Dr. J. Paul Dittmann is the Director of the Office of Corporate Partnership at the University of Tennessee. He came to the University after a 30-year career in industry, most recently as vice president, supply chain strategy, projects, and systems for the Whirlpool Corporation.

“I think the one issue that is now underappreciated is, ‘How do you manage the risk associated with global outsourcing?’ Most people are looking at the labor savings and balancing those against the cost of transportation and the cost of inventory, and they come up with numbers and say they have done a total cost analysis.

“But you also have to factor in a risk premium. That is the sort of thing that can really break a situation. And we’ve heard of many examples of companies that have lost literally years’ worth of savings just because of one bad event, and hadn’t really thought about it or managed for it.

“In a global supply chain, risks include everything from quality and safety problems that come with importing something into the U.S., problems with demand spikes and demand fluctuations, problems with longer lead times, problems with currency fluctuations and protecting intellectual property.

“Take one example. It’s impossible to accurately determine the probability of a foreign government being overthrown, but if you get a group of people in a room who have some knowledge of the country or region, eventually they will come up with subjective number. As inaccurate as that number may be, it is far more accurate than using ‘0’—which is the number people are using today.

“Further, it’s one thing for analysts within the company to develop risk assessment models, another thing for the political infrastructure of a company really to comprehend them and to react accordingly. Senior management of American companies knows of the unbelievable labor savings available in Asia, and they have the feel that their home organization is going to resist efforts to outsource. So, they are somewhat inclined to believe that ‘risk’ statements developed internally are simply obstructionist. I’ve seen quotes from people: ‘I know it’s a factor but my boss and my management is not asking me to really assess risk and if I do I will only delay the project. So, why should I be a hero?’ That’s incredibly dangerous.”

Dr. Sandor Boyson is a Research Professor at the University of Maryland’s Robert H. Smith School of Business and Co-director at the University’s newly formed Supply Chain Management Center. He directed the four-year research project on Logistics Best Practices for the U.S. Department of Energy involving the School’s Logistics and Transportation faculty group

He is a founding and present editor of Technology Management and the author of two books as well as numerous articles.

“I think a lot of people are worrying about disruption to the global supply chain, and a lot of people are looking at issues of buffering against risk in the global supply chain. The thing that strikes me, though, is the potential for disruption from global supply chains. Not to the global supply chain but from it.

“There seems to be disruptions that follow from how supply chains are organized globally in historical periods. You can go back to the history of the railroads in the United States as an example. Prior to the railroads, it took about 166 days to transport goods across the United States; the railroads cut that to 14 days, which enabled the whole upsurge in things like terminal produce markets along the rail heads, where produce could come from all over the country and be distributed through the terminal produce markets. The Civil War to some extent was the result of the disruption of the sourcing of agricultural goods in the South. As the railroads opened up supply, it kind of marginalized the South and with it the accentuated the political impediment of slavery.

“The railroads facilitated this national transaction but also had some negative effects on local producers of agriculture. This was typical in the big grocery chain consolidations in the 1960s through the early 1980s, which basically wiped out the produce markets. So, the supply chain had really big impacts on how local production was organized, some of which were disruptive and damaging.

“China, now, for example, has put in a hub that guarantees 24-hour shipment from Shanghai to any city in the United States. You get a sense that we’re moving to another pulse point of global supply chain reorganization that could wipe out a lot of intermediaries across a range of products.

“The question than becomes how well will countries and how well will enterprises learn to master these supply chain reorganizations and how will they figure out ways to localize value as it get easier and easier to substitute suppliers and substitute products across these national boundaries?

“Taiwan provides one example. Very recently, Taiwan moved their high-tech production to China but retained their proprietary chip making know-how and technology. They’ve been very good about managing these supply chain changes that have now refocused on mainland China to learn how to retain and keep value local inside Taiwan. China, as I understand it, is moving into that kind of mode as well and is moving to retain the value of its managerial inputs and technology while moving production out into the hinterlands and into Vietnam to try to overcome its rising inflationary labor costs.

“As the global supply chain becomes more developed, with increased substitutability and potential for a vast increase in price sensitive trade, there is going to be a crisis in value localization. How do you create local value when we have an expanding supplier base? How will local enterprises move to maintain value in the face of rising substitutability?

“Ultimately, companies and countries are going to have to find a balance between supporting global supply chain and finding ways to promote local value. I don’t think we’ve found the balance yet. We’ve been in a period where globalization has tilted the balance, but it will tilt back.”

Dr. Edward Anderson is an Assistant Professor of Operations Management at the University of Texas McCombs School of Business. He received his doctorate from the Massachusetts Institute of Technology and his bachelor’s degree in electrical engineering and history from Stanford University.

He has published articles in such journals as Management Science, and The Systems Thinker and sits on the editorial review board of Production and Operations Management. Dr. Anderson won the prestigious Wickham Skinner Early-Career Research Award from the Production and Operations Management Society.

