Facing the millennium

When a panel of top logistics professionals looks a decade into the future, they see accelerating demands on their supply chains to deliver better products faster and cheaper--and in diverse global markets.

By Peter Bradley -- Logistics Management, 1/1/1998

Picture the world a decade from now. In the United States, the first wave of baby boomers begins to retire. On the other side of the world, China and India have developed into economic powerhouses. Consumers in developed countries are comfortable shopping around the world electronically for most of their basic requirements and venture out to shops largely for pleasure. Often, new products--software, programming for "smart" appliances--are delivered electronically as well. Most trade barriers have been eased, making the flow of goods around the world simpler and faster. That's good, because all those consumers ordering over the Internet or its successor expect products delivered overnight, configured to their specific requirements, and at a competitive price.

That vision of what the future holds, like any other, is not likely to be entirely accurate, but it suggests that logistics and supply-chain managers face enormous challenges in the next 10 years. They must help their companies manage their supply chains in ways that allow them to deliver better products reliably, faster, and cheaper; do it profitably; and do it everywhere. And they will have to do it in an environment of rapid change--changing technology, changing channels of distribution, changing governments, and shifting demographics.

Just what challenges logisticians will face and how they will face them was the subject of a day-long roundtable discussion held last fall at the Massachusetts Institute of Technology. The roundtable, based on a joint research effort by MIT's Center for Transportation Studies, Mercer Management Consulting, and Logistics Management & Distribution Report, brought together 13 top logisticians from major companies to consider what awaits them on the other side of the millennium and what they and their companies will have to do to compete in that environment, whatever it may be. Key questions addressed during the day included:

* What will change in the way the world does business?

* What does that mean for logistics and supply-chain managers?

* What is their vision of the way they and their companies will do business a decade from now?

* Can supply-chain and logistics management provide a competitive differentiator, or will logistics excellence be the standard of performance?

* What stands in the way of necessary change, and how can these obstacles be overcome?

* What are today's priorities to help move toward the vision of 2007?

No consensus was expected or achieved from the meeting. In fact, as had become clear in earlier interviews with the participants, while many of the challenges are common among diverse industries, others are more likely to affect specific industries--such as meeting demands for replenishment in the consumer-products industry or the emerging requirements that force auto makers to take life-cycle responsibility for their vehicles.

What Changes Are Coming?

The one certainty that emerged from the panel is that the pace of business change will accelerate over the next 10 years. Gareth James, who oversees logistics for the international consumer-products giant Unilever, points to Eastern Europe as evidence of how rapidly the business world is changing and is likely to change. "In two and a half years, [we've had] 30 years' worth of evolution because of the cumulative knowledge that has applied to a latent market."

The changes will come throughout the business universe--in consumer demands and expectations, in technology, in the way business goes to market, in the development of global markets, in the demands for ever-greater speed, and in the way businesses work with their suppliers and customers.

Nicholas J. LaHowchic, formerly president and CEO of supply-chain services for Becton Dickinson & Co. and now president of Limited Distribution Services, sees the rapid transfer of knowledge and rising customer expectations as among the major driving forces behind all this. "We're in a CNN world," he says. "As we talk about any part of this process, the knowledge we have transfers in 24 to 48 hours to another marketplace."

Barbara Martin, director of logistics for IBM, adds, "Not only are there going to be huge expectations and a proliferation of choices, but people aren't going to change. ... [T]hey're going to want us to make it real simple. And that means us together, in a supply chain, because it will be multiple business partners serving that end consumer."

Customer demographics will shift, too. Martin points out that 10 years from now, large numbers of baby boomers will begin to retire in the United States. "I think it will just continue to drive more expectations, more 'faster, better, cheaper,' but with simplicity," she says.

Those baby boomers, moreover, will likely become only a small slice of a customer base that extends around the globe. Global business is becoming a reality, driven by several factors. For instance, trade barriers are falling--slowly sometimes--and trading blocs such as the European Community and NAFTA are likely to enlarge, with major implications for logistics.

Mike Kremzar, vice president of product supply and customer service for Procter & Gamble, says, "We're very conscious of the globalization of our customers, the globalization of our suppliers, and the globalization of us." Kremzar sees three important elements to globalization: changes in government trade policies and tariffs, development of global customers who demand one set of terms worldwide, and the development of major economies. "If China continues its economic growth ... that changes the demographics of the world far differently than anything baby boomers do in the United States," he says. LaHowchic notes that India adds another billion consumers to the equation.

Shrawan Singh, vice president of integrated supply chain for Xerox Corp., believes that as those economies develop, businesses will have to re-examine where they are located. "I think in 10 years, centers of production will shift in terms of worldwide output," he says.

