing up to ship direct to the home. One
Improved demand sensing
wonders what pharmaceuticals is thinking.
and forecasting 21

The more interesting finding in this data may Competitive advantage 17

be the relatively low and strangely consistent
Improved employee
percentage of respondents across industries who productiviity 11
anticipate relying on eCommerce retailers for
fulfilment. Amazon and its peers in pure-play % of respondents
n=1,345

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 25

 DIGITAL CONSUMERS AND eCOMMERCE

Respondents the finished goods stage. Imagine consumer- When cut by industry and geography, however,
in Asia are the ordered configurations rolling directly off a some potentially important trends emerge. Hi
most likely to packaging line. The engineering needed mirrors tech is clearly the most confident that social
see immediate
what BMW does in its vehicle plants or Dell did media has an effect today, while chemicals
impacts from
social media in its Austin PC factories during the heyday of roundly dismisses it. Asian respondents are
on supply chain build-to-order dominance. similarly decisive in being the most likely to see
strategy. immediate impacts from social media on supply
SOCIAL MEDIA DOESN’T DO MUCH NOW, chain strategy, while European respondents
BUT MANY EXPECT IT TO HELP are least convinced. The correlation may be
explained in terms of growth rates. European
The digital consumer of the future does not mobile networks are top notch and the UK has
only shop. He or she also tweets, blogs, posts the highest rate of eCommerce penetration of
on Facebook and otherwise shares feelings any major country, so technophobia is probably
about life, including which products rock and not an explanation. The higher growth rates seen
which do not. The social media wave that seems in Asia as compared to other geographies and
overwhelmingly powerful in terms of modern hi tech as compared to other industries suggests
culture may be relevant to supply chain strategies, that, as a strategic tool, social media may be most
although no one seems perfectly clear how. valuable in volatile markets.

Nearly half of our survey respondents (47%) say Looking ahead at how social media might affect
that social media is having “no effect” on their supply chain strategies in the future, we see
company’s supply chains today. Of those who do significantly more optimism. Over half (56%) of
see some impact, the most common is “improved all respondents expect social media to provide
communication with trading partners”, rather real-time customer feedback and significant
than anything to do with customers. Only 21% minorities look for product enhancement
see “improved demand sensing and forecasting”, information or “hot” product predictions (see
despite abundant discussion about how Figure 15). Cut by industry, this data also shows
important Facebook, Twiiter and the like are to that expectations of impact are not limited to
brand building and consumer influence. those high-growth areas that are seeing effects
today. Retailers, for instance, are particularly
Figure 15: Social media and supply chains in the future hopeful that social media will offer real-time
How do you expect social media to inform your company’s supply chain
management practices in the future? customer feedback (80%) and help forecast
hot products (65%). CPG manufacturers are
most bullish on the role social media will
Source of real-time
customer feedback 56 play in influencing product innovation (52%).
Geographically, it is in the Americas, rather than
Inform product enhancement/
innovation priorities 46 Asia, where optimism about social media and
supply chain influence is highest. Social media’s
Provide advance warning of
potential supply disruptions 41 role in supply chain strategy is still decidedly
unsure, but many see the potential for it to make
Help forecast demand
for ‘hot’ products
39 a difference.

Shed light on social/

environmental practices
33 Our survey participants offered some other novel
ideas for social media in supply chain’s future.
Other 5 Among the most interesting are quality early
warning systems, compliance support, supplier
% of respondents
n=1,284 health tracking, or even “as a source of feedback

26 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 DIGITAL CONSUMERS AND eCOMMERCE

from employees on company performance and (transaction data only, web store data, geospatial Conducting deep
practices”. One consumer packaged goods data, and private web data such as Google analysis of data
CSCO offered the following summary of what searches) and at the aggregate and individual on customers’
is conceivable: “Cloud base supply network levels. The answer is that many are still hesitant to physical
visibility from consumer, to customer shelf, to take full advantage of all the information today’s movements
seems for many
manufacturer, to suppliers’ supplier is where digital consumer is putting out there.
to go too far.
we’re headed.” Having interviewed this same
executive in the past, it is clear that this really is The only type of data respondents are clearly
the company’s plan. comfortable mining is traditional customer
transaction data, and while there is a bit less
Social media is very likely to be at least part of your certainty that individuals’ data should be probed
supply chain strategy. Among businesses close to it is clear that most supply chain professionals
the consumer, demand sensing is expected to see this as fair game. Web store data, which
be important. Even for the most asset-intensive might be seen as owned by the business, is
basic materials industries it is conceivable that significantly less acceptable as an area to mine.
“sentiment analysis” based on social networking This may reflect some degree of privacy concern
could forecast price movements in commodities around clickstream analysis or other methods of
that might help with capital planning. analysing the customer’s thought process.

MINING FOR INSIGHT: WHAT IS TOO DEEP? Here, as at every level of the analysis, respondents
are more comfortable using this data in
During a discussion on the topic of digital aggregate than at the individual customer level.
commerce earlier this year, a member of SCM Going deeper into data that tracks customers’
World’s Executive Advisory Board posed the physical movements seems for many to go
question of how far it was reasonable to dig into too far. At the deepest level, where customers’
customer data given the massive amount of detailed personal web data including things like their
information now available on the movements, search history and social network affiliations are
interests and preferences of individuals. found, the view is that mining this for business
advantage is not acceptable.
Consumer insight used to rely on relatively dumb
point-of-sale data mixed with third party (IRI, Figure 16: Customer data mining
Within the context of your company/industry, please indicate your level of agreement/
Nielsen) data and market research. Experience, disagreement with the following statements about the use of customer data:
instinct and guesswork came together to paint
a picture of demand across customer segments. Customer transaction
4.08
data should be mined to
Today, many consumers carry GPS-enabled understand buying behaviour
3.75
mobile devices that link to his or her entire
intellectual universe of email, web searches,
social networking and more. Cross-referencing Customer webstore data
(cookies, eCommerce 3.55
all of these data sets could, in theory, deliver history) should be mined to
understand buying behaviour 3.27
incredibly deep, granular analyses of exactly what
each person is willing to buy, when and where.
How deeply should demand planners drill into
Customer geospatial data
(mobile GPS) should be 3.20
this data before they strike a nerve?
mined to understand buying
behaviour 2.98

We asked our survey respondents how appropriate

they believe it is probe into these new data sets to
Customer private web data
(Google search, Facebook, 2.89
At an aggregate level
2.69
etc) should be mined to
develop customer insights at four levels of depth understand buying behaviour
At an individual level

Disagree Neutral Agree

Weighted average rating, 1-5 scale
n=1,346

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 27

 DIGITAL CONSUMERS AND eCOMMERCE

Despite the Cutting the survey data by industry and drive tremendous complexity upstream into the
digitisation of geography further corroborates what we have supply chain for every class of product. Those
demand hurtling seen elsewhere in this section – namely, that closest to the consumer are feeling the pressure
forward, we supply chains closest to the consumer are most most acutely and will inevitably look back to
won’t have a their supply base for support. The immediate
aggressive in looking for ways to engage and
real-time global
serve this emerging digital/mobile demand. implications include more and better flexibility in
supply network
anytime soon. Retail, in particular, is most bullish on all packaging, retail presentation and configuration
means of drilling into customer data, both at options. These forces will drive suppliers of
an aggregate and individual level. Even for raw materials and components to streamline
personal web data, retailers agree (although just changeovers for their brand-owning customers
barely: 3.05 individual and 3.35 aggregate on and carry inventory that allows variable demand
a 1-5 scale, where 3 is neutral) that analysis to to be met without overburdening working capital.
“understand buying behaviour” is appropriate. Considering these trends, it appears that supply
For healthcare and pharmaceuticals, however, chain organisations’ ultimate imperative may be
the opposite is true. These respondents assuring agility.
generally believe that mining anything other
than transaction data is inappropriate.

Geographically, Asian respondents are clearly the

most comfortable using all types of customer
data, both in aggregate and individually. Even
in the use of personal web data at an individual
level, Asian respondents are only just negative
(2.91 on our weighted scale), indicating that even
here most are at worst neutral about whether to
poke around individuals’ web search histories
or Facebook pages. Europeans generally don’t
consider it appropriate to mine such data and are
least in agreement across the board.

