Life begins at 40
Over the past four decades, logistics has advanced from a semi-obscure function shrouded in mystery to a central player in the supply chain.
Special LM Staff Report -- Logistics Management, 12/1/2002
In 1962, the readers of Traffic Management magazine (the old name of Logistics Management) were treated to a comprehensive profile—complete with photos—of the "eleven busy men" of the Interstate Commerce Commission. Our newer readers today probably have never even heard of this once-powerful regulatory agency, let alone know what it did.In 1962, our first year of publication, the magazine was filled with advertisements for small-shipment specialists like REA and Greyhound Package Express, railroads such as the Atlantic Coast Line and the Chesapeake & Ohio, motor carriers called Interstate System and Spector ... not to mention a host of barge companies. Where are they now? All part of transportation history.
In one of those early 1962 issues, a feature article told of Raytheon Corp.'s innovative use of punch cards to track airfreight shipments. The prospect of an Internet-enabled system that could track the movement of goods across the globe never entered the wildest imagination of anyone at Raytheon or anywhere else.
These contrasts between 1962 and the present reflect a sea change in transportation and logistics over the past 40 years. Every aspect of the profession has been profoundly affected. The accompanying eyewitness accounts chronicle the changes from the key managerial, regulatory, technological and educational perspectives.
Thinking about the various jobs you could be doing (or writing about, for that matter), you begin to realize how lucky logistics professionals are. No other part of the organization has been presented with as many interesting operational challenges as transportation and logistics. None has provided as much opportunity for its practitioners to grow in professional stature. And few jobs seem to generate as much camaraderie among the people who work in this field. In short, it's been a good space to work in—and it promises to only get better.
The Regulatory Watershed
Nothing changed the face of transportation and logistics like deregulation. It all began with the Carter administration in 1978 with deregulation of the airline industry. This was followed in relatively quick succession by decontrol of the rail and motor carrier sectors. A few years later, in 1984, the regulatory reins on ocean carriers were lifted, completing the grand slam of transport decontrol.
For shippers and carriers alike, deregulation was a watershed event. Prior to deregulation, most of the people in this field had the word "traffic" in their title. Their principal job was to understand the complicated, often arcane, tariffs and rules that governed all modes of freight transport. The job back then was important—no question about it. If a shipper ran afoul of the law or failed to protect itself against shipment loss or damage, it paid big penalties.
Yet while the role was important, it was limited. Traffic managers never really had a chance to develop their managerial skills. Tradition and regulation severely constrained them in their dealings with carriers. Their focus was on keeping a lid on costs, as opposed to improving efficiency of the operations. And because of the perceived mysterious nature of the regulations that ruled their work lives, traffic managers often became isolated from colleagues in other parts of the organization.
Deregulation dramatically changed all that—and in a very real sense marked the birth of the modern logistics professional. For the first time, these individuals could make business decisions unencumbered by the regulatory shackles. And, with a parallel trend of physical distribution integration under way, managers found themselves working more closely with colleagues in other departments like purchasing and sales and marketing. The concept of supply chain management has since replaced physical distribution, and today logistics managers play a pivotal role in managing the flow of goods and information up and down the supply chain.
Technology to the Forefront
The evolution of technology over the past four decades has been no less remarkable. In the early 1960s, punch cards and tape represented the state of the art where technology was concerned. Transportation processes were manual intensive, necessitating huge staffs to analyze rates and tariffs, check freight bills and perform numerous other clerical activities.
The technology advances in this field arrived slowly, but when they did they came with a vengeance. In the early '70s, traffic departments began to gain access to the big mainframes to store and manage their transportation data. The latter part of the decade saw the widespread adoption of personal computers in the office—where they have remained ever since.
With the PCs everywhere, practical software applications could now be developed to help companies manage their transportation and warehousing operations more efficiently. Distribution requirements planning (DRP) systems emerged that, from a technology perspective anyway, further helped break down the silos that had traditionally existed between logistics and the other functional areas. Then came the electronic data interchange (EDI) capabilities that helped automate the multiple transactions associated with the shipping process.
