Research is the process of examining something we already know a great deal about. The purpose of research is to confirm what we know and believe is, in fact, true and to develop a more knowledgeable understanding of its essence.

21st Century Logistics: Making Supply Chain Integration a Reality is based on extensive and continuing research into logistical best performance. (For more on the scope and nature of this research, see the accompanying sidebar on page 46.) Logistics activities, priorities, and relationships have changed rapidly throughout the 20th century—and the pace is likely to continue into the new millennium. Based on this research, we offer a blueprint to guide operational and managerial behavior to achieve superior logistics performance during this period of accelerated change.

Through the efforts of the Michigan State research team and similar research activities that have taken place in other universities as well as in the commercial sector, a fairly clear understanding of logistics' central role in supply chain management has emerged. And although the release of our book may not contain any radically new—or substantially contradictory—insights, it does convey and confirm a powerful message. That is, how logistics is structured and executed can play a lead role in making true supply chain management a reality in the 21st century.

Specifically, the findings presented in this new book:

• Point to a more comprehensive structure of the capabilities and competencies that engender superior logistics.
• Further substantiate that leading logistical practice can be generalized across industries, across the supply chain, and across cultural boundaries.
• Provide additional insight into the relationship between best logistical practice and superior financial achievement.
• Extend and update the assessment diagnostic and related benchmark (previously introduced in World Class Logistics, 1995) to assist managers in implementing continuous and meaningful improvement in both internal and cross-enterprise integrative management.

It is important to underscore that the new book is not about the specifics of logistics operations. Many excellent texts are available that more than adequately cover that subject. Instead, this research-based publication focuses on why the work of logistics is fundamental to business success. Its most important contribution is an updated and more comprehensive approach to achieving effective logistics change management.

To heighten interest and enhance readability, 21st Century Logistics: Making Supply Chain Integration a Reality uses a continuing dialog between logistics manager Charlie Change and colleagues at Spartan Enterprises (his hypothetical company) to help describe each area of supply chain integration. The case dialog follows Charlie from chapter to chapter as he and an integrative change management team identify performance improvement areas, create action plans, and then suggest strategies to achieve integrative management more effectively.

Presented in this manner, the Charlie Change dialog allows us to share our understanding of how logistical performance in most companies can be significantly improved. Presented in a nontechnical manner, it delivers the message without the tedium of statistical analysis. To facilitate practical application, the book comes with a CD that contains the revised diagnostic and benchmark data.

We dedicate this book to the manager who seeks a better understanding of the potential value of superior logistics performance. What follows is an introduction to our protagonist, Charlie Change, and the issues he faces as he strives to make supply chain management a reality at Spartan Enterprises.

21st Century Logistics: Making Supply Chain Integration a Reality follows the progress of a fictional manager, Charlie Change, as he strives to reinvent the logistics operation of his company, Spartan Enterprises. In a previous book, Logistical Excellence: It's Not Business As Usual (1992), we introduced Charlie and traced his trials and tribulations. Charlie now faces the challenge of leading Spartan into the 21st century. Although the company has been performing logistics activities well on a day-to-day basis, he must reposition its strategic and operational focus within the context of supply chain management. In short, Charlie must "fix" a logistical competency that most managers would not consider broken.

Charlie Change has recorded an impressive track record at Spartan Enterprises. In 1992, his plan for implementing integrated logistics within the company was approved, and the successful reorganization that followed led to significant improvements in operating efficiency. Under Charlie's leadership, providing customers with perfect orders—100 percent filled, on time, every time—became the standard by which performance was measured and judged. There were naysayers at the time who said that the company could never achieve this level of performance. Charlie proved them wrong.

In 1995, Charlie was appointed to the new position of vice president—integrated operations. His stature both inside and outside the organization continued to grow. But during the last few years, the pace of progress he had become used to had slowed. He felt increasingly frustrated by his inability to effect change in areas that seemed outside his direct control—but which critically affected logistical and supply chain performance. For example, despite his best efforts, the promotional activities that stimulated forward buying of inventory continued in many markets. Some of the purchasing managers still bought in large volumes to gain maximum unit discounts without regard to the impact on inventory-carrying costs. Meanwhile, customers, who had enjoyed tremendous improvements in service, kept demanding more and more.

