The Beginning of Supply Chain Management: An Interview with Tony Friscia
This interview with the founder of AMR Research touches on the evolution of the concept of supply chain management, and what the future of the field holds.
-- Supply Chain Management Review, 1/1/2008
Tony Friscia: The basics
- In 1986, Friscia founded AMR Research firm in the manufacturing space. By the early 1990s, AMR Research had expanded its focus to include the supply chain, an emerging competency area.
- In 1996, Friscia was involved in the creation of the Supply Chain Council, designed to add credibility to the supply chain business discipline.
- Friscia is a member of the Clinton Global Initiative and serves on the board of trustees of The Manufacturing Institute, the research arm of the National Association of Manufacturers.
- Currently, Friscia works with AMR Research to push the art and science of supply chain in innovative ways, such as developing the concept of the demand driven supply network (DDSN), providing peer networking forums, and creating the annual “Top 25” supply chain rankings. In addition, AMR Research has been launching new initiatives into sustainability and the “green” supply chain.
Editorial Director Francis J. Quinn recently interviewed Friscia at the SCMR offices in Waltham, Mass.
Q: When did you start hearing about supply chain management and why did you become interested in it?
A: When we started our company in 1986, our initial focus was on the plant floor and on manufacturing systems. Then in the early ’90s, we saw that companies were broadening their view beyond manufacturing facilities to include the whole enterprise. This really marked the transition from MRP (manufacturing resource planning) to ERP, or enterprise resource planning. So we got very involved in helping to define the ERP requirements, working with companies to select the software and to get the benefit from those early implementations. But it soon became clear that focusing on their internal facilities alone would not yield those desired benefits. The only way companies were going to get a return from those ERP investments was to start looking outside of the enterprise to the supply chain. That’s basically how we got interested in the supply chain—the business requirements were pushing all of us beyond the enterprise to the supply chain.
Q: It was around that time that you got involved in the Supply Chain Council. Could you talk a little bit about that involvement and how that organization evolved?
A: Back in the mid ’90s, everyone seemed to have their own definition of the supply chain depending on their industry and the role they played within the organization. At the time, the consulting firm PRTM was doing a lot of benchmarking on supply chain performance and a lot of related operations consulting. At the same time, AMR Research was looking at it from a software and technology point of view. So I started talking with Mike McGrath, who was running PRTM at the time, and we agreed that the industry needed to come together and start using a common terminology in how it defined “supply chain.” That way, an exec from company A could talk about the supply chain to an exec from company B and they could understand one another because they were speaking the same language. We brought together a few industry leaders and discussed the idea of creating a reference model that would allow companies to define the nature of the supply chain and understand common definitions.
From our side we also knew that emerging software was available to complement ERP that could be used to help companies manage their supply chain or manage elements of their supply chain. But until you had a good, common definition of supply chain there was no way to put this software into practical context. So in late ’95, early ’96 we had the first meetings of the Supply Chain Council. There were about 50 representatives, all of them from large companies. P&G, Unilever, 3M and The Limited were among those in attendance. These senior executives came because they all agreed that a reference model needed to be created. And that’s how it was launched.
Q: The establishment of the Supply Chain Council and development of the SCOR-model (Supply Chain Operations Reference) then moved forward in parallel, right?
A: Yes, initially AMR Research and PRTM ran the Council for about the first year. But we soon realized that the only way that the organization would be sustainable was if we created a non-profit entity that was owned by its members. So we went out and recruited an executive director and got the members to agree to governance. The Supply Chain Council was then formed as its own entity. Each of us just took a board seat and the organization took on a life of its own.
Q: Tell us about the SCOR model?
A: The SCOR model was created 12 years ago based on the core components of Plan, Source, Make, and Deliver, with Return added more recently. The model has stood the test of time because from the very beginning we took a practical approach. We realized that we had to look at supply chain as a discipline. It really had nothing to do with whether or not we had advanced technology, or whether or not we had suppliers that were global or just around the corner. It was all about the basic concepts of supply chain, which really are timeless concepts.
Q: In addition to the founding of the Supply Chain Council, what have been some of the other major developments in the evolution of supply chain management?
