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SEPTEMBER 2 009 FOCUS on the FUTURE ® FEATURES 14 From Guru to GM: Developing

SEPTEMBER 2 009

SEPTEMBER 2 009 FOCUS on the FUTURE ® FEATURES 14 From Guru to GM: Developing Tomorrow’s
SEPTEMBER 2 009 FOCUS on the FUTURE ® FEATURES 14 From Guru to GM: Developing Tomorrow’s
SEPTEMBER 2 009 FOCUS on the FUTURE ® FEATURES 14 From Guru to GM: Developing Tomorrow’s
SEPTEMBER 2 009 FOCUS on the FUTURE ® FEATURES 14 From Guru to GM: Developing Tomorrow’s
SEPTEMBER 2 009 FOCUS on the FUTURE ® FEATURES 14 From Guru to GM: Developing Tomorrow’s
SEPTEMBER 2 009 FOCUS on the FUTURE ® FEATURES 14 From Guru to GM: Developing Tomorrow’s
FOCUS on the FUTURE
FOCUS on the
FUTURE
SEPTEMBER 2 009 FOCUS on the FUTURE ® FEATURES 14 From Guru to GM: Developing Tomorrow’s
®
®

FEATURES

14 From Guru to GM:

Developing Tomorrow’s

Leaders

By Pamela Culpepper and Terra Winston

20 Vested Outsourcing:

A Better Way to Outsource

By Kate Vitasek and Mike Ledyard

28 Is Supply Chain the Cure

for Rising Healthcare Costs?

By Mike Duffy

36 An Update on the State of

Supply Chain Education

By Stanley E. Fawcett

43 Is SaaS Right for You?

By Sean A. Murphy

COMMENTARY

Insights

4

Global Links

8

Technology

10

Profiles in Leadership

12

SPECIAL SUPPLEMENT

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S e p t e m b e r

2 0 0 9 Volume 13, Number 6

Illustration by Theo Rudnak
Illustration by
Theo Rudnak

FEATURES

4 From Guru to GM:

Developing Tomorrow’s Leaders

Traditional supply chain education has focused on creating “gurus,” professionals that have deep but narrow expertise in both the discipline and industry. But in today’s environment, that approach no longer suffices. Pamela Culpepper and Terra Winston tell why leaders like PepsiCo are working to develop a new breed of supply chain leader—the general manager.

20 Vested Outsourcing: A

Better Way to Outsource

Why do so many outsourcing relationships fail to achieve their true potential? One big reason, say authors Kate Vitasek and Mike Ledyard, is that they are based on a “What’s in it for me” philosophy. Vested Outsourcing changes all that. It encourages both parties to act for mutual benefit—and in the process lays the foundation for sustained success.

28 Is Supply Chain the Cure

for Rising Healthcare Costs?

The cost of healthcare in the U.S. has been a white- hot topic for some time now. But seldom in that debate do we hear mention of the supply chain. That’s too bad because a smarter approach to supply chain management could hold the key to lowering healthcare costs overall. Veteran supply chain exec- utive Mike Duffy of Cardinal Health explains.

36 An Update on the State of

Supply Chain Education

Which are the top universities when it comes to supply chain education? What role should professional associations and publications play in the development of the modern supply chain professional? Find the answers in this article, based on new research conducted by Dr. Stanley E. Fawcett of Brigham Young University.

43 SaaS: Right for You?

Software as a Service, or SaaS, is finally start-

ing to catch on after a few false starts. More and more users are finding benefit is sub- scribing to technology on an as-needed basis as opposed to building or buying it. SCMR Associate Editor Sean Murphy tells how to determine if SaaS is suited for your supply chain operations.

SPECIAL SUPPLEMENT

S50 S&OP:

Now More than Ever

COMMENTARY

4 Insights:

Bursting the Other People’s Bubble By Larry Lapide 8 Global Links:

Fulfillment Masters By Narendra Mulani 0 Technology:

Supply Chain and the CIO By Kevin O’Marah 2 Profiles in Leadership:

Long-term Perspective:

John Mascaritolo By John Kerr 54 Spotlight on Supply Management:

Planning and the Process Industries By Kish Khemani, Andrew Walberer and Oliver Zeranski C3 SCMR.com Online

To subscribe: Visit Supply Chain Management Review online at www.scmr.com/sub or call (888) 343-5567. (Outside of the U.S., call (515) 247-2984). Email subscriber customer service at SCNcustserv@cdsfulfillment.com. Author’s Guidelines: Interested in writing an article for possible publication in Supply Chain Management Review? See our Guidelines for Authors on www.scmr. com. Reprints: Reprints of articles from this issue and past issues are available from The YGS Group. Contact Danielle Marsh (800) 290-5460 ext. 1550; danielle. marsh@theygsgroup.com

(800) 290-5460 ext. 1550; danielle. marsh@theygsgroup.com Editorial Advisory Board n K aren a lber H.J. Heinz

Editorial

Advisory Board

n

Karen alber

H.J. Heinz Co.

n

J ac K

T. a mpu J a

Niagara University

n

Joseph c. andrasKi

VICS Association

n

donald J. bowersox

Michigan State University

n

James r. byron

IBM Consulting

n

John a. calTagirone

The Revere Group

n

brian cargille

Hewlett-Packard Co.

n

shoshanah a. cohen

PRTM

n

roberT b. handfield

North Carolina State University

n

J ames T. h in T lian, J r.

Accenture

n

nicholas J. lahowchic

Limited Distribution

Services Inc.

n

hau l. lee

Stanford University

n

roberT c. lieb

Northeastern University

n

clifford f. lynch

C.F. Lynch & Associates

n

edward J. marien

University of Wisconsin- Madison Management Institute

n

J ohn T. m en T zer

University of Tennessee

n

James b. rice, Jr.

Massachusetts Institute

of Technology

n

larry smiTh

West Marine

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S u p p l y C h a i n M a n a g e m e n t R e v i e w · S e p t e m b e r 2 0 0 9

IN

THI S

i S S U E

Building Blocks for the Future

W ith all of the business challenges of the past 18 months, it’s little wonder that everyone seems to be looking to the future. This is- sue of SCMR is no exception. In particular,

we’re assessing the future from three distinct, yet inter- related, perspectives: people, process, and technology. Let’s take things in that order. The underpinning of any progress going forward is people. But where will that talent come from? The universities are a big part of the answer and, as a new study on supply chain eduction suggests, they are doing their best to deliver. But they have to do even better, concludes Dr. Stanley Fawcett in his report on the State of Supply Chain Education, if they are to meet the rapidly changing needs of a new global economy. Smart companies are not relying solely on the educational institutions to keep the talent pipeline flowing. Instead, they are assuming a large part of the burden themselves. PepsiCo is a prime example. As Pamela Culpepper, PepsiCo’s head of human resources for supply chain management, writes in her co-authored article, the company is aggressively moving to nurture a cadre of future “general man- agers”—moving beyond the traditional approach of developing specialized “gurus.” The processes that have worked adequately in the past may not be well suited for the future, either. Take the way in which supply chain and logistics services have been outsourced, for example. In a typical scenario, the buyer of these services viewed

In a typical scenario, the buyer of these services viewed Frank Quinn, Editor (781) 734-8652 fquinn@reedbusiness.com

Frank Quinn, Editor (781) 734-8652 fquinn@reedbusiness.com

the arrangement as a one-way street—i.e., whatever direc- tion was best for the buyer. This was manifested in never-ending requests to cut rates, micro man- aging the provider’s operations, or poorly defined performance metrics. But there’s a better way to outsource, insist Kate Vitasek and Mike Ledyard in their fea-

ture article. It’s called “vested outsourcing.” And under that concept, the focus shifts from a “what’s in for me mentality” (mainly on the buyer’s part) to “what’s in it for we.” The buyer and provid- er of the services work in a collaborative manner to achieve desired outcomes that extend beyond cost cutting to include revenue enhancement, greater operational efficiency, higher asset utilization, and so forth. The authors make a convincing argument for vested outsourcing as the preferred way to go for- ward. Finally, people and processes will be made more productive by advances in technology. One of the most promising is a technology known as Software as a Service (SaaS). SCMR Associate Editor Sean Murphy explains how SaaS works and tells why it’s poised for rapid adoption in the supply chain space. No predictions here, but we do hope this September issue will help you prepare for whatever comes.

Editorial Offices 225 Wyman St. Waltham, MA 02451, (781) 734-8000, scmr@reedbusiness.com Francis J. Quinn Editor
Editorial Offices
225 Wyman St. Waltham, MA 02451, (781) 734-8000, scmr@reedbusiness.com
Francis J. Quinn
Editor
fquinn@reedbusiness.com
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Senior Art Director
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Production Manager
kelly.jones@reedbusiness.com
Brian Ceraolo
Publisher
bceraolo@reedbusiness.com

Sean A. Murphy Associate Editor sean.murphy@reedbusiness.com

John Kerr Special Projects Editor kerreditorial@comcast.net

Norm Graf

Creative Director

ngraf@reedbusiness.com

Charles Tanner Director of Audience Marketing ctanner@reedbusiness.com

William C. Copacino Consulting Editor

William C. Copacino Consulting Editor A Division of Reed Elsevier 2 Supply Chain Management Review

A Division of Reed Elsevier

2

Supply Chain Management Review ·

September 2009

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Dr. Lapide is a lecturer at the University of Massachusetts’ Boston Campus and is an

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I nS I G H T S

B

Y

L A R RY

L A P I D E

Bursting the Other People’s Bubble

Many of our current economic woes are caused by dependence on others to solve financial problems for us.

in which many overextended their debt to buy things they could not really afford and finan- cial firms took on more risk than they should have to reap huge bonuses. It manifested itself because the US was experiencing affluence and displaying conspicuous-consumption patterns that have never been seen throughout history. However, I prefer to use another term for this bubble, the Other People’s Bubble (OPB). During this bubble the financial indus- try was taking big risks using other people’s money and consumers where taking on more debt assuming that when they sold their houses future buyers would, in effect, help pay it off. Supply chain managers were also culpable during the OPB as companies over- outsourced businesses and relied on other people’s manufacturing and service opera- tions, i.e., other people’s efforts. This outsourcing trend has gotten to such an extreme level that I just read an article sug- gesting that we can save health care costs by outsourcing medical services. Patients would travel to other countries for procedures, since their doctors get paid less or we would import foreign doctors and pay them less; i.e., we would use other people’s doctors. Thankfully, we haven’t outsourced product innovation and started living off other people’s minds, as well!

The Recovery Economy

The major changes we will see in the recov- ery economy will be the result of a backlash to the OBP, as well as an inflection point in some of the long-term trends I’ve discussed in prior Insights columns. The recession has been a drastic wakeup call for the U.S. to rely less on other people’s efforts, and to recognize

As I write this column, indicators are showing some bright spots in the economy that portend

a recovery. This recession has been extremely

hard on supply chain managers because they were charged with the responsibility to quickly reduce their companies’ costs and inventories to better align them with significantly reduced revenues. Some of them also lost their jobs in the process. However, whatever the future economy looks like—and there are many that believe it will be significantly different from the past decade’s—supply chain managers will be at the forefront in enabling the economy to grow again globally. After all, no matter what happens, goods and services are always needed because the basic necessities of life and busi- nesses require the movement of physical goods such as food, shelter, and clothing.

The Other People’s Bubble

During the Internet Bubble (when I was a soft- ware analyst) I used to tell people that I was going to stay focused on supply chain manage- ment (SCM) because I’d rather be involved in moving physical goods than moving bits and bytes around, since there was more job security in doing that. Some thought me to be behind the times because there was a new economy coming and I was not going to be a part of it. In the end that bubble burst and showed that

I had made the right decision. The so-called “new economy” never materialized because it was predicated on the bubble surviving indefi- nitely. Its major premise of e-business merely became an enabling part of the “old” economy and SCM was still important. The recent recession comes after a decade that some people are calling the “Credit Bubble”

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and take advantage of the new global trading landscape.

Here are five aspects that I predict (or just wish) will be part of the recovery economy:

1. Fewer of the best and brightest will gravitate to

the financial industry. During the OPB, exorbitant com- pensation could be gotten by taking big risks with other people’s money, so smart college graduates went where the money was. Expect more of the best and brightest

to put their brains to work on productive things, such as innovation, manufacturing and SCM.

2. Working in manufacturing and SCM will become

respectable. I went to a Managing Automation confer-

ence a couple of years ago and we discussed the fact that the younger generation had little interest in manufactur- ing. Boomer parents were not raising children to work in it when more money could be made doing something else. While the U.S. is still the largest manufacturing country in the world, recent estimates forecast China to catch up to the U.S. by 2015. This won’t happen as soon if this aspect is part of the recovery economy.

3. Being green, especially energy-efficient, will be in

vogue again. During the recession oil prices dropped dras- tically from recent highs and many managers lost their focus on energy efficiency to focus instead on reducing

costs and inventories. Oil prices will rise again as the economy improves and being green will re-emerge.

4. U.S firms will learn to compete more effectively in

other countries. The economies of other countries out- side the U.S. (and Western Europe) have been growing faster, leading to a long-term trend of diminished U.S. dominance in world trading. As the U.S. consumer con- tinues to be more frugal, displaying less conspicuous consumption, those U.S. companies that have come to

rely on the consumers’ thirst for goods will by necessity learn to compete better for business in other countries.

5. SCM will get back on its evolutionary track toward

optimized demand management. Prior to the recession, SCM was evolving toward becoming a competitive weapon that businesses could use to compete better, including lever- aging more profitable demand-shaping. When the economy improves supply chain managers will be able to change their focus from just holding down costs and inventories. Many of these changes portend a brighter future for SCM. Whether or not all of them happen, the very fact that the recovery economy will be vastly different from the OPB represents a marked change, and change always bodes well for managers that are responsible for making and moving goods.

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GLOBA L L INkS

“Fulfillment Masters” Enjoy Huge Advantage

The leaders excel at on-time, in-full delivery with half the inventory and at half the transportation costs.

By Narendra Mulani

and at half the transportation costs. By Narendra Mulani In a world where cus- tomers can

In a world where cus- tomers can change suppliers at the click of a mouse, fulfill- ment mastery—the ability to cost-effi- ciently receive, compile, and deliver orders “on time and in full” (OTIF)—has become more vital than ever.

But what capabilities actually contribute most directly to fulfillment mastery? And if a company is able to build such a capability, what impact does that have on its financial

performance? In short, is the gain worth the pain?

