Preliminary results presented: CEO agenda and supply chain strategy
January 14th, 2010 - ‘There is a strong connection between the Chief Executive Officer’s (CEO) agenda and supply chain strategy’, said professor David Simchi-Levi at the Preliminary Results Conference last Thursday, which took take place at Lamborghini SpA in Italy, the world famous car manufacturer and SCM Research Community member.
On the 14th of January 2010 MIT Professor David Simchi-Levi and TruEconomy lead researcher Dr. Costas Vassiliadis presented the preliminary results of the MIT/TruEconomy research into supply chain management and the agenda of the CEO. In order to attend this conference the participants had to complete all three sections of the survey which contains questions to the CEO focused on executive agenda, questions to Chief Financial Officer focused on business performance and questions to the Chief Operations Officer or supply chain director focused on supply chain strategies deployed.
115 companies have participated so far. Among them are 31 companies that filled out all three sections, 105 companies completed the supply chain management section, 47 completed the CEO section and 46 completed the CFO section. Respondents stated that top demand regions are North America, Eastern Europe and Western Europe. Top sourcing countries are Asia, North America, Eastern Europe and surprisingly Western Europe. This might be explained by the current trend to go from offshoring to nearshoring and inshoring. Top focus areas in supply chain management are supply chain organization and processes, serving customer demand and purchasing.
Strong connection
The first insight professor Simchi-Levi presented is that the results show a strong connection between the CEO agenda and supply chain strategy. ‘Take Zara for example. Their value proposition is “high fashion at a reasonable price”. Zara’s strategy is not about efficiency, but all about speed to market’, illustrated the professor. ‘The key to Zara’s success is that their operations strategy is about scarcity. You see something you like, you better buy it because next time you visit the store it is not going to be there anymore. Production and product design are delayed until market signals are available.’
Flexibility
Professor Simchi-Levi elaborated on flexibility and redundancy. It appears that companies that focus on market share and revenue growth emphasize on flexibility and redundancy in their supply chain strategy. According to professor Simchi-Levi flexibility is the ability to respond or to react to change, for example changing demand volume or changing labor costs. Flexibility can be achieved through product design, process design and system design. While flexibility does not come free, professor Simchi-Levi argued using case studies and analysis that small investment in flexibility can achieve almost all the benefits of full flexibility. Thus, with small investment in flexibility firms can significantly reduce cost, improve service and in general improve supply chain performance.
Other insights that came out of the research suggest that companies that focus on market share and revenue growth emphasize on supply chain innovation and responsiveness while companies that focus on profitability emphasize on reducing costs, in particular purchasing costs.