A: I’ll point to three things. From a business performance standpoint, the first is the dominance of Wal-Mart and Dell in their markets throughout the 1990s. In Wal-Mart’s case, they redefined a traditional, age-old industry. Until Wal-Mart came on the scene, everyone said that retail is about fashion and merchandising. Wal-Mart instead said that retail is about supply chain management, it’s about having products on the shelf that people want when they want them. They said it really doesn’t matter whether you have fashion in your store, you just have to have what people want at the best prices and they’ll come. It’s not coincidental that Lee Scott, the company’s CEO, has a supply chain background.
Q: What about Dell?
A: Michael Dell was really a supply chain guy from the beginning. He wasn’t looking at having the hottest looking computer. But he was going to make that computer to order. It was about how they managed their sources of supply and how they built to order.
I think those two companies had a lot to do with making supply chain more than a grunt job in the company. The supply chain was the basis of how they competed and won.
Q: What’s the second major landmark event?
A: It was the whole e-commerce revolution and the emergence of the Internet. Yes, the Internet changes everything. But for me the real significance is that the Internet has been an accelerator for the supply chain. So when you look beyond the bubble bursting and all the software companies that went out of business, think about the supply chain impacts. Because of the Internet all business has become global. Small suppliers who in the past could not connect electronically to big customers now can do that inexpensively and without a lot of complexity. They don’t need expensive internal departments to manage their technology. Small suppliers in China, Vietnam, or Bulgaria now can be part of your supply chain in Dallas because they’re interconnected electronically and they communicate in real time. The Internet has been the foundation technology in the global super-highway that now exists.
Q: And the third major development in the supply chain’s evolution?
A: It’s been the emergence of what AMR Research calls the Demand Driven Supply Network, or DDSN. Procter & Gamble, a great supply chain player, introduced the concept of the consumer-driven supply network. Our model is based on that to some extent. The idea is that you’re going to compete and win by managing supply as close to demand as possible. If you build your business around meeting ever-changing demand, you’re going to win. Leaders like P&G and Wal-Mart and Dell do that.
Q: How are companies, particularly in North America, doing overall to develop that demand-driven competency?
A: It depends on the industry. We already talked about Wal-Mart, but other retailers like Best Buy also have done a very good job. Lowe’s is another good supply chain company. So I think you look across retail, where demand is everything, a lot of those companies have figured it out.
Likewise, in the high-tech sector. You’re either demand driven or you’re in trouble—look at companies like Apple or Texas Instruments The same holds true with consumer packaged goods. With these companies in particular, it’s part about the brand and part about innovation and operational excellence. A company like P&G does everything well—they innovate, they have great brands, they have great operations. But it’s a mixed bag; you see other CPG companies that only do one or two of these well, and some that don’t do anything particularly well. But, overall CPG is a place where you’re going to see leaders.
In some industries, you don’t see very much leadership in this area. Automotive in the U.S. is a good example, I’m sorry to say. The big OEMs don’t have very good communication of demand signal from a customer all the way back to the second tier supplier. Johnson Controls, one of our Top 25, is an exception in this industry, and globally, Toyota is a notable exception. Looking at AMR Research’s Supply Chain Top 25, the ranked companies largely come from those three industries: retail, consumer package goods, and high-tech. I think there’s a reason for that.
Q: One of the key criterion in selecting the Top 25 supply chains is their demand-driven capability. What are some of the other traits of the top performers?
A: In terms of operational performance, you see a high return on assets among the companies that make the list. Very strong inventory turns as well. A good track record of innovation is an important characteristic, too. For example, Apple came very high on the list in large part because their innovation cycles are very fast and they quickly bring on new products and enter new markets. Also, the ability to manage growth is a core characteristic of the top-performing companies.
Q: Let’s talk a little more about innovation. Is it strictly DNA—you either have it or you don’t—or can innovation be built into an existing culture?
A: I think you can bring it into the culture. P&G is a great example. Under the current CEO (A.G. Lafley), they have tried to build innovation into the culture. They have created practices for collaborating internally that are designed to foster new ideas. They’ve gotten people to feel good about bringing ideas forward—even if they’re bad ideas—because there’s a reward system as well as a way of capturing and discussing those ideas. They’ve also brought customers into that loop by having employees meet with them to talk about their new ideas. P&G’s Swiffer product was the result of a collaboration between employees and customers.