The arrival of the Internet brought a stunningly new capability to logistics. This landmark technology allowed shippers to communicate in extraordinary detail with their carriers and their colleagues in other parts of the organization. It enabled them to achieve visibility over the flow of goods as they moved from the source, through the manufacturing processes and on to distribution to the customer. Logistics managers and their carrier partners now had the perfect collaborative vehicle to achieve unprecedented levels of shipping productivity.
Preparing for the Next 40
The next 40 years promise to be even more dynamic than the past 40. And while it's unrealistic to try to paint a picture of the logistics scene at mid-century, it is reasonable to look a few years out. To position themselves for success in this foreseeable future, logistics managers will have to emphasize education and professional development. Technology is certainly one key knowledge area in this regard. But it's not the only one—or even the most pressing one in the minds of the practitioners themselves.
A recent Career Patterns survey conducted by The Ohio State University found that the logistics manager respondents ranked two knowledge areas higher than technology. Asked what they would study if they could return to school for a 90-day course, the top two answers given by respondents were finance and global logistics. Information technology came in third.
Reflecting on the past 40 years, it's clear that major aspects of the logistics job have fundamentally changed—largely for the better. But certain other things have not changed. Personal integrity, the ability to communicate effectively and an unswerving focus on the customer were the underpinnings of the successful traffic manager of 1962. Those same qualities remain a solid foundation for the success of the logistics professional in the 21st century.
Dr. Donald J. Bowersox
"Educating managers for a complex environment"
Q What kind of educational opportunities existed in logistics 40 years ago?
A To my knowledge, the first course in physical distribution, which later became logistics, was offered in 1957. I actually took that course, at Michigan State. There were two professors trying to put together a logical framework that would integrate what they called the "total cost of transportation." They wanted to quantify "total cost," including inventory, materials handling and storage, and not just see the field as transportation. It was a revolutionary course that put a lot of emphasis on location theory—that is, plant location, how many warehouses and where they should be located ... I got the first Ph.D. in this integrated field, what has now become logistics management. In 1960 it was a combination of real estate and transportation, broadly interpreted. Real estate got you into location, and transportation got you into the movement aspect.
Q How have educators changed their programs since then?
A The major driver of program content has been the rapid evolution of information technology that can be applied to the field. We've gone from talking about concepts to an educational experience that is "hands on," including case studies, simulations and computer-aided teaching. ... The profession has developed through presentations at CLM and the CLM Educators Conference to a fairly uniform body of knowledge. It has stopped being descriptive and started being a hands-on discipline.
Q Which business trends have shaped logistics and supply chain education programs in recent years?
A There are three main business trends shaping logistics education. One is information technology, which continues to be a major shaping force. The second is the globalization of business, because supply chains that support global initiatives are far more complex and require a great deal more integration [than their domestic counterparts]. The third thing, perhaps the most important, is the transition in business toward truly integrative management. That trend has been supportive of the integrated logistics concept because in reality, that's what it's all about. That's the driver that operationally is cutting across all of business—you know, the concept of "from the farm field to the consumer's table," which is about managing the entire process.
Q How have the students changed over the years?
A There's a whole bunch more of them! The largest major in our MBA program is supply chain management. It's also the largest major at several other business schools. Industry has been attracted to these students ... and the students, therefore, are interested. After all, people come to college to get jobs! If they tend to be quantitative-minded and they like to measure things, then this field appeals to them. In addition to the larger enrollments, we have far more logistics matter in the curriculum. And we have students who, in terms of academic excellence, could get into any academic program they wanted.
Q Are there more opportunities for continuing education for logistics professionals now?
A I think opportunities for continuing education are growing rapidly ... but there's a kind of interesting paradox. Most people who attend weeklong seminars have never had formal training in the field. They come so they can quickly close the knowledge gap and get a practical framework and the broader theory about the field. People who are well-trained in logistics at the academic level, with a bachelor's or a master's degree, already understand the field and therefore what they really need is more training on topics like leadership and change management to make them ready to move to higher levels of management. So we need to shift our focus to more advanced topics like how to operate in a complex environment. They have to understand how [logistics] impacts the balance sheet and the profit statement—and more importantly, what doesn't appear on those statements that has to be managed.
