I interviewed Lalit Panda who discussed Where C-Suite Thinking Fails at Supply Chain Optimization.
Would you like to give a brief background of yourself?
Like I mentioned, I’ve had three C-suite experiences heading IT function in multinational corporations, so I’ve watched the interactions in the C-suite at close quarters. I’ve also had, prior to that, two decades of supply chain experience. I bring a perspective about the issues that we’re going to discuss in this call.
Why does the C-suite not take a long-term view on things? Do you have any examples pertaining to supply chains?
The C-suite, I think it’s a fundamental paradox in the U.S. C-suite thinking, which is that the view is specially focused on the share price and investors, and that’s partly because the CEO of public organizations are generally part of the board, and, usually, the shareholder value in the short-term is a very key driver. But the paradox here and the conundrum is that in order to impact the investor value, there are some long-term decisions that have to be considered in terms of process. I think if you look at supply chain, for instance, having the right platform in order for the organization to improve in a sustainable manner the efficiency and the productivity in the supply chain, it is important and that’s something that needs to be invested in and takes time to implement while this process changes. the conundrum is that it distracts the C-suite from the short-term earning scores that, generally, the team has to report. That’s a conundrum that impacts on how much value is now being extracted from the supply chain.
There are, of course, organizations that have a long-term view and invest in the right systems for process efficiency, but, in general, I think the driver of short-term financial reporting limits the organization’s view on how technology and process changes can improve the supply chain efficiency over the longer term.
Can you talk more about what problems this creates?
Well, the first thing it creates is the fact that there is immense pressure around supply chain folks to meet the short-term goals. With that, sometimes the suboptimization prevents the value from being realized. For instance, if we wanted to reduce cost in the supply chain by apportioning fixed costs by moving more volume without understanding the dynamics of the demand, you’d end up with excess inventory that blocks up cash on the balance sheet and also leads to margin depreciation.
I think the key here is to be able to use the process and the tools and the technologies to be able to produce the right quantity of the right product at the right time. That involves a substantial amount of process work that needs to be done. What happens in general is the supply chain pressures of making the short-term revenue goals that prevent the focus on developing the process. In the short-term you get a suboptimal performance of the supply chain, and you miss out on the long-term value that could be created.
That’s why I think it’s key that the CEO and the team view this strategically and the CFO view is generally of short-term cost optimization, and that needs to be balanced by the grunt work of process changes and system enablers. It’s not that the CFOs do not understand the value, but it is a question of tradeoffs, and I think the CEO and the rest of the management team need to consider the impact of having process improvements deliver in the longer term. So, short-term pain for long-term gain would be the recommended approach here.
How can this be changed? Is there more you can say about how to change this?
I think the key is for the executives in the C-suites to have a very open and robust debate about these things and also be able to articulate that in the external communications, especially when these process works inhibit short-term results. The investor community is not generally very forgiving about not meeting certain earning expectations.
This can be approached through good communications to explain the view that the supply chain needs process and technology investment in order for it to deliver better value over the long-term. In a sense, that value can be substantially higher than meeting the short-term earning scores. I think if that communication is done effectively, the pressure on the executive time to focus on the short-term, may be modulated somewhat, allowing them to be able to deliver some improved value.
That’s, I think, my recommendation: There has to be some discussion, some mediation, some evaluation of all these process-improvement opportunities in order for the organization to be sustainably improving their supply chain performance over a period of time.
And thanks again, Lalit.
You’re welcome, Dustin, it was great talking to you, and I look forward to chatting again in the future.
About Lalit Panda
Chief Information Officer