To learn the answers, Accenture recently surveyed 240 fulfillment executives from around the world. What we discovered is that compa- nies’ fulfillment performance might

generally be termed “good but not great.” On the receiving end, sur- vey respondents get 90 percent of orders on time and in full. Respondents’ performance on behalf of their customers is slightly better: They deliver

95 percent of their customers’ orders in full and on time. Days of supply for finished goods inven- tory average 15 days. Such accomplishments are decent to say the least. However, they fall well short of the perfor- mance levels attained by the roughly 10 percent of companies Accenture defines as “fulfillment masters.” According to our research, masters achieve 98 percent on-time, in-full delivery. And

they do so with 50 percent less inventory and outbound transportation costs that are less than half that of the respondent population as a whole (2 percent of total revenue versus 5 percent). Bottom line: Masters enjoy higher service levels for growing the business and lower costs for oper- ating the business. It should also be noted that masters dem- onstrate high levels of sophistication in every element of fulfillment—from fulfillment strat- egy (how they design and adjust their fulfill- ment operations), through operational excel- lence (how well they execute the strategy),

Narendra Mulani heads Accenture’s Supply Chain Management Service line. He can be reached at narendra. p.mulani@ accenture.com

One of the key distinctions between fulfillment masters and laggards is the ability to build dynamic and responsive supply chains.

and technology (how effectively they use IT to improve operations). In the remainder of this article, we examine the skills and capabilities associated with mastering fulfillment strategy.

How masters create dynamic fulfillment operations

One of the key distinctions between fulfillment masters and laggards is the ability to build dynamic and responsive supply chains that can be adjusted rapidly to meet changing market conditions (shifting customer demands and

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GLOBA L L I NkS (c o ntinu e d)

EXHIBIT 1

Strategy Metrics Comparing Fulfillment Masters and Laggards

Focus on Customer Locations in Outbound Flow Analysis Review Transportation Provider Capabilities in Inbound Flow
Focus on Customer Locations
in Outbound Flow Analysis
Review Transportation Provider
Capabilities in Inbound Flow Analysis
Review Supplier Locations
in Inbound Flow Analysis
Design Channels for Needs
of Products and Customers
Regularly Monitor and Measure
Cost to Serve in Each Channel
Regularly Evaluate Tradeoff Between
Cost to Serve and Value Achieved
Evaluate Outbound Flows
More Frequently than Quarterly
Evaluate Inbound Flows
More Frequently than Quarterly
Masters
Fulfillment Routinely Involved in R&D
Laggards
Specific Focus on Product
Life Cycle and Inventory
Actively Model and
Manage Carbon Footprint
0%
20% 40%
60%
80% 100%

competitive moves; changes in suppliers; fluctuations in fuel prices and interest rates, and so on.).

Toward this end, masters design their supply chains by continuously reassessing cost and service factors, adjusting their fulfillment methods, regularly reviewing their chan- nels to customers, emphasizing selectivity in their choice of supply chain partners, and actively modeling and managing their carbon footprint. Consider flexibility as it relates to inbound flows:

Masters typically pay close attention to the capabilities of transportation providers and supplier locations. As part of their inbound flow analysis, every one of the masters we sur- veyed regularly reviews both transportation firm capability

and supplier locations. By comparison, less than half of the laggards evaluate supplier locations and only 40 percent scrutinize transportation providers. Masters are also more rigorous than laggards about monitoring key elements of out- bound flow. One hundred percent of surveyed masters evaluate customer locations when ana- lyzing their outbound flow, compared to only half the laggards. Fulfillment masters are also more likely to actively manage cost to serve in each distribu- tion channel (only a minority of laggards do this). And half the masters we studied regularly evaluate the tradeoff between cost to serve and value achieved, compared to only one-third of the laggards. In addition, masters are routinely

involved in the R&D process—thus ensuring that efficiencies, constraints, and available value-adding activities are incorporated into product design. Lastly, we determined that masters more fully leverage third party logistics firms. Some

80 percent said their 3PLs have boosted flex-

ibility, while a lower percentage of the lag- gards—63 percent—said the same. The case of a major elevator manufacturer illustrates the payoff from possessing sophis- ticated capabilities in fulfillment strategy. To improve operating margins, the company’s North

American division moved U.S. production to

Mexico, which forced a reassessment of its U.S. distribution network. After evaluating the net- work, the company designed a new supply chain that cut the company’s transportation costs by

13 percent. Total fulfillment savings reached

nearly $5 million while fulfillment service levels doubled. Clearly, fulfillment masters have reached a higher plane when it comes to strategy development. It is also evident that a high level of enlightenment about cost and service benefits has resulted. Next month, we plan to explore how fulfillment masters

put their strategies to work, with operations and technolo- gies of karmic proportions.

The author’s column, “Mulani on Excellence,” regulary appears in Logistic Management magazine (www.logis- ticsmgmt.com). This article originally appeared in the magazine’s June 2009 issue.

www.scmr.com

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TEChNOLOGY

Supply Chain and the CIO

IT and the supply chain functions need to get integrated— or even better united—if the organization wants to enhance its business performance.

By Kevin O’Marah

to enhance its business performance. By Kevin O’Marah The past 20 years have seen a dramatic

The past 20 years have seen a dramatic change in the supply chain dis- cipline from one essen- tially serving as a low- skill support function for manufacturing to something that mirrors the entire operational footprint of the business. Where once supply chain

meant simply purchasing to feed production or shipping of finished goods from the plant, today it is more likely to encompass everything from strategic sourcing through customer fulfillment, inclusive of manufacturing which increasingly reports to supply chain rather than the other way around. Further, the best supply chain organizations (Exhibit 1 shows AMR’s Top 25) also have some authority over new product development and launch, and other strate- gic functions like customer management and post- sales support. The drivers behind this expansion of

responsibility for supply chain include the rise of a truly global supply chain, especially manufacturing in China, which relies more on third-party pro- duction assets than company-owned factories. Also contributing is the shortening of product lifecycles across industries, which has forced businesses to think about engineering and prod- uct development in terms of design- for-supply chain. Even the increasing power of customers has played a role as consumer or market power has focused operations to lean inventories up and down the supply chain rather than sim- ply within the plant. The one common thread uniting these drivers is information technol-

ogy. IT has given us scalable communication with contract manufacturers in low-cost coun- tries, automated engineering to sourcing integra- tion, and downstream demand visibility. Without enterprise information technology, there would be no global supply chain function as we know it today. Yet, too often the office of the CIO seems out of touch with the business requirements of day- to-day users in the supply chain function. Why is this and what can be done to fix it?

What’s Wrong With IT?

IT as a corporate function got its start as a data processing role, essentially managing site-specific computing equipment and the arcane program- ming languages needed to automate basic trans- actions and to query databases for reports. This function developed an urgent need to understand technology from the integrated circuit forward.

Kevin O’Marah is Chief Strategy Officer at AMR Research.

EXHIBIT 1

Top 25 vs. All Functional Supply Chain Stations 78% Deliver 77% 1% 67% Plan 68%
Top 25 vs. All Functional Supply Chain Stations
78%
Deliver
77%
1%
67%
Plan
68%
-1%
67%
Customer
52%
Management
29%
67%
Source
63%
6%
56%
Make
40%
40%
44%
New Product
Design and Launch
Top 25
31% 42%
All
33%
Post Sales
Differential
25%
Support
32%

Top 25 n=9, All n=198

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T

EChNOLOGY

(c o ntinu e d)

In other words, corporate IT started life as a “technology push” dynamic. Hot new minicomputers gave way to even hotter client-server architectures and the CIO’s mission was to stay on top of these waves of innovation. Things really got bad during the mid-1990’s when a glo- balizing business environment forced corporate strategists

in the developed U.S. and European markets to reengineer

their companies. This movement meant a total overhaul of the information systems that had been set in place as isolated applications serving local masters. The resulting boom in Enterprise Resource Planning(ERP) deployments essentially promised that, once the rollout was complete,

a new and radically more efficient system would reign. Unfortunately, the rollout took too long, cost too much, and largely missed the next wave of technology innovation, which was the rise of web applications.

The state of affairs today is largely one of misalignment

at best, disillusionment at worst. IT departments are being

reduced with a combination of outsourcing and budget cuts. The typical CIO in a supply chain intensive busi- ness today struggles to keep up with rising maintenance costs of existing systems. The CIO also feels pressure from

operational users to find and deliver new and better appli- cations for critical processes. The heady days of leading selection teams choosing between SAP and Oracle or i2 Technologies and Manugistics are long gone.

WhatCanBeDonetoFixit?

The first step in getting IT and the business realigned is to recognize that IT is an essential ingredient to success in supply chain. Consider the following typical IT inten- sive processes and how well they could run without a solid enterprise information architecture:

Order management—especially in very high volume cases like consumer packaged goods manufacturers who may have millions of order lines every day with promo- tions, charge-backs and other special considerations add- ing complexity.

Inventory optimization—whether this means simple inventory visibility, or a more sophisticated planning tool, companies sourcing, assembling and delivering hundreds of thousands of units daily across potentially hundreds of locations need to handle vast amounts of data.

Configuration management—complex rules that gov- ern what can go with what, especially in engineering inten- sive industries, calls for enormous intelligence and speed, and generally with little margin for error. These examples are but a few of the mission critical supply chain functions that simply cannot work at scale without well-designed and well-integrated enterprise infor- mation systems. Tying these top and bottom-line business processes to IT enablement is essential to general man-

agement’s understanding of such vital tasks as master data management or business process modeling. A second step most companies need to take reverses the first: IT must appreciate the process needs of their busi- ness users. Plenty of lip service is paid to this principle, and yet, far too often the office of the CIO remains wed- ded to its project go live commitments at the expense of real business needs. This problem is especially bad when the supply chain functionality demanded by the opera- tional user is part of a future release or later rollout of the dominant ERP backbone vendor. Faced with the choice to wait for what could be years, and pay millions for the privi- lege, or break standards and buy a specialty application in a rogue project, many supply chain professionals struggle to choose the lesser of these two evils. IT can solve this problem by governing all investments and projects according to the business process they are committing to enable. Manual workarounds, best-of-breed applications, and, increasingly web-based software-as-a- service deployments may suit the supply chain’s process needs faster, better, and cheaper than module X.X of your ERP vendor’s suite. In an ideal world business and IT are united rather than just aligned. Increasingly we are seeing IT as a function owned by the supply chain organization. The chemicals industry in particular is one where many heads of sup- ply chain also own most of IT. The logic makes sense, as truly critical functions like the examples above become ever more deeply ingrained in the competitive strategy of the business while genuine back office functions like payroll, telecommunications networks, and archiving lend themselves to low cost outsourcing. Our survey data (see Exhibit 2) shows that while a minority of companies overall include technology enablement within the span of control of supply chain, leaders are much more likely to unite IT and operations as one. Looking ahead, one wonders if the office of the CIO and the head of supply chain will eventu- ally be behind the same door.

EXHIBIT 2

Top 25 vs. All Enabling Supply Chain Stations

100%

64% 56%
64% 56%

78% 69%

Enabling Supply Chain Stations 100% 64% 56% 7 8 % 69% 13% 56% 41% 37% Top
13%
13%

56%

41% 37%
41% 37%
Top 25 All Prop_Diff 33% 31% 6%
Top 25
All
Prop_Diff
33% 31%
6%

Strategy

Performance

Technology

Governance

and Change

Measurement

Enablement

Management

and Analytics

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PROF I LE S in LE A DERSH IP Long-term Perspective: John Mascaritolo John Kerr

PROF I LE S in LE A DERSH IP

Long-term Perspective:

John Mascaritolo

John Kerr is a special projects editor for

Supply Chain

Management

Review

By John Kerr

J ohn Mascaritolo could never be accused of short-termism or blamed for having a blinkered world view. The former NCR executive, now a

college professor, has always kept an eye on tomor-

row. And he constantly coaches his students to see the story behind the story. One case in point: the class where he used the analogy of the orchestra conductor to depict the role of the supply chain leader. The students, invited at the start of the class to raise a hand when they saw a connection between Mascaritolo’s imagery and the bigger picture he was describ- ing, were attentive. And then one girl’s hand shot up. “It just clicked for me—your example of the orchestra conductor!” she declared. The Clayton State University professor is delighted to see his protégés making those connec- tions. “A lot of students have told me ‘I look at trucks and airplanes differently now.’ That’s really the

exciting thing,” he says. From his earliest days as a supply chain educator—asked to speak to a

college economics class when he was still a practicing industry executive—he would get his students to explain the impact of a truck breakdown or a dock strike on the rest of the supply chain. “The ones who ask questions are the sharp ones,” he says.

director of logistics practices and assistant professor

of supply chain at Clayton State in Morrow, Georgia,

and as the director of supply chain programs at Atlanta Technical College. His views into two edu- cational arenas allow him to see ways to forge links between two-year and four-year schools and cor- porations across Georgia, with the goal of helping

improve the economic well-being of the state. How so? With the strong like- lihood that Savannah becomes the primary east coast port for supercontainer ships once the Panama Canal is open to those vessels, the region will need a very solid base of supply chain expertise to support the trans- portation and distribution net- works required by that “super port.” Specifically, Mascaritolo is helping the state’s Workforce Ready program at the two-year college level, opening the eyes of teens who have little concept of the career possibilities within the supply chain field, much less

an interest in how goods move regionally or nationally. Mascaritolo has seen his

own career as a series of inter- connected goals. “I always had that 20-25-year view of what I wanted to be,” he says. The exception:

leaving his first job out of college, interestingly as a

high-school music teacher. When state budget cuts loomed, he left teaching and was hired in 1976 as

a temporary worker in the imports department at consumer electronics company Sanyo Electric. Hired permanently as an import coordinator soon after, Mascaritolo soon saw a host of possibilities for career growth in a logistics field that he found

for career growth in a logistics field that he found When it comes to professional development,

When it comes to professional development, John Mascaritolo always looks beyond the short term.

A Lifetime of Connections

Mascaritolo has spent a lifetime looking for connec- tions between big ideas—and he is still seeing big- picture patterns and possibilities beyond the status quo. He now wears two hats in academia—as the

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PROF I LE S

in LE A DERSH I P

( c o n t i n u e d )

fascinating. He also made a promise

to himself. “Before the word ‘logistics’ wasused,everythingwassegmented— warehousing, import, export. I had specialized in music education, and I vowed that I wouldn’t specialize in my career again.” Deciding to develop as well-rounded a career as he could, Mascaritolo says he chose to become expertin“theoppositeofimports,”and

hetookajobworkingasanexportcoor- and his team

dinatoratTheMennenCo. Three years later, he saw the next link in his series of career goals: an opportunitytogainexperienceintraffic managementasassistanttrafficmanager atDellPublishing.Andthreeyearsafter that,anotherstep:amovetoC.R.Bard, whereMascaritolobecamethemanager

ofdistributionservicesforthewarehous-

ing provider’s urological division. Later,

in1994,whentheOlympicswerehead-

edtoAtlanta,Mascaritoloknewhehad

to get involved. “As a logistician, I said ‘Ican’tnotbepartofthiswhenit’shere in Atlanta,’” he recalls. Managing 175

peoplethrough10directreports,hewas

responsibleforthedesign,implementa-

tionandmanagementoflogisticalfunc-

tionsassociatedwiththedistributionof

assetsinthe1996OlympicGames.

