How Supply Chain Management Performance Drives Shareholder Value

March 30, 2022

Meet Paul Dittmann, assistant department head for supply chain management and distinguished lecturer at the University of Tennessee, Knoxville’s Haslam College of Business. Prior to coming to UT and the Global Supply Chain Institute, Dittmann had a 32-year career where he served in various supply chain leadership roles at the Whirlpool Corporation. Dittmann has also managed a variety of special projects and supply chain audits for companies and firms like Walgreens, Pfizer, Walmart, UPS, Tyco, Honeywell and Johnson & Johnson, amongst others. In addition to teaching at UT, Dittmann has led numerous seminars covering topics like lean manufacturing, global business and supply chain excellence. He has also authored a number of articles and whitepapers, including a recent Harvard Business Review article, “Are You The Weakest Link in Your Company’s Supply Chain?” 

You recently published a whitepaper on Supply Chain Management driving shareholder value. Over the last 18 months, how did the pandemic prove some of your conclusions?

We’ve all read a lot about companies that need to be ‘agile’ and ‘resilient’. In the face of a big disruption like a pandemic, those two terms mean different things. In this context, agility means doing things in advance to avoid the crisis. Resilience, in contrast, means the ability to get back up quickly after you’ve been knocked down. Seen from another angle, agility is reporting the fire and resilience is fighting the blaze, so to speak.

In order to be resilient and agile, it can be helpful to consider some of the core principles of supply chain excellence that I’ve described in some past writings. Number one is talent. You have to have the right people. Second is technology: today, we’re facing a tsunami of new technology and so the trick is picking the right one for your company and staying abreast of all the latest trends. Up next—and these two are really key to agility and resilience—are internal collaboration and external collaboration. Internally, we’re talking about how companies that are able to work across the functional silos seamlessly and quickly and come to decisions that focus on the customer quickly, as opposed to getting gummed up and all the political silos that some organizations are so hamstrung by. External collaboration refers to collaborating not only with suppliers, but also with customers. As someone once said, “When all was said and done about collaboration, there was more said than done.” Everybody says they’re doing it, but not everybody really does it. However, those companies who were truly having win-win collaborative relationships with customers seemed to fare much better during the pandemic.

“In order to be resilient and agile, it can be helpful to consider some of the core principles of supply chain excellence that I’ve described in some past writings. Number one is talent. You have to have the right people. Second is technology: today, we’re facing a tsunami of new technology and so the trick is picking the right one for your company and staying abreast of all the latest trends.”

Can you describe some of the best ways a company can manage their supply chain to create scalable efficiency and drive more value?

Did you know that only one in six companies—or 16% of organizations—have a documented multi-year strategy? There’s a process to developing one and I think that companies who have a strategy properly laid out are able to manage their business much better. They’re not reacting to the latest hot trend or jumping on the most recent bandwagon. Instead, they have a roadmap. They’ve put the time in considering a few key questions: What does the customer need? What are they going to need in the future? Starting with the customer is extremely important and it’s not necessarily obvious for a supply chain person to do that because that’s not necessarily our comfort zone. The comfort zones of many supply chain managers are back with the suppliers and the supply base. However, what we found in our research was that the companies that start with the customer and work backwards are really way ahead of the game. Once that is set up, the next step is to do an internal assessment, using outside resources, to do a comparison of where you are versus best in-class and identify what’s the gap between you and them. 

What are some ways a CSO can set up his or her company to maximize ROI for every stage of the supply chain?

This question takes me back to the principles that organizational leaders need to follow. One of those principles that we see violated regularly is the principle of separating demand fulfillment from demand creation. Let me explain what I mean by that: demand creation is just what you would expect it to be, things like sales and marketing and generating demand. Demand fulfillment comprises all of the manufacturing and supply chain functions. Sometimes the water gets muddied between those two. I’ll give you one example. Take sales forecasting: Is that a demand creation activity or demand fulfillment activity? We would argue that forecasting, although often tucked under the sales organization, is really more of a demand fulfillment activity because it starts the process of the production planning cycle. I think companies that are organized in such a pure way are better able to execute and implement improvements to projects faster.

Another aspect that can be very fascinating when you talk about an organization is their metrics or KPIs. There’s a classic line; I think Eli Gold said it: “That which gets rewarded and measured gets done.” And frankly, not a whole lot else gets done, so you better make sure that you measure and reward the right things. One thing good senior executives will ask themselves is “Do I have the right metrics? Do I have the right KPIs to create the right behaviors?” In answering these questions, there needs to be a logical framework. If economic value added or economic profit is the one thing you’re striving for, you need to show how all of the metrics flow into that. What are the drivers? What are the primary metrics? What are the drivers of those metrics? Once metrics are set, people need to establish really good goals that drive the right behavior. Goals may be just beyond the organization’s reach, but not too far beyond. Goals need to be set with best practice benchmarking in mind, not just against themselves, but against the best in class within their entire industry.

What do you feel is the most undervalued or overlooked action a company can take to drive shareholder value?

I have a feeling that my answer to this question will be unlike what many people might say, which speaks to the fact that this is an idea often missed by companies. When I say it, it’s going to sound obvious, and that is lead time: Lead time at every link in the supply chain. Too often, we see leadership and companies that totally ignore lead time. They don’t measure themselves on lead time, or they don’t measure lead time at all. And it starts with a new product and action lead time. It goes into the planning and forecasting lead times: How long does it really take you to replan and do a forecast and a new schedule? And supplier lead time; so many companies don’t aggressively manage their supplier lead time or their manufacturing lead time. Another question: How long does it take to get things through your factory? Then there’s fulfillment lead time and delivery lead time, not to mention decision lead time: How long does it take the overall organization just to make a decision to access real, actionable data and then use the information to make good, rapid decisions? I think the thing that is missed so often is people don’t manage time, lead time in particular. I think that’s the most undervalued action that companies might be missing. So my advice is simple: Focus on lead time and every element of it.

Driving shareholder value through enabling supply chain leaders to better manage their organization and their company’s supply chain is just one way that the Global Supply Chain Institute educates the next generation of supply chain leaders. At UT’s Haslam College of Business, we are proud to educate the next generation of supply chain leaders. Here’s how you can gain the skills to join them.