These findings suggest that despite the

digitisation of demand hurtling forward in terms
of technical enablement, we won’t have anything
like the “real-time global supply network” anytime
soon. Data mining tools are certainly available
to digest all of this customer information, and
consumers, despite lip service given to privacy
worries, are happy to leave their electronic
footprint everywhere. If anything, it appears that
consumers are more comfortable having their
demand data scrutinised than businesses think.
Retailers may be right about this – consumer data
probably should be drilled into more deeply than
is currently the case.

The forces of change arising from today’s

digitally empowered consumer appear set to

28 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 3: SOCIAL & ENVIRONMENTAL
RESPONSIBILITY
Corporate executives, from the board level SER journeys, they are beginning to see that the This year, 43% of
down, are increasingly concerned with their benefits come not so much from sales revenue participants say
supply chain’s performance across social and (customers being generally unwilling to pay more cost reduction
environmental dimensions. Environmental for socially or environmentally friendly products), and greater
responsibility includes the control and but from reducing the cost of manufacturing and efficiency in the
use of energy
containment of the carbon footprint, energy distributing their products. The gap between the
and materials is
usage and pollution of the supply chain. Social two is widest in the food and beverage sector, the driver of their
responsibility includes health and safety, labour where 53% of respondents say cost reduction and SER efforts – up
practices and contribution to the well-being of efficiency gains are the driver compared with just from 31% in 2011.
local communities. The initial attention has been 13% who say increased sales revenue.
on a company’s own internal operations, but that
has rapidly shifted to the extended supply chain. Of course, switching to new materials, improving
Whether a company is legally liable or not, the the energy efficiency of production processes, and
negative publicity and the resulting scrutiny by increasing the amount of recycling and reuse of
the general public of violations that occur in materials takes time. But our research findings and
its extended supply chain are significant enough conversations with supply chain leaders suggest
that the scope of social and environmental that companies are beginning to move more in this
responsibility (hereafter referred to as SER) often direction, and we expect to see further evidence of
consists of multiple tiers of the supply network. this shift in the next couple of years.

Why are companies so concerned with SER? This Ensuring no disruption of supply and fending
year, 71% of our survey respondents indicated off shareholder or external public relations
that the motivation is to create a positive customer concerns also both increased by several points
image and enhance brand equity (slightly down on this year. A small percentage of participants told
last year – see Figure 17). Hence, the driving force us there were “other” reasons for SER efforts.
remains customers and the general public. This is Most indicated that these were derived from
strongest in the chemicals industry, where more corporate beliefs and corporate culture: their
than three-quarters of respondents (77%) say this companies want to do the right things for the
is the case. The second biggest driver of SER, as earth, the community and mankind in general.
in 2011, is government regulations. Almost half
of respondents (49%) indicated that SER efforts Figure 17: Drivers of SER investment
are designed to satisfy government regulations – a What is your best judgment of your board’s motivations for investing in SER?

rise of seven percentage points year on year.

Create a positive customer
image and enhance
71
CUTTING THE COST OF GREENER brand equity 75
PRODUCTS
Satisfy government 49
regulations
42
But perhaps the most interesting finding concerns
the third main driver: cost reduction and greater
Reduce costs and/or increase 43
efficiency (e.g., through better

efficiency through better use of energy and use of energy, raw materials) 32
materials, reducing waste, and so on. This year, 43% Ensure no disruption 37
of participants say this is the driver of their SER of supply
30
efforts – up from 32% in 2011. At the same time,
Fend off shareholder or 28
the proportion who believe their board’s reason external PR concerns
22
for investing in SER is to boost sales has fallen
sharply. This is a major change. The implication 17
Increase sales revenue 2012
could be that as more companies mature in their 31 2011

% of respondents
n=1,281

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 29

 SOCIAL & ENVIRONMENTAL RESPONSIBILITY

VISIBILITY AND MONITORING OF SER In this year’s survey we asked about both the
VIOLATIONS visibility and monitoring of SER performance.
What we found is a strong correlation between
SCM World has advocated a Six Sigma process the monitoring systems that supply chain
cycle as a good framework to look at SER efforts. executives have in place and the visibility of SER
This cycle has four stages: measure-identify- violations. In other words, most executives are
analyse-act. Measuring SER performance, relying on the monitoring systems to know if
identifying and analysing root causes, having there have been violations or not, and these are
corrective actions in place to improve generally effective.
performance, and then continuously measuring
and going through the cycle is the basis of a Visibility of SER performance starts with having
sound SER journey. visibility and monitoring of one’s own internal
operations. A more progressive company will also
Visibility of SER performance can be have visibility of their immediate suppliers. And
accomplished at two levels. At the first level, the most advanced ones will, in addition, also
supply chain executives need to have visibility have visibility of their extended supply networks.
of SER violations in their supply chains. This is Hence, companies should strive to be at the most
necessary, but it is not the most effective means advanced level of having total visibility of the
to manage SER. The ideal visibility is continuous extended supply network.
monitoring of performance before violations
occur. This is analogous to how we manage In 2012 we found that a quarter of companies
quality. It is necessary for us to have a good final have visibility of both environmental and social
inspection process so that we are able to identify standards violations in their extended supply
defects in finished products. networks (see Figures 18 and 19). Visibility at
the immediate supplier level was slightly higher,
But that is not good enough. We need process at 28% and 29% respectively, while internal
monitoring systems in place to make sure visibility was higher still, constituting 39%
minimal or zero defects are produced during the and 38%. It is gratifying to see that a larger
manufacturing and assembly stages. proportion of companies now have visibility

Figure 18: Environmental performance visibility Figure 19: Social performance visibility
At which of the following levels do you have visibility of environmental At which of the following levels do you have visibility of social sustainability
sustainability performance measures (e.g., carbon footprint)? measures (e.g., violations of labour compliance regulations)?

None

8 9 Extended supply
network

Immediate
suppliers

Internally
39 25 38 24

28 % of respondents 29 % of respondents
n=1,352 n=1,346

30 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 SOCIAL & ENVIRONMENTAL RESPONSIBILITY

beyond their internal operations (since the total violations and monitoring systems lies in the It is gratifying
sum of percentages for those with visibility of extended supply network. Less than a fifth of to see that a
immediate and extended supply networks is companies have monitoring systems in place for larger proportion
greater than the percentage with visibility of their extended supply networks, compared with of companies
internal operations). At the same time, fewer the quarter that have visibility of environmental now have
visibility of SER
than 1 in 10 companies say they have no visibility and social sustainability violations (see Figures 20
violations beyond
of any environmental or social compliance and 21). Such violations are “easier” to capture, their internal
violations in their supply chains. whereas ongoing monitoring systems require operations.
much bigger efforts and investments. Hence,
Another observation is that visibility of we are still far from having many advanced
environmental and social compliance violations companies that are able to monitor their extended
seem to be tied together. Hence, companies treat supply networks effectively.
both types of violations as equally important
and would not have visibility of one without the CORRECTIVE ACTION: FIRMS ARE MORE
other. Compared with last year’s findings, there LIKELY TO SWITCH SUPPLIERS
are definitely more companies with visibility of
their extended supply networks this year. This Once out-of-control states are identified,
indicates that good progress has been made in and assignable causes and opportunities are
extending visibility to a more comprehensive analysed, the Six Sigma process can move on
supply network. to the fourth step: act. In SER supply chains,
action involves both correcting problems and
The observations about monitoring systems of putting in place processes or systems designed
SER performance are quite similar to the visibility to improve SER performance.
of SER violations. Again, the most advanced
companies have monitoring systems in place In terms of corrective actions, we found that
for their extended supply networks, followed by companies do react promptly when suppliers
those having systems for immediate suppliers are found to have breached SER standards.
and then for internal operations only. The most Around two-thirds of respondents say they give
distinct difference between the visibility of SER suppliers a warning first before taking punitive

Figure 20: Environmental performance monitoring Figure 21: Social performance monitoring
At which of the following levels do you have monitoring systems in At which of the following levels do you have monitoring systems in place for
place for environmental sustainability performance measures? social sustainability measures?

