News and Views

- July 31, 2008 -


Supply Chain News: Transcript of Supply Chain Digest Interview with Nick LaHowchic, Part 2


The “Thinking Man’s” Supply Chain Executive on Supply Chain Transformation, Benchmarking, Career Development and More

By: SCDigest Editorial Staff

This is Part 2 of the full transcript of SCDigest Editor Dan Gilmore’s “Unplugged interview with Nick LaHowchic. LaHowchic recently retired as Executive Vice President of Limited Brands, Inc. and President & CEO of the Limited Logistics Services. Prior to that, he was supply chain services President of medical device manufacturer Becton Dickinson. He recently co-authored the new book Start Pulling Your Chain: Leading Responsive Supply Chain Transformations. To see Gilmore’s summary of this interview, go here: The Limited’s Nick LaHowchic Unplugged Part 2. To see Part 1 of the transcript, go to Transcript of Supply Chain Digest Interview with Nick LaHowchic, Part 1.

Gilmore: We talked about the challenges of supply chain and the role of SCM in the organization.  Are there things that many companies could have an easier time doing with supply chain that they either make too complicated or just too hard for themselves? 

LaHowchic: Part of the challenge in a number of companies is that they don’t understand their supply chain as part of a system. I don’t mean a computer system, I mean their business systems. It is like the balloon analogy – you squeeze it in one place, and it pops out somewhere else. So without a total business systems view, if you want to make corrective actions, you look at simplistically as just fixing this or that, without looking at the whole. You need to look at the interdependencies.

The other part of it is that besides all the things you need to do right in the supply chain, you also need to be aligned with the company’s other systems. For example, are people being rewarded properly for what it is you are asking them to do in the supply chain?  If you are continuing to reward subsets of the process with no connection to the results in any other areas, then you are forever going to have people trying to do the best they can do at that one area and really screw up the rest of the supply chain. 

Gilmore: How do you assess if a company has real problems with their supply chain?

LaHowchic: Going into new companies, one of the things I would do without question is ask for documents to see whatever planning they had done in the last 5 years.  Then I would take that information with their actual results over the same period and really find out where they thought they were going versus where they wound up. You will learn a lot from that exercise.

That would also give me some insight into how the supply chain could better support the company’s strategies, where can the supply chain have impact. In many companies, it’s often that the discussion hasn’t been at the right level, nobody brought a focus to it, or there has been some great rhetoric but no action was taken. 

With all the different areas of the business that are part of a company’s supply chain, the real question is how do you really align around the best plan that makes it so everyone is bound together -  the supply chain services you need to provide with the cross-structural alignment and the profit margin required. Not an easy discussion.  Normally not well linked in to incentives of any of them, but in many companies, because there is no one there really having that discussion, it just continues to go on kind of as just great rhetoric.

Gilmore: You recently released a book on supply chain transformation called START PULLING YOUR CHAIN!, and you have led a couple of supply chain transformations at the companies where you were the leader. How does a company know it is time for a transformation versus incremental improvements?

LaHowchic: It depends on how bad of shape a company is in overall or the economy they compete in, not just what state the supply chain is in. If any of these are really not doing well, they may need to transform a lot quicker. 

Beyond that, the key questions are around the goals for growth and profitability of the company and what will be required to do that. Even if the company is in good shape, if the current supply chain won’t well support the new strategies and objectives, then a transformative effort may be required.

The other thing is also to fully understand what is important to their customer or ultimate retail consumer of their product or service. In a number of cases you get kind of stuck in your paradigms. You are doing what seems to be good things, but those good things are against a set of targets that are years old.  So they are not the right things today to really make a difference to be more competitive with the customer in the marketplace. 

When you start to look at it that way, it isn’t just “We are just a cost center” or “We are sales,” but how we really are operating as a company. 

Probably for a number of companies a good analogy in today’s world is that of a company that has primarily sourced their products domestically which now needs to change to international or global sourcing. 

They thought they were running good supply chain organizations and good company organizations when they were manufacturing and sourcing locally. What they come to find out is that when they start to go overseas, the existing models they had were way off in terms of global organizational and operational performance. 

The way you think about the entire supply, its cost structure, its investment structure, and how the organization governs itself are totally different when you create a global organization either from a global supply perspective or a global sales and marketing perspective. 

So you have to make sure that in the world which you are living today that you are operating the best supply chain model for your business strategy.