The board of directors' meeting in six months would give Charlie an opportunity to address those kinds of issues. In presenting the financial and operating plan for the year 2000, Charlie and the management team could chart a new course to lead Spartan to supply chain competitiveness well into the next century. Charlie was assigned to coordinate the management team's presentation to the board.

Spartan's Millennium Supply Chain Challenge

The "Millennium Meeting" (as the upcoming board meeting now was being called) offered an opportunity to present far-reaching ideas on how Spartan should operate in the next century. A number of logistics initiatives had clearly taken hold since 1992, resulting in improved efficiency and effectiveness. Several operating areas, however, continued to experience problems and the breakdowns were occurring with greater frequency. As Charlie saw it, the "millennium" supply chain challenge was to find a way to get all of the players—customers, suppliers, and internal operations—more involved and committed to creating value for end-users.

Charlie formed a task force to pinpoint areas in which Spartan was struggling to integrate operations among departments and with external customers and suppliers. To assist the task force in its work, he set out to evaluate Spartan's integrated supply chain performance and find a credible way to assess the processes involved. The manager believed it was particularly important to compare Spartan's performance to that of other companies and industries. This analysis would help determine how well Spartan was using its expertise and capabilities.

When formulating his logistical plan back in 1995, Charlie had used a logistics diagnostic developed by Michigan State University and published by the Council of Logistics Management in the book World Class Logistics. He was not sure, however, if that 1995 framework would meet his current needs—or if the original benchmark data were still timely. To get some answers, he contacted Michigan State and was informed that a new, enhanced framework focusing on supply chain integration was being field-tested. It was called Supply Chain 2000.

In preparation for the initial meeting of the task force, Charlie obtained and completed the diagnostic using the Supply Chain 2000 framework. The exercise made it clear that Spartan was falling short of true integrative management and that substantial change would be required. The diagnostic suggested that few, if any, of the existing functional areas would continue as currently defined and constituted past the dawn of the new millennium. Charlie was particularly concerned about how the board and other vice presidents would react to this sobering assessment.

The supply chain management challenges facing the organization were formidable, requiring extensive changes to existing practices. The key to meeting these challenges successfully, Charlie felt, was to accurately identify the breakdowns or "gaps" that inhibited supply chain integration. This assessment would help the task force concentrate on areas of weak performance and suggest needed improvements.

The Supply Chain 2000 framework that Charlie relied on focused on achieving integration across six competency areas: customer integration, internal integration, material- and service-supplier integration, technology and planning integration, measurement integration, and relationship integration.

Customer Integration

The Supply Chain 2000 framework and assessment process recommends that the search for integration gaps begin by reviewing how your company collaborates with customers. Charlie did this. And at the first task force meeting, a scenario was presented about Super Inc., one of Spartan's largest customers.

The analysis demonstrated that the relationship with Super had plenty of room for improvement. One veteran member of the task force summed it up best: "We spend all our time working with new customers or trying to fix breakdowns in operations with old customers. We hardly ever take the time to meet with our top customers to discuss how they are planning to change their business and how we can figure in those plans. And, we view all customers the same way."

The situation with Super was not unique. Most of Spartan's top customers were pressuring suppliers to tailor operations to improve service and reduce costs. The task force agreed that "something has got to change in the way we deal with our customers—and in the way we expect them to deal with us."

Internal Integration

The Supply Chain 2000 assessment further revealed that the integration of internal operations at Spartan was seriously deficient. Specifically, the company needed to address customer-service problems and the difficulties associated with coordinating the operating departments. The task force agreed that before any serious changes could be made in how the company dealt with customers, Spartan first had to improve logistical coordination among its own marketing, purchasing, and production functions.