Amongseveralotherachievements as the program manager for facilities andspecialprojects,hedesignedand implemented the logistics infrastruc-

ture for all 12 of the Games’ remote venues across three states. One of the most interesting—and nerve- wracking—tasks was the design and management of the logistics network that supported the yachting venue in Savannah. Mascaritolo and his team were on the hook for the security of

morethan$7.5millionworthofcom-

petitionboatsandsupportcraft. With his Olympics accomplish- ments, Mascaritolo had amassed an enviable track record of leadership experience.Buthesoonmovedagain, to independent logistics provider DSCLogistics,wherehebecamethe south-east region general manager of

transportation. “I knew I had to have

third-party exposure to round out my experience,”hesays. By 1999, he had made the last big move to a position that tapped into all of his experiences and skills he had built: heading the global transportation andlogisticscommodityteamforNCR Corp. Responsible for a global logistics spend of $350 million, Mascaritolo

dents.AtClayton’sSchoolofBusiness, healsobuiltaminorcourseinsupply chain management and established the foundation and executive board foraCenterofSupplyChainthere. Mascaritolo’s broad perspective makes him a believer in the power of the whole to benefit the parts.As such,heurgesseniorexecutivestonot only have their managers participate

designed, imple- mentedanddrove corporate global logistics processes to ensure consis- tency in solution

delivery, smooth supply chain execution and enhanced customer service using best-practice andSix-Sigmamethodologies.

inlocalchaptersofprofessionalasso-

ciations but also to think more about advancingthesupplychainprofession andtheirowncompaniesoverthelong haul.“Recognizethattherearepeople

whoareintheshoesyouwerein10-

15yearsago,”hesays.Healsoadvises

managers to open up their organiza-

tions to internships to give more stu- dents more opportunities to exercise what they’re being taught in school. He notes that such internships often exposehiringmanagerstogreattalent inthemaking. AndwithhisAtlantaTechnicalcap inplace,hecautionsbusinessleaders nottofallintothetrapofrecognizing andforginglinkswithonlythe“name” schools—a choice that he believes hurtseveryoneinthelongrun. So where to from here for John Mascaritolo?Recentlyhewaselected as the director of education for the WarehousingEducationandResearch

Council

the

education chairman for the Atlanta RoundtableoftheCouncilforSupply ChainManagementProfessionals. But even that won’t be enough to keep him completely occupied. It’s a fairbetthathe’sconcoctinganewset ofstretchgoalsforhimselfrightnow.

supplychainprogramfromtwocours- “Short-term” just isn’t in this man’s

estofiveandfrom35toover147stu- vocabulary.

doIstillwanttobeateacher,anddoI reallyhavetheskillsthatotherpeople saytheyseeinme?”hesays. By mid-decade, John Mascaritolo had enjoyed a full career in supply chain,andhadachievedeverythinghe had set out, years earlier, to achieve. Sohesethimselfnewgoalsofgetting hisMBAandswitchingintoacademia to teach full-time. His extensive net- workinbusinessandeducationworlds brought him the position at Clayton State,wherehedesignedandgrewthe

in2003.“Thatwasmytestingground—

However, teaching was never far from his heart. As a senior practitioner in theAtlantaarea,hehadregularlybeen invitedbylocalacademicstobeaguest speaker in their classes—and he had alwaysenjoyedtheexperiences.When a professor at DeVry University was moving to another location, he asked Mascaritolo to become an adjunct professor of logistics and supply chain management, a role the executive retained alongside his NCR responsi- bilitiesuntiltheDeVryprogramended

Return to Teaching

Mascaritolo’s broad perspective makes him a believer in the power of the whole to benefit the parts.

(WERC).

He’s

still

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managemenT

managemenT mUTUaliTY response sKills TeCHnologY From Guru to GM: Developing Tomorrow’s leaDers A s long as

mUTUaliTY

response

sKills

TeCHnologY

From Guru to GM:

Developing

Tomorrow’s

leaDers

A s long as supply chain management has been studied as a discipline, the goals have been fairly consistent—produce quality products while minimizing costs. To do this, process- es had to be established and continuously improved to deliver consistent results and reduce margins for error. In this environment

the best supply chain leaders spent years cultivating knowledge and experiences in their chosen niche. Reflecting this environment, traditional supply chain educa- tion has been focused on creating gurus; leaders that have deep but narrow expertise in both discipline and industry. University curriculum built students’ technical expertise but had few rigor- ous requirements for expanding soft skills like influencing oth- ers and collaborating successfully. Once on the job, employee development is often limited to a few days of in-class training that could quickly be forgotten. The real learning is done on the floor, where employees study at the feet of more senior leaders who have spent years working on these same processes in the same industries. While gurus excel at building reliable processes and driving efficiencies, their siloed perspectives can result in rigid supply chain organizations that only change in reaction to pressure from the marketplace or the CEO. Without a broader understanding of the needs of other stakeholders, they sometimes develop solu- tions that work for their areas, but cause unintended impacts to other parts of the organization. They may work tirelessly to fix broken processes, but fail to proactively make the changes that help the system become more adaptable to future needs.

By pamela Culpepper and Terra winston

Pamela Culpepper (Pamela_Culpepper@ quakeroats.com) is vice president of Human Resources for Supply Chain Management at PepsiCo. Terra Winston (tshanelle@sbcglobal.net) is a principal at inTerract Consulting.

Traditional supply chain

education has been focused on

creating “gurus,” professionals

that have deep but narrow

expertise in both discipline and

industry. Today, the world is

changing rapidly with customers

demanding increased flexibility,

more customization, and quicker

time to market for innovations.

pepsiCo has discovered

that succeeding in this new

environment requires a new

breed of supply chain leaders:

the general manager.

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Today, the world is changing rapidly with custom- ers demanding increased flexibility, more customization, and quicker time to market for innovations. International operations require the ability to provide locally relevant products while still maintaining the economies of scale to support the overall supply chain strategy. With flattened organizational structures and rapid advances in technol- ogy that have automated many tactical activities, strategic decision-making is being pushed to lower levels. If the goal is to greet these new organizational overtures with con- fidence, the supply chain must move beyond quiet, cost cutting function to a key player in achieving the company’s growth objectives. Meeting this need requires a new breed of supply chain leaders—the general manager. General managers complement their technical know-how with broad cross- discipline and cross-functional experience. They under- stand end-to-end processes, can design comprehensive solutions, and have the interpersonal skills to gain sup- port for their ideas. They are willing to move around the organization, even globally, to expand their knowledge and are continuously learning.

Developing General Manager Skills

There is an abundance of developmental resources for gurus, but those interested in supply chain general man- ager careers may need to be more creative. Regardless of where you are in your career, either student or experi- enced employee, you can begin to build the skills, expe- riences, and perspectives to move beyond guru status. We discuss the strategies that you can implement to encourage that development appropriate to your career stage—student, employee, manager.

Students: Broaden the Horizon The quest to become a general manager can actually start before you ever step on campus, by choosing the right college or university. With the growing number of sup- ply chain and logistics programs available at top institu- tions, how do you decide which one will be best for you and your long-term career? There are so many factors to consider when choosing an undergraduate or graduate school. While your peers are busy comparing published rankings, looking for famous alumni, and perusing the list of recruiters in the career center, take some time to

James Yang
James Yang

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Guru

look beyond the list of classes being offered in the supply chain or logistics department. Seek out forward-thinking schools that augment traditional deep technical educa- tion with more general engineering management cur- riculum. Take the time to speak with current students and learn how class work is done. As you make your final decision, give priority to those programs that emphasize teamwork, problem solving, and strong written and ver- bal communications skills. The next opportunity that you have to build general manager skills is during registration. Your major/con- centration may have a very structured list of required courses, but you have the power to choose your electives wisely. Look for programs with the flexibility to use your elective hours to build knowledge in other areas like mar- keting or finance. You may not need to know the intricate details of cost accounting, but your electives are a great way to get a foundation in business basics. By taking an introductory marketing, finance, innovation, or general business course you can begin to understand the com- mon terms, concepts, and processes. A creative writing, debate, or extemporaneous speaking class can help you expand your communications skills. Even if your major workload is too heavy to accommodate a full elective, consider auditing a few interesting classes or getting a copy of the syllabus and checking some of the books out of the library. Take advantage of inter-disciplinary course offerings that partner engineering and business students to solve real world problems. This perspective and expe- rience can make you significantly more impactful as a future supply chain leader. You may even find that some of your best lessons occur outside of class. On-campus clubs can be excel- lent resources for building your exposure to new per- spectives. Be an extracurricular explorer and join a few that are in the business department of your school. Pay attention to the various activities being offered by orga- nizations, even if you don’t become a member. Many groups host interesting speakers and sponsor field trips that are open to the general public. Don’t underestimate the value in even a short lecture. One engineering stu- dent noticed a flyer for a CEO presentation being given in the law school. By attending this event, not only did she benefit from the CEO’s point of view, but also after a great conversation with him, she landed a prime intern- ship offer. There is no question that you should be seeking internship opportunities every summer that you can. These days, internships can be difficult to get, so don’t worry if your best offers are very technically focused or don’t allow you to work across disciplines or functions.

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Although these opportunities may seem better for build- ing guru experience, you can still make the most of your time working for companies. During your summer there are plenty of ways that you can increase your knowl- edge of different supply chain disciplines and functions. Make friends with other interns, talk to them about their projects and how they interact with the supply chain organization. Speak with the full-time members of your department and learn about what they do. In addition to internships, many schools offer shorter work opportu- nities through externships or job shadowing over spring or winter breaks. These are wonderful opportunities to get a taste of a marketing, sales, or finance department. One last word on work experiences. There is tremen- dous value in having large, blue chip company names on your resume. However, you may find that an internship at a smaller organization may give you more chance to experience a variety of departments or to impact a bigger piece of the overall business. By putting these core strategies into place, you will design an educational experience that makes you unique among your peer group. Not only will it give you an edge in the interview process, but it will also provide you a broader foundation upon which to build your career.

The Supply Chain General Manager’s Bookshelf

T rying to quickly build comprehensive business knowl- edge? Start with these popular and influential books.

Execution: The Discipline of Getting Things Done by

Larry Bossidy, Ram Charan, Charles Burck

Influence: The Psychology of Persuasion by Robert B.

Cialdini

The Five Dysfunctions of a Team: A Leadership Fable by

Patrick M. Lencioni

The 22 Immutable Laws of Marketing: Violate Them at

Your Own Risk! by Al Ries, Jack Trout

The Art of Innovation: Lessons in Creativity from IDEO, America’s Leading Design Firm by Tom Kelley, Jonathan

Littman

Built to Last: Successful Habits of Visionary Companies

by Jim Collins, Jerry I. Porras

The Innovator’s Dilemma: The Revolutionary Book that Will Change the Way You Do Business by Clayton M.

Christensen

Emotional Intelligence: Why It Can Matter More Than

IQ by Daniel Goleman

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Employees: Plan Your Moves After being very hands-on in creating the right college or graduate school experience to get the best job, many people sit back, allowing their companies to decide what further development they need. This is not the behavior of a general manager! Even with a full plate of work, there are things that you can do to continue growing. The easiest strategy that you can implement is to keep

yourself well versed in the latest supply chain strategy, leadership, and business thinking. Dust off your read- ing glasses and dive into relevant magazines and books. Interview some of your colleagues in other departments to see what publications and websites they frequent, and then invite them to discuss an interesting article over

a cup of coffee. Listen to your senior managers and note what sources they tend to mention when sharing their

ideas. See the sidebar for a starter list of books to expand your perspectives. Another simple development strat- egy is to find a mentor from another discipline or function. Most people who say they are interested in getting a mentor are, in fact, in search of a spon- sor—someone of significant power who can help them get promoted. While there is no question that a sponsor is

a critical piece of your personal board

of directors, you need true mentors as well. Mentors are individuals that can provide a perspec- tive on the work that they are doing and give you coaching about your work and/or career. Even if your company does not have a formal mentoring program, you should take the initiative to build these relationships. One such mentoring relationship can be with an executive from another disci- pline or function. Share with them your interest in learn- ing about their area of expertise. Use your meetings to get the “procurement” or “marketing” perspective on some of your work and decisions. With your manager’s permission, ask if you can help with a project or attend a certain meet- ing, plant visit, or sales call with your mentor. Whether guru or general manager, you will find that a mentor will provide a huge benefit to your career. PepsiCo has had tremendous success with both informal and formal mentoring, with mentoring circles being one of the more popular programs. In mentoring circles, a leader provides guidance to a small group of junior employees, either in person or virtually. The cir- cles allow participants to gain insights across functions, disciplines, and company departments. The structure

helps participants to get valuable knowledge from both the mentor and fellow group members. Although it may require more time commitment, when possible, you should consider joining an employer- sponsored extracurricular activity. Many large compa- nies have internal interest groups that serve a variety of purposes. Some help with recruitment and retention of certain employee populations (woman, people of color, millenials, single moms), some execute key corporate responsibility related initiatives (such as environmental sustainability, community service), while others support culture and build employee morale (such as via employ- ee-related event planning). Participation in any of these groups will expose you to more people across the organization, including key senior leaders. You will gain experience tackling company-wide issues that extend far past functional silos. As an added benefit it will also give you the chance to demon- strate and hone important leadership skills including influence, teaming, project management, strategic thinking, and conflict management. For many PepsiCo employees, corporate-spon-

management. For many PepsiCo employees, corporate-spon- While gurus excel at building reliable processes and

While gurus excel at building reliable

processes and driving efficiencies, their siloed perspectives can result in rigid supply chain organizations.

sored affinity groups are an excellent way to network, socialize, and grow their careers in exciting ways. For example, several years ago the PepsiCo Asian Network (PAN), an enterprise-wide employee resource group, decided to focus their energy on finding ways to better impact the company’s bottom line. Through this initia- tive, the group partnered with R&D to recommend new flavors that reflect Indian and Asian heritage, as well as with sales to suggest strategies to increase product avail- ability in select markets. Their work brought high value to PepsiCo while providing the members unique devel- opment opportunities to get hands-on exposure to inno- vation and the sales process. Lastly, the most critical thing that you must do is to creatively and strategically plan your career moves. Everyone wants to move up the corporate ladder as quickly as possible; however, this is not the ideal way to build a general manager career. Instead, you should expect and look to make a series of lateral moves into other departments or teams to round out your experi- ence. Are there roles in logistics that can get you working

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Guru

very closely with the sales team? What jobs involve par- ticipation in cross-functional innovation teams? A little creativity and ingenuity can go a long way in creating the career that you want. For example, one procurement specialist faced with dramatically increasing pricing for certain supplies, partnered with the R&D team to brain- storm how to integrate newer, cheaper products. When she was ready to make her next career move, doors were open in both R&D and marketing.

