A Conversation with Gary Smith - Logistics Quarterly · A Conversation with Gary Smith Vice President of Global Logistics, IBM’s Integrated Supply Chain Division. Border crossing

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2IDEAS FOR LEADERSHIP IN LOGISTICS AND TRANSPORTATION©

David J. Closs, Ph.D.,John H. McConnell Chaired Professor, Eli Broad College of Business, Department of Marketing and Supply Chain Management, Michigan State University, LQ Executive Editor

John M. Cutler Jr.,General Counsel of NASSTRAC and the Health & Personal Care Logistics Conference

Jim Davidson,President, iWheels Dedicated Logistics

Till Dengel,Solution Manager, SAP AG

Bill Graves,President and CEO of American Trucking Associations

Renate Jalbert,Managing Director, Customs Regulatory Affairs, FedEx Express Canada

Robert Martichenko,President of LeanCor LLC

Christopher D. Norek, Ph.D.Senior Partner,Chain Connectors, Inc.

Nicholas Seiersen,B.Sc.(Hons.), M.B.A., P.Log.Senior Manager, KPMG, LQ Executive Editor

Gary Smith,Vice President, Global Logistics for IBM's Integrated Supply Chain division

Al Zorner,Senior Partner, Chain Connectors, Inc.

The Official Magazine of The Logistics Institute

Volume 12, Issue 4, September 2006

A Conversation with Gary SmithVice President of Global Logistics, IBM’s Integrated Supply Chain Division

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5 Announcements 7 Contributors

10 A Conversation with Gary SmithThis interview is the first of a series on supply chain leadership at IBM. This inter-view focuses primarily on IBM’s experiencein transforming its logistics operations andoffers insights into the performance benefits

obtained as a result of its strategic focus on logistics.

14 A Conversation with Renate JalbertWith global trade and security requirementsgrowing correspondingly, Canadians andAmericans have been compelled to reviewtheir supply chain strategies in NorthAmerica and abroad. This interview is an

abridged and edited version of an interview with Ms. RenateJalbert focusing on questions suggested by members of LQ'sAdvisory Board.

16 Moving Freight Across AmericaThis article marks the inauguration of a new transportation column focused on truckingindustry trends in the United States that influence business across North America.

18 Key IT Issues Decoded for Supply ChainProfessionalsDuring the past year, several co-authors and I have published a series of articles in the supply chain-related IT space for LQ in thecolumn “Technology Toolbox.” We intend

to dovetail on those pieces and give more detail on the key IT issues that supply chain professionals should be aware ofin language that we hope is easy to understand.

21 Information technology: A Catalyst for Business Process Innovation in theLogistic Services IndustryFueled by corporations that look at outsourcing as a way to reduce costs and gain a competitive advantage, the logistics

services industry continues to grow and thrive. However,

logistics service providers (LSPs) continue to struggle in this ever-changing industry dominated by acquisitions and low-margin environments. To survive in these harsh businesssurroundings, LSPs are developing different success strategies and business models for tomorrow. Here’s anoverview of how IT is vital in the evolution from today’s business models to future ones.

23 The NASSTRAC Transportation Corner – North American Bill of LadingAt its May 2006 meeting, the NationalClassification Committee (NCC) of the U.S.National Motor Freight Traffic Association,publisher of the National Motor Freight

Classification (NMFC), adopted a measure of considerableinterest to shippers and carriers operating across the north-ern and southern borders of the United States. Effective July22, 2006, the NMFC includes a bill of lading specifically forfor cross-border shipments. This document is called theNorth American Uniform Through Bill of Lading or NABOL.

26 International Deal makers: The Art of the DealA large body of literature has emerged inrecent years to help executives in their negotiations to navigate possible differencesin corporate protocol. Equally treacherousdeal making, that’s often overlooked in this

body of literature, is the process involved in negotiations.Irrespective of whether you’re a shipper growing your practice in a global context, or an executive at an expanding3PL, this article offers advice on how to anticipate and mitigate possible hurdles on the road to yes.

28 Information Technology and the Supply ChainManagement Professional Not long ago, logistics and supply chain management positions tended to have a low profile on the corporate map. In today’sglobal trade environment, these disciplines

have been recognized as critical to the success of nearlyevery business. This article offers insights on what it means to be a supply chain professional in this changingenvironment. It is based on interviews with supply chainorganizations and experience with IBM.

CONTENTSLQ™

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5LQ™ September 2006

ANNOUNCEMENTS

LQ™ ADVISORY BOARD

David J. Closs, Ph.D.Department of Marketing and Supply Chain Management,Michigan State UniversityExecutive Editor, LQKaren CooperSenior Media Relations Specialist,FedEx Canada Ltd.Jim DavidsonPresident,iWheels Dedicated LogisticsBruce DanielsonExecutive Communications Manager,UPS. Richard Dawe, Ph.D.Associate Professor,Operations ManagementGolden Gate UniversityRuss DixonSenior Manager,TNT Logistics North AmericaRuss J. DoakDirector, Global Logistics, Kodak Graphics & Communications.David FaoroDirector, Supply Chain The International Group, Inc.Sue Gadsby, C.P.P. C.P.M.,Director, Procurement, Apotex Inc.Benjamin GordonManaging Director, BG Strategic AdvisorsThomas J. Goldsby, Ph.D.Associate Professor,Supply Chain Management,University of KentuckyDavid GriffithVP Global Supply Chain Management,BAX GlobalJoe GrubicSenior Manager, Alliance/Network Management, Nortel Networks Global LogisticsGeorge KuhnExecutive Director, CIFFAJean LétourneauPresident E-Zsigma (Canada) Inc. Program Director for the Centre of Excellence Six Sigma, Schulich School of BusinessRobert MartichenkoPresident, LeanCorJames MahoneyVice President of the Supply Chain Excellent PracticeAuxis, Inc.Diane Mollenkopf, Ph.D.Assistant Professor, Marketing and Logistics, University of TennesseeJeff MooreManaging Director,Lakeside Logistics Inc.Mark Morrison, Senior Vice President of Business Development, TNT North AmericaTom NightingaleVP Communications and Chief Marketing OfficerCon-way IncChristopher Norek, Ph.D.Senior Partner, Chain Connectors, Inc.NASSTRAC Contributing EditorRobert NovackAssociate Professor,Business Logistics,Department of Business LogisticsPenn State.Peruvemba S. RaviAssistant Professor,Wilfrid Laurier UniversityKurt M. RitceyPartner, Deloitte ConsultingMichael RubinfeldDirector, Customer Logistics, Ryder Logistics & TransportationSolutions Worldwide Nicholas SeiersenSenior Manager, KPMGExecutive Editor, LQMichael SneddenManager of Distribution Operations, IBM-Canada Ltd

Volume 12 Issue 4

PUBLISHER & EDITORFred [email protected]

CPLI PRESIDENT & EDITORIAL DIRECTORVictor [email protected]

CREATIVE DIRECTORCraig [email protected]

WEB DESIGNER Beylah [email protected]

COPY EDITORLinda [email protected]

ADVERTISING SALESGerry JenningsSales [email protected]

CIRCULATION MANAGERBill [email protected]

ACCOUNTINGChristine Raffan, CGA Independant [email protected]

LQ™ Inc.2 Bloor Street W., Suite 100, Box 473, Toronto, Ontario, M4W 3E2,Telephone: (416) 461-8355Toll Free: 1-800-843-1687Fax: (416) 465-7832 Email: [email protected]

Logistics Quarterly (LQ™) (ISSN 1488-3309) is published six times annually by LQ™ Inc. LQ™ is written for professionals in logistics. Subscription Services at: www.LogisticsQuarterly.comCanada Post Publications Mail Sales Agreement Number: 40032602. CANADIAN POSTMASTER: send subscription orders, address change notices and undeliverable copies to LQ™, 2 Bloor Street West, Suite 100, Box 473, Toronto, Ontario, Canada M4W 3E2

EDITORIAL POLICYThe opinions expressed in this publication do not necessarily reflect the policy of LQ™ Inc. The editors reserve the right to select and edit material submitted for publication. Not responsible for unsolicited material. LQ™ Inc. is a Toronto-based corporation and publisher. All rights reserved © by LQ™ Inc. 2006. Reproduction without written permission of the publisher is forbidden. LQ™ welcomes your comments, letters to the editor, or written submissions for consideration. (LQ™ is available on-line at: www.LogisticsQuarterly.com)

LQ MAGAZINE’S STATEMENT OF OWNERSHIP The trademark LQ™, LQ Magazine (ISSN 1488-3309), LQ Newsletters and theLQ Conference, including the “ExecutiveExchange,” its trade marks and publishedmaterial are wholly owned by LQ Inc., a private Canadian family-owned and operated corporation. LQ’s valued sponsors are independent of LQ Inc., and LQ’s editors do their utmost to uphold independent and impartial views in all of their publishing initiatives.

LQ is honored to have the status of the “official magazine” of The LogisticsInstitute. The Logistics Institute and LQ are independently owned and operated organizations.

LogisticsQuarterly.com

LQ Introduces an AmericanTrucking AssociationsTransportation Column -Dedicated to TransportationTrends and IssuesLQ is pleased to announce the inaugu-ration of a new transportation columnfocused on the trucking industry trendsin the United States that influence busi-nesses across North America.

Beginning with this edition, LQ willpublish a column from the AmericanTrucking Associations aimed at provid-ing LQ’s 30,000 readers with insightsinto industry-wide trends that make thebusiness of trucking a challenge.

The American Trucking Associa-tions, Inc. (ATA) is the national tradeand safety organization of the UnitedStates trucking industry.Through a fed-eration of 50 affiliated state truckingassociations, conferences and otherorganizations, ATA represents morethan 37,000 members covering everytype of motor carrier in the UnitedStates. Established in 1933, ATA servesas the “voice”of the U.S. trucking indus-try, which numbers more than 570,000for-hire, private fleets and owner-opera-tors. Across all industries, nearly ninemillion people, or one in every 15 civil-ian workers, are employed in truckingor trucking-related jobs.

ATA represents the full range of mem-ber and trucking industry interests inWashington, D.C., through aggressiveadvocacy before the Administration,Congress, the Courts and regulatoryagencies. The American Trucking Asso-ciations is the only national organiza-tion dedicated solely to serving everyfacet of the trucking industry’s needs.ATA is a driving force in effectingchange and vigorously promoting thetrucking industry interests.

Con-way Names Tom NightingaleVice President, Communicationsand Chief Marketing OfficerThomas Nightingale has recently joinedCon-way as Vice President of Communi-cations and Chief Marketing Officer.

Mr. Nightingale brings to the Con-way organization a diverse back-ground of marketing and sales experi-ence with leading transportation, logis-tics and supply chain firms. In his newposition,he will serve as the company’stop marketing executive, responsiblefor worldwide corporate marketingstrategy, research, product develop-ment, program planning and supportfor Con-way’s freight transportationand global contract logistics business-es. He reports to Douglas W. Stotlar,President and Chief Executive Officerof Con-way.

“Tom is an experienced and respect-ed executive whose proven skills inglobal brand development and corpo-rate marketing strategy complementour team,”said Mr.Stotlar. “I’m confident

his knowledge andinsight will contributesignificantly to ourgrowth initiatives and thecontinued building ofour brand under theCon-way banner.”

He joins Con-way from SchneiderNational, Inc., where since 2002 he has been Vice President of CorporateMarketing. Prior to Schneider, Mr.Nightingale worked in senior market-ing, sales leadership and operationsroles for several transportation, logisticsand supply chain companies, theseinclude Clareon, a B2B payment soft-ware subsidiary of FleetBoston Finan-cial; Paxis, a supply chain services jointventure between GATX and LockheedMartin; CSX Transportation; and UnitedParcel Service.

