Against the backdrop of conversations about digitization and the impending obsolescence of the supply-chain function, it’s no surprise that this type of experience is the exception, rather than the rule.

However, recent global events have compelled all CEOs to directly reckon with supply-chain issues. The Covid-19 pandemic, Russia’s invasion of Ukraine, and disruptions in the Middle East and the Panama Canal have underscored the value of CEOs with supply-chain expertise who can proactively handle low-probability, high-impact “black swan” events.

The negative repercussions of these global events have pushed some CEOs to take a more hands-on approach to safeguarding and restructuring their company’s supply chains. In-depth discussions about sourcing, production, and logistics that previously fell squarely within the domain of those working within the supply-chain function are now happening in the CEO’s office. As supply chains become more complex and globally intertwined, CEOs have identified supply-chain resilience as a key determinant of company growth over the next three years.

From Supply Chain Management to the Top of the Hierarchy

In the past, awareness and engagement of the supply-chain function was the key expectation for CEOs. But is it now time for CEOs to be SCM experts themselves? A close examination of S&P 500 CEO career trajectories suggests that CEOs with prior experience in high-level supply-chain roles might be the key to building more resilient supply chains and weathering unanticipated disruptions.

Specifically, we analyzed the prior work histories of S&P 500 CEOs between 2000 and 2021 and found that although the group of CEOs with high-level work experience in SCM roles is small, their numbers have been steadily growing since 2010. The 17 current and prior S&P 500 CEOs who previously held high-level supply chain jobs includes ExxonMobil’s Darren Woods, who served as the company’s vice president of supply and transportation; Mary Barra of General Motors, who held the role of executive vice president of global product development, purchasing, and supply chain; and Tolga Oal, of Howmet Aerospace, who previously held the role of senior vice president of global procurement and supplier quality engineering at American Axle & Manufacturing.

We found that firms led by CEOs with SCM experience mention supply-chain-related terminology more often in their annual reports. We also found these leaders took a more proactive approach to addressing potential supply-chain challenges, and in leveraging the supply-chain function to generate new business opportunities.

Take WW Grainger, the industrial supply company. Its annual report discusses how the company maintains a diversified base of suppliers as well as alternative sourcing plans to mitigate the risk of supplier concentration. The end-to-end supply chain transformation undertaken by Gap Inc. allows it to “both enhance product quality and increase speed to market – while cutting costs and eliminating waste.” O’Reilly Auto Parts designed its supply chain in a way that allows it to replenish its stores multiple times a week directly from its distribution centers and provide access to hard-to-find parts.

All three of these companies have CEOs with high-level SCM experience and have taken steps to strategically manage their supply chains to achieve a variety of benefits, from building resiliency into their supplier base, to decreasing waste, to enhancing customer service.

Implications for the Bottom Line

In the words of Bob Biesterfeld, CH Robinson’s CEO and a supply-chain expert, Covid-19 made supply chain resiliency top-of-mind for all businesses: “[T]he rest of the world learned what we already knew: the global supply chain and the people who make it work are vital to the world’s economy.”

We were curious to test whether CH Robinson and other companies led by those with SCM expertise had an advantage in navigating the pandemic. Did these fare better in managing the financial impact of supply-chain disruptions during Covid-19?

To analyze financial performance through the onset of the Covid-19 pandemic, we collected data on three metrics — return on assets, asset turnover ratio, cost-to-sales ratio — for all S&P 500 firms in both 2019 and 2021. We once again used a matching process to create two groups of similar firms within the same industries, some of which were led by CEOs with SCM experience and others which were led by CEOs without SCM experience. We then calculated the difference in the average financial performance for each group over the two-year span from 2019 to 2021.

We found that firms led by CEOs with SCM experience were more effective in maintaining profitability levels, while increasing sales and keeping costs low during the height of the crisis. While their peer firms (led by CEOs without SCM experience) were also able to keep profitability levels steady, in many cases they did so at the expense of higher costs (such as increased inventory of products) or declining total sales.