Managers: Take Responsibility

If you manage supply chain employees, you not only have

a responsibility for your own personal development but

also that of your team, and that may include building gen- eral management skills. Thankfully, you can do so by mak- ing small modifications to your current management prac- tices. First and foremost, take every opportunity to bring new perspectives to your team. Set aside a regular time in your team meetings on a monthly or quarterly basis to bring in relevant articles or speak-

ers from other parts of the organiza- tion. When company announcements are made, have the group discuss not only the direct impact on your team, but also the implication for other stakeholders. Use your team building

events to integrate some of these con- cepts. For example, instead of taking the team on a golf outing, conduct a market tour of one of your customers or let your employees go out with the sales team for part of the day. When you need to develop specif- ic individuals, you should look to get more mileage out of current assign- ments. In today’s economic environ- ment, employee workloads are filled

to the brim after rounds of layoffs and

cost cutting initiatives. While everyone craves develop- mental opportunities, there are few that would appreci- ate more work, even if the purpose were to increase their skills. Instead, find ways to build more learning opportu- nities into current work assignments. Have your people solicit input on their projects from stakeholders in a larger variety of departments. Encourage them to collect best practices from across the organization before finalizing solutions. Whenever possible, allow them to participate in company-wide special teams. There is no education like battling through a complex company issue on a cross- functional taskforce. Even delegation can be an effective tool.

PepsiCo views employee development as a key responsibility of leaders at every level and has built this expectation into leadership competencies, succession planning, and performance management. Some supply chain managers use delegation to increase team efficien- cy and develop employee skills. The managers identify the “bottom third” of their tasks—those routine activi- ties that are critical to their jobs, but are no longer chal- lenging or developmental. They can then delegate these tasks. This simple process is powerful because work that is routine to the manager can be exciting and extremely developmental for the team members who aspire to one day be managers themselves. Lastly, you need to get more comfortable taking cal- culated risks on talent. By far the best way to develop your employees is to put them in roles where they can learn on the job. Give your strong performers the chance to take on new assignments even if they don’t have the traditional levels of experience that would be expected.

If you manage supply chain

employees, not only do you have to continue your own personal development, you also have a responsibility for developing your team.

you also have a responsibility for developing your team. Once stretch assignments have been made, be

Once stretch assignments have been made, be sure to provide adequate support and training to help the employee be successful in this new role. In the end, the improvement in the quality of your talent and the better solutions brought by a fresh set of eyes will more than make up for the risks. PepsiCo is commit- ted to providing stretch assignments for key talent, whether it is in-role or through new positions. As the organization adjusts to address business needs, inte- grate acquisitions, and develop new products, we pay significant attention to how the new work can create stretch assignments. However, PepsiCo recognizes that the assignment alone is not enough. There must be an honest understanding of the employee’s strengths and weaknesses, and commitment from management to pro- vide the coaching, training, and tools that the employee will need to be successful.

Breaking Down the Silos

There are clearly lots of successful strategies that indi- viduals and managers can use to develop general man- agement skills, but what is the role of the corporation? How does an organization balance the need for the technical depth that gurus bring, while still encouraging

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the next generation of supply chain general managers? The key is to create an environment where people have the opportunity to learn outside of their chosen areas of expertise. Make sure that there are clear paths for career progression for both gurus and general managers. During staffing meetings and promotion decisions, senior lead- ers and human resources should be vigilant to root out biases and beliefs that make managers resistant to mov- ing talent outside of disciplinary silos. (See the sidebar to learn how PepsiCo has created a culture to develop supply chain general managers.) After considering your strengths and your career goals, you may decide that you actually prefer the guru track. If this is the case, don’t worry; there will always be a need for talented specialists that continue to move supply chain disciplines forward. However, this does not mean that you are entirely excused from learning more about general management. Find ways to better under- stand how your department’s decisions impact your stakeholders and the broader organization. Use some of the strategies listed above to build your soft skills—to strengthen your ability to influence, motivate, and com-

municate. These skills are necessary for career suc- cess regardless of your path. Most importantly, as you climb the career ladder and become a leader yourself, recognize that some of your employees may need to be groomed as general managers. Be sure to provide them the development that they need, even when it is outside of your comfort zone. But if you are interested in designing comprehensive solutions that provide long-term benefit to the entire enterprise, you must find ways to better collaborate internally, across functions and disciplines, and exter- nally with customers and suppliers. If you want to move beyond cost cutting and start contributing to the strate- gies that will drive growth, you must break down silos and expand your knowledge of, and influence on, rev- enue generating processes. If you aspire to take on the most senior roles in your company, you need to find ways to hone and demonstrate your influence skills, strategic thinking, and focus on adding customer value. And if you want to take the reigns of leadership and shape the future of your company, general management is the only path to take. jjj

How PepsiCo Builds Supply Chain Leaders

P epsiCohaslonghadareputationasanorganization

thatgrowsstrongleaders.WithinSupplyChain,we

haveimplementedanumberofinitiativestocreateastrong

poolofgeneralmanagersthatcanhelpusmeetourmost

criticalbusinessneeds.

Re-thinking Career Movement.Historically,wehave movedpeoplethroughtheorganizationvertically,witha

focusonbuildingtheirtechnicalordisciplinedepth.Asa

result,wehadestablishedastrongandexperiencedleader-

shipteambuthadlimitedourabilityasanorganizationto

buildabenchofsupplychaintalentthatwastransferable

acrossthecorporation.Thereforeweupdatedourinternal

peopleplanningprocesstoincorporatemorecross-disci-

plineassignmentswithinsupplychain.Animportanttool inthisprocessisthe“ExperiencePlan,”adocumentthat identifiesthetypesofexperiencesthatastrongleaderwill needtosuccessfullycontributeinanyrolewithinsupply chain.Duringthisprocess,forselectemployees,wemap

outacareerplanthatencompassesasmanyas10years

and3-4roleswithacceleratedlearningastheobjective.

Wealsocreatedliaisonorintegrationrolesthatconnect

supplychaintosalesandmarketing,orprojectrolesthat

integratedR&Dandglobalprocurement.

Changing Mindsets. Werecognizedearlyonthatjust adjustingtheplanningprocessonpapercouldnotcreate

thedeep-seatedchangethatweneeded.Weputtogether

aparallelcampaignfocusedonfacilitatingashiftinour

managers’mindsaboutwhatcapabilitiesarerequiredin

SupplyChain.Untilthen,mosttenuredmanagersbelieved

thatdepthwasgoodandbreadthwasbad.Theirthought

wasthatifyoudidnot“growup”inthedisciplineorwitha

particularsetoftechnicalskills,therewasnowaythatyou

couldeffectivelymanageorleadateamwiththatresponsi-

b ility.To combat this thinking, we identified and are devel - opingtransferableleadershipskillslike“learningagility”to helpthosesamemanagersacceleratetheirlearningofnew technicalskills.Gettingmanagerstotrustinthetalentthat theyreceivedfromotherdisciplines,oneswhodidnothave thetechnicaldepthbutstrongleadershipcompetencies,was achallengebutwellworththeeffort. •Adjusting the Hiring Profile.Externally,ourhiring philosophyhaschangedaswell.Nolongerareweonthe

huntfor23yearsofjuiceextractionexperience.Asbusiness

requirementsbeganshiftingandthepaceofchangeincreased,

weneededtobringinnewperspectivesandfreshthinking

tobolsterprocessandequipmentinnovationandtoavoid

becomingsluggishnessinourabilitytoadapt.Now,whenwe

gototheexternalmarket,weareseekingvaryingconsumer

productsexperience,timespentinmultipledisciplineswithin

supplychain,anddemonstratedleadershipskills.

MANAGeMeNt

MutuALIty

MANAGeMeNt MutuALIty resPoNse sKILLs tecHNoLoGy Vested Outsourcing: A Better WAy to outsource By Kate Vitasek and

resPoNse

sKILLs

tecHNoLoGy

Vested Outsourcing:

A Better WAy to

outsource

By Kate Vitasek and Mike Ledyard

Kate Vitasek (kate@scvisions. com) is on the faculty of the University of Tennessee’s Center for Executive Education and is founder of Supply Chain Visions. Mike Ledyard, a co-founder of Supply Chain Visions, is an author and frequent speaker on process measurement and improvement. He can be reached at mike@ scvisions.com.

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A lmost all outsource

arrangements—regard-

less of what is being o u t s o u r c e d — h a v e room for improvement. Outsourcing as a large- scale business practice

simply has not been around long enough for companies to have worked out all the kinks. Many companies jumped in without fully understanding how to do it right. The result: Outsourcing deals that are structured with fundamental flaws in the business model and the relationship. And while there are more successes than failures, almost all com- panies still struggle with how to improve their outsourcing efforts. For the past two years, the authors have participated in a University of

Tennessee research program funded by the U.S. Air Force to study companies that were employing performance-based approaches for outsourcing. A key part of the research was to distill our obser- vations into courseware for the Defense Acquisition University. In addition, we worked on the implementation of actual defense projects to ensure that partici- pants had a deep understanding of how to develop a solid outsourcing agreement (known as a service acquisition in the

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government sector). In this article, we will explore performance partnerships as a unique approach to outsourcing. This article is based on our research and hands-on experience working with organizations that have adopted sym- biotic performance partnerships that truly unlock win-win solutions. While many believe “win-win” is just a buzz- word that’s largely theoretical in nature, our research has proved differently. We have uncovered a set of unwritten rules companies can use to develop perfor- mance partnerships that enable both parties to achieve much higher levels of performance and cost savings than previously thought possible. We have distilled our lessons and approach into what we call “Vested Outsourcing.” We selected this term because it under- scores the importance of both par- ties having a stake in maintaining the arrangement and working together to create a performance partnership. This type of partnership takes both the company outsourcing and the service provider to new levels of cost savings, service improvements and profitability.

In Search of a Better Way

Thought-leading companies have been challenging conventional outsourc-

www.scmr.com

Why do so many outsourcing relationships fail to achieve anything near their real potential? One big reason is that they are based on a “What’s in it for me” philosophy. Vested Outsourcing changes all that. It encourages both parties to act for mutual benefit—and in the process lays the foundation for sustained success. The five rules of Vested Outsourcing presented here show how.

Gary Bates

www.scmr.com

Supply Chain Management Review · September 2009

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ing models for the past ten years. One result of this has been the emergence of Vested Outsourcing. And while no two Vested Outsourcing partnerships are alike, all good ones achieve a similar goal: A performance partner- ship based on optimizing for innovation and improved service, reduced cost to the company outsourcing, and improved profits to outsource provider. (See the Performance Pyramid depicted in Exhibit 1.) In suc- cessful performance partnerships, companies and their service providers work together to develop performance- based solutions that are aligned to their respective inter- ests. Importantly, both parties receive tangible benefits from the relationship.

EXHIBIT 1

The Performance Pyramid

Reduced Cost

to Company Goal: Performance Partnership that Optimizes for Mutual Desired Outcomes Innovation, Improved Margins
to Company
Goal:
Performance
Partnership that Optimizes
for Mutual Desired Outcomes
Innovation,
Improved Margins
Improved Service
to Provider

Source: Supply Chain Visions

At the heart of a Vested Outsourcing contract is an agreement on desired outcomes that both companies will achieve. The agreement clearly defines financial rewards for meeting or exceeding the agreed-upon outcomes and speci- fies the penalties for falling short. Simply stated, if the out- source provider achieves the desired outcomes (results), it receives a bonus. It is important to understand that Vested Outsourcing is not just gainsharing. Gainsharing is usually structured to return to the service provider a portion of cost savings that they bring to the relationship. It is based on productivity measures, and on reducing the cost of service for a specified range of activities. Vested Outsourcing is much broader. While it certain- ly includes the cost reduction concepts of gainsharing, it also includes increases in revenue, service level improve- ments, process improvements, and so forth. Where prof- it-sharing is based on profitability or cost measures—or, managing one’s portion of the existing piece of the pie— Vested Outsourcing focuses on value creation, making the pie bigger so all parties can enjoy a bigger share.

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This new approach challenges and encourages the outsource provider to apply innovative solutions and/ or investments to solve a client’s problem and to create value. But in doing so, the outsource provider also takes on some risk, in essence putting “skin in the game.” The provider looks at how it can best apply world-class pro- cesses, technologies, and capabilities that will drive value. This commitment to deliver against the projected value for the company outsourcing (such as a commitment to reduce costs or improve service, or both) shifts risk to the outsource provider. In exchange for achieving this incre- mental value, the company outsourcing commits to allow the provider to earn additional profit—above and beyond industry average profits for their service area. The result is a win-win Vested Outsourcing partnership.

Going the Whole Nine Yards

While the notion of partnerships is widely applauded in business, our experience and research has found that most organizations optimize “partnerships” for their own self interests. This typically reflects a “What’s In It for Me?”, or WIIFMe mentality. Western cultures are ingrained with “winning” from early childhood. Similarly, business schools and law schools focus much of their curricula on winning. Procurement and sales professionals, too, are trained in the art of negotiations to help them “win.” Companies that embark on a Vested Outsourcing agreement must put aside WIIFMe in favor of WIIFWe (What’s In It For We). This latter approach seeks to unlock a greater opportunity than is currently realized by either party. Put another way, it increases the size of the entire pie vs. maximizing the size of the slice for any one party (for example, lower costs at the expense of the outsource provider’s profits). Only by working together can both parties succeed. WIIFWe effectively tosses the conventional win/lose mentality out the window. Developing a WIIFWe relationship is easier to describe than to do. It’s not easy for most organizations to quickly transition from a culture of oversight and control to one of mutual respect. True win-win requires effort and commitment by both parties. Outsourcing does not mean abdication: it must be a partnership with regular, frequent communication to manage the expecta- tions as well as the work. One of the most pernicious problems infecting traditional outsourcing arrangements results from micromanagement. A different set of equal- ly destructive problems can emerge when a company hands over a process completely to the outsource provid- er, washes their hands of that process, and walks away. (The accompanying sidebar lists the ten most common ailments impacting outsourcing relationships.)