“We’ve outsourced a lot of services—at least those that can be effectively outsourced. And it occurs to me that we are also outsourcing the creation of a lot of intellectual property. But what’s going to be left? What’s going to be left for the Untied States to create value in the world market?

“I don’t want to sound like a protectionist, but to ask an open ended question, ‘What value can we provide the world economy?’

“The only expertise that would be left would be the entrepreneurial spirit combined with financial markets. The entrepreneurial spirit I’m a little bit nervous about, because China has tremendous entrepreneurial spirit.

“We can see what has already happened to our unskilled labor. Look what has happened to Delphi recently. There’s an attempt to drive their wage from about $25 with the current company offer of approximately $9. If there’s that wage drop with unskilled labor, what’s going to happen if we outsource our knowledge work?

“I do think that the advantages of outsourcing intellectual property work are going to become less attractive fairly shortly. We’ve already seen some increase in the price of software engineering coming from India. And, people tend to seriously underestimate the costs of coordination. When you’re dealing with engineering, there is a whole lot of coordination that has to go on to make sure that two companies that are making two different parts in two different countries are actually making parts that will fit together so they work right.

“What’s disturbing is that we may be accelerating this process of outsourcing at an individual firm level more than we need to be economically efficient. According to the sources I talk to (I‘ve surveyed about 13 in depth, and talked to them about 30 different projects, about half of which are international), it turns out the decision of whether to outsource becomes a gut level decision made at the vice presidential level. It’s not really figured out on a case-by-case basis as to whether it makes any sense.

“One of the consequences of outsourcing everything is that you tend to lose the ability to do it. Like, for instance, the outsourcing of seats by car manufacturers. You might not think that’s such a big deal, but it turns out that seat systems are such a big deal for customer satisfaction. The seat interacts with the rest of the vehicle for quality of ride; the seat actually takes up a lot of noise vibration and harshness. Most car companies have started pulling some seat production back in-house. One of the reasons is rumored to be that they’re not getting the full performance of the system as a whole. In other words, if you don’t make seats for a while, you don’t know how to make them any more and you don’t know how to integrate them with the rest of the product very well.”

Farzad Mahmoodi, associate professor of operations and production management at Clarkson University, is director of the Engineering/Manufacturing Management and graduate business programs.His research interests include production planning and scheduling of manufacturing.

Mahmoodi arrived at Clarkson in 1989 and became an associate professor in 1995. His many awards include the School of Business Faculty Leadership Award in 1995 and 1997.

“Two main issues come to mind. First, I see a lot of firms struggling to measure the financial impact of supply chain initiatives. For example, better supply chain management may result in lower safety stocks for the same level of service, or a higher service level with the same amount of safety stocks. There are well-known quantitative models available in academic circles to calculate the savings, but unfortunately they are not widely used in industry. One of the major reasons may be the lack of knowledge about the existence of such models. But, a second major reason is probably the unavailability of some of the required data. In academia, we generally assume that the data required for modeling is readily available, but often this may not be the case in practice. In one of my recent experiences working with a Fortune 500 company, I found obtaining simple data such as standard deviation of supplier lead times to be like pulling teeth! Being in the information age and with the popularity of ERP systems, that was surprising to me.

“In that particular case, obtaining a measure of variation such as standard deviation of supplier lead times was very important as you want to know how consistent supplier lead times are. Generally, many companies focus on averages when they collect statistics. Many people are programmed to think in terms of averages and do not have an appreciation for the importance of the variation around those averages. If you have an average lead time of two weeks, it could mean that it actually takes two weeks every time. However, it is much more likely that the actual lead time varies around two weeks (for example, half of the time it takes one week while the other half of the time it takes three weeks, etc.). It is such variation (in demand and lead times) that causes many of the costly supply chain disruptions and forces companies to keep safety stocks, etc. If you have an effective Just-in-Time system that always works perfectly, then you would not experience much variation. But as we all know, in reality things don’t always work perfectly. As the supply chains become longer and more complex, it is even more important for companies to measure and control variation and utilize the appropriate quantitative models to measure the financial impact of supply chain initiatives.

“The second issue is that currently the pre-eminent driver of supply chain initiatives is cost reduction. But, the financial impact of supply chain management goes well beyond cost reduction. Supply chain management should be viewed as a powerful tool affecting all three drivers of financial performance - growth, profitability, and capital utilization - not just as a strategy for lowering operating costs. So, it is critical to identify the supply chain initiatives that create most value using tools such as Economic Value Added (EVA) analysis.”

Douglas Lambert is the Raymond E. Mason Chair of Transportation and Logistics at the Fisher College of Business, The Ohio State University. He is a recipient of the Council of Logistics Management’s Distinguished Service Award for his contributions to logistics management. He is co-author of Strategic Logistics Management, the leading college textbook on logistics.

