On February 10, 2006, the last Western Union telegram had been sent. The permanent termination of a service that had continuously operated since 1861 was announced using an e-mail. Few noticed or seemed to care. Most in Generations X and Y had never sent or received a telegram.
While recently dining on the deck of a harborside restaurant, the authors and their spouses enjoyed a world-class Lake Michigan sunset. People of all ages gathered to enjoy the sunset because it was spectacular. Many were taking pictures and sharing instant results with their companions. In a matter of minutes, scores of pictures had been taken, shared, and in many cases erased. Only the best of the best pictures were retained. Throughout the picture-taking process, cell phones were being used alternately to complete calls and to take pictures. Of interest was a Detroit Tigers fan using his cell phone to watch, and update for those concerned, the play-by-play telecast of the Tigers-Twins game currently under way in Minnesota. Wireless connectivity (Wi-Fi) was operative, with photos being shared with others in less fortunate locations throughout the globe. At a corner table, a Blackberry or a Sidekick was serving its master by messaging a colleague at some distance away. Because of the serious demeanor of the person involved, the conversation could easily have been a consultation concerning a critical medical procedure under way at a local or distant hospital. A careful look at a semi-bored teenager in the corner revealed an iPod saving the moment by allowing her to listen to a favorite tune, most likely selected from a digital library containing thousands of songs.
In today's digitally connected world, it's not hard to imagine even more forms of 21st-century technology that could have been actively in use on the restaurant deck. For example, to the best of our knowledge, no one present was participating in a chat room, nor was anyone creating or commenting via a blog. But someone could have done so because wireless service was available. Despite the beautiful sunset, the scene was far from a Kodak moment—in fact, Kodak, a firm currently engaged in a major transformation, most likely didn't manufacture or market any of the products being used on the deck. What we experienced that evening was the reality of a connected, multitasking, digital world simultaneously at rest, at work, and at play. Is there any doubt that the Information Age has arrived and that the 21st century is rapidly becoming increasingly different from the past? Can one deny that we have, in fact, become a highly connected, digital economy?
The 20th-century change experience, for the most part, was one of living out the natural progression of the Industrial Revolution. Most agree that the origins of the Industrial Revolution can be traced to the textile industry in Great Britain in the late 18th century. However, it was more than 70 years before the true forces of industrialization began to change the way we thought, worked, and lived. Most of today's middle-aged and older adults grew up in a 20th-century culture that demanded substantial justification and testing before undertaking change. Technology adoption was gradual, and change was relatively slow. Adopters of the industrial technology progression required that most new inventions prove they would result in social and economic betterment. Technology characteristic of the Industrial Revolution was generally perceived as achieving more and more desirable results (effectiveness) for less and less total effort (efficiency). Across the decades, the Industrial Revolution translated into the highest standard of living ever known to the human race. However, the 20th century is gone!
Having a life experience limited to the past couple of decades of the 20th century, most members of Generation Y are accustomed to continuous and radical change.1 They were born after cell phones became common and are not surprised by the functional progression of what they consider normal communication. In short, they have never heard of crankoperated phones, party lines, and switchboard operators. Compared to those of their parents, and even more so to those of their grandparents, their change experiences have been mostly radical instead of gradual. Most change has been positive. All such changes have come at a rapid pace. As a result of positive reinforcement, most of the younger generations embrace change without question. Likewise, they do not require total understanding of the origins of change or what might be the ultimate consequence such change will have on what they do or how they do it. They are confident that mistakes can be redirected into progress. Such is the mind-set of our emerging 21stcentury business leaders. A willingness to adopt technology and, if necessary, radically change traditional practice to exploit such technology may well turn out to be our global society's saving grace.
Thomas Friedman's mind-stretching essay The World Is Flat captures the dynamic changes that characterize the new global era.2 In terms of connectivity, he views the world as having shrunk from small to tiny. He eloquently describes "Globalization 3.0," wherein people, products, and ideas flow freely across borders and new communication technologies and business processes create a new global platform for sharing knowledge and work across time and distance. While totally agreeing with Friedman's description of the magnitude and far-reaching implications of rapidly occurring global change, those of us who are deeply committed to researching, teaching, and managing real-world supply chains know that existing business models and related best practices are inadequate to fully exploit the potential of 21st-century technology. Those who live in the reality of today's supply chain know that the dream of products flowing freely throughout the globe is in stark contrast to what really happens at ports, in and between warehouses, and along the highways, railways, and waterways of the world.