Mr. Nightingale holds a bachelor’sdegree in International Marketing/Management from Siena College. Hereceived his MBA from Syracuse Univer-sity, where he completed graduate stud-ies in Organization and Management.He is a long-standing member of LQ’sAdvisory Board.

Con-way Inc. is a $ 4.2 billion freighttransportation and logistics companywith businesses in less-than-truckload

LogisticsQuarterly.com6 LQ™ September 2006

and full truckload freight services,expe-dite, brokerage, contract logistics, ware-housing, supply chain managementand trailer manufacturing. The compa-ny and its subsidiaries operate acrossNorth America and in 20 countries.

LQ is pleased to announce thatJohn Langley has accepted LQ’sinvitation to join its AdvisoryBoard.John Langley Jr., Ph.D., M.B.A. Dr.Langley is Professor of Supply ChainManagement and Director of SupplyChain Executive programs at the

Georgia Institute ofTechnology in Atlanta,Georgia. Dr. Langley is aformer President of theCouncil of Logistics Man-agement, and a recipientof the Council’s Distin-

guished Service Award. In 2004 he washonored as one of the profession’s topfive logistics executives at the Rich-mond Events Logistics and SupplyChain Forum. He received his Ph.D.degree in Business Logistics from PennState University. Dr. Langley has co-authored several books, including TheManagement of Business Logistics, a 7thedition textbook published in 2003. Healso serves on the Boards of Directorsof UTi Worldwide, Inc., Averitt Express,Inc., and Forward Air Corporation. He isalso lead author of the annual study onthe 3PL industry, the most recent ofwhich is titled“2004 Ninth Annual Studyof 3PL Service Providers:Views from theCustomers”.

Appointment of Robert Masson,Vice President, Marketing andDevelopment, Montreal PortAuthority

Dominic J. Taddeo, President andChief Executive Officer of the MontrealPort Authority (MPA),recently announcedthe appointment of Robert Masson tothe position of Vice-President,Marketingand Development. Mr. Masson’s startedin his new position on September 6,2006.

Before his appointment, he was thePresident and Chief Executive Officer ofthe Trois-Rivières Port Authority.

As Vice-President, Marketing and

Development of the MPA, Mr. Masson isresponsible for commercial businessdevelopment and customer relationswith the Port of Montreal’s national andinternational clientele.

A native of Trois-Rivières, RobertMasson graduated with a Bachelor ofBusiness Administration degree fromthe Université du Québec à Trois-Rivières. Over the years, RobertMasson has been actively involved inthe transportation industry as a mem-

ber of several committees and work-ing groups. He was Chairman of theBoard of the Association of CanadianPort Authorities (ACPA) in 2003 and isstill on the Board of Directors of the St.Lawrence Economic DevelopmentCouncil (Sodes). He also is the repre-sentative of Canadian ports on the St.Lawrence River on the Quebec marineindustry forum (Forum de concerta-tion de l’industrie maritime) of theMinistère des Transports du Québec.

Space Logistics focuses on new technology and procedures to enhance the ability of humans and robots to explore our solar system. Last year nine researchers traveled to the Canadian Artic to investigate how a research station on Devon Island could be used to simulate Lunar or Martian base research. Using logistics strategies they looked at interplanetary supply chain issues, automated technologies such as radio frequency identifi cation (RFID) and movement of surface vehicles, people and supplies from base to various exploration sites. The result was the development of an innovative four-step approach to the logistics of space.

The Professional Logistician (P.Log.) certification program develops your ability to create value through innovative thinking, leadership strategies, insight, and team building. The P.Log. designation is a public statement of your competency and integrity in the field of logistics and supply chain management.

The benefits of earning your P.Log. include:

• Create and apply long-term business strategies• Give your company a competitive edge• Develop your leadership abilities • Increase your earning potential• Connect with professional and business leaders in logistics

For more information on the P.Log. Certification Program, visit our Gateway at www.loginstitute.ca or call us at 1-877-363-3005.

Logistics. The driving force of human achievement.

Space Logistics:Travelling to Mars in four easy steps

LogisticsQuarterly.com 7LQ™ September 2006

SEPTEMBER CONTRIBUTORS

LQ’s mandate to provide “Ideas for Leadership in Logistics,” is clearly evidenced thisissue with articles written by professionals and logisticians from America and Canada who are leading and transforming

business by creating new roadmaps and definitions for leadership in this exciting field.

OUR CONTRIBUTORS

DAVID J. CLOSS, Ph.D., LQ ExecutiveEditor: Dr. Closs is the John H. McConnellChaired Professor of the Eli Broad Collegeof Business, Department of Marketingand Supply Chain management, MichiganState University. He has consulted withmore than 100 of the world's Fortune 500corporations regarding logistics strategiesand systems. He is an active member ofthe Council of the Supply Chain Manage-ment Professionals.

JOHN M. CUTLER JR. is General Counselof NASSTRAC and the Health & PersonalCare Logistics Conference, and a fre-quent speaker on legal issues affectingtransportation and logistics. He is theauthor of Rules of the Game: Legal andRegulatory Issues Facing the Supply ChainManager, published in 2006 by CSCMP,and other publications. Mr. Cutler, whohas 30 years experience in transportationlaw, is a principal with the Washington,DC law f irm McCarthy, Sweeney &Harkaway, PC.

JIM DAVIDSON, President, iWheelsDedicated Logistics, began his career inlogistics at The Ford Motor Company in1963 working in all aspects of logistics for 17years. Mr. Davidson joined TNT in 1983and held various management roles,including roles in operations, staff, admin-istration and general management for anumber of different divisions. He alsoserved as the TNT board member repre-senting North America at their European-based board meetings. He has served onthe executive of the Canadian GeneralMotors Supplier council as well asExecutive Vice President of the ATA councilof Logistics located in Alexandria, Va.

TILL DENGEL is Solution Manager forLogistic Service Providers, SAP AG. Asthe Solution Manager for Logistic ServiceProviders, Till Dengel is responsible for

the solution strategy and business plan-ning for the sub-segments 3PL/4PL,Trucking, Container Liner Shipping andTerminals, on a global scale. Mr. Dengelstarted his SAP career in 2000 within theglobal SAP consulting branch, where heworked as a senior consultant in numer-ous projects within logistics in the phar-maceutical and chemical industry. As asenior consultant he designed and imple-mented business processes within hisclients’ sales, transportation and freightcosting divisions. A major part of hiscareer was spent in a customer develop-ment project supporting the develop-ment of a freight purchasing internetplatform. Prior to working with SAP, Mr.Dengel worked in different DHL organi-zations for five years. Apart from hisprofessional career, he lectures on SupplyChain Management & Logistics topics atthe University of Applied Science inMannheim, Germany. Mr. Dengel holdsa B.A. degree in Business Administrationfrom the University of cooperative edu-cation, located in Mannheim, Germany.

BILL GRAVES is President and CEO ofAmerican Trucking Associations (ATA),the national trade and safety organiza-tion of the United States trucking indus-try. Through its 50 affiliated state truck-ing associations, conferences and otherorganizations, it represents motor carri-ers before all branches of the govern-ment. In January 2003, Mr. Graves com-pleted 22 years of public service in thestate of Kansas highlighted by two termsas Governor of Kansas. He was reelectedto his second term with the largest per-centage of votes in Kansas’s history mak-ing him the state’s longest serving Repub-lican governor. Prior to his election asgovernor, he served two terms as KansasSecretary of State. In 1991 the Internation-al Corporation of Administrators recog-

nized the office of the secretary of state,under his leadership, for its outstandingservice to the businesses it served.Governor Graves has been involved in thetrucking industry his entire life. Foralmost 70 years, members of his familyhave operated trucking companies offer-ing a diversity of services.

RENATE JALBERT is the ManagingDirector, Customs Regulatory Affairs ofFedEx Express Canada. Ms. Jalbert isFedEx Canada's premiere authority incustoms regulatory affairs, bringing tothe role several years experience in lead-ing FedEx customs strategy developmentin Canada as well as Europe, the MiddleEast and Africa. During her career, shehas had responsibility for the carrier andwarehouse customs compliance and cus-toms brokerage operations for FedEx,and represents the company on nationalpolicy committees. As a recognizedexpert in the increasingly complex fieldof customs and cross border security,Ms. Jalbert is an opinion leader, speakerand media interviewee on the subject oftrade regulations and the impact toCanadian business. She is an active con-tributor in industry forums and holdsmemberships in organizations includingthe International Air TransportationAssociation (IATA), Canadian Society ofCustoms Brokers, Importers & ExportersAssociation, Association of InternationalCustoms & Border Agencies, CustomsTrade Consultative Committee and theAmerican Trucking Association.

CHRISTOPHER D. NOREK, Ph.D. is afounding Senior Partner with ChainConnectors, Inc., an Atlanta-based sup-ply chain consulting firm specializing instrategy, technology, transportationoperations, returns management andsupply chain training. He has been in thesupply chain/logistics field for over 15

years both in industry with Accenture,Apple Computer, Kimberly-Clark, andCSC as well as a professor at both theUniversity of Tennessee and AuburnUniversity. Dr. Norek has consulted forfirms including SAP, IKEA, Lowe’s, ama-zon.com, Cingular Wireless, Accenture,The Sports Authority, Party City, andAramark Uniform Services. He has beenactive in publishing for journals in thefield and speaking for many organiza-tions and university executive educationprograms including the Council ofSupply Chain Management Professionals(CSCMP—formerly CLM), NASSTRAC,Georgia Institute of Technology, Univer-sity of Tennessee, University of NorthFlorida and University of Louisville. Heholds logistics degrees from Penn State,Tennessee, and Ohio State.

GARY SMITH is Vice President of GlobalLogistics for IBM's Integrated SupplyChain division. Prior to joining IBM, Mr.Smith worked at both PepsiCo FoodSystems (a 2,000-employee division thatsupplied 15,000 Pizza Hut, Taco Bell andKFC restaurants across North America)and Chicago-based truck and engine man-ufacturer Navistar International Corp. Heearned an MBA from the University ofDetroit and a bachelor's degree (magnacum laude) in economics from BostonCollege, which included a year studying inParis, France, at the Institute of EuropeanStudies and the Sorbonne.

AL ZORNER, Senior Partner, ChainConnectors, Inc., has over 30 years expe-rience in both supply chain and informa-tion technology roles. Included in Mr.Zorner’s background are major supplychain and technology roles with thechemical giant, Union Carbide, Directorof Technology/CIO at Foxwoods ResortCasino (the largest casino in the Westernworld), and Technical Executive/CTO forthe IBM Interactive Media Group thatbecame the incubator and the premier e-business center within the IBM umbrella.He is a seasoned professional with expe-rience in the various methodologies ofmanagement science as well as the appli-cation of software solutions to provide acompetitive edge and/or operationalefficiencies within the supply chain. Mr.Zorner earned his Bachelor degree inEngineering and Masters in ManagementScience Engineering from Stevens Insti-tute of Technology

8 LQ™ September 2006 LogisticsQuarterly.com

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November 9, 2006 at the Toronto Board of Trade. Apply online:

www.logisticsquarterly.com


Here are some of the comments from participants who have attended LQ’s symposiums.

