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What CEOs really think about supply chains

CEO and the supply chain

Over the past decade, there has been much talk about how supply chains have been elevated from backwater considerations to boardroom issues.

 

The question though remains: how deeply do chief executives personally involve themselves in the intricacies of where and how their company sources products and services?

 

Consumers and authorities increasingly want to know where the products they buy come from but do CEOs really care about whether their supply chains contain abuses of labour, environmental damage or bribery? Or, is it all just about delivering products on time and to the right cost?

 

“I was schooled in following the principles of quality, cost and continuity as the key building blocks of an effective supply chain,” says Peter Harding, chief executive of soft drinks group Lucozade Ribena Suntory.

 

“To this three-legged stool, we must now add the fourth leg of reputation. Good business practice in the downstream supply chain is now a legal and reputational requirement. Failure to meet this requirement can be a costly mistake.”

 

Retailers are particularly vulnerable to lapses in large and complex supply chains.

 

Last year The Guardian revealed that own-brand corned beef sold by Waitrose supermarkets was linked with alleged modern slavery abuses in Brazil.

 

Meat processing group JBS said the farm in question was not on the Brazilian government’s official ’blacklist’ of companies known to use slave labour and that it had stopped buying from that farm following raids in the summer of 2016.

 

Waitrose took all cans of corned beef linked to JBS off its shelves, while other supermarket groups with links to the company, including Lidl and the Co-operative Group, said they were conducting investigations into their own supply chains.

Beyond the headlines

 

Even without such scandals, however, Tjeerd Jegen, chief executive of Hema, a 550-outlet department store chain in The Netherlands, believes CEOs should personally involve themselves in supply chains.

 

“I do like to get involved in the way we buy,” he says. “One of the first things I did when I joined Hema was to hold a big supplier conference to share the journey we’re on.

 

“I felt the business had stood still so we encouraged suppliers to take risks with us and innovate.

 

“They were very happy because the only thing they heard from the previous management team was that everything had to be done at a lower cost, so they had started reducing innovation and taking shortcuts in terms of quality.”

 

Jegen sees considerable cost and innovation benefits of getting involved in the supply chain, regularly visiting Hema’s buying offices in Shanghai, Hong Kong and Dhaka where the group sources most of its nonfood products.

 

Closer to home, he says he got directly involved in onboarding a new German supplier of a one-size-fits-all mattress that the company sells online.

 

“Sometimes I like to see a new business opportunity and get a sense of it before handing it over to a commercial team,” he says.

 

Outside of that, he has kept an eye on a supply chain transformation effort to ensure it would help the business deliver for years to come.

 

“We did a full review of our supply chain two years ago to make sure it was fit for the future because ultimately a retail company is basically a distribution company. It is a core asset of our business.

 

“The supply chain set up is a core part of the company and reports directly to me. We also often spend our monthly off-site meetings of our leadership team in our distribution centres because they are easily forgotten but so important.”

 

Kenny Wilson, chief executive of home furnishings and design stores Cath Kidston, also takes a close interest in his company’s supply chain.

 

“I am closely involved in our terms of engagement at Cath Kidston,” he says. “Ensuring where and how things are made is vitally important to us and the board.”

 

Improving transparency

 

Wilson admits delegating some of the oversight to Geert Peeters, the company’s chief operating officer, who formerly headed the global supply chain at jeans-maker Levi Strauss, where Wilson was senior vice president of European commercial operations.

 

“Geert has greatly increased the transparency of our supply chain and implemented many of the disciplines we had at Levi’s,” he says. “He has a great perspective on this topic.”

 

In the food and beverage sector, the threat of health scares, contamination and product recalls is ever present and means CEOs in this industry must focus on these risks.

 

Juliet Barratt, cofounder of Grenade, a fast-growing Birmingham-based cereal bars manufacturer, says her husband Al Barratt, the company’s chief executive, is closely involved with the supply chain at all levels.

 

“Al has a very strong relationship with all of our suppliers with monthly visits and daily calls,” she says.

 

“If we had any concerns about poor hygiene, cutting corners or substandard ingredients, we would end a relationship immediately.

 

“As we are a food brand, we have to develop a relationship with consumers. They need to trust us. Complete supply transparency is key.

 

“Our suppliers are involved at the very early stages of our processes. We communicate daily with them, providing forecast estimates and purchase orders, and monitoring production and delivery.

 

Staying on the agenda

 

William Storey, chief executive of Rich Energy, a UK energy drinks group sourcing ingredients from Brazil and Austria, states: “My guiding rationale is any business is only as strong as its weakest link," he says.

 

“A poorly-managed supply chain is an unnecessary risk; a strong one is a key defence against unexpected or aggressive competition.

 

“As we grow I have put more time, not less, into thinking about the supply chain and future-proofing it.

 

“We need robust supplies of a rare sugar cane, and, while our recipe is consistent, issues affecting energy drinks such as the sugar tax and children’s consumption play their part.

 

“I cannot see the day when I devolve supply chain responsibility. Modern management is consensual, discursive and flat, and I want our decisions and debates with our suppliers to figure at the strategic and not just the contract level.”

 

It isn’t just the B2C sectors where CEOs have a laser-like focus on the supply chain. It also extends to the mining and extraction industries.

 

In heavy industry, Graham Kerr, chief executive of South32, the coal, nickel, manganese ore and aluminium miner spun out of BHP Billiton in 2015, says he gets personally involved in ensuring the supply chain reflects the company’s values of being caring and demonstrating trust, togetherness and high performance.

 

“We believe if mining is done sustainably, it can change people’s lives forever,” he says. “I’ve seen mining make a great difference to people’s lives when I worked at a diamond mine in Canada’s Northwest Territories.

 

“It created an enormous amount of employment, educational opportunities and wealth and it did so in one of the world’s most pristine environments and generated a good return for shareholders. It showed that you can get the balance right.”

 

A true reflection?

 

It is tricky to get inside such claims to determine whether the actions of CEOs on supply chains justify the rhetoric.

 

However, some supply chain experts with a broad overview of industry sectors believe progress has been made.

 

“My experience of working with chief executives,” says Dave Food, strategy director of supply chain consultancy Prophetic Technology, “is that where the brand is strong and the brand values are at the forefront of the customer-facing proposition, CEOs are actively interested in their supply chains.

 

“However, if the brand values are less significant, this interest is often deferred to whoever is legally responsible on the board for failure and noncompliance.”

 

Although plenty of campaigners believe supply chains need to do more to prevent abuses.

 

“The next development of the Modern Slavery Act has to put some teeth into it,” says Paul Gerrard, group policy and campaigns director of The Co-operative Group.

 

“At the moment, the law just requires companies to say what they’re doing to tackle modern slavery, have it signed off by a group director or board member and put a link on their internet home page. The standard of these statements is pretty poor.”

 

Nick Grono, chief executive of The Freedom Fund antislavery charity, is more prosaic.

 

“Where you have a very low-cost, low-wage environment in your supply chain, there is always a risk of forced labour,” he says.

 

“The issue is not whether there is forced labour in these companies. If you look for it, you’ll probably find it.

 

“It’s about how you deal with it; what policies you put in place to find it and how you respond to it when you do find it.”

 

Chief executives are therefore likely to need to devote even more time to their supply chains. This is an issue that is unlikely to go away.

 

This article is a piece of independent journalism, written by an experienced journalist and commissioned exclusively by Procurement Leaders.