Another company that fosters innovation is IBM. They are trying to bring all employees into that loop, and the technology exists today allowing them to do that. Employees from all over the world can weigh in on new ideas as they bubble up to the surface. So, yes, I do think you can change a culture to be more innovative. But it’s got to come from the top.
Q: Is technology the key driver in enabling supply chain initiatives? Or do companies more often come up the innovative idea or processes first and then look for the supporting?
A: Technology is critical to doing all the things we’ve talked about. But that said, the technology plays a supporting role. To illustrate, one of the first studies we did as a company looked at factory automation in Japan versus the U.S in the late 1980s. In particular, we wanted to find out why the Japanese were outperforming U.S. companies in important areas like quality. What we learned is that they actually used less technology than their counterparts in U.S. industries, but they used it better. Why is that? When we dug into it, we found that culturally, before they ever used technology, the Japanese companies got their processes really down pat. So when they brought in the technology, they made those processes even better. Wal-Mart has done the same. First they innovate a process, then they bring in technology.
At the same time, it’s important to remember that technology is what helps you build your supply chain network. It’s opened the door for us to do a lot of innovative things that we never could have done without it.
Q: Thinking about the profession, are supply chain professionals making an impact on their organizations at a faster or slower rate than you expected?
A: Faster. As I mentioned earlier, today you have supply chain execs running companies. Now, that’s not widespread but you wouldn’t have even seen that 10 or 20 years ago. In the past, it would have been marketing guys or sales guys or even engineers, but not supply chain executives.
Even more importantly, in the best companies an integrated supply chain executive now sits on the executive team and reports to the CEO. You’re starting to see that across industries, but especially in the retail, CPG, and high-tech sectors we talked about earlier. That wasn’t the case before. You now even read about supply chains in the annual reports. For example, I was reading recently in Samsung’s (another of our Top 25 performers) annual report, the CEO was talking about the importance of supply chain management in their overall performance.
Q: Do you envision more people with supply chain background as moving into CEO type positions going forward?
A: At certain kinds of companies, yes. It depends on the culture of the company. I think the CEO of P&G is probably always going to be a brand marketing person. I think the CEO of IBM is always going to come from sales. But I do think at more and more companies like Wal-Mart, like Dell, where operations are their core competence, you’ll see supply chain execs running the company.
Q: What kind of skill sets do supply chain managers need to advance in their profession and maybe even move into an executive management position?
A: When we put the SCOR model together, we knew that we had to come up with a common understanding of the supply chain. Some companies were defining the supply chain as supplier management. Some said it was procurement. Others defined it in logistics terms. We agreed that a broader definition was needed: The supply chain encompasses everything from supplier’s supplier to customer’s customer. So when you think about it that way, it’s the entirety of the operation.
To answer your question, then, the skills needed to advance must be viewed in the context of this broad definition. So if it’s a manufacturing company, the supply chain manager needs to know how the manufacturing function works, how sourcing and procurement operate, how suppliers think, and how you manage supplier relationships. They have to know logistics, today especially with a global perspective. They have to understand the customers’ changing needs and be able to respond appropriately. They need to be able to link innovation to customer demand and link production to customer demand. They have to be right there at the shelf. And since they need to get cooperation from a lot of departments they don’t control, they need to be a pretty good politicians. In short, it’s a very tough set of skills.
Q: Let’s zero in on the global component. Will global operating experience be a prerequisite to advance in the supply chain profession going forward?
A: Yes, I think the people who are successful in this role, at the bigger companies at least, will be those with some international leadership experience. This likely means living somewhere else and running an operation as a way of really understanding how you manage in different cultures. If you don’t have that understanding, you’re at a disadvantage in today’s environment.
Q: What are some of the other big supply chain challenges coming over the next 5-10 years?
A: One of the big challenges going forward is talent development. To address this, we need to start by looking at the education process. How do you get educated to become a supply chain professional today? If you look at the university programs, there’s still a strong departmental focus. There’s a logistics degree, a transportation degree, an operations research degree. We’re now starting to see supply chain degrees, but I’m not sure how integrated they really are in some cases. So as supply chain groups grow in big companies, will there be a sufficient kind of talent to meet the demand? There’s a great opportunity for training and talent development both at the universities and the companies themselves.