Meeting consumer demands around the globe runs up against another imperative that the roundtable panelists see as becoming only more important: The demand for speed throughout the supply chain.

Kremzar argues that businesses are taking inventory out of their systems, not only for the obvious cash advantage, but also in response to demands for accelerating speed of business. "The speed of the business means you want to bring issues to market faster, which means you've got to work more closely across the whole company."

Much of the ability to meet the demands of consumers worldwide and the demands for speed will be enabled by technology. Yet, the current state of logistics and business information technology still leaves something missing, in the minds of many of the panelists. Says Paul Dittmann, vice president of global logistics and manufacturing systems for Whirlpool Corp., "As I look at the supply-chain capacity of SAP [a leading enterprise software system], you get disappointed. ... We've never really had the tool or the capability to look at everything together."

But technology is essential to effective supply-chain management. Martin says, "It's going to be the technology base that allows us to do optimum decision making, not just in our own business, but across the supply chain or our networks."

Technology also will affect how customers buy, as PCs linked with televisions and telephones and the Internet proliferate, and that, in turn, will influence channels of distribution. Dittmann says, "That could very well change our whole go-to-market strategy and we might have to get more granular in the way we deal with individual consumers."

Kremzar concurs. "The Internet still has got major problems today for commerce, but you know, by the year 2005, maybe we'll solve the capacity problems, maybe we'll solve the security problems, and then that will be a real tool," he says.

Meeting the demands for faster cycle times in global markets will require not only technology, but close cooperation throughout each business's supply chain. John C. Kenny, vice president of worldwide distribution for 3Com Corp., says, "I think one of the major factors that will have an impact on logistics in the next 10 years is the number of partners that we rely on to get the job done."

The Logistics Vision

So what do all those developments mean for logistics and supply-chain managers? How do they see their role in their businesses evolving over the next decade?

Don Schmickrath, director of distribution and logistics for Hewlett-Packard's computer sales and distribution, defines what might be logistics' holy grail: "What we have to do," he says, "is get zero inventory and immediate availability."

Like finding the grail, that's a goal no one expects to reach, but it defines the direction. James says, "I think the entry cards in 10 years' time will be speed of change and speed of response to change."

He thinks the definition of logistics itself is changing significantly. "We are seeing an evolution from being a function in a business to actually being something that is difficult to define functionally," he says. "I use the analogy of a motor car. The logistician used to be the gear box. Now we're the lubricant."

Singh disputes that in part. "I think with the global picture, we will come to physics again," he says. "It will become an item of doing this physically worldwide."

LaHowchic thinks that logistics, or supply chain, will become part of what customers purchase. He says, "I think what we know of logistics today becomes the operations element of something bigger 10 years from now. And in thinking about the global perspective and about how the consumer becomes part of it, I believe supply chain will become part of an offering process."

Singh expects that business will evolve to bring ultimate customers closer to the source of supply in some way--direct deliveries from factories, for instance. "Supply chain is going to be right in the middle of it," he says.

Schmickrath says logisticians will continue to push improvements in ways similar to what they are doing now. "I do not feel, at least in our environment, that we're anywhere near what we know we can get to, so in the next 10 years, we will continue to push those elements," he says. But he also envisions the potential for a completely different structure, indefinable at present.

Martin speculates on one such possibility. "Most supply chains today are built from somebody who has a core competency somewhere in the chain and is putting the rest of the chain between them and the end customer together," she says. "But I think there are new businesses building on the pure integration of the best pieces, the virtual companies that are just the best pieces."

Kenny expands on that idea. He theorizes, "[T]oday you have these pockets of expertise throughout the supply chain on the outsource side. You have subcontract manufacturing, you have logistics providers. I think what you're going to see is an amalgamation and a conglomeration of those into pockets of outsource expertise that manage the entire supply chain."

Compressing the supply chain is essential, says Kremzar. "We will know what the consumers had off the scanner yesterday, and we'll be producing that today to replenish that order. And our suppliers will be replenishing. ... Our business has got to be truly make, pack, ship in the broadest sense."

That vision of a truly integrated supply chain is echoed by a number of the participants. Dittmann says, "It's now time, I think, if we're really going to make the breakthrough, to really integrate the supply chain from component suppliers to consumers in one continuous, seamless flow, inside and outside the company."

What Stands in the Way?

The consensus among the panelists is that the evolution of logistics and supply-chain management to meet rapidly changing requirements will not come easily.