The Supply Chain as a Well for Innovation

Join a select group of strategy-setting executives from the United States and Canada to address these critical issues in the supply chain. LQ’s symposiums are far from traditionalsymposiums; the presentations are short and concise, they arelimited in size and blur the line between presenters and audience to foster peer-to-peer learning and inquiry.

LQ’s Executive Exchange, November 9, 2006

Thanks for having me participate. I really enjoyed it.Rick Blasgen, President and CEO, The Council of Supply Chain Management Professionals (CSCMP)

I definitely found value in this event.Greg Cunningham, Director of Supply Chain Optimization, Maple Leaf Frozen Bakery

LQ’s Symposium was great and well organized.Sue Gadsby, C.P.P. C.P.M., Director, Procurement, Apotex Inc.

Thank you for a wonderful and insightful day. I enjoyed the executive exchange.Joseph Gallick, Senior Vice President of Sales, Penske Logistics

Fred, it was a real pleasure participating in the symposium. You had all of the right elements:interesting topics, good speakers, excellent attendees, and nice venue... In sum, it was a

great success, and a very worthwhile day for all involved. I look forward to the next one.Thomas Goldsby, Ph.D., University of Kentucky

I greatly enjoyed the idea of the table discussions.It was way more interesting than conventional formats.

Claude Germain, Executive Vice President and COO, Schenker of Canada Limited

Thank you for including me on your speakers’ platform at this year's executive conference. I was impressed with the quality of the forum and the insightful audience.

Alan Gershenhorn, President, UPS Supply Chain Solutions,Asia Pacific, Europe, Middle East, Africa

You folks did a great job organizing and presenting this event. I enjoyed the interaction at the tables, and the quality of the speaker content.

Bruce Danielson, Executive Communications Manager, UPS

The forum was well thought out and the format was very conducive to a qualityexchange of perspectives. The topics for discussion and debate were very

pertinent to today's market environment. I look forward to the next session.David Griffith, Vice President of Global SCM, BAX Global

The LQ Symposium was a fantastic opportunity to connect and re-connect with many individuals, and a tremendous opportunity to

network and share ideas on a number of different topics through-outthe course of the day.

Joe Grubic, Global Supply Chain, Nortel Networks

LQ’s Executive Exchange offers:• Thought leadership from across North America

• Short, insightful presentations by keynote speakers

• Discussion-based sessions – LQ's ‘Executive Exchange’ of ideas

• Limited seating to ensure a friendlyand personalize exchange of ideas

Apply online: http://www.logisticsquarterly.com

At the Toronto Board of Trade, 830 Dixon Road


THIS INTERVIEW is an abridged andedited version of an interview with GarySmith Vice President of Global Logisticsfor IBM’s Integrated Supply Chain divi-sion which focuses on questions suggest-ed by members of LQ’s Advisory Board.This interview was conducted in NewYork, at IBM’s Somers location, with GarySmith, Dave Lowry, Director, Logistics Out-sourcing, Frank Crnic, Manager, SupplyChain Outsourcing and ChristopherSciacca, Manager, Strategic Communica-tions, Supply Chain.

Questions for this interview were pre-pared by: David Closs, Ph.D., MichiganState & LQ’s US Executive Editor; TomGoldsby, Ph.D., University of Kentucky,LQ Advisory Board Member; ChrisNorek, Ph.D., Chain Connectors,Contributing Editor; LQ NicholasSeiersen, LQ Executive Editor, Senior Manager, KPMG

GARY SMITH: Let me begin by providing the context for theheightened value IBM places on the supply chain.When westarted this organization in 1995 IBM was restructuring andadapting business problems due to the problems that we hadendured in the ‘90s. At the time IBM had 30 different supplychains and wasn’t leveraging its size and scale, which led toseveral significant quarterly losses.

The first part of IBM’s corporate restructuring planinvolved centralizing all of its procurement dollars. In 1993,we put our arms around all of our procurement dollars world-wide and centralized the procurement function. It was alsoclear that IBM would need to restructure its manufacturingoperations and its distribution operations because we could-

n’t afford to have duplicate sites aroundthe world making the same product.

At that point, Lou Gerstner, who wasChairman of the Board of IBMCorporation and his team decided theyneeded a much greater focus on thearea of logistics because even thoughwe closed down some of the company’ssources of supply, our products stillneeded to continue to be reliably deliv-ered to our markets.If you don’t have anefficient logistics organization in place,you will lose many of the businessadvantages that you have achieved withthese steps toward centralization. Inhindsight, it was a pretty smart move onthe part of Lou Gerstner and his team.That was the genesis of our supplychain organization.

At that point, IBM was not a singlesupply chain. It had many supply chains with differentbrands, in different countries. Immediately after the steptoward procurement centralization,we also centralized logis-tics. In 2000, we began to create what I call a true-line supplychain. From the outset, an important distinction in the wayIBM designed its supply chain was the accountability. Notmany companies have Chief Supply Chain Officers or execu-tives solely focused on the supply chain. Bob Moffat wasappointed IBM’s senior vice president, integrated supplychain or essentially its CSO in 2005, with a direct link to thechairman and a seat at the board of directors. As a line-accountable organization we had pure accountability, whichexcited many of my colleagues and myself.

Based on this approach, we created a supply chain strate-gy and implemented it.We were held accountable for the per-

A Conversation with Gary SmithVice President of Global Logistics,

IBM’s Integrated Supply Chain Division

This interview is the first of a series on supply chain leadership at IBM. This interview focuses primarily on IBM’s experience in transforming its logistics operations and offers insights into the performance benefits obtained as a result of its strategic focus on logistics.

11LQ™ September 2006LogisticsQuarterly.comLogisticsQuarterly.com

formance associated with all of our business strategies. In ret-rospect,this turned out to be an excellent approach.As we gointo more of the details, I will elaborate on some of the bene-fits we have been able to accrue for our customers and share-holders as a result of this strategy.

LQ: At the genesis of your supply chain organization, youestablished a number of baselines to measure your perform-ance against to quantify this performance.Can you elaborateon the value of these baselines?

GARY SMITH: The culture of the IBM Corporation tends tobe engineering oriented so metric measurement and per-formance are truly at the core of what we do. Every time werevise a process, we look for the best way to benchmark ourstarting point, and how to judge our performance. This per-formance can be categorized into three areas: What benefitdo we have in terms of the cost line, hopefully, a cost reduc-tion.What benefit do we have in terms of additional cash forthe company? And, perhaps more importantly, how does thischange enhance customer service? These three areas are atthe forefront of what we do every day.LQ: What were the key elements that prompted IBM to trans-form its supply chain?

GARY SMITH: Another underlying trend for IBM’s supplychain transformation was globalization. We were compelledto take a global perspective early in IBM’s supply chain evolu-tion and transformation. I call it,“great wisdom,”because on aglobal basis we looked at how we behaved, our skill sets andthe processes we used.

LQ: In this context,where IBM took a leadership position andprecursory steps to transform its supply chain,can you tell uson a personal note what you view as the most crucial ele-ments of leadership?

GARY SMITH: While there are a lot of aspects to leadership,the elements that I value the most are integrity and trust.When you are in a fast-paced and complex environment,these qualities are essential. If they aren’t at the core of yourrelationships, you are building your future on an unsoundbase.

Also, I highly value the global skill set that exist at IBM.Wehave many very bright, capable people worldwide, and weneed to harness their talent, their enthusiasm and be sensitiveto different cultural contexts, to apply this expertise.As a U.S.-based company, we know we do not have a corner on theintelligence market.We have found some of our greatest inno-vators and some of our greatest skills to be all over the worldand in other parts of the IBM Corporation,which is why we arecurrently undertaking a transformation that will take IBM froma multinational company to a globally integrated company.

If you have the trust of the people you work with and youvalue their skills and capabilities, you are building whateveryou’re doing on a very solid base.Those are two elements thatI hold very dear. As I look back at our path here at IBM, I goback to the fact that at every turn those principles haveserved us well.

LQ: Is there an element that you would single out that distin-guishes your leadership from that of other leaders?

GARY SMITH: I think that you must have a good balancebetween working and playing hard. If you have fun in whatyou do, you’re probably generating a team spirit, wherebyeverybody feels that they have a role to play, and everybodyis valued in their role and they feel their contribution is partof the company’s overall success. These are some of keyattributes that I think have made us successful.

LQ: Thank you for setting the context for IBM’s transforma-tion.The first question from LQ’s Board is from David Closs.AsIBM Global Logistics evolves to more of a LogisticsOrchestrator (Integrating across multiple divisions of IBM aswell as with other firms), how do you balance the internaldemands with those of external customers?

GARY SMITH: It’s a good question and it’s one that thatevery company in the outsourcing business struggles with. Ibelieve we have the ability to balance internal IBM needswith those of other companies. The reason we can accom-plish this can be traced back to when we started this organi-zation.At the time we began to recast and develop the supplychain at IBM we lacked credibility. Every IBM division had itsown supply chain. If you think of our portfolio of software toPCs,to hot storage to high-end servers to the medium servers,spare parts, reverse logistics, all of these divisions were com-pletely independently run.We were able create a central viewand put our arms around the entire organization.

The key thing that served us well in this process is that wetook the time to understand the customers’ requirements andthe attributes of their business.While each of our businesseswas under the auspices of the IBM umbrella, each one wasunique. In creating this centralized approach we looked forthings that were common and things that were not.We under-stood the strategic elements of this approach and knew thatsome aspects of what we did would be more important tosome divisions than others. We were able to balance thoseelements and centralize operations to implement a globalstrategy in a very complex environment with customers con-stantly changing their needs.

As we’ve been very successful in this environment, thenext logical step was to go to outside companies and offerthe supply chain services IBM has honed.

LQ: Can you elaborate on this process? For example,did youfind more commonalities than you had forecast?

GARY SMITH: We found everybody had unique require-ments, but they didn’t have well understood processes, in myview.We took a process view of these different divisions, andwe found there were very common elements.Whether it wasimporting or exporting processes, or whether it was productmovement visibility, whatever the process was, we consistent-ly found a fair amount of commonality.

Whenever we found elements that were not common or, ifwe required more information, we sat down with the cus-tomer and discussed the circumstances. In these instances,


we often took the “best of breed” approach. After reviewingthe divisional processes,we would apply a solution that exist-ed in one division and translate it to the other. So they didn’thave to go through, if you will, their own transformation; webrought it to them and said:“these guys have been doing itthis way for a long time and we can see the benefit it hasgiven them. Let’s try it here.” This approach enabled us torespond quickly with a solution and often get some new and,in many cases, unexpected benefits.

LQ: That’s a beautiful value proposition.Can you tell us moreabout how IBM’s journey to supply chain excellence createdinnovative solutions?

GARY SMITH: An important element to consider is thebreadth of our business and history. If you consider our PCbusiness,which is essentially both a a consumer product anda business-to-business operation and then you think aboutour high-end server business,or our server business in gener-al,you can take some of the attributes of one type of IBM busi-ness and create tremendous value for the high-end or serverbusiness.

For example,if you can take some of the attributes of a PCbusiness, which is very low cost, and uses a highly stream-lined supply chain and apply that to our server environ-ment, there is tremendous opportunity and competitiveadvantage.

If you are only in the server business or the storage busi-ness,and you don’t have the overview of how much differentand more competitive it is in the lower end products, youcould be blind to these supply chain opportunities.Based onthis perspective, we were able translate some of the processchanges that we implemented in the very aggressive andcomplex environment of IBM’s PC and lower-end businessesto the higher end of our business. I think we generated someimportant value in that way.