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Outsourcing

A Vested Outsourcing relationship succeeds because

both organizations work together to achieve mutually agreed upon, mutually beneficial goals. In our experi- ence, only those organizations that truly set aside the WIIFMe for the WIIFWe mentality were able to achieve true Vested Outsourcing partnerships that delivered out- standing results.

The New Rules of Outsourcing

Our research identified five principles that are embed- ded in sound outsourcing arrangements. We have come to

view these principles as the “rules” of Vested Outsourcing. (See Exhibit 2.) When implemented in conjunction with

a win/win What’s-in-it-for We philosophy, game-changing outsourcing relationships can happen.

Rule 1: Adopt an Outcome-Based vs. Transaction-Based Business Model

Traditionally, many outsource arrangements are built around a transactional model. (See also discussion of the

Activity Trap in the sidebar.) Most often this transaction- based model is coupled with a cost-plus or a competitive- ly bid fixed price per transaction pricing model to ensure that the buyer is getting the lowest cost per transaction. Under this conventional method, the service provider is paid for every transaction—regardless of whether or not

it is needed. The more inefficient the entire process, the

more money the service provider can make. The conventional business model does achieve the

lowest cost for transactions for the company outsourcing. However, it often does not help the company achieve what

it really wants or needs. Why? The company that has out-

sourced gets what they contracted; but what they needed

is an efficient and low-cost total support solution.

Vested Outsourcing, by contrast, operates under an outcome-based model in which the provider aligns its

interests to what the company really wants (the efficient, low-cost total solution).

A Vested Outsourcing model fundamentally shifts how

a company buys services. The concept is fairly straight-

forward. Instead of paying a provider for unit transactions for the various services provided—such as pallets in the warehouse, miles traveled, spare parts shipped, technical support hours, and so forth—the company and its ser- vice provider agree upon desired performance outcomes. Desired outcomes are still quantifiable, but take a differ- ent form: they can be availability, reliability, cost, revenue generation, employee or customer satisfaction, or even asset investment targets. For example, in a traditional outsource relationship the 3PL would be paid based on units received, pallets stored, units picked and packed,

EXHIBIT 2

Principles of Vested Outsourcing 3. 4. Clearly Defined 2. Pricing Model and Measurable Focuses on
Principles of Vested Outsourcing
3.
4.
Clearly Defined
2.
Pricing Model
and Measurable
Focuses on
the WHAT not
the HOW
Incentives are
Desired Outcomes
Optimized for
Cost/Service
Tradeoffs
1.
5.
Win/Win
Outcome-Based
Insight vs.
(WIIFWe)
vs. Transaction-
Oversight
Relationship
Based Business
Governance
Model
Structure

Source: Supply Chain Visions

orders processed, and so forth. In a vested outsourcing agreement, by comparison, the 3PL would be paid based on meeting the performance level for orders filled, prod- ucts available, or on time delivery. In essence, Vested Outsourcing buys outcomes, not individual transactions.

Rule 2: Focus on the WHAT not the HOW

Adopting a Vested Outsourcing business model does not change the nature of the work to be performed. At the oper- ational level, there is still a need for material to be stored, orders to be managed and fulfilled, calls to be answered, and goods to be delivered. What does change is the way in which the company purchases the outsourced services. Under Vested Outsourcing, the buyer specifies “what” they want; the provider is responsible for deter- mining “how” it gets done. Your in-house operations are either too expensive or ineffective (or both) and you’re looking outside for someone who can do the job better than you can do it. So when you find that provider, you let them do the job, right? The problem that often aris- es here, however, is something we call the Outsourcing Paradox. By outsourcing, companies effectively concede that they are not in the best position to do a specific job or jobs. Yet when they turn the work over to someone more competent, they can’t resist telling that service pro- vider how to do the job. The most effective Vested Outsourcing partnerships include minimal discussion of the processes the service providers must follow to meet the requirements. Instead, they focus on performance expectations. It’s up to the service provider to figure out how to put the supporting pieces together to achieve the company’s goals. Performance partnerships let each firm do what they

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do best. Unless the outsourcing company has both the skills and the resources to keep up with the latest inno- vations in the service they are outsourcing, they should leave the details to the experts.

Rule 3: Clearly Define and Measure the Desired Outcomes

The third rule of Vested Outsourcing is to clearly define and measure desired outcomes. Both parties must be explicit in defining the desired outcomes. These out- comes are expressed in terms of a limited set (ideally, no more than five) of high-level metrics. Organizations should spend time during the outsourcing process, and especially during contract negotiations, to explicitly define how the relationship’s success will be measured. Attending to this upfront helps ensure that neither time nor resources are wasted pursuing the wrong objectives. Once the desired outcomes are agreed upon and explicitly expressed, the service provider can propose a solution that will deliver the required level of perfor- mance at a pre-determined price. Under the purest form of Vested Outsourcing, the outsourcing company only pays for results (namely, orders shipped complete and on time), not transactions (picking, packing and shipping). The service provider is paid for the value delivered by its overall solution, rather than being paid for the activity performed. We cannot stress enough the importance of getting this right. Carefully defining and measuring the desired outcomes will position the relationship for success, by assuring that the right things get done in the right way. Conversely, getting it wrong will result in potentially hundreds of thousands (if not millions) of dollars wasted in a relationship plagued by the common outsourcing ailments we have noted in the sidebar.

Rule 4: Optimize Pricing Model Incentives for Cost/Service Tradeoffs

The fourth rule centers on a properly structured pricing model that incentivizes the optimal cost/service trad- eoff—or put another way, avoids the “Penny Wise and Pound Foolish” trap. The pricing model is based on the type of contract (fixed price or cost reimbursement) that will be used to reward the outsource provider. When establishing the pricing model, businesses need to apply two principles. First, the model must bal- ance risk and reward for both parties. The agreement should be structured to ensure that the provider assumes risk only for decisions within its control. For example, a transportation service provider should never be penalized (or rewarded) for the changing costs of fuel. Second, the

agreement needs to require the service provider to deliv- er solutions—on time and complete shipments— not just perform pick, pack and ship transactions. When properly constructed, Vested Outsourcing will incentivize the service provider to solve customer prob- lems proactively. Service providers are thus encouraged to develop and institute innovative and cost-effective methods of performing work to drive down total cost while maintaining or improving service. Vested Outsourcing essentially is a strategic bet by the service provider that it can meet the service levels at the set price, for example 98 percent on time and complete shipments. Inherent in the business model is reward for the provider to make investments in process,

service, or associated products that will generate returns in excess of contract requirements. Performance partner- ships are usually based on achieving the desired tradeoff either by achieving:

• Higher service levels at the same cost.

• The same service levels at lower costs.

• Higher service levels and lower service levels.

If the service provider does a good job, it will reap the rewards of greater profitability. Vested Outsourcing does not guarantee that service providers will reap higher profits. However, it does give providers the authority and autonomy to make strategic investments in their processes and product reliability that can generate a greater ROI compared to conven- tional cost-plus or fixed price per transaction approach. Vested Outsourcing also typically seeks to encourage ser- vice providers to meet the desired performance levels at a flat or decreasing cost over time. Therefore, the service provider has to leverage its unique skills and capabilities to make the processes much more efficient. In addition, the provider may realize intangible benefits such as con- tract extensions or references from their clients.

Rule 5: Governance Structure Must Emphasize Insight vs. Oversight

In the early days of outsourcing many companies made the mistake of simply throwing the work over the fence to their provider without clearly defining the require- ments or developing performance metrics or SLAs (ser- vice level agreements). As scary as it may seem, we still see some companies today that operate without ben- efit of a formal contract or any real agreement in place. Fortunately, this is a declining minority. Yet some have gone to the other extreme, succumbing to the measure- ment minutiae aliment. They often have a small army of people often referred to as “program managers” who micromanage the outsource provider.

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Outsourcing

An effective Vested Outsourcing partnership out- sources processes to service providers that are real experts in those processes. The partnerships should be

managed to create a culture of insight vs. oversight. Let’s look at the meaning of both words to get a better under- standing of the difference.

Insight. Power of acute observation and deduction; penetration, discernment, perception.

Oversight: Watchful care; superintendence; general

supervision. Escape from an overlooked peril. If you have done a good job picking the right out- source provider and you trust them and their exper- tise, why do you need a small army providing “general supervision” over them? A sound governance structure should establish good insight—not provide layers of oversight.

How Vested Outsourcing Rules Work Together

In Vested Outsourcing, the organizations work together upon a foundation of trust and mutual accountability to achieve the outcomes. Supported by the careful align- ment of performance objectives and controls, the service provider is empowered to pursue improvements that will deliver higher performance, greater profits, and lower total ownership cost. Vested Outsourcing uses the power of free market innovation to improve the outsourc- ing relationship. This can be a challenging mindset to embrace. But participants should always keep in mind the ultimate goal: performance partnership that optimiz- es for mutual desired outcomes. For the service providers, Vested Outsourcing is an

10 Common Outsourcing Ailments

1. Penny Wise and Pound Foolish When outsourcing, you need to think beyond the

short-term bottom line. The danger in focusing on the cheapest offer is that it inevitably leads to tradeoffs in qual- ity and/or service. Unfortunately, many executives view out- sourcing as a quick-fix solution to resolving balance sheet problems. Often companies suffering from a “Penny Wise and Pound Foolish” mentality, fall into a loop of frequently bidding out their work, picking the lowest price provider, and then transitioning to that supplier. This can lead to a vicious cycle of bid and transition, bid and transition, bid and transition.

2. The Outsourcing Paradox This ailment typically begins with the “experts” at the

outsourcing company developing the “perfect” set of tasks, frequencies and measures for the engagement. The result is an impressive document containing all the possible details on how the work is to be done. At last, the perfect system! However, this “perfect system” can actually sow the seeds of failure of the outsourcing effort. The reason: it’s the company’s perfect system, not one designed by the provider of the services, who’s supposed to be the experts at getting the job done.

3. The Activity Trap Traditionally, companies purchasing outsourced servic-

es have used a transaction-based model where the service provider is paid for every transaction—regardless of wheth- er or not it is needed. Businesses are in business to make money; providers of outsourcing services are no different. The more transactions they perform, the more money they

make. There is simply no incentive for them to reduce the number of non-value-added transactions because it would result in a reduction of revenue. Make sure your outsourcing agreement is not based on pushing the cash register button every time a specified activity is performed, especially when that activity is not value added.

4. The Junkyard Dog Factor When the decision to outsource comes down, it usually

means that jobs will be lost as the work and jobs transition to the service provider. This often results in employees hun- kering down and staking their territorial claim to certain processes that simply must stay in house. Even if the major- ity of the jobs are outsourced, many companies choose to keep their “best” employees on board to manage the new outsource provider. These employees are often the same ones who were asked to help write the statement of work (SOW). Is it any wonder then, that SOWs become rigid

documents that dictate conventional and less-than-optimal ways of performing the tasks being outsourced?

5. The Honeymoon Effect At the beginning of any relationship, both parties go

through a honeymoon stage. Outsource providers will jump through hoops as they ramp up for their new client, who’s happy just to have someone else doing the job. But while the provider remains conscientious about meeting the com- pany’s expectations and service levels outlined in the con- tract, it never progresses beyond this point. The Honeymoon Effect lingers on, even while performance levels for the ser- vices provided may be improving industry wide. The prob-

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opportunity to exercise greater flexibility in deciding how support is provided, to ensure cash flow stability through long-term contracts, and to increase revenue. For the company doing the outsourcing, it’s a chance to enhance performance while decreasing costs and assets employed. In short, vested outsourcing changes the fundamental business constructs of the typical out- sourcing approach. Companies wanting to embark on a Vested Outsourcing partnership and thereby realize lower costs for the outsourcing company and higher profits for the service provider, neither of which can be attained by one organization working alone, will need to fully embrace the WIIFWe philosophy. Further, they will need to con- sistently live the five rules of outsourcing to ward off the common ailments that can weaken—and even destroy—

lem: while the honeymoon lasts, there’s no inherent incen- tive to raise service levels (or decrease the price) beyond what’s contained in the Service Level Agreements.

6. Sandbagging Let’s look at a typical outsourcing example of sandbag-

ging. Many times during contract negotiation, someone on the company side, often a senior manager, will ask, “Just how much can I save?” Rather than establish the highest level of savings achievable as early as possible (which would be most beneficial to the company outsourcing), the provider will sandbag and offer up the savings in smaller increments

over time. Why deliver everything up front when you know that your hardnosed customer is just going to hammer you for more next quarter or next year? The providers know that total savings are made of up “low hanging fruit” and long- term savings. They often hold back some improvements in an effort to manufacture future savings opportunities in case they don’t perform well in a given quarter or year.

7. The Zero-Sum Game Companies that play this game believe, mistakenly,

that if something is good for the outsource provider, then it’s automatically bad for them. Providers feel the same way from the other perspective. Many organizations fail to understand that the sum of the parts, when combined effectively, can actually exceed the whole. This was proven by John Nash’s Nobel Prize winning research, commonly referred to as game theory. The theory’s basic premise is that when individuals or organizations play a game together (or work together to solve a problem) the

results are always better than if they had played against each other (i.e., worked separately).

an outsourcing partnership. Vested Outsourcing is game- changing; it is the way to healthy and thriving outsourc- ing relationships. jjj

Authors’ notes: Our upcoming book, Vested Outsourcing, published by Macmillan, will offer a comprehensive guide for developing successful Vested Outsourcing partnerships. It is designed to help all companies begin their effort to take their outsourcing relationships to the next level.

The University of Tennessee offers a three-day open enroll- ment class at the school’s Center for Executive Education, titled Performance-Based Outsourcing: Buying Results, Not Activities! (See http://PBO.utk.edu) You can also contact Bric Wheeler at the University of Tennessee (BWheeler@utk.edu) for information on customized, in-house training on performance-based outsourc- ing. Also, readers are encouraged to visit the authors’ blog at www. vestedoutsourcing.com, which includes additional resources, suc- cess stories, and other material.

8. Driving Blind Disease The Driving Blind Disease afflicts companies

that have not done their homework in preparing for the outsourcing engagement. Specifically, it relates to the lack of a formal governance process to monitor the performance of the relationship. Research from the Aberdeen Group shows that one of the biggest challenges organizations face today is assuring that negotiated savings are actually realized on the bottom line.