Several of the panelists agree that a major task facing logistics managers will be communicating the worth of logistics and supply chain to senior management. Says Kremzar, "I think the challenge 2007 holds for logisticians is going to be how you can communicate that advantage in your own company and the people you work with in the supply chain so it becomes part of the corporate strategy."

Stormy Hicks, director of logistics planning, procurement, and operations for Ford Motor Co., says, "We have to educate the business as to what logistics is and what it means to the success of the business. ... [E]very aspect of our business is intimately impacted by logistics decisions. And I don't think our corporate management and the business in general understands that."

Even with senior management support, keeping any organization abreast of a rapidly changing environment can be arduous. "The thing that's difficult for me," says Martin, "is the change management."

If it's hard to do internally, it gets more difficult when moving outside the organization. Martin says, "[C]ommon incentives in a corporation are easy because you're trying to optimize the corporation's bottom line. Finding common objectives across corporations, when you recognize that in one period you may sub-optimize a business that has a bottom line and a board of directors, is, we're finding, a little bit tough."

Several in the group raised the concern that focusing on supply-chain issues should not come at the price of functional performance. James says, "We're trying to create something that we want to have as a capability in all of the functions of the business, but we don't want to lose the focus in what we're actually very good at."

Joseph C. Andraski, vice president of customer marketing operations for Nabisco Inc., warns that for all the coming change, it is essential to keep an eye on logistics fundamentals. "If we become general management, who's home watching the store?" he asks.

But Rick Jackson, vice president of integrated logistics for Nabisco, reflects that logistics has to have it both ways. "It has to be a blend, because we want functional excellence, yet there's this opportunity within the process to increase our ability to be more competitive and meet our customer and consumer expectations--if we get the process right across the supply chain," he says.

One area that received only slight attention from the panel, but which may become very important to logistics managers, is the increasing demand for environmentally friendly corporate practices. One example of that is the coming requirement in Germany for auto makers to accept back entire vehicles for recycling. Luc Billet, head of group material logistics for Volkswagen AG in Germany, says, "We will be forced, as far as in Germany--and I think the others will follow--to get all the parts back."

Adds Hicks, "It's not just the vehicle recycling, it's material handling and packaging. We can no longer continue to proliferate cardboard and racks and things like that. It's got to go and it's got to come back. None of us wants to ship air: It's got to come back with something in it."

Next Steps

Even a trip to the next millennium begins with the first steps. The roundtable participants were asked what some of their immediate priorities were for their organizations.

The issue of attracting, training, and retaining well-qualified personnel is on the minds of several group members. Kenny says, "I would say people skills is to me the most critical resource now."

Martin agrees. "I would just add to that, that it's the competence level. ... But even more so it's the ability to encourage flexibility to try and fail and try and fail--the rapid prototyping try-and-fail mentality. Because I think that's the only one that's going to succeed."

Andraski sees organizing for long-term success as a critical need, particularly because he foresees difficulty in finding enough talented people. "It's going to be in part how you take the information, embed it into the way businesses are being managed, and let the system make decisions because you're not going to be able to count on having that core of individuals who have been managing functionally for a period of time."

LaHowchic looks at it from a slightly different angle. "Whatever the supply chain needs to become, it needs to be a shared vision," he says. "I think without that alignment, you can make it the best thing in the world and people really will not buy into that as part of the total offering."

James returns to the issue of persuading senior management of logistics' value to the organization. "I would say the priority ... has to be about the business case. Without a sound business case, you have an opinion. I think we all must struggle to a lesser or greater degree with putting the facts in front of the decision makers of the business."

Can Logistics Be a Differentiator?

Can logistics managers demonstrate to customers or senior management measurable value? Robert Bowles, director of distribution for PPG Industries, believes that it is difficult to translate even very good logistics performance into value that is discernible to the customer. "Quality certainly is a differentiator," he says, "and in that respect, I think logistics is and will continue to be a differentiator, but I see it more as moving into the neutral to negative differentiator. ... It's rarer to see in terms of customer value that the customer would isolate a logistics aspect, a supply-chain performance aspect that he or she would put tangible value on in terms of price or loyalty." That in no way suggests that logistics excellence is not vital. Bowles says, "Certainly logistics performance is a very key element of achieving competitive parity."

Andraski argues that whether logistics is perceived as a competitive advantage may be related to the markets served. "From a manufacturer's perspective and my perspective, the service requirements are must dos," he says.

Dittmann looks at the issue with an eye toward internal performance. He argues that improved supply-chain performance can help reduce working capital, which, in turn, can improve profitability. "We in the supply chain control a lot of that working-capital equation, which may be another way of saying we control the cycle-time equation," he says.