Friedman includes "supply-chaining" as one of the 10 key "flatteners" facilitating the convergence of political, technological, and process-oriented forces to create a new order of global affairs. Using Wal-Mart as an example, one gets the notion that successful change is more or less achieved by the application of power and determination. The Wal-Mart business model has clearly revolutionized our understanding of how logistics can be deployed to leverage corporate success. The reality is, however, that the purpose of day-to-day supply chain work has not changed much since the beginning of civilization. How the supply chain does its daily work changed significantly as a result of the Industrial Revolution and is currently on the verge of once again changing dramatically as we navigate the Information Age. As elaborated in the forthcoming pages, much is changing in terms of both currently perceived supply chain best practices and associated leadership challenges.
A demonstration often used in elementary schools serves to illustrate the fundamental information-technology-driven change occurring in supply chain management. Many teachers use a string to demonstrate ease and resistance when applying energy to movement. While it is very easy to pull a string along a surface, it is impossible to push a string even an inch without it buckling or bending. The point of the demonstration is to illustrate that pulling the string overcomes friction, resulting in ease of movement. While in reality very few of us would try to push a string, pushing the supply chain is exactly what we have been doing since the beginning of civilization.
Traditional supply chains have been designed to operate in an anticipatory, or "push," mode. The prevailing approach to distribution is a time-consuming, forecast-driven, volume-oriented, function-centric consolidation process designed to push products out to market destinations in anticipation of future demand. The all-too-frequent result of this anticipatory push process is far too much of the wrong inventory being pushed to the wrong markets. This misalignment of inventory often results in firms using incentives to entice consumers to buy products they have available to sell rather than providing the exact product the customers desire to purchase. A prime example is the widespread use of consumer purchase incentives to sell automobiles that were manufactured to forecast—or what might be better called a "best guess"—of customers' future purchase desires. This traditional push practice, true of both domestic and foreign suppliers, has started to change to a responsive, or inventory "pull," model across most industries.
A combination of customer connectivity and more responsive supply chain operations will increasingly enable demand sensing to pull products to points of desired purchase. In situations where products are built to customer specification, the entire order-to-delivery cycle can be dramatically compressed to allow fast and precise customer accommodation. The information technology enabling rapid demand responsiveness and customer connectivity is becoming more and more available and economical. The time has arrived to stop pushing and start pulling your supply chain!
At the 2005 Aspen Institute Roundtable on Information Technology, 25 thought leaders discussed the broad implications of "push" versus "pull" economies. The following definitions capture the fundamental differences between them.
A push economy—the kind of economy that was responsible for mass production in the 20th century—is based on anticipating consumer demand and then making sure that needed resources are brought together at the right place, at the right time, for the right people. A company forecasts demand, specifies in advance the necessary inputs, regiments production procedures, and then pushes the final product into the marketplace and the culture, using standardized distribution channels and marketing.
By contrast, a pull economy—the kind of economy that appears to be materializing in online environments—is based on open, flexible production platforms that use networking technologies to orchestrate a broad range of resources. Instead of producing standardized products for mass markets, companies use pull techniques to assemble products in customized ways to serve local or specialized needs, usually in a rapid or on-the-fly process.
In the pull model, companies recognize that trying to anticipate demand is a losing proposition and that, in any case, customers have far more market power than ever before. Small niches of consumer demand, long dismissed or patronized by sellers, are a growing market force unto themselves.
They can increasingly induce sellers to develop specialized products and services to serve narrow and time-specific market demands.3
The 21st-century managerial challenge is one of assessing the far-reaching implications of this basic economic shift for supply chain structure and strategy.
As the power of 21st-century information technology is applied to supply chain operations, most twentieth-century best practices will dramatically change. The technology is here today to support such massive change. Business managers capable of innovative change are moving into positions of senior leadership. What is lacking is an integrative framework to leverage and transform how 21st-century technology can be applied to improving essential supply chain work. The authors and many others believe that such a framework exists in the responsive supply chain business model.