DAVE LOWRY: It gets tricky with the higher end businessesbecause there are a lot more configurations available withthe high-end servers.I think one of our higher-end processors,the System z9 mainframe, has as many configurations as aBoeing jet.We have to think about that, and we have to thinkabout PCs where you don’t have as many options.The scaleand the complexity are tremendous, and on a global level itadds even more complications to the process.

LQ: Let’s go to Dave Closs’ next question. How would youdescribe the core competencies of IBM Global Logistics?

GARY SMITH: Clearly, the skill of our people and optimizingthose skills on a global basis is vital. It’s also taking a processview of business. When we created the supply chain withinthe IBM Corporation, because it was a line supply chain, wedid not abandon our responsibility for functional excellence.With Global Logistics, for example, we were expected to beworld class in our insights, our strategy, our direction and ourprocesses. This same standard of excellence applied to pro-curement, fulfillment, and manufacturing.A key element anda primary strength built into IBM’s supply chain is that in addi-

tion to that core deep functional excellence, we asked all ofour people to,wherever they sat in that functional excellencepipeline, look left and right. It’s a simple concept, but it helpsto enable you to understand business from an end-to-endsupply chain point of view. It creates efficiencies when youlook at what is coming towards you and assess its value.If yousee elements that are not valuable coming down the pipelineyou may want to push them back upstream to see if there’s aprocess improvement opportunity.

When you look left and right and see what you do in thisoverall context and how you send that (product) down to thenext level of supply chain, it’s important to question and dia-logue with those people you’re sending information to. It’simportant to make sure that the effort you are putting intothat piece of information, if you will, has value all the waydown and through the supply chain. Or, how could it changeto have greater value? It sounds like a simple exercise, but itis surprisingly difficult to do.This approach offers us tremen-dous opportunity.

In this process, most of the value that we found was not inthe functional silos, it was between the functional silos. Wewere functionally excellent, doing what we did very well. Butthere were gaps between what we did in terms of optimiza-tion and as we started looking left and right to better under-stand what was coming to us and what we were sendingdownstream.This enabled us to make tremendous strides inprocess improvement and in cost savings.

LQ: In some situations,undertaking this type of view may notappear to yield immediate benefits in the short term for thoseinvolved in the supply chain practice. But you’re suggestingthat for the organization as a whole, it offers great benefits.

GARY SMITH: Absolutely. It became acceptable and cele-brated that if you could sub-optimize what you do and had afar greater benefit to the overall IBM supply chain, that wassomething we rewarded. It sounds counterintuitive. After all,you are taking many years of history of optimizing your siloand applying a completely different set of rules.

For example, if we move IBM’s manufacturing to an emerg-ing market will look at my overall cost in the supply chain.As I move manufacturing from a mature market to an emerg-ing market, it’s clearly going increase logistics costs, partlybecause of demand/supply in terms of air transportation,andthe sheer length and distance as well as the infrastructurerequired. Overall, this was the right decision for IBM becauseit brought us closer to our sources and our component sup-pliers and it introduced IBM to new skills and ideas, whichled to new innovations. Some of my costs increased, but theoverall IBM benefit was greater than these increases,and thatwas held up to be a good thing to do for the IBM sharehold-er and the IBM customer.

This interview is the first of a series on supply chain leadershipwith IBM. LQ’s next article, which will be published in a digitalnewsletter format, will focus on David Closs’ question regard-ing how IBM Global Logistics determines which activities itdoes internally and which it chooses to outsource, as well asother questions from LQ’s Board members.

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This interview is the second in a two partseries.The first of this two-part series waspublished in LQ Volume 12 Issue 3 (July).

Companies often have resource con-straints that make it challenging toaddress the incremental emphasis that isbeing placed on security and compliance.Companies will outsource some of theseactivities, and there are consultants and3PLs that offer these types of consultingservices. More companies are looking fordynamic resources that they can managedirectly, but only for a finite period of timeas processes are defined and deployed.What 'dynamic resource' offerings are the3PL industry building to meet this call forshort-term resources?FedEx has entered into an agreement withthe Export Development Corporation (EDC) that will help com-panies and contribute to the support of dynamic resourcerequirements in the supply chain.EDC provides loans and a listof authorized service providers for companies interested inbeing compliant with C-TPAT and PIP. These loans are for capi-tal improvement to facilities; for example, fencing, secureaccess mechanisms and to assist in the funding of consultancyservices that assess supply chain security gaps.This program isbased on the fact that EDC understands the critical importanceof C-TPAT and PIP to ensure the successful growth of Canadianbusiness engaged in international trade. In order to be C-TPATcompliant,U.S.Customs and Border Protection must conduct averification visit to a Canadian exporter to ensure their facili-ties, their personnel and their manufacturing processes aresecure as required under the regulations of this program.

The rationale for EDC’s funding program is that some com-

panies have gaps in their supply chainthat have been identified under newrequirements, and they have beenunable to obtain funding from tradition-al Canadian banks to close those gaps.As a result,as part of their exporter devel-opment program, EDC is implementingthis program to provide funding.

Presently, there are three serviceproviders who are authorized to verifysupply chain security under the auspicesof this EDC program.

FedEx,which is one of them,conductsextensive customer forums on supplychain security. Often, the participants inour conferences ask us how they shouldproceed in order to comply with newcustoms requirements.The EDC programcan now cover some of the consulting

fees needed to perform a verification and validation of aclient's location.In summary, EDC can approve funding to helpfacilitate certification under this program, which ultimatelyhelps to facilitate trade.

Is the EDC program unique in helping to facilitate trade andassist shippers?The Americans may wish to look at this idea.I think it is a won-derful idea to move forward to provide support to Canadianexporters to be certified.

However, even with this dynamic resource offering, youshould be aware that once you are committed to these pro-grams as a company, you are committed for the long term. Sothe resources to identify your gaps may be dynamic,but as animporter/exporter, you must maintain compliance with thoseprograms.You can contract out the gap analysis, the applica-

A Conversation with Renate JalbertManaging Director, Customs Regulatory Affairs, FedEx Express Canada

With global trade and security requirementsgrowing correspondingly, Canadians andAmericans have been compelled to reviewtheir supply chain strategies in NorthAmerica and abroad. This interview is anabridged and edited version of an interviewwith Ms. Renate Jalbert focusing on questions suggested by members of LQ'sAdvisory Board.

tion process and supporting certification documentation, butas an importer/exporter you must remain committed to main-taining and ensuring that this higher supply chain security phi-losophy is embedded in your organization.

When FedEx completed the certification process,we joinedthe CBSA to create a video about the PIP program.The goal wasto get the message to our front-line employees and show themexactly what FedEx and CBSA responsibilities were under theprogram,what we expected from our employees,how they wereexpected to work with the port-level PIP liaison and, mostimportantly,how they could report unusual or suspicious activ-ity. Security is everyone's business. It is not simply a customsmatter - security must be integrated within your supply chain.FedEx has been a member of Partners in Protection since 2001.

Please elaborate on the scope of this process.PIP and C-TPAT are supply chain security initiatives. The firststep in the process is to understand your complete supplychain: Who are your trade partners, vendors, transportationproviders; these are all key questions to ask. The C-TPAT-PIPconsultant will review and document the process. Are yourfacilities secured? Do you have access controls? Are your com-pany windows locked? How do you secure your employees?Do you conduct criminal record background checks? Do youchallenge employees or visitors who may not be authorized toenter a warehouse? How do you ensure that nothing can beintroduced into a container or trailer that has not been author-ized at your facility? Can your company's manufacturing linebe interrupted at some point to introduce some illegal goods?Can you verify your vendors’ security practices?

Is this an affordable option for mid-size companies?Absolutely.You can apply online without cost, to both govern-ments for C-TPAT and PIP certification.You can fill out the secu-rity questionnaire yourself.The challenge is,do you have some-one available to do that assessment for your security question-naire? Do you have someone to identify what those gaps are?And how should you remedy those gaps?

Many companies have sufficient security measures inplace, but they may be reluctant to deal directly withHomeland Security or CBSA.CBSA and CBP have client repre-sentatives available to assist companies and they are veryhelpful. After all, their goal is to have as many partners certi-fied in the program as possible.

However, it is not a question of whether security is afford-able or not; you simply cannot expect to compete into today’sglobal environment without investing in supply chain security.

It all relates to a perspective on compliance, whether thisinvolves a package or a person. As a company engaged intransborder or international trade, you must have knowledge.For example, you know that if you are going to fly to Paris,France or drive across the border at Buffalo and come toCanada,you will need to know what is required for those trips.You wouldn't think of going to Europe or Asia without know-ing that you need a passport, or perhaps a visa if you are visit-ing Australia, for example. When a visitor comes to Canada,they have the same expectations, and similarly for a package;

you require specific information in order to use FAST or ACI.Consider FAST as the NEXUS card for your shipment and ACI apassport and visa.

If you don’t have knowledge of what and when informationis required to move your goods across the border, your ship-ments or truck will be delayed.Regardless of what clearance orreporting option you are using, the “passport”must be valid.

What about the status of the known versus the unknownimporter?Even if you have been shipping for a hundred years, if you arenot part of the FAST program your profile in custom's systemwill reflect this and each transaction crossing the border willbe dealt with on a transactional level instead of using the des-ignation afforded to members of C-TPAT and FAST.

Many duties have been eliminated in the telecommunicationsindustry as a result of the Information Technology Agreement(ITA). This agreement is unconditional and based solely on theharmonized classification. The intent is to reduce the duty inthis industry, but United States’ importers still collect aMerchandise Processing Fee (MPF). The MPF is removed forother duty reduction programs, such as NAFTA. (For example,if claimed under NAFTA, then it's duty-free and MPF free.) Whatactivity is either underway or can be undertaken to have all U.S.import duty free programs eliminate the MPF?

This was factored into the NAFTA Agreement.NAFTA's goalwas to eliminate trade barriers and reduce duties and facili-tate the movement of goods. NAFTA did not achieve all ofthese things,but it eliminated the Merchandise Processing Feefor goods that qualify under the NAFTA program. So it hasreduced the cost of those goods.

Additional reductions or elimination of the MPF requirespressure from industry to identify MPF as non-tariff trade barrier.There may be opportunity to further impact the MPF under theharmonization plans of the Security and Prosperity Partnership.

Canada does not have similar fee, but it has the Goods andServices Tax (GST).The MPF is an administrative fee to covercustoms expenses.

For information about the following terms and programs, please visit LQ’s Website athttp://www.LQ.ca/customs.html

CANADIAN PROGRAMSThe Canada Border Services Agency (CBSA)Smart Border Accord and the Customs Action PlanThe Advanced Commercial Information (ACI)Customs Self Assessment (CSA) programsFree and Secure Trade (FAST)Partners in Protection (PIP)

U.S. PROGRAMSThe Importer Self-Assessment Program (ISA)Customs-Trade Partnership Against Terrorism (C-TPAT)Status Verification Interface (SVI)The Security and Prosperity Partnership (SPP)



By Bill Graves

Moving Freight Across America


This article marks the inauguration of a new transportation column focused on truckingindustry trends in the United States that influence business across North America

IN LITTLE MORE THAN a decade, the demand for truckservices will increase by more than 30 percent, whichmeans the trucking industry will transport nearly 3.3 billionmore tons of freight than it carries today. To accommodatethis higher demand, the number of Class 8 trucks willincrease by 32 percent,putting almost 1 million more truckson the road, or 75,000 new trucks each year. To put this inperspective, that’s nearly 1 billion tons greater than the totalvolume of freight railroads will carry 10 years from now.