It was not surprising to find that internal departments often operated in conflict not only with one another but also with the total system goals. Somehow, everyone needed to be convinced to read from the same page with respect to operational goals and objectives.

Material- and Service-Supplier Integration

The task force members were more than aware of the changing relationship between Spartan and its suppliers. They increasingly recognized that the company could not meet the multiple service and cost demands of their top customers without the help of suppliers. It was one thing to be asked to become better at things in which you have a core expertise. But some of the customer requests were for services that exceeded Spartan's capabilities.

The assessment process revealed that Spartan and its suppliers were not working in a collaborative manner. A big part of the problem was that most mid-level managers at Spartan had little experience with external suppliers. They were accustomed to direct control of activities within their area of responsibility—and little beyond that. Charlie could see clearly that the task force would have to focus intensely on ways to improve supplier collaboration and integration.

Technology and Planning Integration

As they put the plan together, Charlie and the task force members noticed a theme running through each of the integration gaps. It seemed that no matter what the challenge, a significant part of each solution boiled down to ensuring real-time, accurate, and accessible information. With a coordinated information system connecting the players, providing value-added products to end-users should be easy, right? (Yeah, about as easy as a hole in one, one task force member was heard to mutter.)

Spartan needed information not only for operational decisions but also for planning systems. The action and work plans used to guide operations depended on accurate data from supply chain partners. Charlie knew that distribution and production were often short on product supply—a situation that resulted in many customer complaints. Investigation usually revealed that a customer or a Spartan sales rep had failed to alert management to an upcoming promotion that increased demand dramatically. Most of the time, the customer had a very good idea about the promotion's effect but was unwilling, unable, or simply didn't perceive the need to pass that information along. And in those instances when Spartan was informed, the information was not shared across internal functional areas.

Charlie knew that it was essential to have a technology structure comprehensive enough to let multiple supply chain members exchange information about expected operating and environmental changes. In this way, each member could plan and schedule resources to meet customer needs. His success in creating a supply chain organization that could respond rapidly to such situations depended on successfully developing such a technology structure.

Measurement Integration

Information was needed not just for operational and planning decisions but also for providing feedback on operational and financial performance. Each operating area needed to be able to show how it contributed to providing value to end-customers.

The existing management system, however, did not lend itself to this level of integrative management. Each department had performance measures based on traditional goals and objectives—and they often performed quite well against those metrics. But at the same time, calls continued to come in from customers about service failures. The task force concluded that measurement systems, ultimately, have to assess whether customers are satisfied with the value produced by the overall supply chain.

Furthermore, measures had to be translated into financial results. For the board to grant approval to proceed with the plan, it would need quantifiable proof of the financial benefits of supply chain integration.

Relationship Integration

The task force was beginning to feel as if it had covered all the bases of operational integration—with one exception. The "human dimension," as Charlie called it, was missing.

Citing his experience at a previous company, one group member recounted a case of a service-supplier relationship gone bad in the wake of a decision to outsource the entire logistical process to a third-party services provider. Each of the other task force members could relate a human-dimension story that echoed a similar theme.

Despite all that had been said about the benefits of partnerships or alliances, problems always seemed to arise from an instinctive belief that you just really couldn't trust someone who worked for another company to do the best thing for your company. Inwardly, each task force member admitted that this was probably as true for Spartan's customers as it was for their suppliers. However, they all felt that collaboration across the supply chain would be essential to driving any meaningful change.

Gaining Consensus on the Change Imperative

It was now time to expose the group's findings to the external critique of the other VPs, who were invited to attend a preliminary presentation. The introduction of the integration gap model sparked considerable discussion, most of which called for additional clarification by the task force. In general, the executives in attendance met the presentation of each integration competency with nods of agreement. But as soon as the entire model had been presented, one vice president spoke up: "This is all quite interesting. I'm not sure, however, what all this will cost and whether it will be worth the investment. These changes don't mean a hill of beans to the industry analysts that evaluate our stock. Unless we can quantify the costs and prospective benefits of a change of this magnitude, I'm afraid the Street—and our shareholders—will eat us alive.