None

10 10 Extended supply
network

Immediate
suppliers

Internally
45 19 44 19

26 % of respondents 27 % of respondents
n=1,340 n=1,342

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 31

 SOCIAL & ENVIRONMENTAL RESPONSIBILITY

Companies are actions if things do not improve, while a third from 56% to 53% year on year, while those
increasing the take immediate action without giving suppliers terminating the relationship increased from 42%
pressure they a second chance. This shows just how seriously to 47%.
put on suppliers companies take violations of their social and
to improve SER environmental standards. Although the most likely consequence of non-
performance.
compliance remains a warning followed by
So what are the consequences for suppliers if reduced business (52% of the sample overall,
they fail to comply? As Figure 23 shows, the most compared with 20% who immediately terminate
likely – used by more than half of companies, the relationship), our findings indicate that
regardless of whether or not they issue a warning companies are both increasing the pressure they
first – is to reduce the amount of business they put on suppliers to improve SER performance
give to a supplier. More than 4 out of 10 opt to and changing the way they respond to violations.
terminate the business relationship completely. Increasingly, they are willing to stop using
Monetary fines are the least popular tactic, used those responsible for breaches of social or
by less than 15% of companies, indicating that environmental standards and find alternative
most do not believe these are an effective means suppliers to replace them.
of correcting the violation problems.
INCENTIVES FOR SUPPLIERS TO IMPROVE
The main difference between this year’s findings SER PERFORMANCE
and those in 2011 is that companies seem more
willing to terminate the relationship altogether Of course, suppliers need to be committed and
rather than reduce the volume of business. This motivated to help their customers make progress
trend is most significant among those that issue in SER in a way that enhances their public image
a warning first. In 2011, 73% said they would and brand equity. Many studies have found that
reduce business and 36% would terminate the the best way to ensure this is not more compliance
relationship. In 2012, these figures are 58% and audits, but to collaborate with suppliers so that
42% respectively. Among the third of respondents they benefit from SER improvements and are
who say their companies take immediate action willing to invest time, money and resources in a
without warning, those reducing business fell way that supports their customers’ objectives.

Figure 22: Warning signals Figure 23: Penalties for breach of SER standards
If suppliers are found to be in breach of your company’s SER standards,
do you give a warning first before imposing “penalties”?
14
Warning first,
Warning first followed by 58
No warning
42

32
13
No warning,
immediate action
taken in the form of
53

68 47
Monetary fines
Reduced business
Termination of business relationship
% of respondents % of respondents
n=1,227 n=1,227

32 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 SOCIAL & ENVIRONMENTAL RESPONSIBILITY

For the second year running, our CSCO survey supplier relationship and customer satisfaction As companies
shows that the most widely used incentives are improvements. And 41% have seen at least good begin to realise
preferred supplier status (giving priority for future results in terms of operating cost reduction – the positive cost
business) and increased business engagements. almost the same percentage who say this is a savings and
driver of their SER investments, as we noted benefits of SER
However, the proportion of respondents who
efforts, they are
say their companies use preferred supplier status earlier in this section. A small number of
willing to give
has fallen from two-thirds in 2011 to 58% now. respondents indicated some other benefits, such more explicit
Increased business engagements show no change as better brand image, public relations, employee benefits to their
year on year at slightly under half of the sample morale and working environment, community suppliers.
(see Figure 24). At the same time, the numbers contributions, and image as an industry leader.
willing to grant price premiums and better terms Sector analysis of the data suggests that hi tech,
and conditions to suppliers in exchange for logistics and CPG seem to be industries that have
SER commitments and improvements has risen derived greater benefits from their SER efforts.
slightly. This suggests that the mix of incentives
may be changing somewhat as companies gain Although the scale used for this question varied
more experience about the most effective ways to slightly from the one in 2011, we can still make
incentivise suppliers. Granting preferred supplier some year-on-year comparisons. In 2011, the top
status is a positive incentive, but it is not as benefit (combining the ratings of 4 and 5 on a
concrete a benefit as better terms and conditions 1-5 scale) was customer satisfaction improvement
and price premiums. As companies began to (47%), followed by reduced violations of
realise the positive cost savings and benefits of government regulations and laws (44%),
SER efforts, they are willing to give more explicit supplier relationship improvements (35%), new
benefits to their suppliers. or improved sales opportunities (32%) and
operating cost reduction (31%). Comparing
In general, we also found that companies in the these findings with those in Figure 25, we can see
hi-tech and CPG sectors tend to be more likely that the 2012 results are better across the board.
to use the incentives described, while those This suggests that companies are seeing more
in the logistics and distribution industry are substantial results from their SER efforts than
least likely. (More than a fifth of logistics firms they were a year ago.
offer no incentives, for example, compared
with 12% across all sectors.) And among those Figure 25: SER incentives for suppliers

respondents who indicated that their companies

used other means, the most common are supplier
assessment programmes to identify capability 58
Preferred supplier status
and performance gaps, knowledge sharing with (priority for future business) 66
suppliers, and participation in industry forums or Increased business 48
industry-wide SER programmes. engagements
48
You invest in training 42
LEGAL COMPLIANCE AND SUPPLIER and education 44
RELATIONSHIPS ARE THE BIG WINNERS 32
Public recognition (e.g.,
supplier of the year awards) 32
What about the benefits companies are getting 25
Better terms and conditions
from their SER efforts? In 2012, reduced 22
violations of government regulations and laws
Price premiums
10 2012
are the most significant, with 60% of survey 8 2011
respondents claiming good or substantial 8
% of respondents
results. More than half also say the same about 31
n=1,227

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 33

 SOCIAL & ENVIRONMENTAL RESPONSIBILITY

Global brands The 16-point jump in benefits from reduced and environmental responsible supply chains
such as Apple violations of government regulations and laws should not be underestimated.
and Samsung in 2012 is interesting. A possible explanation is
have attracted that governments have tightened their scrutiny Although, once again, we are not able to compare
significant the results of 2012 with those of 2011 directly, the
and enforcement of such regulations. And
negative publicity
the 19-point jump on supplier relationship qualitative results suggest that the key obstacles
during the past
12 months as a improvements indicates that companies are and challenges are more or less the same.
result of SER finding beneficial ways to collaborate on SER
violations by their initiatives. Overall, our evidence shows that The observation of customer not caring and
suppliers. such initiatives are maturing and more of the no price premium being a major challenge is
investments in SER are beginning to pay off. an interesting one. At first glance it may seem
This is indeed a very encouraging trend. at odds with the earlier results that customers
are increasing their efforts and stepping up their
OBSTACLES TO SER PROGRESS REMAIN punitive actions for SER violations. How can we
SIGNIFICANT interpret this finding? One explanation is that a
company will typically have multiple customers,
Despite this progress, however, measuring some of whom may be extremely concerned
the benefits of SER initiatives continues to with SER performance and some not. As a
challenge many companies. Almost 6 out of 10 supplier, one still has to improve SER in general,
survey participants say this is “somewhat” or and getting the latter group of customers to care
“extremely” challenging. Just one percentage and be appreciative of these efforts can be a
point behind is the customer not caring or price major challenge.
pressure (which drew the highest proportion of
“extremely” challenging responses, at 15%) and a Moreover, we have seen that only 10% of
lack of resources. In addition, supplier resistance companies are willing to offer price premiums as
and a lack of internal knowledge and expertise an incentive for supplier SER improvements. So
are both rated challenging by half of our sample investing here could be very challenging when the
(see Figure 26), so the barriers to forging socially supplier is already faced with cost pressures. To

Figure 25: SER benefits Figure 26: SER challenges

What kind of results have you achieved through your SER efforts to date?

