which companies need board directors with supply chain expertise?
While writing the book THE 5-STAR BUSINESS NETWORK, our team analysed the annual performance and boards of the top 1200 companies in the world over long term - a period of 5 years. The full details of the study are given here.
One of the facts that was amply proven from this study was that the above question is rarely asked at the board level, or at higher levels. Those who frequently examine the composition of boards to assure diversity and governance rarely try to match the skill sets with the type of business the board is meant to govern.
Most Boards Lack Supply Chain Expertise
When we present at APEC Business Advisory Council, or similar intergovernmental bodies that deliberate on corporate governance issues, it is clear that company boards continue to grapple with a number of issues that they are not equipped to deal with. Supply Chain is one of those issues. Sadly, most boards are deficient in one skill that they need more than any other in this post-COVID 19 era.
Does that mean every company must have some directors with supply chain mastery?
Clearly, there will be some companies that do not. So, let us first answer a simpler and much easier question - which boards do not need directors with supply chain expertise?
Not all boards need supply chain expertise
If the company's business is primarily in finance, insurance or real estate (FIRE businesses) - the management of supply chains and demand chains in these businesses is such a specialised task that the application of standard supply chain management heuristics and algorithms would require significant adaptation, a task beyond the cognitive capabilities of all but a handful of people on the earth.
In other words, it would be fruitless to appoint directors with supply chain mastery to the boards of the FIRE businesses.
The only possible exception would be the boards of the logistics related FIRE businesses - such as REIT firms specialising in warehousing, or ship finance companies or insurance brokers focusing on international trade risks.
Many business are just giant supply chains in disguise
Now, on the other end of the spectrum, there are companies where the entire business is just a giant supply chain in disguise. I will give many example of these type of businesses later.
Let me start with the obvious observation in that case - any director on the board who does not have at least some supply chain mastery is lacking the requisite governance know-how.
Question arises at this stage - what is supply chain mastery and how do you measure it. This page will answer that question more than adequately for our purpose. I encourage you to peruse this material because in the virtualised post COVID-19 world, it is supply chain mastery that separates fake corporations from real winners.
Now let me give some examples of such companies - where the entire business is just a giant supply chain in disguise.
Here, I am resisting a temptation to say that - with every business trying to just manage the demand and the supply in a manner that minimises friction, and maximises profits all the time - every business is really just a supply chain business.
While that statement might be factually true, it will broaden the scope far too much for most people to be comfortable with it.
Moreover, in reality, supply managers and demand managers lack the knowledge to manage the demand and supply outside of a limited context that they generally encounter. Fixed bandwidth businesses - such as telecoms, Netflix etc are clear examples of this phenomenon.
Many other businesses, mainly service oriented businesses, do not want 'traditional' supply managers or demand managers 'handling' their 'valuable human assets', treating them like a bunch of widgets. This does not just apply to sensitive egos of prima donnas of Broadway, but also to industries as diverse as lift maintenance businesses, mining drilling businesses, advertising copy writer, strategy consultants, heart surgeons, and airlines pilots.
High Supply Chain Intensity Businesses Must Have Supply Chain Expertise on Their Boards
Almost all other businesses, are high supply chain intensity businesses. Retail, manufacturing, distribution, whole sale, trading houses, food production, industrial goods, extraction and mining, construction are businesses with high level of physical movement of goods, high level of value derived from matching demand with supply in real time, and high level of supplier/customer interaction during conduct of business.
Almost all those businesses MUST have at least one, perhaps multiple directors on board with real supply chain mastery.