We believe the stronger performance of firms led by CEOs with SCM experience can be attributed to the myriad benefits of prior high-level SCM roles for the following reasons:

1. Early detection and quick response to supply-chain disruptions.

Having a background in SCM enables CEOs to recognize emerging issues in global supply chains and react early to avert major disruptions. For example, Hanes Brands, the multinational clothing company, was steered into the pandemic by CEO Gerald Evans, Jr. who had previously served as the division president of global supply chain. Under his leadership, the company nimbly shifted its operations to “quickly pivot to large-scale production of personal protective equipment (‘PPE’)” for governments, organizations, and consumers.

2. Heightened focus on supply-chain matters.

Each day, countless tasks compete for a CEO’s attention. CEOs with SCM experience are more likely to have an inherent appreciation for the business-critical nature of the supply-chain function and to prioritize it accordingly. During the pandemic, these CEOs were more likely to carve out the time needed to tackle supply-chain issues and allow decisions to be made in a timely fashion.

3. Comprehensive understanding of underlying business operations.

As noted by Sascha Menges, CEO of German industrial tool and hardware manufacturer Festool/TTS Tooltechnic, supply-chain roles permit individuals to witness “constant changes in day-to-day operations” and provides them with the capabilities to “intuitively understand how the underlying business works.” These attributes became indispensable as CEOs sought to develop creative new ways of doing things to navigate pandemic-related supply chain disruptions.

How to Cultivate a Pipeline of Future CEOs with Supply-Chain Management Expertise

Given the range of benefits that SCM experience provides to CEOs, we offer three recommendations for how organizations can develop SCM expertise among prospective CEOs and executives:

1. Champion a rotational leadership program across SCM functions.

Organizations should create leadership programs and development activities that cultivate SCM expertise among promising senior-level executives as well as early-career managers. By providing learning opportunities across different SCM functions (for example, procurement or logistics) to employees at different managerial levels, firms can nurture a pipeline of leaders with the requisite knowledge and recognition of the vital role that SCM plays in business.

For example, Honeywell’s Future Supply Chain Leaders program rotates high-potential employees throughout the organization to provide in-depth exposure to the company’s procurement, operations, and shipping functions. While opportunities for more seasoned executives will need to be tailored toward individual circumstances, systematically offering stretch assignments that involve responsibility for supply-chain functions can accomplish a similar goal.

2. Elevate importance of SCM experience when succession planning.

When engaging in CEO succession planning, boards should take care not to overlook leaders who have successfully handled supply-chain challenges. When shortlisting candidates, boards should proactively screen for those with SCM experience.

When Office Depot hired Gerry Smith from Lenovo to lead the company as CEO, the board specifically noted the value of his experience leading “an industry recognized supply chain organization” and “long-standing relationships with some of Office Depot’s largest suppliers.”

3. Poach senior-level SCM talent.

Company leaders and board members can use their professional networks to keep an eye out for external talent with SCM experience to fill both board and internal management positions. Board members with high-level SCM experience can serve as advisors and mentors to management, and in some cases, could even become potential CEO candidates themselves.

Prior to becoming Apple’s CEO, Tim Cook held SCM roles at Compaq and IBM, and was then persuaded to join Apple and take charge of end-to-end management of its supply chain. When the time came for a CEO transition, Steve Jobs and the Apple board saw how Cook’s SCM background equipped him with the right skillset for shepherding the company through years of tremendous growth.

Recent events have shown that massive supply-chain disruptions are becoming a persistent issue. As much of corporate America works to relocate their supply chains closer to home, CEOs with SCM experience may be the key to success. Boards must now more than ever recognize the value of CEOs with SCM experience.

Yo-Jud Cheng is an Assistant Professor of Business Administration in the Strategy, Ethics and Entrepreneurship area at Darden. Dwaipayan Royis an assistant professor of business administration at the University of Virginia’s Darden School of Business, where he studies socially responsible operations. He previously worked as a project manager at the Royal Bank of Scotland.