No measurable returns
7 8 27 50 9
Reduced violations of government regulations and laws
12 11 17 39 21 Customers do not care / price pressure
4 9 29 43 15
Supplier relationship improvement
8 12 26 42 12 Lack of resources
5 10 27 44 14
Customer satisfaction improvement
8 13 26 40 13 Supplier resistance
5 14 32 43 7
Operating cost reduction
Lack of knowledge and expertise to pursue improvement projects
14 18 27 33 8
8 12 31 42 8
New or improved sales opportunities
14 20 32 27 7 Internal resistance
17 17 31 30 4
None
Not at all challenging
Minor
Somewhat unchallenging
Moderate
% of respondents Neither
Good % of respondents
n=1,237
Somewhat challenging n=1,234
Substantial Note: Figures may not add up to Note: Figures may not add up to
100 because of rounding Extremely challenging 100 because of rounding

34 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 SOCIAL & ENVIRONMENTAL RESPONSIBILITY

address such challenges, we see the importance and respond approach. Sensitivity to SER Improvements
of industry-wide efforts or joint programmes performance is increasing, and more companies in SER require
in helping to unify the value and priority that than in 2011 have been able to gain visibility integrated
companies put on SER performance. Equally and control of SER violations in the extended efforts between
important is ensuring that suppliers do not supply network. the operations
and customer
perceive SER efforts as costly, and that there is
support teams,
real business value to be gained. However, a big gap still exists, and many more engineering
companies still have only limited visibility today. and product
COMPANIES ARE STEPPING UP THEIR In response, companies are becoming more development
IMPROVEMENT EFFORTS stringent about SER violations, with one-third functions, and
of our participants reacting to SER violations suppliers.
As for the future outlook of SER efforts, our with immediate actions without warning. At the
findings show that the biggest focus areas for same time, investing in collaborative efforts and
companies will be continuing to work with creating incentives are found to be the effective
their immediate suppliers (73% are planning to way for proactive SER improvements. Challenges
increase their efforts here), internal operations remain, but it is clear that SER efforts are starting
(71%) and their extended supply network (65%). to become a central thrust of a company’s overall
This is followed by internal product design (63%) supply chain strategy.
and customers (56%) – see Figure 27

Comparing these figures with those from our

2011 survey (which used an identical question),
we see an increase in the proportion of
respondents planning to step up their efforts of
at least five percentage points across the board.
In the case of supply networks, both immediate
and extended, the 2012 figures are double-digit
percentages higher – 21 points and 14 points
respectively. The significant negative publicity for
major global brands, such as Apple and Samsung,
stemming from suppliers’ SER violations during Figure 27: Future SER focus areas
Looking ahead, to what extent do you intend to focus your SER
the past 12 months could explain the heightened efforts in each of the following areas?
attention here. As in 2011, companies are working
on multiple dimensions in their SER efforts. Immediate suppliers
And SER improvements can only be made with 2 25 60 13
integrated and collective efforts involving internal Internal operations
operations, suppliers, customer support and 2 27 57 14
engineering/product development functions. Extended supply network
3 31 51 14
From this year’s survey, we see that most Internal product design
companies have come a long way on the SER 2 35 50 13
journey. There is sufficient evidence that Customers
their SER efforts are paying off with real cost 2 41 44 12
savings, and companies are maturing in their
experience and learning how to make the right Significantly reduce effort
Reduce effort
investments to realise such benefits. To improve No change
% of respondents
SER performance, companies are using a sense Increase effort n=1,230
Note: Figures may not add up to
Significantly increase effort 100 because of rounding

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 35

 4: RISK MANAGEMENT

As an organisational discipline and capability, risk about this, with a further 43% “somewhat
management has come a long way in the past concerned” (see Figure 28). Those in the hi-tech
decade or so. Major, and highly visible, global sector see this as a particularly acute risk, with 4 out
events such as the earthquake and tsunami in of 10 very concerned, compared with just 1 in 10 in
Japan and floods in Thailand in 2011 have shown the retail sector (which is more able to pass on the
that a greater level of focus and professionalism higher costs incurred in buying scarce commodities
can pay handsome dividends when disaster strikes, to its customers). And from a geographical
in terms of keeping production lines running, standpoint, the proportion of respondents based
shelves stocked and customers and shareholders in the Asia-Pacific region who are very concerned
happy – as evidenced earlier in this report. And about supply shortages is double that of their peers
yet risk management remains an extremely in EMEA – 48% to 24%.
challenging area for many supply chain leaders.
In a volatile and uncertain global economy it is no
In this year’s CSCO survey, we posed four key surprise that the risk of supply shortages should
questions: What are the risks you are most be front of mind for supply chain executives.
concerned about? How does your organisation Strong demand in fast-developing countries such
go about identifying its potential exposure to as China in recent years has placed enormous
these risks? What strategies and tactics have you strain on the supplies of some commodities,
adopted to mitigate them? And – perhaps most such as steel, although there are signs that these
importantly – what negative impact, if any, have pressures are easing as growth in these emerging
disruptions on both the supply and demand sides markets slows. And, of course, supply shortages
had on your business? are also a function of natural disasters and man-
made incidents such as fires and strikes. Last year’s
SUPPLY SHORTAGES TOP THE RISK LIST events in Japan and Thailand halted production
at many factories and led to shortages of items
Asked about risks they are concerned about in the such as lithium ion batteries, LCD displays,
next 12 months, survey respondents cite shortages automotive components and food products.
of raw materials and components as the most
significant. A third say they are “very concerned” For John Haydon, chief supply officer at
electronics giant Philips, these events exposed
Figure 28: Most significant risks
How concerned are you about the following risks within your supply and demand chains in 2012-13? the fact that few companies really understand
Supply shortage of raw materials / components the lower tiers of their supply chains (suppliers
3 7 16 43 32
Shipping / logistics disruptions
at levels 2, 3 and 4). In Philips’ case, he explains,
2 7 20 48 23 the impact of Japan’s earthquake and tsunami
Incident at supplier facilities (e.g., fire, strike, technical problems)
3 8 20 50 19 was much greater than might have been expected
Natural disaster affecting supplier facilities (e.g., earthquake, flood) by looking at the sourcing data – just $50 million
6 9 19 44 23
Financial failure of critical supplier out of his $14 billion annual procurement budget
3 9 21 42 25 spent directly with Japanese tier 1 suppliers.
Legal/regulatory issues (e.g., trade policy, tax laws)
2 8 24 40 26
Inability of customer to fulfil production/sales targets
3 7 24 46 19
Understanding where suppliers are sourcing their
Financial failure of critical customer components and raw materials is one area where
6 11 23 38 21
Counterfeit products
CSCOs need to drill deeper, says Haydon. But
7 10 25 32 26 so too is knowing which other major customers
Data security / IT incidents
3 11 29 36 20 your suppliers are serving, and ideally which are
Breach of intellectual property rights likely to get the highest priority in the event of
6 11 31 30 23
Supplier ethical standards exposed as unsatisfactory supply shortages.
6 14 31 33 16
War, terrorism or other geopolitical issues
9 14 32 31 15
Not at all concerned Very concerned % of respondents
Neither
36Somewhat unconcerned Somewhat concerned
Note: Figures may not add up
n=1,312
THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012
to 100 because of rounding
 RISK MANAGEMENT

Incidents affecting supplier facilities are third this as a channel. The risk of critical suppliers Last year’s
and fourth in our risk ranking overall, behind going out of business in the past few years has disasters in
shipping disruptions, with more than two-thirds prompted many customers to step up their Japan and
of respondents expressing concern about the dialogue, rather than rely on classic sources of Thailand exposed
potential impact these could have on their value information such as financial statements, which the fact that
few companies
chains. The financial failure of critical suppliers can often be woefully out of date. Alongside this,
really understand
– an issue that took centre stage for many the growth of supplier relationship management the lower tiers
companies when the 2008-09 recession hit – (SRM) programmes has encouraged business of their supply
completes the top 5. As with supply shortages, partners to share and discuss risk issues more chains.
respondents working in hi-tech firms have openly – a trend that is to be applauded.
higher-than-average concerns about all of these
risks, while those in retail and chemicals appear However, the average hides some wide disparities
to be the least worried. And those located in between industry sectors and regions. Seven out
Asia express higher levels of concern than their of 10 respondents in hi-tech firms say they tap
counterparts in either Europe or North America. suppliers for information, compared with just
a quarter of those in retail. And 73% based in
The risks that most exercise CSCOs after supply the Americas take this approach, versus just 55%
shortages, however, are legal/regulatory issues in Asia and Australia (EMEA is in between on
and counterfeit products. More than a quarter 63%). Retailers also rely more heavily on intuition
are very concerned about both. Perhaps not or management insight – a more traditional
surprisingly, given their push into emerging approach – than other sectors, with 43% using it
market countries such as China and growing compared with just 27% in logistics/distribution
competition from local rivals, it is consumer and chemicals firms, for example.
goods, healthcare and pharmaceutical firms that
express the greatest concerns both about their Scott Murphy, vice-president of global supply
products being ripped off and red tape negatively chain at US-based retailer Dunkin’ Donuts,
impacting their ability to compete effectively. explains this by pointing out that intuition is
often good enough to answer key questions such
At the other end of the spectrum, geopolitical as “will these donuts rise enough” or “will they
issues (including war and terrorist attacks)
generate the least concern. But this is a relative Figure 29: Methods for identifying potential risks
statement – just under half (46%) of respondents What techniques does your company use to identify its exposure to
potential supply or demand chain risks?
are concerned to some extent, compared with
just under a quarter who are not concerned and Better/more frequent 65
communication with suppliers
a third who are neutral. And this is one of only
Supply chain risk mapping 63
two types of risk (the other being supplier ethical
Business impact analysis 62
standards) that dip below the 50% mark. So there
Scenario planning 54
are many sources of risk that organisations need
Better/more frequent
to mitigate and manage to ensure that their value 46
communication with customers