Robert Delaney
"Deregulation was the springboard to productivity"
Q How has the transportation climate in the United States changed over the last 40 years?
A The big change, which occurred 20 years ago, was deregulation. During the '70s, we were not making any progress [toward improving logistics productivity]. At that time, we had warehouses close to markets and every sales force had to have its own warehouse, especially in the consumer-goods field.
Then came deregulation [in the '80s], which changed everything. We got competition. Service improved. Reliability improved. We shifted toward regional manufacturing and distribution, and our efficiency rose. Logistics costs dropped from 16.0 percent of gross domestic product (GDP) in 1981 to 9.5 percent of GDP in the year 2001. Transportation costs since 1981 have declined by 21 percent. Inventory carrying costs have declined by 60 percent. And all logistics costs have declined by 40 percent relative to GDP.
That's all taken place in the last 20 years. In the first 20 years we had no productivity improvement at all.
Q How did deregulation affect trucking specifically?
A In 1980, no carrier had 40-state authority. Now we have over 10,000 carriers with 40-state continuous service. We have seen a lot of innovation, and communication has improved. We have tracking and tracing. We now have visibility of everything in the supply chain. Overnight delivery can be had in most regions by truck, eliminating the need for air freight.
You're seeing less [use of] air freight, especially heavy air freight, in the United States. And you see more and more expedited services. They charge a premium, but they guarantee [on-time delivery].
Q How did deregulation affect the other modes?
A It was good for the railroads because they were able to bring their capacity in line with demand. Today, 90 percent of the nation's [rail freight] volume moves under contract. Between 1980 and 1990, the industry was able to get rid of 500,000 railcars of all types, 8,000 locomotives, 50,000 miles of track and 300,000 employees. When we voted on the Staggers Act in 1980, there were 20 Class I railroads. Today we have five. It permits them to develop shared service programs; they are providing better and more reliable services.
Deregulation of ocean transportation has allowed people to do confidential contracting; all the evidence has been that it's beneficial to the shippers.
Q Any other changes brought about by deregulation?
A Deregulation was a springboard. But it was followed by other things. We were able to get off mainframe computers and get into minis and personal computers. With the use of the Internet, communication has improved.
The communication improvements have been dramatic. With the addition of silicon and broadband, we are able to do things much faster. Even if we make a mistake, we can make a correction very fast. We don't get into the inventory buildups we used to in recessions.
The most recent revised data from the Bureau of Economic Analysis showed that we had nine months of recession in the first three quarters of 2000. But despite the slowdown in sales, inventories went down in every quarter of that year. Usually when we've gone into recession, we've had some accumulations in inventory. Now we see it coming and can adjust to it.
Q In the next five years, do you expect more regulation to occur under the guise of security?
A Yes, but it won't be that onerous. [Regulators] are weighing the impact on productivity. It turns out we have more security measures in place than we thought we had because of Y2K compliance efforts. We have better command and control systems, and we are more alert now.
Q Summing it up, then, how have shippers fared over the past few decades?
A The statistics tell the story: Transportation accounted for 7.6 percent of GDP costs in 1980. It's down to 5.9 percent now.
John Fontanella
"Logistics today couldn't function without technology"
Q How has the introduction of specific software for distribution changed the practice of logistics?
A When I started my career in logistics back in the late '70s, there wasn't any software. There was nothing. There was no information coming out of logistics—it was a pure tactical execution function.
Even then, logistics and supply chain management played a role in that it was the glue that held the process together. Basically, all of the corporation's mistakes end up on the shipping dock. It's very difficult to correct those mistakes if you don't have a quick way of communicating and if you have no chance of preventing their recurrence.
Q Where did you start in logistics?
A I started with the Gulf and Western Schrafft Candy Co. in 1975 [as director of distribution].
Q Back then, how important was technology to you?
A There wasn't any. The controller owned the technology. It was a big mainframe. I had to go to the controller's office on my hands and knees just to get a report.
Q Nowadays, how important is technology to logistics?