9. Measurement Minutiae When companies try to measure everything,

they usually succumb to the malady of Measurement Minutiae. What’s remarkable is the scale of the minu- tiae that some organizations are able to create. We have found spreadsheets with 50 to 100 metrics on them. Measurement minutiae is often associated with companies that are suffering from the junkyard dog factor and with agreements that have fallen into the activity trap. If you find yourself micromanaging your service provider, you’re either bored or you don’t trust them.

10. The Power of Not Doing The saddest of all ailments is the one we call the

Power of Not Doing. This happens when a company falls into the trap of establishing measures for the sake of mea- sures, without thinking through how those measures will be used to manage the business. We’ve all heard the old adage that “You can’t manage what you don’t measure.” But if you don’t use your measures to make improvements, you

should not expect results.

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MANAGEMENT

MUTUALITY

RESPONSE

MANAGEMENT MUTUALITY RESPONSE SKILLS TECHNOLOGY Is Supply Chain the By Mike Duffy Mike Duffy is Executive

SKILLS

TECHNOLOGY

Is Supply Chain the

By Mike Duffy

Mike Duffy is Executive Vice President of Operations at healthcare distributor Cardinal Health. He can be reached at Mike.Duffy@cardinalhealth.com.

If the U.S. healthcare sector

is to rein in its soaring costs,

it would do well to look to

the supply chain leaders

of the consumer packaged

goods industry. Specifically,

health care professionals need

to consider a “shelf-back”

collaborative approach that

involves increased trust among

partners, better alignment of

goals and incentives, and greater

transparency of information.

Cardinal Health’s Michael Duffy

explains.

B ack in 2002, I didn’t realize how easy I had it when senior executives from my employer at the time, The Gillette Company, returned from a tense meet- ing with some of our largest customers. Our execu- tives had been forced to admit that we had failed to deliver effective customer service—and they did not come home happy. While our products were

constantly in demand, our company could not reliably ship to those big retailers’ requirements with case fill rates in the 80-90 percent range, falling far short of expectations of 98 percent rates. 1

The executives had committed that we would fix the delivery prob-

lems. Of course, it wasn’t easy to create a plan to make that commitment

a reality. We needed to fix a number of processes that simply weren’t

working the way we needed them to. More important to our success was changing how our organization viewed the supply chain. Our culture had to shift from one in which we pushed products into the market to one focused on improving product availability at the retailer’s shelf. That mindset had to permeate our organization and embed itself in all that we did—from developing our packaging to creating responsive supply-side systems that reacted quickly to changes in consumer demand. But making the necessary fixes was easy in the sense that we had

a burning platform from which to drive change: The retailers were threatening not to carry our new products unless we fixed our service issues. We also had several things working in our favor: unwavering support from our senior leadership team, full access to customer data, and control over the end-to-end processes required for supply chain optimization. As a result, over the next 18 months, we were able to increase customer service fill rates by 10 percent, cut inventory by 25 percent, and reduce costs by 3 percent.

Can It Work in Health Care?

I moved from consumer products to the health care industry in 2006,

and I’ve found that it’s easy to draw parallels between the situation we were in at Gillette in 2002 and the situation our industry is in today. (I now work for Cardinal Health, a global manufacturer and distribu- tor of medical and surgical supplies and technologies dedicated to making healthcare more cost-effective.) Like Gillette at the time, the

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Cure for Rising

HEALTHCARE

COSTS?

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Supply Chain Management Review · September 2009

29

Healthcare

health care supply system operates largely as an “absorp- tion model,” moving products downstream without vis- ibility into demand at the point of use. An outcome of that model is similar to what we saw at Gillette prior to the transformation—products can be out of stock as much as 15 percent of the time. Yet the supply chain transformation that occurred at Gillette and other consumer packaged goods (CPG) companies during the 1990s and early 2000s has yet to take root in healthcare. In fact, there is some sentiment that this transformation is not possible. The healthcare value chain—that is, the chains of activities that can create value for providers such as hospitals, for payers such as insurance companies, and most importantly for patients—is extremely complex. Consider the con- clusion reached by Dr. Lawton Burns and his Wharton School colleagues following their 42-month study of the healthcare value chain in 2002:

An efficient healthcare supply chain will not only reduce costs, but also will

in healthcare must be challenged. The model is not only possible; it is essential. As supply chain leaders, we must break through silo thinking, challenge old paradigms and push ourselves to find solutions for the industry’s issues. In doing so, we will provide the necessary leadership for transforming our industry and helping restore the global competitiveness of American business.

The Mandate for Change

From a macro perspective, the United States’ ability to compete in a global economy using domestic operations will be heavily influenced by our ability to reform health

care and rein in cost, particularly in labor-intensive oper- ations. In its report, “The Economic Case for Health Care Reform,” the White House estimates that slowing the growth rate of health care spending by 1.5 percent a year—a 20 percent reduction in the current projected rate of growth—would increase economic out- put by more that 2 percent in 2020 and nearly 8 percent in 2030. 3 The big question, of course, is how to do this. Supply chain leaders can play a central role in providing the answer. Let’s size up the healthcare supply chain issues,

though. While every hospital is unique, it is reasonable to assume that the average

hospital’s expenditure on supplies and on labor to manage supplies is approximately 25 percent of its total operating budget. This assumption is based on the following:

• A comprehensive study of the administrative cost of health care published in The New England Journal of Medicine estimated that “the average U.S. hospital devoted 24.3 percent of spending to administration.” 4

Included in the tasks categorized as administrative were accounting and ensuring that supplies are on hand.

• In their research published in Hospital Material

Management Quarterly, Nathan and Trinkaus conclude that, “In most hospitals and medical establishments, about 35 percent of their budgets are spent on supplies

and labor to manage the inventories, material, and infor- mation flows.” 5

• The Healthcare Financial Management Association,

a membership organization for healthcare financial man- agement executives and leaders, estimates that the average hospital spends 14 percent of its budget on supplies. 6 It has been estimated that hospital health care costs will grow 6.2 percent per year through 2016. 7 As Exhibit 1 illus- trates, a 100-200 basis point reduction in growth in supply- related costs would lead to a 24-48 basis points reduction in hospital expenditures by 2016. This is equivalent to a

in hospital expenditures by 2016. This is equivalent to a increase patient safety by ensuring that

increase patient safety by ensuring that the right product is available at the time the nurse

needs it.

“Extended enterprises are not likely to emerge in

healthcare for a host of reasons. The three key ingredi- ents in such enterprises—dedicated asset investments in one’s trading partners, effective knowledge management and information sharing, and trust—are all lacking.” 2 I agree that there are some fundamental differ- ences between healthcare and the CPG industry that must be taken into account when determining wheth- er the “extended enterprise” that has been so success- fully applied in CPG can be applied to healthcare. Specifically:

1. The healthcare delivery system is very fragmented

and regionalized, with no single national player capable of driving industry change as Wal-Mart did in consumer goods.

2. Pricing models indexed to inflation have histori-

cally not created an incentive for trading partners to col- laborate and drive cost out of the system.

3. Healthcare lacks the technological sophistication

found in other industries. However, despite those differences, the conclusion that an extended enterprise model is “unlikely to emerge”

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EXHIBIT 1

How Reducing Supply Chain Costs Can Reduce Hospital Expenditures

(National Health Expenditures, $ billions)

Projected

Type of Expenditure

2009

2016

Total National Health Expenditures

$2,509.5

$3,790.2

Hospital Care

$789.4

$1,201.0

Supply Related Costs (25% spend assumption)

$197.4

$300.3

PROJECTED SAVINGS FROM IMPROVED SUPPLY CHAIN Hospital Care

6.2%

6.2%

Current Projections (2009-2016) Assumed Reduction in Growth Revised Growth Rate

1.0%

2.0%

5.2%

4.2%

Revised 2016 Supply Costs Savings

$281.0

$262.8

$19.2

$37.4

Revised 2016 Hospital Care Costs Savings (%) New CAGR Change in CAGR (%)

$1,181.8

$1,163.6

1.6%

3.1%

5.9%

5.7%

-0.24%

-0.48%

Extrapolating to Total National Health Expenditures

 

2016 Total NHE Savings

$60.7

$118.1

Source: CMS

$20-40 billion annual reduction in hospital spend across the U.S. If we assume that this saving applies to all aspects of healthcare, such an effort can help reduce annual national health care expenditure by $60-120 billion. Based on the results that have been achieved in other industries, it is reasonable to expect that changes in the healthcare value chain that are achievable in the next five years can dramatically slow the growth in supply costs. This will reduce supplies as a percentage of total spend while setting the stage for even greater reductions in the years that follow.

The State of Healthcare’s Value Chain

In many respects, healthcare in the United States has never been better. Hospitals are staffed by highly skilled, world-class professionals and equipped with sophisticated diagnostic and imaging systems. However, when it comes to the value chain, health care lags other industries in adopting best practices and optimizing operations. In “The Economic Case for Health Care Reform,” referenced previously, the White House acknowledges that “our system is complex and we have high admin- istrative costs.” Yet there is little visibility into supply and not much sophistication in the systems and pro- cesses that control it. Many hospitals still rely on the bulk stockroom as the hub of their supply chain. In this

model, technicians set target stock levels for the various products stocked in the hospital’s units and laboratories. Expediting, “hot shots,” and rush orders are part of the everyday routine because, even though months or years of inventory may exist upstream in the extended value chain, products are often unavailable when the nurse needs them. This, of course, contrasts sharply with the perfor- mance of a retail supply chain where product movement is closely monitored, as sophisticated inventory man- agement systems and point-of-use technologies have replaced dated legacy products. These systems have provided retailers and manufacturers alike with the data required to improve on-shelf product availability while lowering systemwide inventory and costs.

A Day in the Life of a Hospital Order

The extent of the difference between CPG and health- care became obvious to me shortly after I moved into

my current role at Cardinal Health. I decided to spend

a night at one of our distribution centers to track the

life of an order. The customer whose order I chose to observe was one of our more progressive partners, so

I expected to see a fairly efficient process as I tracked

the order from generation at the hospital through prod- uct put-away at the hospital supply station. To my sur- prise, that order was touched by nine people, and data had to move among six different information systems. By contrast, the most efficient direct store delivery (DSD) manufacturers utilize one system to generate and put away an order and have no more than three people touch the product. The difference between what I observed and what occurs in retail highlights the opportunity that exists. From point-of-manufacture to point-of-use, there are redundancies and inefficiencies across the healthcare value chain (Exhibit 2). Although the lack of sophisti- cated technology solutions certainly contributes to this problem, technology should not be viewed as the pana-

cea for the healthcare value chain. It will ultimately play

a pivotal role if we are to match the efficiency of the

retail supply chain, but it is not the starting point. Other foundational elements are needed if we are to maximize the benefits that technology will afford us.

A Plan for Change

While progress is being realized in pockets across the healthcare value chain to address some of its inefficien- cies, there is a limit to the magnitude of impact these improvements will have without fundamental changes in how we—healthcare suppliers, distributors and provid-

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EXHIBIT 2

Opportunities to Eliminate Redundancy and Reduce Complexity

Manufacturers 2 Distribution 2 2 Consumers Internal 1 Warehouse Hospital 3 4 4 Patients Manufacturing
Manufacturers
2
Distribution
2
2
Consumers
Internal
1
Warehouse
Hospital
3
4
4
Patients
Manufacturing
Wholesale
Distributor
1
External
Care Provider
Warehouse
1
Redundant warehouse assets
2
Excess inventories, leading to losses/writeoffs
3
Mismatched demand/supply locations-expedited shipping, poor service
4
Increased complexity, resulting in errors, increased costs, poor service

ers—view the value chain. In much the same way that we undertook a mindset change at Gillette, professionals in this industry need to reorient their view of the supply chain and take a “shelf-back” approach. We simply cannot be satisfied until we improve the availability of products at the point of use while reduc- ing end-to-end system costs. Although there will be chal- lenges in achieving the types of success seen in other industries, I firmly believe it can be done. Admittedly, there are no easy fixes. But there are lessons we can apply from other industries to create improvements now. These lessons center on trust, align- ment and information transparency.

1. Building Trust and a Collaboration Mindset In an AMR Research study of more than 275 life sciences and health care companies, participants were asked to identify the challenges they faced in working on joint opportunities across the healthcare value chain. One of the main impediments cited was “collaborating with trading partners.” Additionally, participants were asked “Is there a lack of trust with your trading part- ners?” Almost three-quarters answered yes. Not surprisingly, AMR concluded that “the different industry segments in the health- care value chain do not trust each other. This has been a hindrance to information sharing and collaboration which drives sig- nificant costs and inefficiencies.” 8

How important is trust and collabora- tion to improving supply chain performance? It’s hard to overstate it. For evidence, turn to a McKinsey and Company “Supply Chain Champions” study conducted to determine the characteristics of the leading consum- er goods supply chain leaders. McKinsey plotted the performance of 40 leading packaged goods companies based on service levels and cost, and then correlated the

success of these leaders with various supply chain attri- butes. Supply chain collaboration surfaced as the lead- ing success factor (see Exhibit 3). As these and other industry leaders have collaborat- ed more closely with their trading partners and taken a holistic look at their supply networks, they have driven substantial cost and inventory out of the system while improving service

levels and sales. (Exhibit 4 shows the savings achieved in three key indus- tries.) While much of the collabora- tion occurred between retailer and manufacturer, industry associations and exchanges such as the Grocery Manufacturers Association’s Logistics Committee, Transora and GS 1 pro- vided forums for CPG companies to develop and share best practices, tackle industry-wide issues, and deploy com- mon data standards. The goal of these associations is best illustrated by the GMA’s Logistics Committee mission statement: “The committee’s mission is to identify emerging logistics trends in

EXHIBIT 3

Success Factors Associated with Collaboration

Performance of 40 Leading Packaged Goods Companies High Leaders Supply Chain Service Level Followers Low
Performance of 40 Leading
Packaged Goods Companies
High
Leaders
Supply
Chain
Service
Level
Followers
Low
High
Supply
Low

Chain Cost

Source: McKinsey & Company

Key Success Factors of Consumer Packaged Goods Supply Chain Leaders Correlation with Supply Chain Success
Key Success Factors of Consumer
Packaged Goods Supply Chain Leaders
Correlation with Supply Chain Success
SC Collaboration
0.40
Product Flexibity
0.35
Integrated SC Organization
0.30
Complexity Management
0.30
Planning Process
0.27
SC Controlling/Systems
0.22