LaHowchic argues that supply chain or logistics performance will not appear to customers as a differentiator unless it is articulated as part of the product or service offering. "That should be part of your business strategy," he says.

Kremzar reflects that logistics may become more critical to differentiating companies the further up the supply chain you look. "[N]o one's going to buy Tide because of our great logistics capability, right? They're going to buy Tide because Tide washes their clothes. ... But the suppliers to our plants now are going to differentiate themselves to us by their ability to deal with the supply chain, not by branding."

Yet Dittmann, the Whirlpool executive, believes that opportunities to differentiate can apply at the end of the supply chain, too. These might be services offered with products, such as in-home delivery, unpacking, installation, and removing packaging.

Common Themes

The executives who gathered at MIT last September, and others who participated in prior interviews but who could not attend, were asked to perform the difficult task of looking a decade into the future--a virtual eon in view of rapid business change. Yet the group did determine some common themes, even if it did not reach any solid conclusions. Those themes included the issues of time and speed, of more demanding customer expectations, of technology's role, and of the emerging and not fully defined role of logistics and the supply chain in the organizations of the next century. The topic of making the business case for logistics and supply chain was one area that emerged somewhat unexpectedly, and it was an area of some agreement. It may be a particularly noteworthy challenge for logistics and supply-chain managers: If they believe they can make a major contribution to their companies, they must persuade senior management not merely by energy and commitment, but by the numbers. That may be the first significant challenge of the new millennium.

Roundtable Participants

The participants in the Logistics for the 21st Century project were drawn from some of the world's largest and most successful companies. Those who took part in the roundtable were:

Joseph C. Andraski, vice president, customer marketing operations, Nabisco Inc.

Luc Billet, head of group material logistics, Volkswagen AG

Robert E. Bowles, director of distribution, PPG Industries Inc.

Paul Dittmann, vice president, global logistics & manufacturing systems, Whirlpool Corp.

Stormy Hicks, director, logistics planning, procurement, and operations, Ford Motor Co.

Gareth James, head of manufacturing & logistics, Corporate Manufacturing and Engineering Group, Unilever Research

John C. Kenny, vice president-worldwide distribution, 3Com Corp.

Mike Kremzar, vice president, product supply & customer service, Procter & Gamble

Richard Jackson, vice president, integrated logistics, Nabisco Inc.

Nicholas J. LaHowchic, president and CEO, Limited Distribution Services

Barbara Martin, director of logistics, IBM Corp.

Don Schmickrath, director, distribution and logistics, computer sales and distribution, Hewlett-Packard Co.

Shrawan K. Singh, vice president, integrated supply chain, Xerox Corp.

In addition, serving on the roundtable panel from the MIT/Mercer/LM&DR project team were: David Bovet, vice president, Mercer Management Consulting; Yossi Sheffi, professor and director, Center for Transportation Studies, MIT; and Peter Bradley, editor in chief, Logistics Management & Distribution Report. The panel was moderated by Peter Metz, deputy director of the Center for Transportation Studies.

Several other executives took part in extensive interviews with Mercer consultants. They were J.P. Briant, senior vice president, integrated supply chain, IBM Corp.; Charles D. Crowell, vice president, distribution services, The Home Depot; John J. Faldetta, director, distribution and logistics, The Gillette Co.; Dr. Hermann Krog, corporate executive director, group logistics, Volkswagen AG; Dave Ruby, vice president, customer & product services, Thomson Consumer Electronics; and Kathleen Strange, director, logistics strategy & implementation, Staples Inc.

An Ongoing Project

The project that brought 13 top logistics managers to the MIT campus last fall to discuss Logistics in the 21st Century was a collaborative effort between the Center for Transportation Studies at the Massachusetts Institute of Technology, Mercer Management Consulting, and Logistics Management & Distribution Report.

The goal of the project was to envision what state-of-the-art logistics would look like 10 years from now and to examine some of the challenges in achieving that vision. The project began with invitations to top logistics managers from major companies identified by MIT, Mercer, and LM&DR to participate in the project. Those who agreed to participate were interviewed in depth during the spring and summer by Mercer consultants. Those interviews provided the basis for the topics discussed during the roundtable, which took place in September on the MIT campus.

This article is the first product of that roundtable. More will come. This spring, an in-depth analysis of the project results will appear in our sister publication, Supply Chain Management Review. In addition, the information gathered during the process will provide the basis for a number of other research studies and feature stories in the months ahead. In the meantime, Mercer, CTS, and Logistics Management & Distribution Report will begin preparations for the next project in what we anticipate will be a series that brings leading practitioners together to examine the critical issues of logistics and supply-chain management.