Emerging business leaders must develop new mental models and visions of their future business operations in order to avoid marginalizing the potential of rapidly emerging technology. They need to develop a sustainable curiosity about how to best exploit the Information Age. For better or worse, the 21st century will not be business as usual.
Entering the 21st century, we face a new, different, and more pervasive wave of change. This change force represents the first shockwaves of the Information Age. Many additional shocks are sure to follow. Even at this early date, the Information Age is characterized by a growing presence of disruptive technology (DT). DT is defined as a new innovation or invention that appears to have great potential but does not fit well into existing processes, procedures, or what is traditionally perceived as best practice. Harnessing the full advantages of DT typically requires significant and innovative behavioral change—something humans are not good at. To fully exploit DT, leaders often have to develop a totally new approach for solving problems—something leaders traditionally have not been good at. In other situations, DT can solve or modify an existing problem, thereby eliminating the need for continued performance of a deeply institutionalized best practice.
DT is not new or exclusive to the Information Age. DT was at the leading edge of the Industrial Revolution. Inventions such as wireless messaging, the light bulb, the cotton gin, the telephone, steam, internal combustion and jet engines, transistors, nuclear energy, silicon chips, and miniaturization were some of the major disruptions associated with the Industrial Age. This earlier disruptive experience reinforces the current point. Harvesting the full benefit of DT requires significant modification of traditional practices in terms of both behavior and measurement—maybe some currently perceived best practices need to be eliminated. For most future leaders, this means that fully exploiting DT will require that the "plug-and-play" technology mentality that emerged during the late 20th century be abandoned.
While much operational development will be needed to bring current supply chain performance to the full potential offered by 21st-century technology, three facts seem indisputable.
First, customers are becoming more connected to businesses from which they choose to purchase merchandise and services. Along the supply chain, businesses themselves are also being linked by connective information technology. The entire supply chain is simply more connected.
Second, the technology necessary to reinvent and dramatically improve supply chain operational processes is available today. Unlike generations past, wherein technology availability was a future promise, the essentials for achieving both customer and supply chain connectivity are here today and are affordable.
Third, the systems, functions, processes, imagination, and regulatory framework of the 20th century do not offer an adequate blueprint for leading in the rapidly emerging digital global economy. Leadership in a connected and networked world requires a new framework offering significant modification in what is considered today's best practice. To fully exploit available and emerging technology requires that today's prevailing operational structure and strategy be reinvented. Such reinvention and associated transformation consist of far more intensive change than traditional business process reengineering. What we foresee developing we call the "responsive supply chain business model."
Take, for example, how "time shrinkage" is currently affecting best practices in new product design and development across industries. In the health care industry, new medical devices now move from idea to physical prototype in hours rather than weeks. Technology has enabled the replacement of traditional two-dimensional drawings with three-dimensional digital CAD/CAM specifications and prototypes, thereby eliminating previously required teams of engineers, construction molds, and elaborate physical prototypes. Because of the resulting speed and ease, new product conceptualization and design now happen in days versus the months required in the past.
The revolution occurring in digital imaging technology is transforming the way the fashion industry performs its commercialization process and related marketing message creation. Using calibrated digital imaging and working at remote locations throughout the globe, fashion designers can validate color and finish specifications to standardize fabric and package design. The result is a dramatic reduction in production time from as many as two months to as little as a few days.
In the opening paragraphs of this chapter, an example of technology deployment taking place during a northern Michigan sunset was used to illustrate a few of the many ways that digital technology is connecting and changing our daily living. Such technology, commonplace to the Y and Now generations, is also turning companies such as Kodak and Fuji, as well as the commercial users of their products and services, on their heads! For example, in high-fashion consumer products and in publishing industries, the process of rendering "camera-ready" copy is being totally reengineered.
What is developing is that virtually the entire method of making and using photos in product design is being replaced with a new, digitally based technology that is cheaper, faster, and, most important, better. Using digital cameras, photographers can repeatedly shoot photos and rapidly finalize a customized image. Additionally, digital photos can be quickly and easily "morphed" to further enhance their viewing image for presentation to targeted consumers. This digital photo production and associated electronic catalog management have revolutionized the speed, variety, and degree of customization available to target unique buyer segments. Catalogs and websites are being tailored to specific and relatively small consumer-market segments. This connectivity is allowing companies to turn small but profitable market segments that previously had been neglected into profitable customers. Such technology-driven practices are becoming commonplace among companies such as Victoria's Secret, Ralph Lauren, Target, JC Penney, and Amazon.com. These examples of customization can be achieved in real time as consumers use technology to interact with a company.
