There has been a growing awareness in recent years of a difference in perception between C-level executives (CEO’s, CFO’s, COO’s) and O-level managers (Operations-level managers including Transportation, Purchasing, Logistics, Inventory, Materials Management, etc.) when it comes to the role of supply chain management. These differences in perception within the same organization may seem paradoxical, but they also illustrate a potentially troublesome scenario for transportation managers.
Julia Kuzeljevich, Features Editor for Canadian Transportation & Logistics magazine, touched on this subject in her excellent cover story “Not Too Close For Comfort” in the May issue of CT&L. The cover story addressed changing global sourcing strategies identified in the 15th Annual 3PL Provider CEO Perspective study. One of the many important trends identified by participants in this study was the increasing number of organizations adopting near-sourcing strategies, relocating their operations away from Asia and closer to home (reportedly 20% of European CEO’s and over 30% of CEO’s in the Asia-Pacific area) in response to increasing fuel costs, currency fluctuations and time-to-market concerns.
These changes in direction also serve to highlight the differences in perception between C-level executives and O-level managers. For example, transportation managers traditionally balance cost and service concerns, although with the advent of global sourcing practices increasing freight costs are a reality, focusing more attention on service concerns as a result. Faced with longer transit times, potential delays and multiple border crossings, it’s understandable that transportation managers would strive to develop long term carrier partnerships based on consistent, reliable service patterns.
In many cases, cost concerns may take second place to delivery performance as transportation managers respond to requirements for sales-driven customer service objectives, balanced by financial concerns for minimal inventory levels. Optimally, these carrier relationships tend to be founded on repetitive (or forecasted increases in) shipping volumes.
The 3PL Perspective study however identified concerns among C-level executives that extended chains also raise vulnerability issues, resulting in a desire for more agile supply chains, providing flexibility to relocate operations to other countries as market conditions dictate. These differences in perception can result in competing interests between transportation managers focused on supply chain costs and attempting to develop long-term supplier relationships based on stable, repetitive shipping volumes, and C-level executives more concerned with quarterly results and total landed costs, requiring flexible supply chains that can have adverse effects on rate levels and may result in shorter-term carrier relationships.
For transportation managers faced with this dilemma, two requirements should become abundantly clear:
1. The need for O-level managers to have senior management representation so they can have access to information that might indicate pending market changes.
2. Provision for flexibility when developing strategic supply chain plans, including the potential need for contingency carriers in the event near sourcing becomes reality.
Another consideration in this decision-making process is the impact on inventory, both from the perspective of investment costs and carrying costs. Near sourcing may result in shorter lead times, which in turn can have a significant impact on inventory levels.
Employees look at inventory in different ways: C-level executives view inventory in terms of its impact on working capital, while O-level managers view inventory as a buffer against erroneous forecasting and potential customer complaints. In fact, inventory overlaps both of these areas and needs to be reviewed as early as possible when organizations consider changes in strategic direction.
Understanding this difference in perception is critical for O-level managers to be successful, particularly with regard to how their performance will be measured by the executive suite.