But several forces continue to put pressure on trucking’sability to efficiently move freight and keep America’s econ-omy rolling. Today, growing congestion and the potentialproliferation of tolls threaten our ability to move freight pro-ductively, efficiently and safely.

Regrettably, some state and federal decision-makers lacksufficient appreciation for how critical trucking and thehighway system are to the health and well-being ofAmerica’s national economy.

Stakeholders are at a crossroads regarding how to fundthe future system.Since its inception, the interstate has beenpaid for by fuel taxes.Trucking pays nearly $15 billion, or 43percent, in highway user fee revenues annually toward the$35 billion Federal Highway Trust Fund. Congress recentlyauthorized $286 billion in spending on surface transporta-tion programs through 2009. The current fuel tax systemworked effectively for many years. Now, however, questionshave been raised over whether the fuel tax system canremain an effective and viable means of funding highwayinfrastructure in the future.

Since 1980, the United States’ economy, and travel on thenation’s highways, has nearly doubled.The nation’s popula-tion has risen 27 percent, truck registrations have increasedby 61 percent, truck vehicle-miles traveled have risen by 102percent and passenger vehicle-miles traveled have gone upby 87 percent. Yet the highway system has only beenexpanded by about 3 percent over the same period.

Such staggering growth has resulted in growing stress onhighway capacity and unprecedented levels of congestionacross the United States. In many parts of the country, high-ways that once could be counted on to carry people andgoods quickly and efficiently are choked with traffic – burn-ing time and energy.

At the same time, tolls are costing our industry billionseach year. States continue to impose ever-higher tolls,looking to the trucking industry to pay the bills. This inef-

ficient and inequitable method of funding double taxesmotor carriers and diverts a substantial volume of trafficto other roads.

Few feel the effects of tolls and congestion more directlythan trucking.And over the next quarter century, these prob-lems will only grow worse. Limited road capacity expan-sions that have been made over the past two decades havefocused primarily on accommodating the development ofnew residential subdivisions, and not on accommodatingthe efficient movement of traffic along primary highwayssuch as interstates.

Increased congestion hits trucking at a time when theeconomy is relying on trucks to haul more goods and thenumber of drivers is not increasing at the same rate as driv-er demand. Trucking is projected to haul 14 billion tons offreight by 2016, compared with 10.7 billion tons in 2005.Yetmost state transportation plans do not anticipate breakingwith the current trend of limiting highway capacity expan-sion, which has caused the current congestion problems.

If the industry doesn’t become more productive, if wecan’t substantially reduce our empty miles or wait times atloading docks, and if we don’t have more rational size-and-weight regulations, the number of trucks on the road andthe number of miles trucks drive will double in the next twodecades. Congestion that we experience today will pale incomparison to what we will have 25 years from now.

America’s highway system has grown to become ourmost important nationwide infrastructure enterprise. Forthat to continue, public and private sector stakeholdersmust restore and maintain a well-developed national high-way system. Improved highway infrastructure throughfinancing techniques that do not disadvantage truckers andconsumers will allow trucking to continue to move ever-increasing amounts of freight more efficiently, profitably,safely and on time.

There is a solution. Congress can act to ensure that feder-al revenues generated from fees imposed on highway usersare invested more effectively. Approximately one-quarter offederal highway user revenue is diverted to non-highwayprojects, such as bicycle paths, museum restoration andother purposes. It is clear that many of these projects havelimited impact on the safety or efficiency of the transporta-tion system, and resources could be more effectively invest-ed in critical, yet neglected highway projects.

The trucking industry believes the federal governmentmust take a lead role in identifying systemic problems andworking with individual states to fix them. Limited dollarscurrently are spread way too thin on projects that may notbe critical.

Fixing our highways, easing congestion and enabling thetrucking industry to move freight more efficiently is animportant project. The trucking industry is ready to standwith our road-building partners and our government tomove the American economy forward on a well-built high-way system.


THIS PIECE IS INTENDED for any supply chain manager who:1) Might be asked to lead or participate on a team to selecta supply chain software solution OR2) Might be asked to be a business expert on a corporate ITstrategy team

The IT space changes rapidly and therefore, we intend togive you some perspective on the biggest trends/issues in ITthat impact or are impacted by supply chain management. Intoday’s competitive landscape,collecting data is not enough;the better company transforms that data into useful informa-tion and uses it in innovative ways.All of us have experiencedthe common pitfall of collecting vast amounts of data andthen suffering from information overload.We will cover the following issues/trends in the IT space thataffect supply chain management:1) Before You Select an IT solution—Check BusinessProcesses for Repair2) An Aid to Supply Chain Collaboration: Service-OrientedArchitecture (SOA) 3) Investing in Supply Chain Software: Own versus Rent4) Working with the IT department to ensure software selec-tion and implementation is a success

Agility is the “buzz” among leading companies. It requireshaving access to timely information. In the supply chain –demand becomes not just a monthly forecast but daily andhourly information and it references the importance of thecustomer and the importance of orders to the relationshipwith that customer.

Your customers demand customization, choices, and on-time, accurate orders – today. The right IT solution mix can

provide the agility and flexibility needed to meet thesedemands to compete effectively. For example, when storeoperations are linked to manufacturing, labor and distribu-tion, purchases can act as the trigger for inventory replenish-ment through the chain to the supplier. This creates a moreefficient, agile, customer-driven system in comparison to thetraditional ‘push’ model.

Since no two supply chains are alike,you can only achieveyour true potential when you have the tools to adapt opera-tions easily, quickly and cost-effectively to new requirementsand opportunities. Adaptable supply chain solutions makethis possible via an IT architecture that flexes with each cus-tomer’s changing needs.This IT self-sufficiency enables rapidgrowth and the ability to implement cutting-edge processesand business models that the customer might not have con-sidered with other, more traditional systems.

An effective IT solution with highly configurable workflowsallows you to make process changes as quickly as they pres-ent themselves. An IT solution directly linked to your part-ners, suppliers and customers can more quickly react to con-straints and/or hiccups in the material flows of goods.

Before You Select an IT Solution—Check Business Processes for RepairYour IT solution should support the company strategy anddesired processes rather than operations having to change toaccommodate specific IT requirements. Instead of findingthe right tools for improving specific competitive gaps, busi-nesses have often made huge investments intended toaddress all processes and have often failed to address the

Key IT Issues Decoded for Supply Chain ProfessionalsDuring the past year, several co-authors and I have published a series of articles in thesupply chain-related IT space for LQ in the column “Technology Toolbox.” We intend to dovetail on those pieces and give more detail on the key IT issues that supply chain professionals should be aware of in language that we hope is easy to understand.

By Chris Norek and Al Zorner


original problem. Frequently, selected IT products/functional-ity have forced companies to revamp their processes/opera-tions to accommodate the software rather than supportingyour processes. In addition, be sure to validate that the rela-tionship between your processes and the IT solution is inline.

You must identify which part(s) of your business processis (are) not competitive, understand which customer need(s) is (are) not being met, establish improvement goals, andrapidly implement necessary improvements.Without a stan-dard way to measure process performance and the withouta common means to describe your processes, your IT solu-tion is typically difficult to select and usually expensive as aresult.

We suggest capturing the “as-is” state of each supply chainprocess or operation and derive the desired “to-be” futurestate. Quantify the operational performance of similar com-panies and establish internal targets based on “best-in-class”results. Then characterize the management policies,practices and software solutions that result in “best-in-class”performance. A difficulty in this stage is that it requires “outof the box” thinking. Personnel currently handling theprocesses often find it hard to think beyond the small issuesthat trip them up; instead, they should consider a more effi-cient process that might be a significant improvement ratherthan a set of tweaks.

To be successful in your search for the best supply chain ITsolution, you need to get the foundations right including theright business process model and management practices,identifying/hiring skilled people and a strategically designed

technical platform. Once you have the processes improvedand aligned, you can then look at technology opportunitiesin the supply chain space.

An Aid to Supply Chain Collaboration: Service-Oriented Architecture (SOA)Performance improvements in technology components overthe years have enabled a series of architectural shifts fromcentralized mainframes (60’s); to client-server (70’s); to per-sonal computers (80’s) and the Internet (90’s). Each changehas created a more flexible deployment of resources. In fact,we believe we are on the cusp of another major shift in the ITspace—shifting toward a true distributed service-orientedarchitecture (SOA) delivering more flexibility and fluiditythrough rapid deployment of innovative new components.To attain truer collaboration in integrating with partners,seamless integration with partners should be sought.

In selecting a software solution, functionality isn’t the onlyconsideration. The ability for your system and partner sys-tems to integrate with the new solution is almost as impor-tant. In the past, integration often required significant hardcoding to allow data transfer between applications. A con-cept designed to ease integration issues, service-orientedarchitecture (SOA), is gaining popularity and acceptance.SOA allows “plug and play”of various applications into a cen-tral “backbone” without the traditional issues of significanthard coding to enable data transfer between applications.SOA is a form of distributed architecture with emphasis on“loose coupling”and business semantics for interfaces.

Deploying a company-wide SOA is not just about develop-ing and implementing components and services -- it’s aboutchanging the DNA and culture of your IT organization and itis certainly not a six-month effort. The focus should be on acore set of reusable frameworks, components, and servicesthat each business group can leverage.As with any initiative,it all comes down to delivering on your promises -- definingand meeting realistic interim goals.

In selecting a supply chain software solution or solutions,having a SOA will enable your integration to be much easierand faster. It will allow you to select more on the functional-ity and less on integration compatibility of a particular solu-tion. You can either build your own SOA or use one througha ERP/supply chain software provider to enable more trueand seamless integration both internally and with supplychain partners.

Investing in Supply Chain Software: Own versus RentTraditionally, software companies wanted customers to pur-chase licenses in order to use their solutions. However, thissales strategy shut out smaller companies with low IT budgetsbecause the purchase prices were often too great. In addition,some larger companies have become more interested in out-sourcing some or all aspects of their IT needs to save moneyand hopefully increase IT efficiency by have outside “experts”focus on IT for them. Therefore, even large companies mightnot want to make the investment in a full software license. Now,the Application Service Provider (ASP) or ASP model holds asolution to the license fee dilemma for both of these issues.


To best understand the differences between the softwareproviders and application service providers (ASP) we mustdefine each role. Application service providers possess allhardware and software on their secured site with access overthe internet. Software providers place all hardware and soft-ware on your site with access granted through the terms of asoftware license. However, software companies have nowbridged the gap to offer ASP versions of their software wherethe user pays by use (e.g. transaction) which is like rentingthe software versus the license purchase in which case theuser owns access to the solution.

Software providers understand software programming andthe management of critical information.They are in constantstate of development and have the ability to manage andorganize extensive amounts of data from a variety of sources.The one-time license fee incorporates the terms and condi-tions for the use of their packaged software.The implementa-tion cost typically includes installation of hardware and soft-ware on-site.The software is versioned so additional costs areapplicable when new versions are released or through amonthly maintenance fee.

A true ASP deploys, hosts and manages access to a pack-aged application to multiple clients from a centrally man-aged facility.The applications are delivered over networks ona subscription basis.This delivery model speeds implementa-tion, minimizes expenses, eliminates capital investment,reduces risks incurred across the application life cycle, pro-vides single point of contact and overcomes the chronicshortage of qualified technical personnel available in-house.The cost to implement selected software with the ASPinvolves three areas: setup, maintenance and usage.The ASPis accountable for updating to current technology, disasterrecovery systems, security, and backups.

Now,ASP offerings of supply chain software can speed upthe implementation process because the transactions areoften handled outside a user’s system. Reliability, applicationavailability, software updates, security, disaster recovery andbackups are your responsibility.

