Global Supply Chain Group’s Guide to Supply Chain Governance
Boards are Remarkably Good At Corporate Governance, and Yet Face the Flak For It
Everybody who has spent any time with boards of directors lives and breathes corporate governance. The corporate governance process is designed and run with almost military precision to give effect to the legislative requirements and commercial exigencies with only a few board meetings a year. Due to the focused attention of some of the best people in the corporate world and significant budgetary allocation, the governance of what falls within the four walls of the company itself is done with a remarkable efficiency almost all the time.
So, the natural question is why then such a lot of hoopla in the press about corporate governance. Where does it fail for the 3Ps (the press, the politicians, and the preachers from the NGOs) to make such a lot of noise about it? This question merits a little deeper exploration because almost all failures of corporate governance lie elsewhere.
After visiting with numerous boards and having spent countless hours past midnight preparing board presentations, papers and submissions, we have become convinced that lack of corporate governance is not the real culprit in most cases. That infamy lies at the behest of supply chain governance.
Supply Chain Governance is Often Misunderstood, But Gaining Currency in the Broader Community
When media or hostile shareholders want to stress a board member, they ask him a question about the supply chain governance in his/her company. Chances are that there is no one on the board who has a full handle on the supply chain. There is a probability that even the supply chain professionals in the company are likely just logistics or procurement experts with little real-life experience in the full gamut of supply chain methodologies that are available in 2020.
What is Supply Chain Governance, and Why does it matter?
However, supply chain governance is a totally different kettle of fish. With strategic supply chain expertise in such short supply at the board level, is it a surprise that most companies fall short in Supply Chain Governance. We give a number of examples to answer the question of what is supply chain governance and why does it matter in this article. Here is a short extract:
Modern corporations have evolved into broad and deep networks of business entities joined together by mutual interest. Over the last three decades, supply chains of most companies have grown wider – regionally, nationally and internationally, as well as deeper – both upwards and downwards.
Yet, supply chain governance has not kept up. How many companies do you know that have a supply chain committee as part of the board of directors? How many companies have a supply chain board that reports directly to the board of directors? In fact, how many companies have any real supply chain capability present in the board meeting at all?
This Guide is for Board Directors
It can also be used by personnel working close to the board who want to genuinely assure sound supply chain governance practices in their companies.
Starting with the definition of supply chain governance, and outlining the differences between the corporate governance and supply chain governance, this guide goes on to set out a framework and methodology for assuring supply chain governance in your company. It explains the key components of supply chain governance, and how they differ from corporate governance.
In a nutshell, this guide will help you put proper supply chain governance protocols in place within your company, and be able to conduct regular pulse checks to ensure that they are being followed.
Want to Build or Strengthen Your Supply Chain Governance Program?
Use this guide to conduct a supply chain governance audit within your company to quantify the performance on key relevant parameters. This report will also provide guidance on what to focus on for your supply chain governance improvement program. Further, use this information to do a regular pulse check as the performance improves over time.
Strong Supply Chain Governance, Resilient Company Profits
Gone are the days when the directive to ask for 3 quotes on every supply deal was sufficient for supply chain governance. Today, if you want to build resilience, even anti-fragility, into your company profits you will need a lot more robust and flexible supply chain. This cannot be achieved with a rigid and formulaic regime. Yet, you need governance over all that robustness and flexibility. Otherwise, your company is open to unlimited risk.
Be Able To Robustly Defend Your Corporate Governance
Hostile shareholders are not the only interest groups who are constantly challenging companies and their boards on corporate governance practices. The number and types of special interest groups are constantly growing, and the press is always on the lookout for a good, juicy story. And this trend is only going to accelerate. So, how do you defend your corporate governance practices as they relate to suppliers in remote locations half-way across the earth?
Measure, Improve, Report on Supply Chain Governance Pro-actively and Regularly
“The best defense is a good offense“. If you want defensible corporate governance, you will need a protocol to regularly and pro-actively measure, improve and report on supply chain governance. This is not just astute corporate leadership, it is also sound stewardship of the planet and its resources.
Comprehensive Supply Chain Governance – with Clarity, Structure, Frameworks
There is not a single company that does not make an attempt at supply chain governance. Many are convinced they are already doing everything they can be doing. Yet, they get caught out, often at the worst times. What is often lacking is a clear structure and framework around supply chain governance, and how it feeds into the overall corporate governance program in the company. One of the biggest values of this guide is that it brings clarity, structure and appropriate frameworks to supply chain governance.
De-risk Board Deliberations – Keep Complete Track of Controversial Moves
Whether it is a move to outsource manufacturing to a low-cost country or to open or close a new plant, or to engage new suppliers – any of them have at least some potential to be controversial. There will always be people affected by any of these moves who will give it a spin of their own and present a case to the press or politicians or NGOs.
No, doubt you already have a rigorous process for keeping track of all such decisions and their rationales. Without a proper supply chain governance frameworks these decisions look more like an accounting-based justification, or a tick the box exercise that does not go into the adequate depth of the relevant issues.
Many Businesses Today Are Just Giant Supply Chains in Disguise
Let me start with the obvious observation for those type of businesses – any director on the board who does not have at least some supply chain mastery is lacking the requisite governance know-how.
The 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.
High Supply Chain Intensity Businesses Must Have Supply Chain Expertise on Their Boards
Retail, manufacturing, distribution, wholesale, trading houses, food production, industrial goods, extraction and mining, construction are businesses with a 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 the conduct of business.
Almost all those businesses MUST have supply chain governance protocols in place, and perhaps multiple directors on board with real supply chain mastery.
Can A Company Survive Without Supply Chain Governance?
Undoubtedly, a company can survive without supply chain governance. In fact, sole proprietorship companies sometimes do not even have a board of directors. The very concept of a company is a relatively new ‘invention’ in the great annals of human history. So, a better question is the one below:
Should a Company Try and Make Do Without Supply Chain Governance?
If a company has a legitimate board of directors and a pro-active stance in governance, I cannot see a reason why it should. It would only lead to harm at some point in time, which could be sooner, or later.
Supply Chains Are Already At Their Breaking Points
The resilience of supply chains is being called into question across the business world. I can give numerous examples from the current events but desist because those stories have not played out in full yet. This example from our book THE 5-STAR BUSINESS NETWORK should suffice.
Even more alarmingly, most businesses are let down by their supply chains almost every day. They accept these minor debacles with a shrug of the shoulders because they have no other recourse.
Most of these debacles do not make it to the press, or even to the board room discussions, simply because they are buried under the carpets of the shop floors forever.
Most boards first hear of any of their company’s supply chain missteps only just before they are about to feel the full brunt of legislative and public indignation.
Corporate Governance Cannot Ensure Supply Chain Integrity
In our experience of more than 400 supply chain projects over the last 24 years on almost all continents – our diagnostic revealed that no amount of further due diligence in corporate governance would have been able to reduce the supply chain losses or risks.
In each case, the situation needed a new perspective, a broader and more in-depth look using a different lens.
Just try to go through some of the selected one-page case summaries here and discern what is happening behind the scenes in each case.
Ask yourself this – why corporate governance was unable to detect and diagnose the problem, and then solve it?
You Need this Guide to Understand Why Management Accounting-based Governance Mechanisms Fail for Supply Chain Control
This report will then guide you through a novel framework of control and governance – board-level supply chain measures. Corporate governance tends to be a compliance-focused activity and sometimes ends up degenerating into a tick the box exercise with a lot of checklists. The letter of the law must be upheld in every case, though the spirit of the agreement or the broader strategic business objective may get ignored in the process.
If you want more information on this report – click here…