Thus, wherever we look, examples of changing ways of working, buying, and consuming abound. The early signs of the evolution from push to pull are everywhere. Firms and associated best practices are being reinvented to take advantage of this global transformation. Adapting the ways and means of the responsive supply chain business model is but one part of the digital transformation being driven by 21st-century information technology. However, changing the ways and means of how supply chains operate is a vast undertaking.
To fully exploit the benefits of 21st-century information technology in the supply chain space, a major structural and philosophical shift is required in how one conducts business operations. The traditional commandand- control structure of individual organizations, as well as the sequential processes characteristic of existing business transactions, will be hard to modify or change sufficiently to accommodate the requirements of a responsive business model. Some observers have long predicted that radical organizational and operational change will be required to exploit emerging technology and warned that such massive change may not be achievable. On the basis of examples from the Industrial Revolution, others believe that the necessary radical change will be accomplished only if existing organizational structures and institutionalized best practices have been completely abolished or have disintegrated.4
While many executives may not be fully sold on the theories of destructive change, achieving 21st-century responsive supply chain leadership is not viewed as an easy goal to accomplish. New mind-sets, methods, and measures must be framed to achieve goals and avoid unintended consequences.
Although significant change will be required to exploit emerging information technology, we believe that the seeds of new and far-reaching best practices to meet and exploit future challenges can be found among today's leading-edge firms. Building on research and practice, we develop and present a framework to help guide the required change: the responsive supply chain business model. This model offers one perspective concerning how the initial waves of DT associated with the Information Age can, say, between 2007 and 2025, be absorbed and accommodated to radically affect and improve global business performance. A composite of research, experience, and speculation is used to develop a transitional model for competing in the global digital economy.
Of course, business operations represent only one facet of society that will be disrupted by rapidly emerging digital technology. Equal, or more dramatic, changes will simultaneously affect how we practice medicine, how we educate, and how we govern, as well as every other facet of how we live our daily lives. However, on the basis of the initial impact of Information Age technology (1995?2007), it appears that the business community may be one of the most disrupted of today's institutions. The significant change required in processes as fundamental as basic business operations will serve as an ongoing example of just how out-oftune some existing best practices are when confronted by the opportunities of a global digital economy.
To adequately shape a process as complex as global supply chain operations requires an in-depth understanding of what is changing. For example, most products are, and will remain, physical and perishable entities subject to damage, pilferage, and other forms of destruction. While the content and images of information-based products, such as documents, films, and videos, can be transmitted around the globe at lightning speed, most products need to be physically transported from origin to destination. At least for the foreseeable future, such transport will be performed using 20th-century methods of transportation, namely, trucks, trains, planes, ships, and pipelines.
Such transport takes time and costs a great deal of money. A reasonable estimate is that the global logistics expenditure for 2008 will exceed $8 trillion. Given the proliferation of today's practices, global transportation cost alone is projected at more than $5 trillion.5 To support this costly and time-intensive logistical process will require maintaining approximately $4 trillion of inventory, at an annual cost of approximately $1 trillion in interest, storage, handling, insurance, obsolescence, damage, and theft. While these are projected costs, they, or similar expenditures, soon will become real costs of doing business. These costs can be favorably affected and reduced—but not totally eliminated.
Adding to the complexity of contemporary supply chains is the growing amount of counterfeiting taking place in global commerce. The World Customs Organization has estimated counterfeiting to involve in excess of $500 billion of fake goods. Taking positive steps to mitigate the growth of counterfeiting is a major 21st-century supply chain challenge.
Thus, the debate is framed: How can a generation of new business leaders facing the challenges and opportunities of the Information Age reinvent operational best practice to exploit the full potential of a responsive supply chain business model?