The way ERP software has played out I think offers a parallel. In many cases, despite all the work that has been done on ERP, there have been really tremendous failures on how to better integrate the technology and support a full extended  supply chain or a global supply chain with operational information intelligence. 

We took very traditional, enterprise-centric ERP models of what work a company does where, and said we’ll keep the same basic technology model, but just make it bigger and better for a global, collaborative supply chain. 

That doesn’t work when the supply chain and business world have fundamentally changed, and you are trying to become differentiated from your competitors in product, cost and service.  You are trying to be the best in the pack and create a whole different way of going to market. 

So I would say in many ways the challenges of making ERP work in this new supply chain world parallel the challenges of the supply chain itself.

Gilmore: Most of the examples of supply chain transformation that I have seen happen when a new supply chain executive or CEO comes into the organization and recognizes transformative change is needed. Can an existing team lead its own transformation or do you need some kind of outside catalyst to come in and make that happen?

LaHowchic: From my experience, the answer is that sometimes the current team can do it. The real challenge, in many cases however, is that there is not enough talent in the organization to be able to really create a transformational team, evolve a new organization and work out the current problems. The problem in other cases is simply complacency.  In today’s changing world, if you are not materially continually re-purposing your supply chain organization to current conditions, you rapidly fall behind.

When you have people doing the same thing for a long time, it becomes equally challenging for them to really think in a sense about their self-destruction and reinvention.  Only if there is something that really brings that need to a sharp focus in the organization are people willing to step out of their comfort zone and say I’m willing to think about this in a whole new way.  It is the role of leaders to instill this sense into the culture of their organization and, where possible, their company.

Let me give an example from my life which had nothing directly to do with me – I was affected by it rather than I affected it myself.  I was at Becton Dickinson, a very successful global company. They have been in business for over 100 years and 50% of their business was made, sourced, manufactured and/or sold outside the U.S.  It is really a trans-national organization. If you looked at their top of the organization, you’d probably see 4 or 5 different nationalities on the executive team. 

As a company, we continued to rethink what they needed to do the next 2-4 years, modifying their business model. It seemed like we really had our act together.  

Well, it just so happens one year as they were finalizing our strategic plan, one of the executives suggested they should have someone outside the company look at it with a different set of eyes. 

So they had Jim Collins [well-known business author/consultant] come and look at their plans and then come talk to them.  So, he walked into a room after spending about a day just ingesting all this information and in very simple terms said, “Your plan is really bull----.”

He said it was just a bunch of aspirations, you haven’t really thought of how you need to be different in this world of health care and supply.  He shocked the hell out of the organization. He said, “You think you are this capable, but it’s an aspiration, not a reality. Test your numbers. Detail what it will really take to get there.”

It was like cold water in our face. The senior executive team went back and started to rethink it and, in fact, from the top down they were willing to take out a sheet of paper and start over.  But that happens very few times. If you brought someone in to tell you what you were doing, they normally would not tell you to start all over again, or if they did, you wouldn’t listen.

When you bring someone really qualified in cold, they get a different view of the organization. They probably are relating it to the outside world a little differently.  But my answer is yes, it can be done by the existing team. I’ve seen it done, but it really takes people out of their comfort zone and recognizing that it doesn’t matter how successful you think you are – that is not going to carry the company forward.  Rethink your organization and its needed capabilities, not aspirations, based on the imperatives of today, not the imperatives of the past or wishful thinking.

Gilmore: In that context then, what is your perspective on benchmarking?  Does it add much value? If so, how do you do it well?

LaHowchic: Well, I think it’s a slippery slope. You’ve got to do it, because you need to get reference points. But you have to do it in a focused way. Everyone should not try to do everything well, and part of the reason for that isn’t that they aren’t competent but because organizations really have purpose and context.  So, to do things well, you can only do a few of them, and so organizations that are properly aligning themselves, their resources and their capital, are picking the few things they must do well to win and for the rest of them, they plan to just do satisfactory.

To draw an analogy - when I was with Limited Brands, we did a lot of things well. We also flew clothes in from Asia and had great cycle times to profitably compete for fashion forward consumers, but I never wanted to be the Wal-Mart supply chain. It never would satisfy the objectives of my company. Benchmarking against Wal-Mart would not have helped much, and might have caused problems.

So benchmarking is good for the things I think are important to my specific organization and strategies, and where can I go out with my people relevant to things that are important to them.  Let me look at those things and use that insight in the proper context. The rest of the things I will always have continuously improve as I can, but I am not trying to do transformational things everywhere all the time. 