Risk management is going to become increasingly important in the years ahead as well. The supply chain is critical here. The companies who had integrated supply chain strategies are the ones who got through disruptions like Katrina in better shape than those who didn’t. Wal-Mart was in good shape, P&G was in good shape post-Katrina. Why? Because the supply chain exec was right there in the CEO’s office and could make fast decisions. Companies without that capability could not respond as well.
The speed of business is another huge challenge. Before a product even gets to market these days, the specs are online, everybody in the world can see them, and money flows to that idea like there’s no tomorrow. So by the time I get to market, I have three other companies—one of them is in China, one of them in India, and one of them in Mississippi—all coming to market with the same product. So if I’m not fast, if I can’t get to the distributors and to the shelf faster, if I can’t keep the product on the shelf and innovate at the same time, then I have no sustainable advantage. Companies understand that now more than ever. All of this underscores the importance of the supply chain and the people working in this field.
Q: In terms of your own company, AMR Research, describe what you do and how that might change going forward?
A: Our company tagline is that we’re at the intersection of business process and technology. If we go back to the first 10 years of our history, it was really more about technology than about business process. We typically served the IT people who were trying to bring technology to help the business. In the last five years or so, it’s been a lot more about the business process and less about the technology. What business processes will help you operationally and then what technology will support and enable those processes. So basically we’ve created a research market for supply chain executives. Up until we went to market, supply chain executives didn’t buy research.
Today, most of our new clients are coming out of the operations side of the business. We’re dealing with senior operating executives, supply chain executives, procurement executives, and COOs as well as the IT folks. Going forward, our goal is to expand that market. We want to have the largest network of supply chain and operating executives who are using research to make decisions and making the best technology decisions underneath the umbrella of their strategy. I believe we stand alone in that space right now. I don’t know how long we’ll stand alone there, but right now we stand alone.
Q: What kind of research are supply chain executives looking for?
A: It’s changed in recent years. It used to be assessing all the available software and services to support supply chain activities. Now it’s about best practices in supply chain management. The best practices could be an aggregate—what’s a best practice across an industry, for example. Or it could be a case study that says here is how a top-performing company acts, solve this problem, and they’ve publicly shared that information. Or it could be a benchmark of what a best-in-class company has done. So increasingly our research is reporting on best practices and building a library of best practices that we can share with every client, which they in turn can use in their decision making. Underneath all of this, of course, is a technology component.
Beyond the sharing of the research, we try to bring networks together. More and more, supply chain people want to talk to one another. They benefit from getting five or six people together who are all wrestling with the same problem. We can help them do that.
Q: Thinking back over the years you’ve been involved in the supply chain, can you identify any single factor that marks the difference between the leaders and the rest of the pack?
A: This may sound like a cliché, but I really believe it is culture. Every successful company feeds off the culture that the executives breed within the organization. Toyota is a great example. They’re a phenomenal company that represents best practice in so many things they do. Toyota will share their best practices with any company, including their biggest competitors. They’ll teach them lean, tell them about kanban, go through the whole process. So the question becomes, why doesn’t GM or Ford just copy them? And the answer is culture. The GM culture or the Ford culture is not the Toyota culture. So without the culture, what Toyota does is not going to work in these companies.
Here’s another example. I remember when Kmart said they were going to buy all the technology that Wal-Mart had, the rationale being that this would help them become like Wal-Mart. But that didn’t happen because Kmart did not have the Wal-Mart culture. You can only do what your culture allows you to do, not somebody else’s. The top supply chain performers understand their culture first, they build their operations second, they demonstrate excellence third.
Q: Can a company change its culture?
A: Culture is embodied in the people who run the company. You can’t ever work around that. So how is a big company, for example, going to change its culture? It’s not going to change if the same people keep running the company. And you can’t just change one person either. As long as the broad management team remains in place in an organization, the culture—and the way it operates—is going to stay the same.
Q: Any final comments for our readers?
A: One last thought. When we analyze companies we look at a vertical axis of operational excellence and a horizontal axis of innovation. We find the best companies are a blend between the two. When companies go too far one way or the other, their performance tends to be spottier, lumpier. The ones who are in the middle are the ones who do it really well. They’ve found the supply chain sweet spot by blending the warring factions of a company and bringing them into harmony in the middle.