chains function as smoothly as possible. Third-party research / intelligence 41

Quantified risk analysis 40

MITIGATING RISK THROUGH SUPPLIER Intuition or management insight 36

DIALOGUE Failure mode & effect analysis 34

Hazard & operability studies 23

So what techniques are companies using to
Sentiment analysis (i.e., 11
identify potential risks? Figure 29 shows that monitoring social media)

better/more frequent communication with

suppliers is top of the list, with two-thirds using % of respondents
n=1,289

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 37

 RISK MANAGEMENT

look good on our shelves”? Whereas for hi-tech market price. “We have to be able to react much
firms, he suggests, a greater level of precision is quicker than in the past,” he says.
generally required.
A much newer method of identifying risks before
The other primary methods of identifying risk they happen (and potentially inflict damage) is
are the more formal and structured tools of sentiment analysis. This uses software to track and
supply chain risk mapping (63% of respondents), assess postings made on social networks such as
business impact analysis (62%) and scenario Twitter and Facebook according to the strength
planning (54%). Supply chain risk mapping – a of positive or negative views expressed. In
visual approach to pinpointing key geographic theory, this could be a useful early warning signal
and relationship dependencies – is most popular in terms of detecting, say, troubled customers
among healthcare and pharmaceutical firms; or suppliers, politically unstable hotspots or the
while business impact analysis (a method of likelihood of new regulations becoming law.
differentiating critical and non-critical activities)
and scenario planning (a long-term, strategic As Figure 29 shows, just 11% of our survey
assessment of various “what ifs?”) are most respondents say they are using sentiment analysis
widely used by CPG firms and least used by at present. Companies operating in the business-
industrial firms, according to our data. to-consumer realm – notably, those manufacturing
food and beverages, household and personal care
Dunkin’ Donuts started using scenario planning products, and hi-tech gadgets – are more likely
this year, explains Murphy, as a response to what to be using sentiment analysis to identify risks
he describes as “a heightened sense of priority” than those in the business-to-business domain.
on risk management, and commodity price This can be partly explained by the fact that these
volatility in particular. Scenarios considered so far firms, their products and their supply chains are
include the impact of a massive drought across the subject of more extensive discussion in social
the US – work that has proved useful given the media forums – and hence there is a larger and
wheat shortages experienced there this past more frequently updated body of data to analyse.
summer, which prompted a 43% rise in the spot
However, as we saw in the earlier section on
digital consumers and e-commerce, practitioners
Figure 30: Risk management approaches
expect the usefulness of social media to grow
What strategies and tactics has your company adopted to mitigate the impact significantly in the next few years, including in
of potential supply or demand chain risks?
B2B supply chains. Almost half of respondents
7
Dual or multiple sourcing of key 77
in the industrial sector believe that social media
materials/components/products
7
will provide advance warning of potential supply
Conduct regular audits of key suppliers 66
disruptions, for example, compared with the all-
3 Hold safety stocks of key materials/ 65
components/products sector average of 41%. So the likelihood is that
6
Implement performance-based
contracts with key suppliers
49 tools such as sentiment analysis will become
Evaluate business continuity
47 25 much more widely used in future.
3 plans of key suppliers
Implement & test business continuity 44
plans internally
2 PUTTING FEWER EGGS IN THE
Establish risk registers/reporting/ 35
governance SOURCING BASKET
3
Expand into new/undeveloped markets 33

6 Diversify customer base/product range 33 Getting better visibility of potential risks and
7
Maintain spare in-house
production capacity 32 assessing their significance is a vital component
Negotiate mutual aid contingency plans of any risk management initiative. But the debate
3 (e.g., with competitors, distributors) to 20
maintain supply in a crisis situation then becomes one of which strategies and tactics
Purchase supply chain risk insurance 13
6 % of respondents
n=1,285

6 38 16
THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012
31
 RISK MANAGEMENT

to deploy in an effort to mitigate their likely THE FINANCIAL CONSEQUENCES OF The likelihood is
impact. Our research shows that supply-side DISRUPTION that newer tools
levers are the most widely used. Chief among for identifying
these by some margin is dual or multi-sourcing and monitoring
Here, the evidence from our survey is pretty
of key materials, components and products – a risk, such as
unequivocal: disruptions usually result in sentiment
strategy favoured by more than three-quarters of damage of one kind or another. Just 15-16% analysis, will
respondents (see Figure 30). say their organisations have not been affected become much
during the past two years. Loss of revenue is more widely used
Set against a backdrop of fears about supply the most significant consequence – almost half in future.
shortages and the financial health of key suppliers, of respondents say their organisations have
this is an understandable response, albeit one that suffered this as a result of both supply-side and
is not always as carefully planned as it ought to demand-side disruptions. Lower profits are the
be (witness the hi-tech firms affected by the Thai second most likely effect of the latter, with 39%
floods last year, for example, which discovered reporting a negative impact (see Figure 31).
that their alternative suppliers were based in the
same geographic area). On these two key measures of financial
performance, the chemicals firms again top the
Companies in the chemicals sector are the most list of affected sectors. Almost 6 out of 10 report
likely to use dual or multi-sourcing to mitigate a negative impact on sales revenue from both
risk, with 94% doing so. The same is true on supply-side and demand-side disruptions, while
holding safety stocks – the third most adopted more than 4 out of 10 say profits have been hit.
tactic – where 82% of chemicals practitioners say
they do this compared with an all-sector average On the supplier side, meanwhile, the second
of 65%. Chemicals firms also use regular audits major consequence of disruptive events (at
of key suppliers more often than most sectors, 44%, just one percentage point behind loss of
albeit slightly less than those in healthcare, revenue) is delays to new products, projects or
pharmaceuticals and food & beverages. growth plans. Almost half of respondents in
the industrial sector say their companies have
Interestingly, the chemicals sector also leads
the use of demand-side levers, in terms of
diversifying their customer base and product Figure 31: The impact of disruptions
range, and expanding into new markets. This is Which of the following consequences, if any, has your company suffered during the past
two years as a direct result of supply-side and/or demand-side disruptions?
no doubt due in part to the significant level of
demand volatility and business uncertainty that Loss of sales/revenue 45 47
has characterised this sector of late. But the fact
that chemicals companies appear to be using a Lower profits 35 39
wide range of proactive tools (and just 3% rely 62
Delays to new projects/product
on the fallback option of risk insurance) may also introduction/growth plans
44 28

be a response to the damage they have suffered

Loss of customers 19 33
as a result of risks becoming reality.
41
Higher cost of capital 27 14
“Chief supply chain officers need a more
Damage to image, reputation
structured and disciplined approach to managing or brand 19 16
Supply-side disruption
risk,” says Philips CSCO John Haydon. “Risk will 34
Demand-side disruption
continue to move up our agenda and you’ve got Lower share price 14 19

to be on top of your game.” Failure to meet legal or 13 8

regulatory requirements

None 16 15 % of respondents
n=1,240

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 39

 RISK MANAGEMENT

been affected by this, compared with less than

a third of those in logistics and distribution. But
the latter’s good fortune here is counterbalanced
by the fact that a higher than average proportion
(39%) say they have lost customers as a result of
demand-side disruptions.

Although participants were not asked to put

hard numbers against these losses, it is fair to
assume that, with half of the sample working for
companies with more than $5 billion in annual
turnover, they are not trivial.