Physical products will still need to be moved from origins to final destinations in a secure, damage-free, and timely manner. Much of the work of supply chain management may be outsourced throughout the globe, but it will not go away. In fact, the more global the operational reach of a business, the greater the degree of supply chain reliance and complexity. It is also logical to conclude that physical movement constraints and elapse time required to transport products, components, and materials will continue to be operational impediments or barriers.
In order to take advantage of emerging information technology and capitalize on what in fact is happening, business leaders must face the reality that most of their firms as well as their existing supply chain processes are, to a significant degree, operationally obsolete. In their early attempts to adopt digital technology, many leaders failed to fully understand the extent of operational change that was necessary. They felt that integrated software would facilitate the necessary work. In most cases, it did not. The managerial challenge, similar to that faced during the Industrial Revolution, is to reinvent existing business operations. Operational practices and rules need to be reinvented to exploit timely and accurate information. The old business model and its associated value proposition are increasingly inadequate to drive leading-edge performance while confronting the challenges and opportunities of the Information Age. All of the required change must be conceptualized and financially supported while the firms involved in transition continue to maintain profitable operations. Business leaders cannot be excused from the need to simultaneously achieve enterprise financial and operational goals while leading a transformation.
While firms that manufacture and sell products face a fundamental transformation challenge in the 21st century, those that provide essential services face the same reality and related challenges. At the 2007 Longitudes conference presented by UPS and Harvard Business School Publishing, Michael L. Eskew, recently retired chairman and CEO of UPS, positioned the overall transformation challenge from the perspective of all global companies and their service providers:
Consumer pull requires one-to-one solutions and supply chains that can deliver them. The world is no longer driven by producers pushing products through their supply chain. Increasingly, power is in the hands of consumers who now pull products through the system. They pull what they want, when they want it, from whomever they choose anywhere in the world. And consumers want and expect a personal, relevant, individualized experience. This is a big shift that will only intensify.
And then Eskew went on to elaborate his vision of what this basic shift to a pull economy means for UPS and its need to transform.
UPS is poised to deliver this kind of personal experience by being "one-to-one" with each customer. For UPS, one-to-one means serving each customer as if they are UPS's only customer and operating as if each transaction is the only transaction and each package is the only package. UPS is focused on this "one-to-one" vision and on a strategy that seeks to help customers synchronize their global supply chains. It is UPS's aspirational view of the supply chain done right.6
Clearly, all companies and their service partners are participants in the essential transformation.
Transformation: Getting it and keeping it right
The process of leading a business transformation to operationally exploit information technology and benefit from its anticipated disruption is our subject. In the 21st century, firms will continue to seek strategies that combine the benefits of specialization and integration. However, the basic value-creation model in a global economy has changed.
Some readers might quickly conclude that neither Web-based technology nor supply chain represents a new topic to 21st-century senior leadership. Both have significantly affected our business landscape for nearly a decade. What is emerging is a more comprehensive understanding of the appropriate leadership that is necessary to initiate and sustain a complex organizational transformation. Such a transformation constitutes a fundamental reinvention of the basic way an organization operates. The goal is to maximize the favorable impact of Web-based technology. Initially, many senior executives felt that the challenge could be met by purchasing integrated enterprise resource planning (ERP) software. While such plug-and-play practices worked in the past, harnessing the scope and power of Web-based technology proved to be more demanding. Most limited transformations failed to meet expectations. To put it bluntly, most simply failed. The reality is that most 20th-century organizations need to be reinvented in order to take advantage of 21st-century Web-based technology.
Lessons concerning the resources and human capabilities required for success have been learned from the failures and partial successes of early transformations. We think the development and use of a four-stage leadership-transformation process or map that proceeds from awareness, to ratcheting, to catapulting, to sustainability provides some of the enlightenment and possible direction of actions required to succeed in this important endeavor.
The initial stage of transformation requires awareness, understanding, and commitment among all employees concerning the fundamental need to rethink and (to the extent required) modify a firm's basic business model. All employees need to fully understand the compelling reasons why the business must adopt a new structure, strategy, and behavior if it is to fully exploit increasingly available information technology. Most people are uncomfortable with comprehensive change. From top to bottom in a traditional brick-and-mortar firm, it is critical that employees understand that in most cases there is no choice: Change is essential for survival. Failure to achieve widespread awareness of the fundamental need for change as well as to create a willingness to embrace such change is one of the leading reasons business transformations fail.