Typically, the following issues will determine whether alicense purchase or ASP arrangement might be best for you:• Number of transactions

–For instance, if you are considering a transportation management solution (TMS) and you have only a few thousand shipments per month, it might make sense to use theASP offering rather than purchase the license

• Stability of current system environment–If you plan to change your total IT framework in the nearfuture, you might want to only use software for a predetermined period of time (ASP offering)

• Financial accounting practices–If you might want to capitalize the software cost,a licensepurchase rather than using the ASP (an operating expense) might be better for you

Working With the IT Department to EnsureSoftware Selection and Implementation Is SuccessfulIn today’s world most IT organizations remain as two distinctsoftware support groups:one serving administrative functions(IT, Finance and HR) and the other serving business opera-

tions (e.g. manufacturing, customer service, order entry anddistribution). Every user of IT services expects to get theirchanges implemented immediately and, as a result, theirrequest ends up at the bottom of an endless list of projects.Remember my suggestion in an earlier Technology Toolboxcolumn to make friends with a “Technie” to have yourrequests completed faster.

We foresee the administrative support functions servedalmost exclusively by purchased software packages based onthe functionality offered. This typically limits any changerequests to what is already built into the software, but is notyet activated. These applications do not differentiate theenterprise in the marketplace and the need to customizethem should be very limited. Although some applicationsaccept feeds from or deliver to other systems, these feeds aretypically non-real-time, batch transactions — the most sim-plistic and resource-light type of interface.

Another IT organization, Operations (i.e. hardware, operat-ing systems, desktops, networks, etc.), is the component thatyou “see”every day as they go about their work; their effective-ness can be measured constantly. They also account for amajor portion of the total IT budget.They are structured alongthe lines of what is needed to support the infrastructure IT.

A goal within any company is a better mutual understand-ing of the business team and the IT team. Too often, misun-derstandings between these two groups cost time and moneyin resolving. There should be a deep understanding of thebusiness by the entire technology team and a close knit rela-tionship between the business strategy and the IT direction aswell as a deep understanding of the IT strategy and opera-tions by the business folks.

ConclusionFor supply chain decision makers, the world of informationtechnology can seem daunting and confusing. However, byleveraging IT correctly, your supply chain operation can beenabled to run more efficiently at a lower cost. This articlewas intended to give you the ammunition to make betterdecisions in relation to IT investments without having tobecome entrenched in IT research.

We all know that new hardware, applications, networks,protocols and programming languages don't give us a lastingbusiness advantage over our competitors. Whatever we buy,they can buy.Whatever we build,they can build too—this isn’tnews, is it?

You've never been able to get a sustainable competitiveadvantage directly from IT.Yes, technology can cut costs. Butreal competitive advantage, just from technology? It neverlasts, and barely exists.

You can, however, get real business advantage with tech-nology.You just don't get it from products, services and infor-mation.You get it from processes, skills and execution -- thesame things that let any business differentiate itself.When ITis used most effectively, (i.e. when it's really focused on thebusiness it serves) it reinforces and amplifies that differentia-tion. It maximizes the advantages you get from your businessmodel. It improves processes, leverages skills and streamlinesexecution in ways that help your business deliver on itsunique strengths.


Future LSP business models• Yield innovators include companiesthat arise from the rail, trucking and con-tainer shipping segments. They are typi-cally asset-intensive, provide a standard-ized service in a certain area or regionand face fierce competition as their serv-ices can often be considered commodi-ties.The primary goal for the yield inno-vator model is to utilize assets throughasset optimization, process excellence,cost control and standardization,as wellas drive costs down and maximize out-put by streamlining processes.• Portfolio innovators include compa-nies whose primary goal is to quicklymove into profitable areas, exploit themand, once they become a commodity,move on to the next area of growth.These companies try to insource com-plex core processes that their customerswould typically outsource, including ful-filment handling (e.g. order taking;billing), light assembly and possiblymore tactical processes such as demandplanning and forecasting.• Orchestration innovators provideclients with a one-stop-shop by takingover an entire supply chain. Customerslooking to completely outsource theirlogistics will rely on orchestration innova-tors to subcontract all operational tasks tothird- and fourth-party logistics providers.By focusing on streamlining overallprocess management and increasing visi-bility, companies using this model canensure customer satisfaction and smoothexecution of supply chain activities.

The impact of technologyAs companies aggregate vast amounts ofdata, connectivity and visibility becomeessential factors in making sound busi-ness decisions. Moreover, an integratedIT solution is paramount for companiesthat wish to streamlineoperations, achievefinancial and strate-gic objectives andmeet customer expec-tations. But which tech-nology mix is best-suitedfor your company’s busi-ness model? Answering thatquestion requires taking a closerlook at today’s IT environments.

Currently, most IT systems are mono-lithic–hard-wired and often times relianton humans as the interface to connectcomplex landscapes. At the same time,core operational processes rely on thisinfrastructure and there is no way to sim-ply switch one landscape off and turn ona new one. The transition needs to beperformed in small, digestible steps byleveraging existing investments andusing a common language to connectlegacy and future systems.

New opportunities including servic-es-oriented-architecture, support thisparadigm by using principles, such asweb services, and combine it with thenecessary business semantics andprocess logic needed to enable cus-tomized business processes. A serviceoriented application and integratedbusiness processes platform can drive

innovation and enable businesschange by running services developedby in house IT departments or outsidevendors. The objects and services are used to compose end-to-end businessprocesses called composite applica-tions.This approach has many genericadvantages, including cost contain-ment by reusing services and lowercost of change through business

process.The LSP industry and, in

particular each futurebusiness model men-

tioned earlier,can greatly bene-fit from such business process innova-

tion.Yield innovators achieve lower costsby optimizing operations and increasingautomation with standardized IT plat-forms. Portfolio innovators rely on flexi-ble IT infrastructures that can be easilytailored to quickly changing customerneeds. Finally, orchestration innovatorssee connectivity as core since it allowsfor increased visibility into processes,lower costs and smooth execution toensure customer satisfaction.

ConclusionInformation technology is a major

cornerstone in the evolution fromtoday’s business models to future mod-els. Each model requires a different viewon IT and will derive a different strategy.Since no single model will exist on itsown, it will become even more impor-tant that one IT platform can support var-ious business models.

By Till Dengel

Information technology: A Catalyst for BusinessProcess Innovation in the Logistic Services IndustryFueled by corporations that look at outsourcing as a way to reduce costs and gain a competitive advantage,the logistics services industry continues to grow and thrive. However, logistics service providers (LSPs) con-tinue to struggle in this ever-changing industry dominated by acquisitions and low-margin environments. Tosurvive in these harsh business surroundings, LSPs are developing different success strategies, ranging from afocused approach on core competencies to an expansion approach whereby companies move into complete-ly new segments. As a result, three distinct business models seem to be evolving.

2006 CSCMP ANNUAL CONFERENCEHENRY B. GONZALEZ CONVENTION CENTER • SAN ANTONIO, TEXAS USA

Register

by September 30

and Save

$140

Why Should You Attend Supply Chain’s Premier Event?

You know the importance of connecting with your peers... and staying up-to-date on your profession’s most critical topics. Which is why you should register now to attend CSCMP 2006 – Supply Chain’s Premier Event! You’ll benefit from more education and networking opportunities than at any other event… and learn real-world solutions you can put into practice right away.

What’s New for 2006?

Sit with an Expert – Held at various times throughout CSCMP 2006, these one-hour long periods will allow you to discuss today’s most critical issues with a recognized thought leader. Topics include:

• Supply Chain Security • RFID• Reverse Logistics • Rail Transportation• Demand Planning and Inventory Handling

Flexible Session Lengths – With a variety of session lengths within our 25 educational tracks, you’ll devote the time that’s necessary to each topic.

San Antonio! – A premier destination, San Antonio captures the spirit of Texas. When you’re not at the conference, take advantage of the beautiful River Walk and everything else this world-class city has to offer!

Procurement & Global Sourcing 2006This year’s Procurement and Global Strategic Sourcing tracks combine to form a unique event designed exclusively for purchasing and procurement professionals: Procurement & Global Sourcing 2006, held in conjunction with CSCMP 2006. Attendees pay the same rate as all CSCMP 2006 attendees and can attend all other CSCMP 2006 sessions, general sessions, and networking events. If your colleagues are in purchasing and procurement are looking to attend a world-class event, tell them about Procurement & Global Sourcing 2006. It’s just another way CSCMP brings together all facets of the supply chain

KEYNOTE SPEAKERFreakonomics Co-Author

Steven Levitt

Held in Conjunction with CSCMP 2006

PROCUREMENT &GLOBAL SOURCING

2006

Register online or download a faxable registration form at WWW.CSCMP.ORG

CSCMP06AD_LQ.indd 1 7/5/06 7:58:26 AM


NABOL Challenge for Shippers:Cargo Loss and Damage Claims

The NABOL is not actually new.It wasdeveloped over several years of negoti-ations between representatives of ship-pers and motor carriers. Since theNABOL represents a compromise withthe trucking industry, it contains fea-tures that may raise concerns for ship-pers. The principal area of controversyconcerns cargo loss and damage andthe need to address the different liabili-ty levels under the laws of the UnitedStates Canada and Mexico.The NABOLprovides that, absent a separate writtenagreement to the contrary, the control-ling liability will be that of the “firstcountry in which the first PerformingCarrier takes physical possession of allor any part of the Goods.”

As a result, if part or all of a ship-ment comes into the first carrier's pos-session in:• The U.S.--carrier cargo liability will bebased on actual value unless otherwiseagreed in writing, subject to the provisothat carrier limitations of liability inclassifications, tariffs or contracts mayalso apply.• Canada-- the standard liability is basedon “4.41 CDN $ per kilogram computedon the Total Weight of the Goods,Pallets/Dunnage.”• Mexico-- the standard limit is “theequivalent of fifteen (15) times the min-

imum daily wage then ineffect in the FederalDistrict of Mexico, permetric ton or the propor-tional part thereof.”

Important note: Thisarrangement appears tobe controlling for theshipment as a whole evenif most of the goods in a ship-ment are added later in anothercountry, and even if most of the dis-tance traveled is in another country orif the loss or damage plainly takes placein another country.

RationaleThe argument for this arrangement is

that universal application of the mostgenerous liability regime would undulyfavor shippers, while universal applica-tion of the least generous regime wouldunduly favor carriers. Thus making thecontrolling regime depend on wheregoods are first shipped is more objec-tive.However, if a U.S. shipper's freight ispredominantly inbound from Canadaor (especially) Mexico, there may beadverse impacts from use of theNABOL.

Even shippers whose freight is pre-dominantly outbound to Canada orMexico need to be careful about limita-tions of carrier liability in classificationsand tariffs.The NABOL was designed to

put shippers on notice of these limita-tions.However, it could also complicateattempts by shippers to recover claims.The NABOL has now been made a partof the NMFC in order to increase aware-ness and utilization.Notably, the NABOLexplicitly provides that it is the contractof carriage between the parties, unlessthe parties agree otherwise. CertainNMFC Items now require use of theUniform Straight Bill of Lading or theNABOL for shipments transported sub-ject to the NMFC.Many shippers pay toolittle attention to bills of lading, eventhough courts may treat them as con-tracts of carriage.