One other observation worth making is that,

despite all the headlines they generate, less than a
fifth of survey respondents say their organisations
have suffered damage to their brand or reputation
in the past two years. Those in healthcare and
pharmaceutical firms top the sector list, with
27% saying supply-side disruptions have had
a negative impact. Counterfeit products are a
particular problem, which explains why concern
about this type of risk is highest in these sectors,
as we saw earlier in this section. The World Health
Organisation reckons that in some markets half
of all the drugs sold are fakes.

The financial knock-on effects of this are

significant – estimates put the losses to established
pharmaceutical companies in the tens of billions
of dollars a year. But other examples such as
BP with the Gulf of Mexico oil spill or, more
recently, the security firm G4S’s failure to provide
sufficient personnel for the Olympic Games in
London (for which it has already taken an $80
million charge) serve as reminders that a failure
to adequately manage risk can have devastating
consequences. And supply chain professionals
are on the front line.

40 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 5: TALENT MANAGEMENT

For the second straight year our research has board. New questions this year were designed Technical
probed the topic of talent management in supply to better understand the talent management supply chain
chain. Concern persists among senior leaders issue globally, including a specific question on skills are not
about the gap between the amount and type of staffing concerns in China as well as country-by- enough. Talent
skill needed to operate today’s supply chain and country assessments of “best value for money” requirements
include many
what is available in the market. In last year’s survey and “biggest risk” talent markets. The data casts
of the same
we looked at which associations offered valuable doubt on the oversimplified notion of low-cost business skills
skill development (APICS – the Association for country sourcing as a sure bet to cut costs. Talent needed to
Operations Management – the Supply Chain management in the global supply chain of 2012 succeed in roles
Council and the Institute for Supply Management is more complex and subtle than ever. such as sales or
were top), which universities provided strong finance.
recruits (Stanford, MIT and Michigan State led) TALENT CHALLENGES ARE BECOMING
and which consulting firms’ alumni were worth MORE SEVERE
hiring (Accenture, McKinsey). Most, however,
agreed that new hires from industry were best Building and managing a team in today’s global
qualified overall and this means poaching talent supply chain occupies a huge share of senior
from each other. leaders’ time and accounts for much of their
angst. The problem is not as simple as plugging
Another topic we studied last year was what brains into the right slots and letting them run.
specific types of skill were most important to Compared to building a sales team, for instance,
the job. Traditional disciplines such as planning which generally operates as a collection of
(85% consider this essential), logistics (77%) and individual producers supported by a common
sourcing (69%) were deemed most important. infrastructure, supply chain organisations are
Many, however, also considered a number of deeply interdependent, with each function (plan,
enabling skills to be nearly as critical (performance source, make, deliver) affecting the success of all
management was essential to 81% and change the others. To make matters worse, most young
management to 76%). Our Executive Advisory people entering careers still have little awareness
Board felt that much of this information was of supply chain as a profession.
unlikely to change significantly from one year to
the next and so these questions were not asked
in 2012. Figure 32: Knowledge worker challenges

The takeaway then, which we assume remains

83
valid as a basis for planning now, is that Finding talent
62
technical supply chain skills are not enough. 77
Hiring talent
Talent requirements include many of the same 50

business skills needed to succeed in roles such 66

Career progression
66
as sales or finance. Supply chain does not exist
66
Retaining talent
merely to serve the business, but instead is integral 50
to the business. Developing talent
63
50
Relocating talent^ 55
For 2012 we repeated a couple of questions from
2011 to begin developing a time series view. The 47 2012
Measuring talent
40
repeat questions were around what elements of 2011

talent management are most challenging and

% of respondents saying somewhat/extremely challenging
what hurts most when talented people leave. As ^Not included in 2011
n=1,302
we’ll see below, the data for 2012 shows some
worsening of the talent problem across the

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 41

 TALENT MANAGEMENT

Across the lifecycle of talent management much effort from the top to cultivate future leaders.
of the pain is still at the front end – finding Career progression is especially susceptible to
and hiring talent. These tasks have gotten committed effort by the senior supply chain
substantially tougher since last year, now ranking executives who care about retaining their best
decisively as the top two problems leaders face people and are willing to lay out the details of
(see Figure 32). Also more challenging in 2012 how to get ahead. Leadership here at least is
than in 2011 are retaining talent, developing already making a difference.
skills among existing staff, and even measuring
and differentiating talent among staff. When data for this question are cut by industry
we see little variation in the rank order of which
It is likely that improving economic conditions talent management tasks are most challenging.
have contributed to a tightening in the talent Food & beverage respondents seem to feel the
market for supply chain roles over the past greatest pain in finding talent, perhaps because
year. Considering that global economic growth of the increasing focus in that sector on food
remains stuck in a relatively low gear, however, safety compliance. In fact, the Coca-Cola
it should be worrying that by an overwhelming Company recently partnered with Michigan
17:1 ratio our 1,385 survey participants feel that State University specifically to improve its
finding talent is very challenging. What happens capabilities here.
when business starts to boom again?
The data also shows a somewhat surprising result
The only area in which we saw meaningful in hi tech where finding talent, although still the
improvement from last year was “offering staff top overall challenge, is actually perceived to
a compelling career progression” – the top pain be less severe than in other sectors. Anecdotal
point in last year’s survey. Although two-thirds evidence suggests that talent searches in hi tech
of respondents in both 2011 and 2012 say this are advantaged somewhat by an active network
is challenging, the proportion saying “extremely of existing professionals who know who to
challenging” fell from 25% to 18% year on ask for referrals. Also noteworthy is the high
year. This shift probably reflects a concerted score retailers give to the challenge of offering
a compelling career progression. Other research
SCM World has conducted in the past year may
Figure 33: Talent management challenges by industry shed some light here, as it appears this sector is
still wrestling with how supply chain interacts
4.50 with other retail-specific functions such as
*1-5 scale, where above 3.00 = challenging
merchandising and store operations.

4.00
Viewing talent management challenges
Weighted average rating*

by geography shows that finding talent is

3.50 problematic everywhere, but that retaining it is
especially difficult in Asia. Much of the poaching
that goes on appears to happen in Asia. This
3.00
finding confirms other data in this survey which
indicates that talent markets in the region,
2.50
especially China, are rich with technical and
Chemicals Healthcare Food & Industrial Hi Tech CPG Logistics & Retail even business knowledge, but that they are very
& Pharma Beverage Distribution
high risk and, for many, represent worse value
Finding talent Developing talent Measuring talent Retaining talent for money than traditional, high-cost labour
Hiring talent Relocating talent Career progression n=1,302 markets, especially the United States.

42 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 TALENT MANAGEMENT

VOLATILE TALENT MARKETS ARE fewer concerns about product IP, probably In 2011, just
HURTING OPERATIONS MORE IN 2012 reflecting the relative lack of manufacturing over half of
THAN 2011 in the business for most. Hi-tech businesses respondents
suffer most overall from all worries borne of said retention
lost talent, while CPG suffers least. Hi tech’s of talent was
The problems associated with losing talented ‘somewhat’
people start with the disruption of operations, volatile environment and active talent market
or ‘extremely’
but may include lasting impacts arising from likely explain the sector’s problems, while challenging. In
deficits created around knowhow – both CPG supply chains may benefit from a stable 2012, this has
process and product. In aggregate, just over and sophisticated view of the function at the risen to two-
board level. Leading CPG companies (Procter thirds.
half of respondents in 2011 said retention of
talent was either “somewhat” or “extremely” & Gamble, Unilever, PepsiCo, Clorox, etc) are
challenging. In 2012, this has risen to two- relatively strategic in their approach to supply
thirds. The ratio of those who have a retention chain management and thus may have more
problem against those who don’t is now 6:1, mature succession and contingency planning
proving that recruiting talent from competitors already in place.
is exploding. Accordingly, the level of concern
associated with lost talent has also risen in the By geography, our data again shows higher
past year. levels of concern where growth is fastest – Asia,
followed by the Americas, and last in Europe
In 2011 the top concern overall was lost process (see Figure 36). Europe probably also reflects
intellectual property. A third of all respondents some degree of greater labour market stability,
last year were “very concerned” about this supported in part by legal structures and in part
problem and nearly 70% were at least “somewhat by cultural traditions. A number of respondents
concerned” – more than any other issue. This also specified other concerns when talent is lost
year the emphasis has clearly shifted toward including negative impacts on the company’s
concerns about near-term impacts, especially reputation, lost or damaged relationships with
“cost of transition to replacement” (two-thirds key suppliers and adverse effects on morale
are at least somewhat concerned about this). among remaining staff.
Even “lost production”, which is the least vexing
concern overall, nonetheless saw a big jump from
2011 to 2012 (see Figure 35). Figure 34: Talent management challenges by location

