By Lee Mulkey
I have served as CEO of three companies.
In my years of leading companies, one thing I find CEOs have in common is waking up at 2:00 a.m. wondering if the business is at risk. Do we have the right products? Are our prices competitive? Do we really need a technology upgrade? Is my management team up to the task? Have I developed tunnel vision or complacency? How do I know if my business is at risk?
The simple answer is: The business is always at risk.
Whether the risk comes from competitors trying to dominate the market and bury the company in the scrap heap of history, or the self-inflicted injury of not constantly improving your business, you are falling behind.
Perhaps the most important risk point that receives the least amount of CEO attention is the supply chain. By first focusing on the basics and getting those right, then innovating design, improving quality, and lowering costs – efficiency will emerge.
The Basics – The Team
The most successful companies have some of their brightest people working in supply chain. When hiring, you want people who are:
The supply chain team should continuously be seeking new and more efficient suppliers. This same group is also working with existing suppliers to continually improve quality, cost, delivery and communication.
Metrics Success, Then Rewards
Team members need to develop KPIs – key performance indicators – and supplier performance reporting, to make the management of these activities as automated and instantaneous as possible. It’s difficult to manage what you don’t know. Some KPIs the organization should be tracking include:
If the company is doing this, that’s good, and if not, the organization is falling behind.
CEOs have to insure performance metrics and objectives for each aspect of the supply chain function are in place and a significant component of compensation is based on achievement of the metric goals. It is important to not cap the size of the bonus, gift or other form of compensation for high achievement – these people will have a significant impact on revenue and profits.
The CEO Advantage
The missing piece that will give every business a competitive advantage is the personal involvement of the CEO.
How does the CEO give the business a competitive advantage through personal involvement? Most CEOs work hard to build close relationships with key customers and they should work equally hard to build strong relationships with key suppliers.
The value of the CEO building key supplier relationships cannot be overstated. Even though it takes time and considerable effort, a trusted relationship with key suppliers can make a big difference with product innovation, critical or crisis shipments, special financing and trade terms, industry intelligence, cost reduction and even customer feedback. Even though key suppliers sell to competitors, many will go out of their way to help a business where there is a strong relationship when it comes to sales promotion, consignments, highest priority or free break into their production schedules and special volume discounts that can add up to a serious competitive advantage.
During the due diligence phase of the sale of a company to a much larger competitor, we discovered the smaller company had equal or better prices from the same Asian
Suppliers, even though the competitor purchased four to five times more product. In most cases the smaller company had better prices. The larger company couldn’t believe this advantage. The smaller company had a cost advantage because of the laser focus on supply chain management and work by the CEO to develop strong personal relationships with key suppliers.
Keep a laser focus on the supply chain and minimize your business risk.
Lee Mulkey is President of ALM Company, an advisory firm serving global wholesale distributors. Lee has served as President and CEO of three global companies and earned his BBA from the University of Texas at Arlington and an MBA in International Business from the University of Dallas. www.ALMCompany.com
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