You are the Chief Supply Chain Officer of a global consumer goods company and yo

Question

You are the Chief Supply Chain Officer of a global consumer goods company and you are restructuring the salary and incentives of your top direct reports, including your heads of procurement, logistics, risk management, and supplier compliance. The CEO has indicated that over the next five years your priorities (in order) are to cut costs by 10%, reduce the total number of suppliers by 5%, increase the spend going to smallholder farmers by 10% and decrease the environmental impact of your supply chain (as measured by a variety of indicators including carbon emissions, absolute volume of water drawn from at-risk water sources, etc.) by 25%, and has indicated that you could earn bonuses of up to 50% of your annual base salary for achieving these goals.

a. How might you structure incentives differently across the heads of procurement, logistics, risk management, and supplier compliance? Describe your rationale.

b. If you expect to have a $1 million pool of salary bonus to distribute across each of these four functions annually (i.e., procurement, logistics, risk management and supplier compliance), how might you start to allocate that money to align with your priorities? Describe your rationale.

Explanation / Answer

a. Incentives for reducing the total cost of operations by 10% and reducing suppliers be 5% will be shared between procurement and logistics heads who will employ cost effective methods of transportation and restructuring of suppliers base in favour of few but quality suppliers. They will get 10% bonus each for each of these tasks.The procurement head will also get 5% for ensuring supplier compliance.

2. Incentives for reducing environmental impact will go to heads of risk management who will get 20% incentives on base salary for reducing the risk of penalties and trials for environmental degradation.

3. Incentives for involving and contributing to small hold farmers will go to supplier compliance department for upgrading and improving the processes to comply to the regulations. The incentives will be 10% of their base salary.

Ans 2:

Head of procurement: 350000

Head of logistics: 250000

Head of supplier compliance: 100000

Head of risk management: 300000

Heads of procurement and logistics will get 30% and 25% respectively for their efforts in reducing overall costs of operations and supplier management.

Head of supplier compliance will get 100000 for relative importance of the task and efforts involved in it.

Head of risk management will get 300000 for the degree of reduction in impact on environment ( 25%) and potential cost saved through it.

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