Connecting the Supply Chain with Corporate
Financial Performance
by Steve Shaw, Vice President of Marketing, FORTE
Connect, Summer 2008

It’s understandable if many supply chain management executives feel underappreciated by their bosses and peers. 

After all, a peak-functioning supply chain is something most corporations expect to run reliably in spite of all the complexity and risks inherent in today’s global supply chains. It’s only when there’s a glitch or a mishap that the supply chain—and its leadership—get recognition, and not of the positive kind.

Supply chain executives live in a tough world.  They’re on the line for an operation that’s very complex: supply chains are extending across the globe, customers are more demanding, information technology is a key driver for competitiveness, processes and facilities are increasingly complicated and more players are involved in the overall supply chain process.

It’s up to the person overseeing the supply chain to make it all work—and when it does so nearly 100% of the time, there are no kudos, recognition or even awareness from the top brass.  While the typical supply chain executive is absorbed in throughput, on-time performance, forecast reliability and cost efficiency metrics, that data generally doesn’t stimulate the interest of upper management, who consider it to be operational details.

So what can a supply chain executive do to not only gain the respect of the senior level, but also their share of capital appropriations for ongoing supply chain improvement initiatives?

Speak the language of the C-level executives.  Supply chain executives need to clearly demonstrate the significant impact the supply chain has on four key drivers of financial performance in the company, which are: revenue, profitability, cash flow and asset utilization.  These financial drivers are of principal interest to both senior level executives and shareholders.

Further, benchmarking your supply chain against those of your competitors—and sharing those observations in relation to key financial performance drivers—generates additional senior executive interest. By using terms that C-level executives can relate to, both parties will benefit from the connection of supply chain operations with overall corporate and competitive performance.

Making the connection

The first step a supply chain executive should take is to benchmark their company’s performance against that of their direct competitors and of others in their industry.  Take a look at how your company is performing relative to other companies in your industry in order to identify the best opportunities for improvement.  Use that information to understand where and how to prioritize improvement areas, like revenue growth or cost reduction.

You can visit web sites such as Hoovers (hoovers.com) and Yahoo! Finance (finance.yahoo.com) for operating performance metrics in industry segments and for key competitors.  Industry associations, analysts and research firms can also provide this data, usually for a fee.

Next, consider your supply chain and improvements that could directly impact one or more financial drivers—revenue, profitability, cash flow or asset utilization. Certain supply chain improvements tie directly into each of the financial drivers, as outlined below.

Of course, it’s not possible to improve everything at once. That’s why benchmarking is the first step—it reveals the biggest areas for improvement, and therefore directs the areas of strategic focus.

Each of these improvements acts as a lever to improve corporate performance.  By connecting the dots between operations and corporate performance, the supply chain becomes much more relevant to senior executives. Additionally, the supply chain executive has demonstrated the value of operational activities to the business.

By looking at each of these improvements on a more strategic level in terms of the operational gains they generate, it becomes easier for supply chain executives to establish context for how they help the company increase revenue, increase profitability, improve cash flow and increase asset utilization.

Respect… you’ve earned it

Through the use of these tools, supply chain executives can arm themselves with the ability to speak the language of the C-level executive. By connecting the supply chain’s impact on revenue, profitability, cash flow and asset utilization, supply chain management will not only gain the understanding (and respect) of senior executives, but also earn their share of the capital investment pie.

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