These results could reflect an improved economy

and less tolerance for production disruptions, but 4.50
*1-5 scale, where above 3.00 = challenging
considering that we are nowhere near booming
globally, one wonders whether such short-
Weighted average rating*

term impacts could become serious problems 4.00

in the next two to three years. Talent retention

initiatives may be worth starting now before the
pressure builds. 3.50

Pain felt when talent is lost viewed by industry

confirms the same rank order importance across 3.00
Finding Hiring Developing Relocating Measuring Career Retaining
all sectors. Chemicals companies notably fear talent talent talent talent talent progression talent
production losses less than other industries,
probably because of the asset-intensive
EMEA APAC Americas n=1,302
manufacturing process. Retail has substantially

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 43

 TALENT MANAGEMENT

The biggest TALENT IN CHINA: NO LONGER A ‘LOW China. At the bottom of the list overall were “lack
challenges COST’ COUNTRY of technical skills” and “lack of business skills”.
with knowledge Where once quality concerns, language barriers
workers in China
In preparing this year’s survey, substantial input and competence may have been problematic
reflect a tight
pool for talent. from our Executive Advisory Board drove us to it appears these issues are fading. To be fair,
The top concern look at the talent question specific to geographies though, the ratio of respondents who were
is rising costs, known to be problematic. Chief among these, concerned against those who are unconcerned
closely followed of course, is China. In last year’s survey an is still at least 2:1 in these areas, meaning that
by poor retention. entire section was dedicated to globalisation and knowledge workers in China are not yet seen
emerging markets. One of the most obvious as the equal of those in, say, the United States
spikes in the data was in the degree to which or Germany (more of which below). But this is
supply chain executives around the world rely by no means the biggest talent challenge facing
on China for sourcing, manufacturing and even supply chain leaders.
product design. What started many years ago as
a move to tap cheap labour has since become The biggest challenges with knowledge workers
a deeply symbiotic relationship between brand in China instead reflect a tight pool for talent.
owners, retailers and other product creators The top concern, and by a ratio of 6:1, is rising
and the technically sophisticated supply base of costs, followed closely by poor retention (see
China. Figure 38). The dynamic of the market for talent
in China appears to be heavily influenced by
These emerging markets are also now essential poaching. Our data does not so much point to a
sources of demand and growth, meaning that limited talent pool (ranked joint third overall as
“low-cost country sourcing” has nearly run its a concern) as to a talent pool made up of people
course. Markets are global for money, products willing to be lured away from rivals for more
and talent and China is at the centre of it all. money. As we’ll see below, this may translate into
substantial risk for businesses which suffer high
To test the question of whether talent problems short-term costs of transition. In other words,
are different here we asked respondents to rank betting on building a great, long-term supply
their top concerns about knowledge workers in chain team in China may not be so smart.

Figure 35: Impact of lost talent Figure 36: Impact of lost talent by location

4.50
*1-5 scale, where above 3.00 = challenging

Cost of transition
75
61 4.00
Weighted average rating*

66
Lost process IP
69 3.50

54
Lost product IP
47 3.00

Lost production
49
2012 2.50
31 2011 Lost production Lost process IP Lost product IP Cost of transition
2011

% of respondents
EMEA APAC Americas n=1,294
n=1,227

44 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 TALENT MANAGEMENT

As we saw earlier in this section, supply chain Figure 37: Impact of lost talent by sector

leaders consider the issue of relocating talent

internationally, to countries such as China or 4.50

Mexico, to be a relatively low-level concern. *1-5 scale, where above 3.00 = challenging

Anecdotal evidence, for instance from PC maker

4.00
Lenovo, suggests that global leadership of a

Weighted average rating*

supply chain organisation can be assembled from
all over the world, even on a Chinese foundation. 3.50
China may be essential to most global supply
chain strategic designs, but it need not, and
probably should not, be strictly Chinese. 3.00

Industry cuts of the data confirm the overall

2.50
rankings of where concerns are highest (see Chemical Healthcare Food & Industrial Hi Tech CPG Logistics Retail
& Pharma Beverage & Distrib
Figure 39). Hi tech predictably stands out as
feeling these cost and retention problems worst, Lost production Lost product IP
although industrial and chemicals businesses Lost process IP Cost of transition n=1,294

are not far behind. CPG and food & beverage

are less exposed as naturally regional or even
country-based supply chains, but retail, whose Figure 38: Concerns about knowledge workers in China

China sourcing strategies (think Wal-Mart)

initiated much of the rush to low-cost country Rising costs
78 48 25 27 36 50 28 9
sourcing, seems to see a serious cost problem.
Poor retention
49 9 6 2930 3343 22 15
BANG FOR BUCK IN SUPPLY CHAIN
TALENT? TRY THE US OR GERMANY Lack of business skills
5 10 10 9 27 33 44 35 13
14

In an effort to understand how talent is valued Limited talent pool

5 11 14 9 3232 34
43 14 7
by supply chain leaders holistically we asked
two simple questions: where is the “best value Lack of technical skills
811 12 12 31 34 4232 118
for money” and where is the “biggest risk”?
Other
These questions were structured with a long list
17 32 17 4 31 45 30 10 10
of countries to choose from and the instruction
% of respondents
to rank the top five against each of the criteria.
No explicit definition was offered for either Not at all concerned Neither Very concerned
Somewhat unconcerned Somewhat concerned
“best value for money” or “biggest risk”, n=1,234
Note: Figures may not add up to
100 because of rounding
leaving respondents to use their judgment in
making selections.

The results were somewhat surprising. We

used an inverse point system (five points for a
#1 rank, one point for a #5 rank) to grade the
overall “best value” of each country included
and found, by a wide margin, that the United
States came out on top. In part this must reflect
the size of the country, since the number
of times the US was ranked anywhere was
highest overall (880 respondents ranked the

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 45

 TALENT MANAGEMENT

Risk-averse US somewhere between #1 and #5). However, offs accordingly. It also seems that the rising
supply chain nearly as many (749) ranked China somewhere costs in China referred to above have cut into its
leaders would be on the spectrum, but proportionally far more appeal. Given time series data on this question
wise to scrutinise put it further down. Recalling data from last one might begin to see advance warning of
plans for new year’s survey also may help with context – 37% geographies where talent bargains can be found,
hiring in China
of respondents listed China as their number one as well as those less worthy of new investment
before putting
too many eggs in sourcing location against only 20% who listed in permanent staff.
one basket. the US. In other words, the ranking does not
only reflect size, but does capture at least some TALENT RISK: CHINA’S DARK SIDE
variation in perceived value.
The results of our “value for money” question
After the US, Germany, India and China all saw show China still scores well as a place to find
substantial confidence from our respondents talent, despite abundant evidence that costs are
in terms of value for money. In the case of rising fast and in some regions (Shanghai, for
Germany, few would argue that these results instance) are no longer at all low. Where Chinese
reflect low costs. German employees are talent markets do pose a problem, however, is
notoriously difficult to fire and far from low paid. in terms of risk. Data discussed above shows a
They do, however, have a reputation for quality volatile market in which employers (or customers
and reliability that appears to more than justify of closely tied contract manufacturers) must be
the higher costs. India, in contrast, scored worse vigilant about threats employees pose to business
than both China and Brazil in last year’s survey continuity, cost and intellectual property.
questions about risk and reliability, suggesting
that costs there are low enough to put up with Turning to the top five “biggest risk” talent
a few mishaps. markets (where risk is not defined, but instead
is meant to encompass any and all worries
The implications of this data should not be supply chain leaders have about talent in any
over-interpreted. It does appear that supply given geography), the data in aggregate shows
chain leaders see good value for money in high- overwhelmingly that our respondents rank China
cost countries and are able to weigh the trade- as the riskiest. Again, scale matters – the US is the