A Logistics today couldn't function without technology. The things you wanted to do were not possible in 1975. That's because you lacked visibility of a process. And you lacked communications capabilities.
Today, [technology] gives everyone a common view of what's happening. It's not a serial event. Now you have information so you can investigate and determine where a process broke down. You can become more precise in managing the performance of different functions.
Q What single technological development has had the biggest impact on logistics?
A I'd have to say the development of software used to plan the network and inventory levels. The early DRP (distribution resource planning) technology gave people a sense of time-based planning. I could look at my demand versus inventory versus what I'd get in production. As simple as that was, that was breakthrough stuff in the mid '80s.
It also brought with it a new set of disciplines for the organization. All of a sudden because of DRP, the corporate level had to speak the same language as everyone at the distribution centers and plants. It was a common terminology. Common information. Common naming. Common business processes.
Q What does the future hold for logisticians?
A The first thing, rather than having 20 percent of businesses connected to others electronically as is the case today, you can expect 95 percent of them to be connected to their partners in the future, regardless of how large or small they are.
I also expect Microsoft over the next five years to become a very big player in marketing enterprise software to small to medium-sized companies.
Q How can you stay current with what's going on in technology?
A It's hard work; people have to be very discerning when they read something as to whether it's real or not. Trade magazines like your own are a great source of information as is the Council of Logistics Management.
Cliff Lynch
"We're evolving into supply chain managers"
Q When you started in your first job at Quaker Oats, what were your job responsibilities?
A My primary responsibility in my first job was the scheduling of boxcars in and out of the distribution center. In those days we were almost exclusively rail shippers, as were virtually all of the consumer-goods companies. The cost of trucking compared to that of rail made it almost prohibitive, unless there was a dire emergency or you shipped high-value, extremely service-sensitive commodities.
This resulted primarily from the rail "milling in transit" or "storage in transit" arrangements that existed in the railroad industry. These arrangements allowed you to bring products into a distribution center by rail, store them and ship them out, receiving credit for what you had already paid. That was tough for motor carriers to compete with, since the consistency of service rather than the absolute time taken was the more critical consideration.
Q How did your job evolve over the years?
A As we progressed over the years, we started to assume more responsibilities in the traffic department. The first thing that happened was that we changed the name to the distribution department. As a distribution department, we started taking on additional responsibilities beyond transportation—the first of which was warehousing. Then we moved into inventory management. And then customer service and order entry. Slowly, we evolved into a logistics department.
Q What skills do logistics managers need today to perform their jobs successfully?
A In addition to possessing the basic logistics skills, a logistics manager has to be a good negotiator. Unlike the situation before deregulation, when all of the [freight] rates were published and there was little room for creativity and innovation, now there's lots of negotiation. You negotiate contracts with carriers, warehouse companies, system providers and just about everybody you do business with. It's important to be a good negotiator to get the best deal for your company.
You also have to be more savvy financially than we were in the early days. You have to understand the basic accounting and financial systems. And how your distribution and logistics costs impact the costs of the corporation you're working for.
You also have to have a strong knowledge of systems. If not the precise technical understanding, you have to at least know what systems you need and essentially how they work—by that I mean warehouse management and transportation management systems and so forth. All these things are fairly new to the logistics industry.
Q For young people who want to enter the logistics field, what courses would you advise taking in college and what areas should they focus on?
A I still think they need the basic logistics courses on subjects like transportation and warehousing and how they fit into the big picture. They certainly need marketing and financial courses. Business law is always a good course for a logistics person. And if there was a course in negotiating skills, I think that would be very important.
Q What's the future direction of the industry? And what will logistics managers need to know in the future?
A We're evolving—or have already evolved—into supply chain managers. Some of our educators and practitioners have used the term supply chain management as a synonym for logistics. But that's not it.
If you take it at its true definition, that includes everything from cradle to grave, or, as we used to say at Quaker, farm to pantry. It includes marketing, manufacturing and purchasing. While logistics is a big piece of that, it's just a component piece.
In the future, we need to focus on how logistics functions and activities mesh with those of other activities in the supply chain.
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