"If this is really about improved service to customers, I don't think you've hit the winning note," the outspoken VP concluded. "We have always been able to improve our operational service levels; we just haven't been willing to lose money to do it! Despite the impressiveness of your proposal, I don't see how much will change."

Charlie responded that he could show how supply chain integration would enable Spartan to move from the "or" word (lower cost or better service) to the "and" word (lower cost and better service). "With these changes," he insisted, "we will improve our bottom-line cost position and increase sales as a result of significant service improvements."

The obvious questions followed about how you quantify the costs and benefits of supply chain integration. Anticipating this line of inquiry, the task force was fully prepared to address those cost-benefit issues.

There was general agreement that although operational change certainly presented a serious challenge, the organizational changes required were even more daunting. In fact, organizational structure captured much of the task force's attention during the diagnostic exercise and generated considerable discussion at the meeting. The proponents of the structural change that had taken place at Spartan in the early '90s had to overcome top management's fear of losing power. The structural change facing the company as it moved into the 21st century would have to overcome everyone's fear of losing his or her job. Changing people's mindsets regarding relations with customers and materials and service suppliers promised to be equally challenging. The task force grappled with the question of whether changes of the scope and magnitude required could actually happen. And if so, how?

Benchmarking Supply Chain Integration

The initial presentation prepared by Charlie Change and his task force for the company VPs was persuasive. Using the Supply Chain 2000 framework, Charlie had been able to convince the operational directors to move forward in crafting a proposal for change.

Charlie recognized early on, though, that the ultimate success of the plan's implementation hinged on his ability to measure and present a vision everyone could agree to. Toward this end, he decided he needed to gain management's consensus on current performance levels. He wanted to incorporate the perspectives of a broad range of managers and groups both within and outside the company. In this way, he would have a solid and relatively indisputable basis of comparison.

The assessment diagnostic obtained from Michigan State was structured to probe achievement levels related to 25 supply chain management capabilities grouped into six integration competency areas. After Charlie received the consensus responses from the company executives, he used the benchmark data to compare Spartan's perceived achievement to that of the high achievers. This analysis identified gaps in supply chain performance that could serve as potential improvement targets for change-management initiatives.

The assessment and benchmark exercise provided invaluable guidance to the task force as it sought to identify and close gaps and shortfalls in integration. The group also benefited from the use of a Supply Chain Change Process Model obtained from Michigan State. That model structured change-management processes and outlined steps to implement those changes. Using these tools, Charlie and the team began to craft a cohesive and powerful argument in favor of change. His presentation to corporate management and the board of directors would surely be a convincing one.

What did Charlie learn from the supply chain management assessment and diagnostic? How was Spartan Enterprises doing in the various functional areas? Did the assessment reveal any significant problems at the boundaries of Spartan's internal operations and its customers and suppliers? Did the results provide a baseline? And did they point to those areas needing improvement if Spartan was to achieve its vision of truly integrating customers, internal activities, material and service suppliers, information and measurement systems, and relationships?

Presentation Day

The weeks passed quickly as the task force fine-tuned its blueprint for change. Finally, the big day arrived ... and Charlie was ready.

The VP of integrated operations began his presentation to the corporate officers and board members by stressing the need to greet the 21st century with a new vision. In this vision, Spartan Enterprises could create value by cutting costs and improving service to key customers—rather than having to settle for one or the other. The real challenge in this, he cautioned, was having the discipline and motivation to drive the changes necessary to make the vision a reality. Charlie promised to present them with a cross-functional, cross-enterprise (this raised a few eyebrows) plan to accomplish this.

The room was silent as Charlie and the task force completed their presentation. Could it be that the vision outlined was too radical for this group of distinguished senior business people? Would the board agree that this level of change was called for? What will happen to Charlie?

The answers to these questions—and more—can be found in the pages of 21st Century Logistics: Making Supply Chain Integration a Reality.