NASSTRAC objected to aspects of theNABOL dealing with cargo liability limi-tations, both on substantive groundsand because of the belief that theseissues should not be decided by carri-ers acting collectively with antitrust

COMMENTARY

The NASSTRAC Transportation Corner—North American Bill of LadingAt its May 2006 meeting, the National Classification Committee (NCC) of the U.S. National Motor FreightTraffic Association, publisher of the National Motor Freight Classification (NMFC), adopted a measure ofconsiderable interest to shippers and carriers operating across the northern and southern borders of theUnited States. Effective July 22, 2006, the NMFC includes a bill of lading specifically for for cross-bordershipments. This document is called the North American Uniform Through Bill of Lading or NABOL.

By Chris Norek and John Cutler

2006 CSCMP ANNUAL CONFERENCEHENRY B. GONZALEZ CONVENTION CENTER • SAN ANTONIO, TEXAS USA

Register

by September 30

and Save

$140

Why Should You Attend Supply Chain’s Premier Event?

You know the importance of connecting with your peers... and staying up-to-date on your profession’s most critical topics. Which is why you should register now to attend CSCMP 2006 – Supply Chain’s Premier Event! You’ll benefit from more education and networking opportunities than at any other event… and learn real-world solutions you can put into practice right away.

What’s New for 2006?

Sit with an Expert – Held at various times throughout CSCMP 2006, these one-hour long periods will allow you to discuss today’s most critical issues with a recognized thought leader. Topics include:

• Supply Chain Security • RFID• Reverse Logistics • Rail Transportation• Demand Planning and Inventory Handling

Flexible Session Lengths – With a variety of session lengths within our 25 educational tracks, you’ll devote the time that’s necessary to each topic.

San Antonio! – A premier destination, San Antonio captures the spirit of Texas. When you’re not at the conference, take advantage of the beautiful River Walk and everything else this world-class city has to offer!

Procurement & Global Sourcing 2006This year’s Procurement and Global Strategic Sourcing tracks combine to form a unique event designed exclusively for purchasing and procurement professionals: Procurement & Global Sourcing 2006, held in conjunction with CSCMP 2006. Attendees pay the same rate as all CSCMP 2006 attendees and can attend all other CSCMP 2006 sessions, general sessions, and networking events. If your colleagues are in purchasing and procurement are looking to attend a world-class event, tell them about Procurement & Global Sourcing 2006. It’s just another way CSCMP brings together all facets of the supply chain

KEYNOTE SPEAKERFreakonomics Co-Author

Steven Levitt

Register online or download a faxable registration form at WWW.CSCMP.ORG

CSCMP06AD_LQ.indd 1 7/5/06 7:58:26 AM


immunity. The Carmack Amendmentprovides “No discussion, considerationor approval as to rules to limit liabilityunder this subsection may be undertak-en”by carriers acting collectively underthe Interstate Commerce Act. TheNASSTRAC objections were rejected bythe NCC.

The NABOL also specifies noticedeadlines of which shippers should beaware.For example,notice of visible dam-age is to be provided within one working

day after delivery,and notice of delay is tobe given one working day after the datescheduled for delivery.In addition,noticeof concealed damage is due within oneworking day after expiration of a 15-dayperiod following delivery.

In addition,the fine print that accom-panies the NABOL is not identical to thefine print accompanying the UniformStraight Bill of Lading that also appearsin the NMFC. Some of the additionalterms are needed to address cross-bor-

der issues, but there is also importantlanguage affecting aspects of the ship-per-carrier relationship that are notrelated to international shipments.

All shippers should therefore familiar-ize themselves with the NABOL, whichhas more features than can be coveredin detail in a short article like this one.Shippers who would like different liabili-ty provisions can and should protectthemselves through appropriate con-tracts with motor carriers and brokers.

Tony Hollis Director Innovation & Technology Mgmt Contract Logistics Americas EXELBob Berg Global RFID Program Manager, Express DHLRoman Hlutkowsky VP Operations Technology & System Support FedEx GroundPatkar Dnyanesh Director Corporate Development Schneider NationalMarlene Breakey Group Director, HCI/DM/SCS Technology RyderTerry Tutt Director Technology Solution TNT LogisticsSusan Pucelik Aerospace UID/RFID Program Manager HoneywellDoug Easley VP of Business Development Distribution Solutions InternationalRoy Cashman CIO TransplaceDavid Hushbeck Director DirectTech Menlo Worldwide TechnologiesRick Kessler CIO Horizon LinesTom Cook CEO American River InternationalJennifer Batchelor Marketing & Sales Manager C2 Freight ResourcesPaul Dennis VP Business Integration Atlas Cold StorageRon Keegan VP International Operations ChemLogixAlistair Duncan Director IMX Terminals CNThomas Lippert Integrated Logistics Coordinator Naval Medical Logistics CommandNoreen Ryan VP First Logistics LLCChuck Odom VP Global Development Averitt ExpressKevin Moore Sr. Business Development Manager IntermecLuka Powaga Full Professor and MBA Degree Chair-Campus Programs Regis UniversityDr. Hokey Min Director Center for Global Supply Chain Management and Center forSupply Chain Workforce Development University of LouisvilleMaria Rey Executive Director LALC Georgetown UniversityGary Ferrulli Principal Global Transport and Logistics Consulting

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NASSTRAC, also known as the National Shippers StrategicTransportation Council (and formerly known as the NationalSmall Shipments Traffic Conference), has expanded its coverageto include all modes of transportation. NASSTRAC will deliverto this larger constituency what it has brought to members since1952, assistance in the areas of education, advocacy, and net-working. Education is addressed via programs at the annualSpring conference and supported by additional seminars andwebinars. Advocacy includes legislative, regulatory and judicialsupport on issues affecting national transportation and supplychain issues. For example, NASSTRAC has worked to ensurethat the pending hours of service rules are acceptable to the ship-per community as a whole. NASSTRAC has often worked close-ly with carriers with respect to security, health, environmental

and operational issues. NASSTRAC also has strong involvementand support from carrier members that take advantage of net-working opportunities to increase efficiency and balance theirown needs with those of their customers. Non-member shippershave also benefited from NASSTRAC involvement for over 50years as the organization looks out for the best interests of all.

In addition to representing the organization in advocacyissues, NASSTRAC’s legal counsel, John Cutler of McCarthy,Sweeney, and Harkaway, also provides legal advice to allNASSTRAC members in good standing. For example, if amember desires to have a transportation contract reviewed, thelegal counsel can be contacted for advice and support.

For more information, please contact NASSTRAC at:www.nasstrac.org

100 Business Park Circle, Suite 202Stoughton, WI 53589 USA(608) 873-8929www.3PLogistics.com

Current Guides and Research� Who’s Who in North American Logistics

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� Who’s Who in International Logistics—Armstrong’s Guide to Global Supply ChainManagement

� An Overview of Warehousing in NorthAmerica—Market Size, Major 3PLs,Benchmarking Prices and Practices

� Is Bigger Better?—Third-Party Logistics Financial and Acquisition Results for 2005

� Trends in Third-Party Logistics ProviderSupply Chain Systems Purchasing,Deployment and Use

Consulting Services� Logistics Outsourcing Needs Analysis

and 3PL/4PL Selection

� 3PL Merger and Acquisition Advisory Services

� Supply Chain Systems/SoftwareEvaluation and Selection

� Transportation Practitioner andExpert Witness Services

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NOW THAT THE DUST HAS SET-TLED and the ink is dry on the con-tract, I’m sure you’d like to read thegory details of how Wheels Groupacquired the Chicago-based ClipperGroup. After all, corporate acquisitionscan be bloody affairs with plenty ofpain and carnage, particularly forunsuspecting employees.This isn’t oneof those times. The negotiations wentvery well and everybody won. In fact,this happens to be a very positivestory about the benefits of vision,hard work and perseverance.

Our company was created nearlytwenty years ago from a then vision-ary idea that logistics was more thanjust procurement of transportationservices and it needed to be a top-level strategic consideration.We’ve builtour company on that belief, while con-stantly containing and reducing costsand improving corporate service andperformance. As a result, we becameexpert problem-solvers, a go-to compa-ny with no debt.We improved our ownbusiness practices by making our cus-tomers’ businesses run more effectively.We were often of interest to others as apotential acquisition, but we had noambitions ourselves to acquire anothercompany.That is, until recently.

So what changed? An opportunityarose that we couldn’t refuse,which rep-resented significant value to our cus-tomers, employees and shareholders.

When we first entered into acquisi-tion mode several months ago it was

primarily with our customers in mind.Our objectives were to acquire astronger U.S. presence, increase cover-age and buying power, and furtherenhance our capabilities as a NorthAmerican logistics provider. We werevery fortunate to acquire a viable butunder utilized U.S. subsidiary that spe-cialized in temperature-controlled inter-modal and highway logistics.

Unlike most executives, who maynever know firsthand the challenges ofa corporate merger, this wasn’t my firstencounter with business consolidation.During my forty some years in trans-portation and logistics, I’ve beeninvolved in four acquisitions, two inter-company mergers and two start-ups, allat the executive level. From gun-toting

Teamsters to back room bankers readyto squash the deal, I’ve seen it all.Whileevery merger is unique there’s one com-mon challenge – the bargainingprocess. In my experience, the hardestpart of doing any deal is actually doingthe deal. Everything rides on your abili-ty to negotiate.The more skilled you areas a negotiator, the more successful youwill be at achieving winning results.

Plenty of business consultants willoffer advice by emphasizing other con-cerns. Pick an appropriate target. Don’toverpay. Have a clear vision of integra-tion.Manage change.Provide highly vis-ible, strong leadership. Don’t lose sightof your customer. These are significantaspects of corporate mergers. However,if the buyer lacks the ability to hammer

By Jim Davidson

International Deal makers:The Art of the DealA large body of literature has emerged in recent years to help executives in their negotiations to navigate possible differences in corporate protocol. Equally treacherous deal making, that’s often overlooked in this body of literature, is the process involved in negotiations. Irrespective of whether you’re a shipper growing your practice in a global context, or an executive at an expanding 3PL, this article offers advice on how to mitigate possible hurdles on the road to yes.

COMMENTARY

27 LQ™ September 2006LogisticsQuarterly.com

out a comprehensive deal that endswith their money in the seller’s bankaccount, then they have failed on allcounts.

The paramount key to negotiating isestablishing trust between the buyerand seller.

Simply put, trust is the ability to haveconfident reliance on the integrity ofeveryone involved in the deal. It meansknowing that financing is in place andwon’t disappear, and that you can takepeople as saying what they mean andmeaning what they say. That you cantake them at face value and not be con-stantly looking over your shoulder. Itcomes from possessing accurate, up-to-date information, having dependablefinancial backing and, most important-ly, establishing and maintaining openand honest communications.

What makes trust so important is itsimpact on the bottom line.Without trustthe deal will cost more money,time andresources.

The process of consolidationthrough negotiation is all about satisfy-ing the interests and rallying the effortsof everyone “at the table”. Not an easytask when you consider the number ofpeople involved in a corporate merger.It’s not just the buyer and the seller. It’sall the other interests that are presentand must be accounted for.

The first group of people you need tosatisfy are your lenders, many of whomyou won’t even lay eyes on. It’s as ifyou’re in an automobile showroomattempting to buy a car from a sales-man who constantly needs to consultwith his manager. As the car purchaser,you never get to see the manager. Riskapproval is one-way communication.The decision makers at the bank hateuncertainty and loathe risk. They tendto remain hidden in the background,often mumbling, preferring to commu-nicate through their lawyers. Accept it.You’re in the land of OZ and you never,ever get to see the wizard.