“A supply chain is a network of companies, but most people who are talking about supply chain management today are talking about coordinating three internal functions within their own company—purchasing, operations and logistics. The more naïve ones think supply chain is logistics on steroids. But to manage a single company takes marketing, finance, product development, operations, human resources and logistics. It takes at least all of those things to manage a network of companies.

“Our view at Ohio State is that if you don’t involve all business functions within supply chain management, then the ones that are not involved are going to maliciously or inadvertently subvert your effort.

“Certain suppliers in the supply chair are more crucial than others. Wendy’s buys a lot of straws, but they don’t differentiate themselves from the competition with straws. Wendy’s differentiates itself in the marketplace with promotional sandwiches and salads. Do they want Marzetti, who makes salad dressing for them, to have an R&D person talk to a salesperson who then goes to explain it to a buyer at Wendy’s who then tries to explain it to a Wendy’s R&D person? No, the R&D people have to talk directly. The logistics people have to be talking to logistics people, the finance people to finance and all down the line.

“Far too often in American corporations, the right-hand doesn’t know what the left-hand is doing. Consider demand management: A cat eats about the same amount a day, so how come the pet food companies have a big sales spike the final week of the quarter? It has nothing to do with how the cat eats the food or we buy the food. It has everything to do with some marketing program that loads up the trade at the end of the quarter to meet numbers for Wall Street. Nobody is actually feeding more cats that way, but they are distorting the demand for their own product, and making it harder to project sales.

“In siloed organizations, executives get rewarded for behavior that is not good for their customer, or for their shareholder or for the company long-term. If we implement these cross-functional processes, we build in the kind of flexibility and responsiveness we had when we were a small company. We can talk about the high cost of containers for China this year or other things that are hot topics today, but the point is—if we have the processes in place and the people trained, then we can respond to all the things that happen.”

Dr. Daniel F. Lynch is an Assistant Professor of Marketing and Supply Chain Management at the Eli Broad College of Business at Michigan State University. His research interests include e-Commerce Capabilities, Logistics and Supply Chain Strategy, and Resource-Based Theories of Competition. His professional managerial experience includes over twenty years in Retail Management, Shipping Department Operations, and Transportation Administration.

“With the advent of so much outsourcing and the use of 3PLs and 4PLs, my firm no longer competes against your firm; now, my supply chain is competing against your supply chain. The key question for an enterprise now is, ‘Can I match the capabilities and strategies of my firm with the capabilities and strategies of my partner firms in my supply chain?’ If my interest is customer service and my supplier’s interest is cost leadership, for example, then that mismatch in our supply chain becomes a real problem.

“Going global complicates this. If, say, I emphasize customer service, do I really understand what customer service means in Europe? I’ve done work with firms heading to Italy. The Italians really like doing business with the Chinese because the Chinese still have that family-owned business, whereas Americans are all about: what is my stock doing?

“This becomes harder as we move from products to services. There are different motivations and competencies required in the service sphere. With a product, measurement is pretty easy. I know what my yield rate ought to be, for chips or whatever. But on the service side, what are those measures? It’s harder when you’re outsourcing services to know what measures and criteria to apply to performance.

“And next, there’s a new competency we need—supply chain security. A company might say: ‘We do a wonderful job checking a product when it comes into our plant; within our plant we filter it, and we check it before it leaves. Then we put it in a trailer.’ What happens to the trailer? Lots of people say: ‘Actually, we’re not sure—that’s our transportation provider’s issue.’ Is the trailer locked? Who has the key? These aren’t questions for your transportation providers; these are questions for you.”

Dr. C. John Langley is Logistics Institute Professor of Supply Chain Management and director of supply chain executive programs at the Georgia Institute of Technology. He is a past president of the Council of Logistics Management and has co-authored several books, including The Management of Business Logistics.

“The two major issues—this is very simplistic—are first, identifying the component parts of a truly global logistics network and, second, assuring integration and synchronization of the parts.

“The biggest problem for corporations is visualizing the interactive nature and complexity of a truly global supply chain—by that I mean, visualizing it from the beginning. Companies can tell you what objectives they want to meet and they can tell what performance metrics they would like to achieve, what they want to do, but I’m not sure most companies can explain the architecture of what they want to achieve. To do this, you need an ‘architect.’ A place to start is consultants who specialize in this, and to those providers in logistic services who themselves specialize in global operations.

“A lot of companies find it difficult to be fully open with consultants or 3PLs. There’s an instinct to protect at least some of the information about the organization. In the absence of that information, your consultant or your 3PL is going to make the best estimate they can—and they’re going to respond to that uncertainty by building in added costs, maybe operational alternatives that aren’t needed. The more information they have, the better they can track.

“Finally, there’s a piece we don’t really don’t much address: the integration of your supply chain strategy with your business strategy. Your marketing people may be very good at developing new products or new market segments, but there are horror stories about marketing people who develop products that are impossible for the supply chain to support. You simply have to force the integration of decision-making so that so that your supply chain managers are working in a team-based approach with the marketing people.”