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EXHIBIT 4

Savings from End-to-End Collaboration in Other Industries

Savings from Collaboration, % of Base Line

Consumer

20
20
30
30
 

5

2 1
2
1

Automotive

20
20
 

8

 
10
10
1
1

0

Electronics

20
20
20
20
 

3

2

0

0

Source: McKinsey

Inventory

Administration

Logistics

Production

Cost

Spend

the industry with the goal of promoting increased effec- tiveness and efficient business practices for serving our customers and consumers.” In healthcare, we do not have the equivalent of a GMA Logistics Committee promoting the identification and sharing of best practices across the industry. But that is not to say there cannot be an equivalent cross- industry forum. 2. Aligning Goals and Incentives While building trust takes time, there are some key enabling elements that can be put in place immediately. The first is aligning the goals and incentives of participants across the value chain. Currently those goals are often not aligned: Manufacturers are concerned about sales, hospi- tal materials managers focus on purchase price and pur- chase price variances, and distributors work on keeping the two partners happy. These incentives cause the supply chain partners to add inefficiencies to the system. In addition, many of the relationships in the health care value chain are governed by metrics that track the efficiency of the transaction between two trading part- ners. Instead, partners need to work together to clearly define the metrics that are important to the success of the system, not simply to the individual partners. Focusing on the metrics that matter will lead to a better and more complete understanding of the supply chain’s performance. In turn, this will lead to identification and dialogue around areas of opportunity, alignment on how best to close gaps, and improvement in overall perfor- mance. A simple example is focusing on service levels to the hospital, if not at the point of use. While it is

important to understand the service per- formance from the manufacturer to the distributor, what matters most is that the nurse has the product when it’s needed. This evolution occurred at the time I was at Gillette and was critical to our

turnaround. Historically, we had mea-

sured service using two key metrics: dol- lar fill rate and on-time shipment. These two metrics were not customer-centric

and only mattered to Gillette. Our cus-

tomers did not order products in incre- ments of dollars; they ordered cases. Plus, they didn’t care when we shipped the

product provided that it met their delivery

expectation, which we didn’t know since we weren’t tracking delivery time. To help

change our culture, we redefined our cus- tomer service metrics. Instead of looking at dollar fill rate, we began to measure case fill rate. Instead of measuring our performance based on on-time shipment, we switched to on-time delivery. In addition, my entire organization added customer service metrics to their scorecard. In doing so, we ensured that internal functions were working toward the same end goal. That same degree of organizational change is occurring here at Cardinal Health and is starting to impact how we work with our suppliers. For example, we had one supplier that has been a “gold” performer on our supplier scorecard for years. The supplier excelled in every category we mea- sured. Yet, when I visited with our selling organization, this supplier was routinely identified as an “issue” because our fill rates to the hospital for their products were low. As we matched the feedback we were hearing from the field with how we measured this and every other supplier, we identified gaps on our scorecard. Most notably, there was no measure for how well our mutual customer, the hospital, was being serviced. As a result, the supplier was unaware of the problem and couldn’t offer solutions. Efforts like this are transforming the way we inter- act with our supply partners. We have established a sup- plier advocacy council that will identify areas where we can jointly improve supply chain efficiency. The coun- cil will also help ensure that Cardinal Health’s supply chain direction and corresponding technology platform are aligned with industry thinking and standards. We are introducing a new supplier performance scorecard that will focus on how we are servicing our mutual cus- tomer—the hospital. This will further drive alignment between Cardinal Health and suppliers on key future

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business initiatives that drive costs out of the supply chain while improving product availability. We are also undergoing a comprehensive review of our current processes while aggressively tackling our legacy system issue. By reviewing our current processes through a “shelf-back” lens, we will identify opportunities to redesign, simplify and improve the performance of the end-to-end supply chain. In addition, we will introduce new technologies to streamline information flow and improve the transparency of data, creating a platform for even tighter integration with suppliers and providers.

Lahey Clinic: Best Practices in Action

L ahey Clinic is a physician-led, non-profit healthcare group in suburban Boston, with more than 500 physi-

cians and 4,600 other personnel supporting a 327-bed hospital and a 24-hour ambulatory care center. In enhanc- ing its supply chain operations, Lahey first moved to a stockless inventory system, which essentially replaces the hospital’s bulk stockroom with distributor-held inventory. In this case, Cardinal Health now manages the clinic’s inventory and arranges for just-in-time delivery of clinical products to stocking cabinets in the hospital’s units and laboratories. Lahey also deployed Pyxis Products automated dis- pensing cabinets to control the dispensation of medications and medical supplies in a way that automates inventory management and enables usage to be tracked to employ- ees and patients. Employees use their ID numbers or fin- gerprints to access inventory. The system then transfers the information to the hospital’s billing system and generates reports that can be used to optimize medication and supply utilization and manage costs. Lahey also worked closely with Cardinal Health to implement an enterprise-wide systems approach to supply chain efficiency to replace its management-by-committee approach. The clinic created a new position, Director of Supply Chain Management, to help implement recommen- dations and drive greater compliance. This experienced supply chain administrator built a team that was able to streamline the materials management information sys- tem to enable more effective use of the data generated by the Pyxis cabinets. This data was analyzed to better illus- trate precisely what drives the cost structure and allowed the team to improve inventory control, reduce waste and improve workflow. To date these improvements have generated $1.3 million in savings and a 70 percent reduction in product stock-outs.

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Forward-thinking hospitals are addressing similar issues within their organizations. By working closer with its part- ners to address inefficiencies and improve inventory man- agement, the Lahey Clinic successfully drove $1.3 million in costs out of its supply chain (see accompanying sidebar). Nebraska Medical Center created a strategic advisory board

that elevated the role of supply chain professionals and pro- vided a platform for a more strategic relationship with its supply chain partner. Through this process, the center real- ized first year savings of $1.9 million attributed to reduced consumption through automation, product substitution and more effective negotiations. 3. Improving Information Transparency

A key enabler to building collaboration is improving the

transparency, as well as accuracy, of information. Consumer goods companies lead the way in terms of effective supply chain information sharing. They have been more effective in turning into valuable information data from store-level point-of-sales systems, inventory management systems, and loyalty card databases, thereby enabling them to optimize supply chain performance and innovation. In addition, CPG companies have launched numerous

data synchronization efforts since the early 2000s to further improve business performance and establish the ground- work for future improvements. Examples of the inefficien- cies that data synchronization efforts target include:

• High administrative costs driven by both manual

work and rework caused by data match errors.

• Underutilized logistics assets due to pallet and

product master data errors. Reduced warehouse productivity due to lengthy receiving processes. 9 Led by Wegmans Food Markets and supported by Coca-Cola Co., General Mills, Hershey, J.M. Smucker, Nestle, PepsiCo, and Procter & Gamble (P&G), a pilot was conducted by the Grocery Manufacturer’s Association (GMA) to validate the opportunity in supply chain efficien- cies that would be realized by investing in data synchroniza- tion. Included in the findings were the following meaning- ful savings: (1) improved accuracy of product weights and measures, leading to $2.2 million of savings for one sup- plier and (2) improved logistics and distribution efficien- cies, allowing Wegmans to eliminate $1 million in labor and inventory carrying costs from its distribution network. 10 Taking a cue from other industries, the U.S. Department of Defense (DoD) launched a pilot in 2006 to test the global data synchronization network’s (GDSN) applica- bility in healthcare. Their conclusion from the pilot: “All parties agree that consistent and synchronized data would bring great benefit to them as individual entities as well as to health care overall.” 11 The DoD is looking to build on

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these results and expand its pilot with addi- tional items and manufacturers. Based on the results seen in other industries and the success of the DoD pilot, it would be reasonable to expect that additional data synchronization programs are occurring throughout the healthcare industry. However, one of the key conclu- sions of the GMA study provides some

insight into why this is not the case: “Data synchronization is not just about technology—it is about people and processes working together to form a highly integrated and collaborative value chain.”

The supply chain transformation that occurred at Gillette and other

consumer packaged goods companies during the 1990s and early 2000s has yet to take root in healthcare

the 1990s and early 2000s has yet to take root in healthcare thinking, challenge old paradigms

thinking, challenge old paradigms and push ourselves to find solutions for the industry’s issues. This is our oppor- tunity. It can be done—and it’s a job that cannot wait much longer. jjj

Job Must Be Done Today

Improving the performance of the healthcare supply chain will be a core element of reducing the cost of healthcare in the U.S. An efficient supply chain will not only reduce costs, but also will increase patient safety by ensuring that the right product is available at the time the nurse needs it. Likewise, it will free up capital that can be diverted to fund further research and recovery efforts. The solution is not easy and will take some time. Despite the documented successes of companies like Gillette and P&G, not all CPG companies have embraced the importance of communication and collab- oration. In fact, in 2005, in a GMA report highlighting the characteristics of companies that were winning in the marketplace (as defined by sales and operating mar- gin growth), one key differentiating trait was still that “winners…collaborate more closely with their partners to drive execution and eliminate waste.” 12 Some of these winners are starting to emerge in healthcare, as seen in the best practices being deployed by leaders such as Lahey Clinic and Nebraska Medical Center. Now we need to build on their successes by establishing stronger relationships among all partners, aligning goals and increasing transparency to ensure that the value chain contributes to the White House’s goal of slowing the growth rate of healthcare spending. At Cardinal Health, we are committed to making healthcare more cost-effective. By better aligning our- selves with our suppliers, implementing new scorecards to gauge performance, partnering with hospitals to deliv- er supply chain improvements, and reviewing internal processes in the spirit of improving the extended supply chain, we are taking the necessary first steps for improv- ing the healthcare value chain. But it should go without saying that the job of reduc- ing healthcare’s value chain costs is bigger than any one company. We must all break through the industry’s siloed

Sources:

1

“How Gillette Cleaned Up Its Supply Chain”, Supply Chain Management Review (April 2004)

2

The Healthcare Value Chain: Producers, Purchasers and Providers, Lawton Burns and Wharton School Colleagues, published by John Wiley & Sons (2002)

3

“The Economic Case for Health Care Reform”, Executive Office of the President Council of Economic Advisors (June

2009)

4

“Costs of Health Care Administration in the United States and Canada”, Steffie Woolhandler, Terry Campbell, and David Himmelstein, The New England Journal of Medicine (August 21, 2003)

5

“Improving Health Care Means Spending More Time with Patients and Less Time with Inventory”, Nathan, J. and Trinkaus, J, Hospital Material Management Quarterly (November, 1996)

6

HFMA’s Health care Finance Outlook, 2008-2013 (November 2007)

7

“Health Spending Projections Through 2017”, John A Poisal, Federal Forecasters Conference (April 24, 2008)

8

“The Health care Value Chain Transformation: a Time to Learn, Unlearn, and Relearn”, Hussain Mooraj, AMR Research, and Aamir Rehman, MD, Saint Peters Heath System, 2008 Healthcare Exchange (November 2008)

9

“Synchronization – The Next Generation of Business Partnering: How Leading Companies are Delivering Actual Results,” Grocery Manufacturers Association, Food Marketing Institute, Wegmans Food Markets, Accenture LLP and 1Sync (2006)

10

“Data Synchronization Improves Supply Chain for Wegmans,” Logistics Today (August 10, 2006)

11

“Creating a Source of Truth in Health care: Testing the GDSN as a Platform for the Health care Product Data Utility. Results from DoD Health care GDSN Pilot Phase IIA,” DoD/ VA Data Synchronization Program (September 2007)

12

“Winning with Customers to Drive Real Results: the 2005 Customer and Channel Management Survey,” Grocery Manufacturers Association (2005)

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ManaGEMEnt

Mutuality

RESponSE

SKillS

ManaGEMEnt Mutuality RESponSE SKillS tEChnoloGy An Update on the State of SupplyChain EduCation By Stanley E.

tEChnoloGy

An Update on the State of

SupplyChain

EduCation

By Stanley E. Fawcett

Stanley E. Fawcett (Stan_Fawcett@ byu.edu) is the Donald L. Staheli Professor of Business Management at Brigham Young University.

of Business Management at Brigham Young University. upply chain management is no longer a stranger in

upply chain management is no longer a stranger in the corpo- rate boardroom. Indeed, today’s ubercompetitive environment has placed SCM in the spotlight on the strategy stage. To meet ever-rising customer expectations in the face of fierce competi- tion, companies are building global networks and streamlining value-added processes. The goal is to efficiently use worldwide resources to profitably meet the needs of global consumers. Supply chain activities lie at the heart of these strategies. Yet, many com- panies struggle to find managers capable of executing these strategies and creating value across organizational and national borders. This reality raises a fundamental question for academics and practitioners alike: How well are our educational resources—namely professional associations, universities and industry publications—providing the education needed for managers to design and lead today’s global supply chains? This article seeks to answer this vital question by evaluating the relevance and efficacy of existing supply chain educational resources. It’s based on a survey of (1) academics teaching supply chain subjects and (2) practitioners working in the supply chain arena. The findings are compared and contrasted to earlier studies on supply chain education conducted over the past 15 years. Given the rapid evolution of this business discipline, a new dimension has been added to the analysis and discussion. Specifically, this latest survey also asked respondents to evaluate the importance and usefulness of continuing education and professional development activities.

Survey Methodology

The original “State of Logistics Education” was reported in 1995 in the Journal of Business Logistics 1 with a follow-up report appearing 10 years later in Supply Chain Management Review. 2 The present study employed an updated version of the original instrument, making it possible to track chang- ing perceptions regarding professional associations, university programs, and supply chain journals as well as to identify new educational resources that have become popular in recent years. The principal change to the current study was to include a set of questions to assess continuing education and

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Universities, professional associations, and publications all have a role to play in developing the supply chain leaders of the future. But how effectively are they stepping up to the task? Updated research conducted among both supply chain practitioners and educators show that they’re making an effort. But greater, faster progress needs to be made if we are to meet tomorrow’s leadership challenge.

Bruno Budrovic
Bruno Budrovic

professional development activities. A constantly chang- ing environment makes life-long learning a critical com- ponent of a modern education. The data for this study were collected using a web- based questionnaire that was e-mailed to potential respondents. The mailing list for the academic version of the survey was complied by going to the websites of leading supply chain universities across America (all of the university programs contacted or identified in the 2005 study were included in this process). Faculty pro- files were read and 289 faculty who specialize in supply chain education were identified. The practitioner mail-

ing list was compiled from the read- ership of Supply Chain Management Review and Logistics Management magazine. The foremost goal in creat- ing the mailing lists was to include a broad cross section of academics and practitioners. A total of 302 usable surveys were returned: 102 academic surveys and 200 practitioner surveys. The questionnaire consisted of four sections—professional associations, university programs, continuing educa- tion, and publications. Each section, in turn, consisted of two principal parts. Respondents were initially asked to rate the importance of various criteria that are used to evaluate diverse educa- tional resources. They were then asked to evaluate the educational resources themselves based on these criteria. This approach helped develop a com- mon reference point for respondents to use in their evaluations.

