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Getting a Little Respect: Supply Chain Officers are Powerful Players in Top Management

Joe Roh, associate professor of supply chain management, and Ryan Krause, associate professor of strategy, prove that giving supply chain officers a seat in the C-suite leads to superior results.

March 13,  2018

By Elaine Cole

While most organizations know the importance of tactical supply chain issues (uncertainty, variability, quality) and strategies to address them (six-sigma, just-in-time, crossdocking, risk pooling, vendor managed inventories), many fail to see that senior supply chain officers must have the authority to drive these improvements at strategic levels across global enterprises with extended supply chains. 

For years, supply chain officers rarely reported directly to the CEO, but with the increase in outsourcing and the rising importance of procurement, distribution and planning functions in today’s global business environment, chief supply chain officers are finally getting a seat at the table. 

Joe Roh, associate professor of supply chain management, and Ryan Krause, associate professor of strategy, used contingency theory to determine which firms are more likely to appoint a chief supply chain officer to top management, and how that appointment might lead to superior performance.

Analyzing data from a 21-year sample of publicly held firms, Roh and Krause proposed three factors – financial leverage, internationalization and diversification – that make it more likely that chief supply chain officers are appointed to the top management team, and show benefits for having those CSCOs in positions of authority. 

Financial leverage: Highly leverage firms must integrate supply chain networks and share assets while enabling differentiation across SBUs. That requires a knowledgeable voice on the top management team who has the ability to form partnerships with SBU executives.

Internationalization: The higher a firm’s international exposure, the more differentiation and integration pressures the firm must manage. A CSCO on the top management team helps balance those pressures through strategic partnerships with SBU executives and involvement in top-level strategic decision-making.

Diversification: When a firm has multiple businesses in its portfolio, the task of coordinating supply chain activities across the entire firm is more complex. Combining and coordinating operations across multiple businesses creates more value for the system than each business could produce independently. Meeting this challenge requires a high degree of integration and communication between the supply chain management organization and the firm’s SBUs. 

“When a company is highly leveraged, globally operating and has a diverse portfolio, having a chief supply chain officer on the top management team correlates with better financial performance,” Roh said. 

The performance gap was up to 200 basis points higher return on assets for CSCO equipped businesses with these characteristics.

“Our study helps companies develop a rationale for designing CSCO roles at top management, and provides evidence of important skillsets that are unique to chief supply chain officers among other chief officers,” Roh said. 

Between 2000 and 2012, 71 new CSCO positions were created in S&P 1500 firms.

“Given the outsourced, global and technology-driven nature of competition today, we expect the need for this type of operational leadership to continue to be acute,” Krause said. 

“The Appointment of Chief Supply Chain Officers to Top Management Teams: A Contingency Model of Firm-Level Antecedents and Consequences,” J. Roh, R. Krause, M. Swink. Journal of Operations Management, 2016.