Figure 39: Concerns about knowledge workers in China by sector

4.50
*1-5 scale, where above 3.00 = challenging

4.00
Weighted average rating*

3.50

3.00

4 2.50
Chemicals Healthcare Food & Industrial Hi Tech CPG Logistics & Retail
& Pharma Beverage Distribution

Limited talent pool Lack of business skills Rising costs

Lack of technical skills Poor retention n=1,172

46 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 TALENT MANAGEMENT

second biggest risk market with 560 individual Figure 40: Best value talent markets
respondents ranking it as one of their top five.
For comparison, however, consider that whereas
166 individuals ranked the US as the number one US 2.61
biggest risk, 444 chose China for this distinction. Germany 2.13
Risk-averse supply chain leaders would be wise India 2.12
to scrutinise plans for new hiring in China before 2.11
China
putting too many eggs in one basket.
UK 2.01

Singapore 1.89
Looking for stable, reliable talent pools in supply
Brazil 1.82
chain is one way to diversify away from some
Eastern Europe 1.77
risk. Many global supply chain organisations are
1.60
currently in the process of regionalising their Japan

structures. Often the primary goal is proximity Taiwan 1.59

to customers, but an added benefit is limitation Mexico 1.58

of risk. Among the most appealing in terms of Netherlands 1.55

low talent risk is Germany, which is ninth overall France 1.41 Weighted average rating
(1-5, where 5=highest value)
on the risk dimension but second overall on South Korea 1.38 n=1,172

value for money. The reverse is true for Mexico,

which ranks near the bottom overall on value for
money but near the top for risk.
Figure 41: Biggest risk talent markets

It seems that in much the same way that risk

mitigation strategies call for dual or multi-
China 2.98
sourcing of supply, so too might organisational
US 2.11
strategy benefit from a diverse talent pool.
India 2.05

Brazil 2.03

Mexico 1.98

UK 1.74

Eastern Europe 1.72

Taiwan 1.72

Germany 1.69

Singapore 1.66

France 1.60

Japan 1.59

South Korea 1.58 Weighted average rating

(1-5, where 5=highest value)
Netherlands 1.22 n=1,108

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 47

48 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012
 CONCLUSIONS

“Be careful what you wish for, because you just might get it,” goes an old saying. This little bit of Supply chain
wisdom says a lot about the times as captured in the 1,385 survey responses we tallied for this year’s strategists
Chief Supply Chain Officer Survey. may feel an
urgent need
For a discipline accustomed to feeling underappreciated, the results of this year’s survey promise to consolidate
some of the
great things for the future. Senior business leadership appears not only to grasp the role supply chain
organisational
plays in making money, but also increasingly to expect direct and unique contributions to everything power that has
from new product development to brand equity. The “new news” includes heightened awareness built up under
of the need for risk management as a core duty of the supply chain and a tightening of the vice on the CSCO title
overall social and environmental responsibility. Where once such matters were seen as frills worthy of before reaching
attention only after every box had been shipped and every penny had been pinched, now it seems the for more.
boss links these things to his or her personal success.

If accountability is on the rise, so too are the drivers of productivity in supply chain. Digital demand
looks ready to force tremendous new levels of complexity upstream in the supply chain as consumers’
expectations inflate. The potential for deeper demand sensing and management implied with this
digital revolution is exciting. Unfortunately, it appears that the component and material supply base
may find itself playing catch-up in terms of manufacturing and distribution agility.

Perhaps most important, the deepening understanding of how supply chain operations pull specific
levers to impact customers and profits means that innovation is now a necessity. Far from merely
enabling the business, supply chain in many organisations today extends the envelope of competitive
strategy with new business models or previously unimagined levels of performance.

A damper on this otherwise rosy outlook for the supply chain profession is, ironically, our own human
capital. Finding and managing talent has been a sore point for some time now, but this year’s data
suggests the problem is worsening. At one level it is apparent that global supply chain no longer
means low-cost country sourcing with all the brains at headquarters. At another level it is clear that
dependencies on key people have become too important. The bigger, more strategic role of supply
chain seems to rest on too few shoulders, leaving organisations with less resilience than they need.

Looking ahead, supply chain strategists may feel an urgent need to consolidate some of the organisational
power that has built up under the CSCO title before reaching for more. Expectations of our collective
ability to handle the risks and responsibilities now assigned to supply chain could quickly outrun our
skills. Credibility at the board level takes a long time to earn, but it could be lost quickly.

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 49

 ABOUT THE RESEARCH

This is the third annual Chief Supply Chain Location: An equal number of respondents are based in the
Officer Report published by SCM World. Americas and EMEA, with just under a quarter located in the
Asia-Pacific region.
Invitations to complete an online survey
were sent to corporate members of SCM 1
World’s global community and to other supply
chain, procurement, operations and relevant
practitioners on our database in July 2012. In
Europe, Middle
total, 1,385 completed responses were received East & Africa

during the two-week survey period and the key 38

Asia & Australia
38
demographics of this sample are as follows. North & South
America

Industry sector: Hi-tech, consumer goods and industrial Rest of the World

firms drew the largest number of respondents. The

healthcare/pharmaceutical, logistics and distribution, food
and beverage, chemicals and retail sectors also each had
23
at least 50 respondents and have been included in sector- % of respondents
n=1,385
specific analysis throughout this report.

Hi Tech 25 Company size: In terms of revenue, half of the respondents

work for companies with more than $5bn in annual sales, with
CPG 18
another fifth in the $1bn-5bn bracket. Just under a fifth of the
Industrial 10
sample did not disclose this information.
Healthcare &
Pharmaceutical 8
Logistics & 7
Distribution
Food &
Beverage 7
Chemicals 5 25
Retail 4 31
Media & Under $1bn
Telecommunications 3
$1bn-$5bn
Professional Services 3
$5bn-$10bn
Utilities & Energy 2
$10bn-$25bn
Automotive 2
$25bn+
Agriculture & Mining 2

Aerospace & Defence 1

17
Fabric & Apparel 1 19
Construction &
Engineering 1
8
% of respondents
Software 1 n=1,127
% of respondents
Paper & Packaging 1 n=1,385
Job level: Four out of 10 respondents are at senior executive,
vice president or director level, with just under half at manager
Job function: Almost half of respondents work in supply chain,
or head of department level.
with 13% each in procurement and operations. Just under a
tenth are general managers.

8
Supply Chain 47 14
Operations 13

Procurement 13
SVP/EVP/Board
General Management 9
Manufacturing/
Production 6 VP/Director
32
Engineering 2
Transport & Manager/Head
Distribution 2
Quality Assurance 1
Other
Finance 1 47
IT/IS/Technology 1
% of respondents
Other 3 n=1,385
% of respondents
n=1,385

50 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012

 SCM World, a RaptureWorld company, is the leading global community and think-tank for senior
level supply chain executives. Hosting a dynamic and interactive annual programme of end-user and
academic-led webinars, events and research projects for its members, SCM World is the de-facto
benchmark for forward-thinking supply chain leaders and their global teams to stay current through
cutting-edge content. Organisations from across multiple industry verticals use SCM World to further
enhance supply chain learning and development, including the likes of HP, Nestlé, Tyco, RIM, Nike,
GlaxoSmithKline, Cisco, Schneider Electric, Shell, Motorola, The Dow Chemical Co, BASF, Applied
Materials and many more.

www.scmworld.com

Contact:
Geraint John
Senior Vice President, Research
+44 (0) 20 7357 8321
[email protected]

REPORT SPONSOR

E2open is a leading provider of cloud-based, on-demand solutions enabling enterprises to procure,

manufacture, sell, and distribute products more efficiently through collaborative execution across
global trading networks. Brand owners use E2open solutions to gain visibility into and control over
their trading networks through the real-time information, integrated business processes, and advanced
analytics that E2open provides. E2open customers include Celestica, Cisco, Dell, Hitachi, IBM,
L’Oréal, LSI, Motorola, Seagate, and Vodafone. E2open is headquartered in Foster City, California
with operations worldwide. For more information, visit e2open.com.

THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012 51

52 THE CHIEF SUPPLY CHAIN OFFICER REPORT 2012