Professional Associations:

The Quest for Relevancy

A number of professional associations are dedicated to the needs of supply chain professionals. The three largest, APICS, the Council of Supply Chain Management Professionals (CSCMP), and the Institute for Supply Management (ISM), entered the supply chain arena from distinctly different domains—production, logistics, and purchasing respectively. However, in recent years, these associations have morphed from their original functional orientations to focus on end-to-end resource management. Other, typically much smaller, associations such as the Warehousing Education and Research Council (WERC) have retained their targeted educational focus. Importantly, limited collaboration among the various associ- ations means that they increasingly compete for not just the same mindshare but also for a slice of companies’ currently

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Education

shrinking professional development budgets. To assess how effectively these associations are engag- ing professionals to shape the supply chain discipline, the survey asked respondents to evaluate the value of member- ship along six dimensions: role in educating supply chain professionals, national conferences, seminars and work- shops, local meetings, professional certification, and pres- tige of belonging. Since the original survey in 1995, both academic and practitioner respondents have consistently identified the associations’ role in educating professionals as their most valued contribution. Even so, the two respon-

dent groups value specific educational activities differently. Academics rate national conferences highly, practitioners much less so. In fact, in both the 2005 and 2009 surveys, practitioners gave national conferences among their low- est scores, suggesting they view these events as delivering marginal value—a problematic finding in a recessionary environment. By contrast, practitioners rate seminars and certification highly. Supply chain professionals are seeking the latest, relevant skills and a means to communicate that they have acquired them. Based on their perceptions of how well the asso- ciations deliver the six services considered, respon- dents rated the effectiveness of 15 groups on a five- point scale (1=Poor, 3=Average, and

5=Outstanding). Respondents also indicated whether they are active mem- bers of each association. The lowest- rated associations from the 2005 survey were replaced with the following four associations: Association of Strategic Alliance Professionals, Strategic Account Management Association, Supply Chain Council, and Voluntary Interindustry Commerce Solutions (VICS). Exhibit 1 highlights key results of those ratings. The data draw attention to three findings:

1. The overall association ratings declined significantly—and across the board—from 2005 to 2009 (average 2005 rating = 3.68 compared to 3.19 in 2009). Only one association, CSCMP, received a rating above 4.0. (CSCMP was the most highly respected associa- tion in both 1995 and 2005.) 2. Membership levels decreased dra- matically for most of the organizations. Only APICS escaped a large decrease in activity level. With the exception of WERC, the smaller, specialized logistics

associations have fallen from favor, attracting membership levels of 3 percent or less. 3. The absence of memberships in the Association of Strategic Alliance Professionals and the Strategic Account Management Association suggests that sup- ply chain professionals have yet to embrace the need to step out of traditional roles and seek a more strategic approach to integrated resource management. Overall, what do these findings mean? In a resource- constrained world where managers are struggling to learn how to manage across boundaries, today’s professional associations are struggling to achieve and communicate their relevance. Moving forward, we can expect more con- vergence and competition among the leading supply chain professional associations.

University Programs:

Educating Tomorrow’s Leaders

Today’s supply chain leader is defined less by functional position or job description than by mindset and skill set. Effective SC managers possess strong functional skills but make holistic decisions. They build collaborative relation- ships while executing with discipline. They scan relentlessly and know the world is changing—so they embrace change.

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EXHIBIT 1

Participation in and Effectiveness of Professional Associations

Scale: 1 = Poor, 3 = Average, 5 = Outstanding

Membership

Council of Supply Chain Management Professionals 4.15 34% 4.41 68% Institute for 3.89 22% Supply
Council of Supply Chain
Management Professionals
4.15
34%
4.41
68%
Institute for
3.89
22%
Supply Management
4.06
38%
Warehousing Education
and Research Council
3.88
7%
4.13
26%
3.66
7%
Supply Chain Council
3.66
22%
APICS
4.03
22%
The International
Society of Logistics
3.20
2%
3.45
11%
American Society for
Transportation and Logistics
3.18
10%
3.68
44%
Voluntary Interindustry
3.17
3%
Commerce Solutions
Transportation
2.96
2%
Research Forum
3.40
14%
Supply Chain and Logistics
Association of Canada
2.92
1%
3.35
12%
2009
2005
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Unfortunately, few managers possess this combination of attitudes and skills. A senior executive described this as his company’s greatest supply chain challenge, explain- ing, “We can find great entry-level people—the ones with strong functional skills. But finding people who can bring everyone together to work as a cohesive team is a real chal-

lenge. They’re just not out there.” He then pled for universi- ties to create the curriculum needed to produce this type of manager. To assess the characteristics deemed important in

a university supply chain education, respondents were asked

to evaluate North America’s leading supply chain programs. Using a five-point scale (5=Very Important; 1=Very Unimportant), respondents were asked to rate the fol- lowing criteria that impact the quality and reputation of supply chain programs:

sources of employees, they are increasingly selecting schools based on curriculum and reputation. Based on the evaluation criteria, respondents were asked to identify and rank up to the top 20 supply chain programs in North America. To facilitate the ranking process, the respondents were provided a list of 57 uni- versities that have been identified as national or regional leaders. Respondents could also write in schools not on the list. School rankings were determined by allocating 20 points for each first place ranking, 19 points for each second place ranking, 18 points for each third place ranking, and so on down to one point for each twentieth place ranking. Point allocations were then summed to arrive at a total score for each school. Exhibit 3 shows the Top-20 results for the academic and practitioner respondents. An overall weighted-aver- age top 20 list is also shown. As with the football polls, the rankings here are not likely to escape controversy. After all, some loyalty is likely expressed in these rank- ings as many of the practitioners graduated from the listed schools. This is also true of the academics. As in the previous surveys, Michigan State and Penn State lead the ranking. Other programs with long traditions in supply chain-related disciplines like Arizona State, Ohio State, Maryland, and Tennessee continue to be highly regarded. Some schools such as MIT, Georgia Tech, and Stanford have built on their

Faculty.

Research contributions.

Source for future employees.

Department reputation.

Graduate and undergraduate curriculum.

Alumni visibility.

Overall university reputation.

Continuing education presence.

Exhibit 2 reports results of this rating process. In both 1995 and 2005, academics rated a program’s facul-

ty as the most important factor. Practitioners agreed in 2005. However, opinions diverged in 2009. Academics still viewed a program’s faculty as the

most important success factor (rating of 4.58); however, practitioners placed faculty in a tie for the third in impor- tance (rating of 4.11). This finding is representative of the divergent ratings and priorities aca- demics and practitioners expressed. Academics rated eight of the nine cri- teria as more important than their prac-

titioner counterparts (five significantly so). The one exception—practitioners rated continuing education as more important than academics. The greatest discrepancies occurred in the areas of alumni encountered in the work place, research, and source of employees. On

a relative basis, practitioners are giving

more weight to curricular issues. With a score of 4.23, graduate curriculum was the practitioners’ highest-rated criteria. Practitioners are also concerned with overall university reputation (rating of 4.15). As companies rationalize their

EXHIBIT 2

Criteria Used to Evaluate Education Programs

Scale: 1 = Very Unimportant, 3 = Average, 5 = Very Important

Faculty

Source for Employees

University Reputation

Program Reputation

Graduate Curriculum

Alumni in the Workplace

Undergraduate Curriculum

Research Contributions

Continuing Education

4.11

4.11 4.58
4.11 4.58

4.58

3.97

3.97 4.38
3.97 4.38

4.38

4.15

4.15 4.37
4.15 4.37

4.37

4.05

4.33

4.23

4.32

3.62

4.32

4.11

4.29

3.79

4.23

4.06

3.93

Practitioner Academic

Practitioner

Practitioner Academic

Academic

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EXHIBIT 3

Ranking of Supply Chain Programs

Practitioner

Academic

Overall

1 Michigan State

Penn State

Michigan State

2 Penn State

Michigan State

Penn State

3 Ohio State

MIT

Ohio State

4 Tennessee

Georgia Tech

Tennessee

5 Arizona State

Ohio State

Arizona State

6 MIT

Tennessee

MIT

7 Maryland

Arizona State

Georgia Tech

8 Georgia Tech

Stanford

Stanford

9 Stanford

Harvard

Maryland

10 Arkansas

Wisconsin-Madison

Arkansas

11 Iowa State

Pennsylvania

Harvard

12 Oklahoma

Northwestern

Pennsylvania

13 Auburn

Purdue

Northwestern

14 Brigham Young

North Carolina St.

Iowa State

15 Northwestern

UCLA

Purdue

16 Pennsylvania

Georgia

Brigham Young

17 Miami (OH)

Indiana

Auburn

18 Purdue

Texas A&M

North Carolina

19 Indiana

Brigham Young

Wisconsin-Madison

20 North Carolina St.

Central Michigan

Indiana

universities’ sterling reputations to achieve widespread recognition. Most of the remaining top-rated programs tend to be large state schools that have invested con- sistently over the past ten years to establish a supply chain presence. Three exceptions exist: Brigham Young, Central Michigan and Miami (OH) universities. This result contrasts sharply with the 2005 findings that identified several smaller, regional programs among the top 20. These “newcomers” have found it difficult to retain mindshare in a very competitive and financially difficult market. Indeed, the recent economic downturn has forced both universities and companies to focus on core programs and recruiting relationships. To summarize, the essential ingredients to building a highly rated supply chain program appear to be consis- tent over time. They include the following:

1. Build a strong curriculum. Although MBA pro-

gram curriculum is the most visible, undergrad and pro- fessional development curriculum are also important.

2. Hire well-know productive scholars who have the

demeanor and skills to reach out to and work with the

practitioner community. Outreach skills have been over- looked in the past!

3. Establish a user-friendly placement process that

strengthens corporate relations and makes it easy to hire capable problem solvers.

4. Create program visibility. Building a solid program

is necessary; marketing it aggressively is a step toward sufficiency. Climbing into or up the Top 20 requires resource dedication and resolve.

A sustained presence demands a sus-

tained effort.

Publications:

Evolving Reader Needs

Publications are the currency of aca- deme. Because the ability to publish determines professional reputation and success, the “publish-or-perish” mindset is firmly ingrained. Thus, educators have long rated the quality of research jour-

nals. More importantly, it is through their research that educators seek to advance the supply chain discipline and improve business practice. Therefore, in the 2005 survey, practitioners were asked to weigh

in and share their perceptions of research

journals. A divide between academic and practitioner perspectives was evident: aca-

demics pursued rigor; practitioners valued relevance. The question was proposed, “Is it possible to please both worlds?” The findings of the current survey— in which respondents were asked to rate 25 leading jour- nals—indicate that this divide has yet to be fully bridged. To guide their evaluation of the journals, the respon- dents were asked to assess and use these seven criteria:

quality of articles, impact on the discipline, relevancy, readability, timeliness of topics, theoretical vs. applica- tion orientation, and variety of topics covered. Of note, although both groups value relevance, academics place the most emphasis on quality and impact while practi- tioners rate timeliness and variety more highly than their educator counterparts. Each publication was rated on a five-point scale with 5=Outstanding and 1=Poor. Among academics, the Journal of Operations Management received the highest rating (4.16). This was the first time that a non-logistics journal was so highly ranked. The only other journal to receive a score above 4.0 was the Journal of Business Logistics at 4.01. Rounding out the top five were two practitioner-oriented journals—Harvard Business Review (3.96) and Supply Chain Management Review (3.78)—and the International Journal of Physical Distribution and Logistics Management (3.64). The presence of both HBR and SCMR among the top five academic journals denotes that supply chain educators value high-quality, practical research. Overall, the findings confirm that the nature of the supply chain

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discipline is changing. Only four of the top ten journals are traditional logistics journals. Discovering how to use sup- ply chain resources to create dynamic capabilities and customer value is today’s focus. Not surprisingly, the practitioners

viewed the value of the journals quite differently, rating HBR (4.16) and SCMR (4.15) as their two top publications, followed by JBL (3.92), Journal of Supply Chain Management (3.72) and in a tie for fifth, the Journal of Purchasing and Supply Management (3.67) and IJPDLM (3.67). Practitioners not only are more focused on practical research but also more interested in learning about supply relationships. If they really want to influence practice, educators need to recognize these interests and needs of the business com- munity. Managers are looking for research that will help them solve today’s pressing competitive dilemmas—they are not interested in rigor without application. The survey also looked into the readership of the vari- ous journals. Among academics, four journals are read by 40 percent or more of the respondents: Journal of Business Logistics, Harvard Business Review, Journal of Operations

Although supply chain professionals recognize continuing education’s

importance, they need more flexible and higher-quality options to help keep them off the wrong side of the obsolescence curve.

Management, and Supply Chain Management Review. Among practitioners, only SCMR achieves a readership of 40 percent. HBR is a close second with a 36 percent share. A precipitous drop off in readership occurs beyond these two journals. Overall, readership among both edu- cators and practitioners has declined since 2005.

Professional Development:

The Need for Continuing Education

In the early 1990s, Professor Bud LaLonde, one of the forefathers of modern SCM, warned that professionals

who failed to spend 10 percent of their time learning new skills would become obsolete within five years. A decade later, his message changed—managers now needed to invest 20 percent of their time to avoid obsolescence within three years. Globalization and compressed tech- nology cycles have only accelerated and

made steeper the obsolescence curve. To evaluate whether today’s supply chain professionals are keeping pace with our hectic marketplace, respon- dents were asked to give their view of continuing education’s importance as well as indicate many hours they spent

building new skills in the past year. On

a scale of 1=Not important to 5=Very

important, both educators (4.28) and

practitioners (4.45) perceive profession-

al development to be highly important to

continued success. Yet, both groups fall well short of the amount of investment Professor LaLonde recommended: on average, last year academics dedicated 133 hours and practitioners invested 106 hours in pursuit of better skills. When asked what motivated their continuing education efforts, practi- tioners responded that their desire to contribute more effectively on a day- to-day basis (4.52) was the primary rea- son for pursuing additional education (see Exhibit 5). Advancing their careers (3.98), achieving a professional certifica-

EXHIBIT 4

Overall Ranking of Supply Chain Journals

2009 Readership

Educator

Practitioner

Scale: 1 = Poor, 3 = Average, 5 = Outstanding

50%

36%

Harvard

 

4.06

 

Business Review

43%

40%

Supply Chain

 

3.97

 

Management Review