Whatever you do, make sure all thefinancial details are worked out inadvance and be confident of yourfinancial backing before you reachyour closing date. Otherwise you canbe in for a big surprise: namely,bankers refusing to lend the money

necessary to complete a deal.At the bargaining table getting con-

sensus can be extremely frustratingwhen you have to talk through a teamof lawyers and accountants on bothsides. Everyone has their own agendaand crowded discussions make it easyto lose sight of your objectives and fallprey to clouded vision. But wait. It getsbetter.

While the process for merging corpo-rate entities has remained basically thesame over the years, e-mail and instanttext messaging have dramaticallychanged the way buyer and seller com-municate with eachother.

Gone are the days ofbuyer and seller staringat each other across atable.While the occasionwill arise for at least onesitting at the table, con-versation isn’t what itused to be now thatquestions can be askedand answered via per-sonal communicationdevices. I can remembera time when you kept an eye on whatyou knew to be a gun in your adver-sary’s breast pocket. Now intimidationcomes from another source as eyes arenot-so-discreetly drawn to Blackberrysand cell phones. Everyone is eitherreading or writing their latest text mes-sage in a long line of overlapping elec-tronic conversations that take placeeven as person-to-person communica-tions continue across the table.A lawyerclandestinely asks the client if theyagree with what has just been statedbefore saying anything more out loud.The client answers back with a few keystrokes. All while sitting in front ofopposing counsel and their client.Never has communication been betterand in such a mess.

Conference calls were no different.While sitting in my office on a call withour lawyers, the seller and the seller’slawyers, I knew that text messaging wasmoving at breakneck speed. Only nowthe flurry of e-mail activity need not becloaked.

Electronic communications madenegotiations infinitely more complex

and impossible to contain within tradi-tional business hours. In our case, prin-cipal players were scattered acrossNorth America in offices in Dallas,Atlanta, Chicago, Fort Smith, Arkansas,Mississauga and downtown Toronto.Wewere totally dependent upon electroniclinks 24/7.

Never has the sound of myBlackberry beeping been more persist-ent.Yes, you can turn it off but you cannever escape the e-mails, the voice mes-sages, or the rising lawyers’ fees basedon round-the-clock activity. If you wereon the master contact list, you were

hooked. E-mails keptarriving well after mid-night.

Unfortunately, in acorporate merger youcan’t cut the clutter ofelectronic communica-tions. And, as the buyer,we got to pay for theprivilege of keepingeveryone in the loop.

Which leads me toan important point toremember. Be mindful

of keeping tabs on all of the lawyers’fees, particularly the lawyers represent-ing your bank.

As I mentioned earlier, bankers oftenspeak through their lawyers, even afterthe deal is done. Sometimes theexchanges are extraneous and needs tobe curtailed.

It is also important to note that oftenthe lenders, lawyers, and consultantshave differing agendas during thesetransactions and theirs could pertain toa significantly shorter-term view thanthat of the buyer.

My final observation is two-fold.First,there’s nothing like the sigh of relief andsense of accomplishment that comesfrom a well-executed, artfully-negotiat-ed corporate merger. Second, by look-ing at the bigger picture it’s easy to con-clude that life is a negotiation.Whetherit’s staying on a diet, navigating throughtraffic or acquiring a company, we areconstantly bargaining for results. Thepoint of the negotiations is to use everyopportunity, every life experience toimprove the game and increase thechances of winning.

“The point of the

negotiations is to use

every opportunity,

every life experience

to improve the game

and increase the

chances of winning.”


A RECENT ARTICLE in Supply ChainManagement Review (“The EmergingSupply Chain Management Profes-sion”, January/February 2006) whichI co-authored ,proposed criteria fordefining a supply chain manage-ment professional (SCMP). Thisframework was developed basedon experience within IBM, inter-views with other major supplychain operating and manufactur-ing organizations, and discussionamong the research team members.The result was a suggestion that a trueSCM professional must demonstrateskills and capabilities in the followingfive areas: 1) Functional; 2) Technical; 3)Leadership;4) Global management;and5) Experience and credibility.

In terms of functional skills, a SCMprofessional should have establishedsubject-matter expertise and relevantskills in several of the major supplychain functions including procurement,demand/supply planning, manufactur-ing,global logistics,and customer fulfill-ment.The individual will have worked atthe operational level in multiple func-tions to fully understand the day-to-dayprocesses, challenges, and issues. Thisfunctional experience should include acombination of hands-on operationsand managerial experience.

Given the increasing dependence ofthe supply chain on technology, a trueSCM professional must have experiencein applying information technology (IT)effectively. This does not suggest that aSCM professional must be experienced

in technology development. He or sheshould, however, have dealt with thechallenges of technology selection,implementation,and application.A well-developed understanding of the rela-tionship between supply chain process-es and execution management solu-tions is part of this skill set as well.

A SCM professional must alsodemonstrate a broad range of leader-ship capabilities.He or she must be ableto lead projects involving customers,partners, and/or competitors whileeffectively interacting with both internaland external executives. A SCM profes-sional must also demonstrate leadershipand experience in complex, matrixedbusiness environments. This experiencewill ensure that supply chain initiativesand resources are managed and integrat-ed effectively. Other broad leadershipskills relate to communication, negotia-tion, problem solving, team leadership,and project management.

In today’s boundary-spanning supply

chain environment, a SCM profes-sional must also have global

planning and operations expe-rience. This experience pro-vides the insight into the glob-al supply chain environment

and its challenges. Ideally, pro-fessionals will have had one or

two experiences working outsidetheir home country or at least exten-

sive involvement in and responsibilityfor global planning and operations.

Finally, a SCM professional must pos-sess sufficient knowledge, breadth, andexperience to evaluate the competitiveenvironment, to conceptualize strategy,to assess and organize solutions, and toimplement change both in the organiza-tion and with supply chain partners.Thiscapability is achieved by developingexperience and credibility within theenterprise as well as developing exter-nal credibility. External credibility canbe achieved through participation inindustry conferences, receipt of awardsor patents, and publication in businessor professional journals.

While the discussions within theinterviews and among the researchteam members achieved significantagreement, there were two areas wheredifferent perspectives surfaced.The firstwas whether a supply chain profession-al needs to have spent time in an inter-national assignment. Some of the teambelieved that international experiencewas adequate while others felt that theindividual actually had to be domiciledinternationally. The second area of dis-

By David J. Closs

Information Technology and the Supply Chain Management Professional Not long ago, logistics and supply chain management positions tended to have a lowprofile on the corporate map. In today’s global trade environment, these disciplines have been recognized as critical to success of nearly every business. This article offers insights on what it means to be a supply chain professional in this changing environment. It is based on interviews with supply chain organizations and experience with IBM.

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agreement concerned the technologyexperience required. To be qualified asa supply chain professional,some mem-bers of the research team felt workingwith supply chain technology was ade-quate while others felt that in-depthexperience was necessary.

I would like to focus these com-ments on the second issue.A review ofthe literature indicates that someresearchers suggest that being a SCMprofessional does not require signifi-cant technical skills.Others regard tech-nology or technical skills as fundamen-tal for developing cross-functional,cross-company managerial skills.Thereare even some experts who placedstrong emphasis on IT skills and expert-ise and make it an absolute require-ment.I believe that the position suggest-ing that supply chain professionalsdon’t require substantial IT skills isbecoming less tenable.As supply chainmanagement and IT become moretied, advancement to the senior profes-sional ranks will increasingly require asolid foundation in both. The rationali-zation of this statement is threefold.

First, supply chain IT has become acritical element in establishing strate-gic integration and achieving compet-itive advantage. Development of anintegrated supply chain strategy withappropriate consideration of procure-ment, production, and logisticsrequires a comprehensive assessmentof the situation to collect the appropri-ate data and then credible analyses ofstrategy alternatives.The specific deci-sions include sourcing materials, dis-tribution channel design, and estab-lishing alliances. The data includesunderstanding current and future cus-tomer requirements, current andpotential suppliers, possible flows andprocesses between production anddistribution facilities, and the cost ele-ments related to alternate strategies.Such thorough and integrated analy-ses requires effective use of compre-hensive planning tools such as supplychain design tools and advancedplanning and scheduling applica-tions. Historically, such planning andassessment would only be completedon an annual or bi-annual basis sincethe environment did not change that

quickly. However, today’s rapidly changing supply chain environment(demand, supply, cost, risk, and per-formance) requires more frequent,comprehensive, and accurate evalua-tion and analysis. More frequent andcomprehensive analyses of supplychain alternatives require that supplychain managers have a deeper under-standing of the decision tools, the dataimplications, and their limitations.Since these tools are becoming impor-tant for real-time identification andevaluation of supply chain alternatives,it is important that supply chain profes-sionals have spent some time in analy-sis design, application and results eval-uation. Such knowledge and experi-ence is critical to allow for appropriateinterpretation and applications ofresults. In order to avoid misinterpreta-tion and erroneous conclusions, it isimportant that the supply chain profes-sional has significant understanding ofthe planning decision tools.

Second, supply chain IT is becominga critical element for customer and sup-plier integration. Customers and majorsuppliers are increasingly requiringmore IT interfaces and enablers to sup-port supply chain operations.The needfor real-time collaborative exchange ofrequirements, EDI transfers, RFID, trans-port consolidation, and integrated sup-ply chain performance reportingincreases the need for supply chain pro-fessionals to understand the capabili-ties, requirements,and nuances of thesetechnologies. Since these capabilitiesare becoming critical elements of firmcustomer service and relationship man-agement requirements, it is importantthat supply chain professionals be ableto understand the subtle trade-offs asso-ciated with these technologies and themeans to incorporate them into a com-petitive service offering.When inclusionof a technical element is critical for acustomer service offering, supply chainprofessionals must be able to effectivelyevaluate the trade-offs and risks.

Third, increasingly extended andglobal supply chains have driven theneed for global coordination and track-ing. Global coordination requires inte-grated planning systems that can coor-dinate requirements, schedules, and

inventory availability in a 24 by 7 envi-ronment around the world.This capabil-ity requires the understanding of plan-ning calendars and discipline, dataintegrity,and the application of informa-tion based decision logic. Another con-sideration for global operations isaccess to and coordination of shipmenttracking information to facilitaterequirements planning and customerservice monitoring. While there are anincreasing number of systems that facil-itate information exchange and providetracking information, a major issue isthe ability to analyze and synthesize thedetailed information to determine theexceptions that must be handled by asupply chain professional. It is impor-tant that the individual developingthese decision rules and logic under-stand both the operating environmentand the technology.

While one might argue that not everysupply chain professional needs to havea deep understanding of all or even anyof these technologies, I believe that lackof depth in at least one of them will limitone’s ability to further advance in thesupply chain profession. While in thepast, the project managers for some ofthese critical technologies were oftenfrom IT, project management today istypically from the business or commer-cial side meaning the supply chainmanager. This means that in order toobtain the project management experi-ence that is critical for the supply chainprofessional,one has to have the knowl-edge and experience to apply and man-age the technology for planning orinterfacing with suppliers and cus-tomers. When I advise students today, Iencourage them to make sure they “gettheir hands dirty”in technology applica-tion as I believe that will be a key differ-entiator in developing and advancingthe supply chain management profes-sional for the future.

I would like to recognize the contributionof my co-authors on the original SupplyChain Professional article. These include:John Dischinger (IBM), Eileen McCulloch(Arizona State), Cheri Speier (MichiganState), William Grenoble (Penn State),and Donna Marshall (University College,Dublin).


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26_0728_N26461Logistics

Documents

A Conversation with Gary Smith - Logistics Quarterly · A Conversation with Gary Smith Vice President of Global Logistics, IBM’s Integrated Supply Chain Division. Border crossing