Also when I was at Limited Brands, we participated in some logistics benchmarking with the master degree students at the war college in Washington DC (Industrial College of the Armed Forces). They would spend a few days reviewing all of our capabilities.  One of the things that they came back and said to us, having already gone to Honda, Toyota and a number of other world-class companies, was that what they saw at Limited Brands was we didn’t overuse technology in the way we supported logistics. 

And they said they understood why we didn’t because we had a “sense and respond” system that needed to flex to consumer actions.  They related to that because they said that is the kind of systems they have.  In battle, you are not primarily out there trying to predict that much what the enemy is going to do, you are mostly trying really to figure how to evolve and compete as the battle or war evolves.  Therefore, being flexible is key. By managing your technology to where it is appropriate while flexible, letting other things possibly be higher cost you can win. But that was for our particular supply chain. Others are different. That’s what has to be remembered when you are benchmarking. Done smartly, it has value, but not smartly can foul you up.

Gilmore: And you can also get in trouble by benchmarking specific areas and not looking at the big picture.

LaHowchic: I agree with you. An example for me, again when I was at Limited Brands, when I got there, we were servicing approximately 6500 stores, but they were efficiently but randomly being delivered per day.  So we were rolling trucks everyday, but they could get to a store anytime. The company thought this optimized the logistics cost, but it played havoc on the stores. 

So we analyzed that from a total end-to-end perspective, and said if we could make the windows of delivery more predictable at the stores, we could either take out or redirect significant labor and related dollars, and we could transform the kinds of people in the stores so we don’t have selling people trying to do material handling and material handling people then trying to sell. 

When I started to look at it that way, the first reaction was: We have never done it that way, why would we want to do that?

I said I thought we could do it, save money and make us and the stores more effective, and on the logistics side they thought I was either nuts or acting a little like Don Quixote. At the end of it, it was really redefining a business specification. The result of this effort was hitting 98% of deliveries within 2-hour windows, to 6500 stores, doing it for less than they did 5 years before relative to overall increases in transportation expense.

They also took out a number of basis points of store labor expense.  So, they could’ve raised my costs and still would have saved money for the company.

The key was taking it from a context of understanding the real purpose the supply chain – is it just to deliver stuff to the store, or to really think about selling products to the consumer? Every step in supply chain affects that. So while we were able to control and change our costs and raise the level of value to the stores, we were in some cases also able to increase sales at stores because they had more people selling, more conversion of existing store traffic.  The thought and desire of supporting more sales and profit resonated throughout the company.

So all those things matter, but if you keep it in a small paradigm of how to just save cost, you’ve missed the whole opportunity.  If I had benchmarked those costs against other people, and someone said are you better or worse than them and I’d say: Relative to what business strategy and objectives? 

Gilmore: Right, but that takes a very different perspective that frankly not a whole lot of companies have at this point.

LaHowchic: Part of that isn’t because companies are disinterested, part of that going back to your point earlier, is you have to create the general knowledge and the agenda for people who are willing to listen to it. The more you can articulate how the supply chain system is really part of integrated go-to-market strategy and systems, the more the organization will give you room to roam in terms of how supply chain can work and improve overall business performance in an enterprise.

Gilmore: Leaders and laggards – is there that much difference in terms of supply chain performance?

LaHowchic: I think there are, both in terms of where they fit within the leadership in their company and how the company’s customers perceive their supply chains. Today, who shows up at the meetings at Wal-Mart and Target – it isn’t just sales people.  In most cases, a big part of the team is the supply chain group or the logistics group and they are an integral part of that process and the account management team.

Before that, it was difficult to help the customer understand it is a bigger team than just the products and the sales organization that delivers the value that they want. 

If you are a laggard, you are probably not even at the table. And I mean that from two perspectives. One, that your own teammates do not see your value and wouldn’t bring you there, and second that your customers would not demand that you be there. The place at that table is not something you are handed, you have to earn it.

When you talk about people that are laggards, it’s about how are they performing, why are they performing, where do they sit in the organization, and where do they sit in the strategic value of the enterprise.  If in those areas you aren’t showing leadership, you are forever going to be doing transactional work and not making an impact. 

Gilmore: At an informal chat we once had at Georgia Tech, you said that if you were starting to build a company today, you would construct a supply chain very differently than most companies have, which have to deal with what I’ll call legacy supply chains. It was very provocative thought, and we just didn’t have time to follow up then. What did you mean by that?