Given awareness, the second stage of transformation involves a comprehensive commitment to achieving the highest level of supply chain performance. We call this second stage of transformation "ratcheting." The term ratcheting was selected to emphasize that successful transformation requires a renewed and elevated commitment to improving performance relative to three traditional operational imperatives; namely, consumer connectivity, operational excellence, and integrative management.
These imperatives combine to drive a market-sensitive perspective concerning the fundamental importance of elevating and maintaining industry-leading performance, day-in and day-out. Such an exacting standard of performance is the operational prerequisite for winning in the global economy. A firm that is capable of successfully ratcheting is positioned to catapult its overall performance. The challenge is to not settle for marginal improvement. The organization must catapult beyond marginal change if it is to implement a responsive business model.
By building on ratcheting's momentum, a leading business is positioned to raise the prevailing industry performance standard. In the third stage of transformation, "catapulted" firms are viewed as supply chain orchestration leaders. They are select organizations whose commitment to customer responsiveness establishes the operational standard of excellence for their industries. Catapulting is all about exploiting operational competency by means of achieving three additional imperatives. These additional imperatives are real-time responsiveness, network leveraging, and collaboration. It is during the catapulting phase that the potential for global leadership evolves. Firms that reach the lofty distinction of being "leading edge" in the Information Age will set new standards concerning what constitutes world-class performance.
Once response-based, world-class performance has been achieved, maintaining that level of performance requires increased vigilance concerning what firms do and how they do it. This final stage of transformation is called "sustainability." Being sustainable is a longterm proposition that requires continued and renewed leadership, improved measurement and motivation, and a commitment to meeting future challenges.
The challenges of sustainability are not the same as those confronted in the first three stages of transformation. Whereas the spirit of leading essential change was the driving force during the initial three stages, sustainability involves day-in and day-out commitment to maintaining and renewing all six transformational imperatives. Our thesis is that the emerging leadership model must become increasingly inclusive and involve all levels of employees. Most of the work that is essential for achieving supply chain excellence occurs outside the vision of supervision. Flat and globally extended organizations need leadership at all levels of engagement. In a similar vein, driving crossorganizational performance creates the need for new performance metrics. The discussion about futuristic perspectives must center on how the explosive impact of the Information Age is likely to continue to change business best practices much faster than was experienced during the Industrial Revolution.
Within the new information-driven frontier, leadership needs to fully commit to the realization that business operations must continue to achieve day-to-day operational goals. At the same time, senior leadership must be equally committed to developing a plan for initiating responsive supply chain transformation.
Endnotes:
1. Since World War II, it has become fashionable to label generations by their dominant characteristics. Those born after 1946 are referred to as "baby boomers." Their children, known as Generation X, are now approaching their forties. The next generation, Generation Y, is the technology-savvy generation that taught its parents how to use computers. Finally, the most recent generation is known as the Now Generation because of its expectations of instant gratification arising from having been born in the Information Age.
2. Thomas L. Friedman, The World Is Flat (New York: Farrar, Straus and Giroux, 2006).
3. David Bollier Rapporteur, "When Push Comes to Pull: The New Economy and Culture of Networking Technology," a report of the Fourteenth Annual Aspen Institute Roundtable on Information Technology. The Aspen Institute (2006): p. 4.
4. Christopher Meyer and David Power, "Enterprise Disintegration: The Storm before the Calm." Commentary, (Lexington, Mass.: Temple, Barker & Sloane, 1989).
5. Alexandre M. Rodrigues, Donald J. Bowersox, and Roger J. Calantone, "Estimation of Global Logistics Expenditures: Current Update." The Journal of Business Logistics 26, no. 2 (2005): pp. 1?16.
6. "Longitudes 07: Competitiveness and the Global Supply Chain," June 20?21, 2007, Toronto, Ontario (UPS and Harvard Business School Publishing, 2007): p. 5.
Editor's Note:Start Pulling Your Chain! Leading Responsive Supply Chain Transformation is available from the Council of Supply Chain Management Professionals (cscmp.org) for US $44.95 for CSCMP members and US $49.95 for non-members.