LaHowchic:  Well, I guess a couple things. I’ll even make the comment even broader. If I was starting a company today, I’d structure the whole enterprise differently, not just the supply chain organization, because many of companies today are still organized historically throughout based on functional competency, limited information, hierarchical decision making and sequential thinking, not just where to ”put” supply chain. 

So, as we talked earlier, we have this tremendous availability of real-time information, but in today’s world in many cases we are still putting people together traditionally and thinking that is how it needs to work in the future, without recognizing the power, availability and abundance of information to change the overall business structures to better perform.

If we ask why we are organizing that way, it’s usually just because that’s how we always did it. But that’s not right for the 21st century.

In today’s world, it is about more than ever the customer [retailer] and the consumer. Both of those today are much more engaged than we have ever had in the past. Part of that engagement is because they have the technology to be easily engaged. So it is what makes the “dot com” phenomenon so profound is that in today’s world a customer or consumer could be talking to you, could be talking to your competitor, could be talking to your supplier, or could be talking to your supplier’s supplier and you’d never even know it.

This would have been a major effort for anybody in the past and today it is simply commonplace around the world.  So the key issue is should I focus on the functions, or focus on how to best support customers? Should I assume functional activity at its basic level of competency gets us where we need to go?  Dr. Donald Bowersox and I spent a number of chapters in our book reviewing what we think is the latest and most provocative approach to consider to effectively compete in the 21st Century.

Gilmore: So what would be different with that mindset?

LaHowchic: If you go back about maybe 10-15 years ago, Johnson & Johnson was starting to form focused customer facing teams that were cross-functional.  They were among the first to put things together from customer service right through the functional activities – these teams were built around key customers. They were self-sufficient and integrated back in the organization. 

In today’s world, the company doing this more completely than any other that I am aware of  is Zara [Part of Inditex - a European clothing manufacturer/retailer]. It really has organizations that are formally organized around customer product segments. So it isn’t that they really have a production department or a logistics department or an HR department or a marketing department, or a sales department – they have teams that exist together to serve customer groups. That is the organizing principle. 

The competency of their individual functions within the teams is expected to be bridged and improved by kind of a coach of that specialty, such as logistics. But if you went into their main offices, you wouldn’t find a marketing department. You would find a women’s wear department or children or men’s wear department. And the people would be in the same room with all functions.  Not even in cubes – in the same room at adjoining tables. 

They would be functioning real-time together, each of them with information that is as real-time to that function as possible, and sharing it across the table together real-time, and making decisions together real-time. I’m not saying that’s the complete answer either, but it better illustrates that they are unencumbered by the way people traditionally organize a company and sequence their business model, and they are comfortable doing it from the top of the house down. 

That approach is really evolving around their ability to operate with more information in a very distributed way. They still make sure factories run and product lines run and that they make money for shareholders, but doing it with the focus of a customer and how best to organize to serve them and win in the marketplace versus a functional structure. 

So where does the Zara supply chain sit? The answer is it is totally embedded as their business model. It is almost transparent with the rest of the process.

The challenge of how we should change organizationally is staring us right in the face, but we may still be unable to see it. In our book, we start out in the first chapter sitting on deck of a harbor-side restaurant watching a world of technology be used socially by voice, message, blogging, chatting, communicating in one-to-one, one-to-many, many-to-one, many-to-many with great ease.  The example illustrates how personally we have organized ourselves into a new world.  I am still looking for more company examples of this practice. I am still looking for more versions of organization and business models like Zara that have evolved leveraging the abundant information in a more effective and contemporary way.

Gilmore: Last question – for a mid-level manager now in supply chain or logistics, working their way up the ladder, what advice would you give them in terms of career advice and smart things to maximize their potential?

LaHowchic: If I were today a middle manager, I would push for continual development, not as a right but as an earned benefit. So working for a company, I would expect them, if I performed well at whatever I was doing, to provide me continual development either to broaden my knowledge or to take me deeper into specialties I need to both become a better technical manager and a better general manager.

That is also the least expensive way for a company to develop and keep associates, their talent assets if they are out in front, proactively thinking about what talent they need to have and grow. 

If the company really believes in the words they say about their supply chain and the need for talent, they’ll find ways to both get the work done that is required for the organization’s success, but also address the needs for continual talent development. 

So, my answer for a middle management executive would be to be impatient, but also do what you need to do to be considered a very good performer. That’s how you create opportunity for yourself and value in a company– but also make sure you are in a company that values professional development. Many don’t.

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