Do it right or don't do it at all: an interview with Jim Tompkins
If you're tempted to hire out some of those pesky non-core activities to an outside company, think twice, says Jim Tompkins. Unless you've developed a core competency in outsourcing itself, you could be worse off than when you started.
It seems safe to say no one's contributed more to the logistics field's professional literature than Jim Tompkins. Tompkins, who's president of Tompkins Associates, the supply chain and integration consultancy he founded 30 years ago, has written more than 500 articles and white papers, while cranking out books at a rate of nearly one a year (he's published 24 books to date). Recent titles range from straightforward supply chain and warehouse management handbooks to Goose Chase, a novel about change management, and Think Outside the Box, an examination of annoying motivational slogans.
But his biggest splash may be yet to come. Tompkins' most recent work, a how-to guide to successful outsourcing, turns the conventional wisdom about outsourcing on its ear. Most companies assume that any function that's not a core competency is a candidate for outsourcing, says Tompkins. Though that's generally true, he says, there's a Catch-22: "If you are going to do a good job of outsourcing, you have to have a core competency of outsourcing." Without that expertise, he says, companies that go to outsource invariably "screw it up and ... wind up spending more time on the non-core activities than they did before."
Tompkins says he based his outsourcing observations on more than 20 years' experience helping clients work with third parties. But that's by no means all he's been doing for the last few decades. In addition to his writing and consulting, Tompkins has headed up several industry associations over the years, earning a number of accolades in the process. An industrial engineer by training, he has served as president of the Institute of Industrial Engineers, the Material Handling and Management Society, and the College-Industry Council on Material Handling Education. In 1984 he received the Reed-Apple Award from the Material Handling Education Foundation, and in 1999, he was honored with the Distinguished Engineer Award from Purdue University's School of Engineering.
Two months ago, on the eve of the release of his latest book, Logistics and Manufacturing Outsourcing: Harness Your Core Competencies, Tompkins met with DC VELOCITY Editorial Director Mitch Mac Donald to discuss his latest work, the five biggest developments in the logistics field over the past 45 years, and why he's glad he's not 18 anymore.
Q: What kind of educational or career path brought you to the epicenter of the logistics field?
A: This is actually what I was trained to do. I always wanted to be an engineer. When I was old enough to figure out what kind of engineers there were, I decided I wanted to be an industrial engineer. I went to Purdue and got a bachelor's degree in industrial engineering. When it came time to graduate, I realized that there wasn't much difference between what I'd be paid and what some other guys who hadn't worked as hard as I had in school would be paid.When I went to my advisor to complain, he told me, "You have to differentiate yourself and that means you need to get a master's degree." I earned that degree and went on to get a Ph.D. in logistics from Purdue as well. Then I spent three years in the army, which had made me an offer I couldn't refuse.
Q: Oh yes, Uncle Sam has a way of doing that.
A: When I joined the army, I started working for the facility engineer for Fort Monmouth (N.J.). What we basically did was run a city. I had construction workers, a warehouse, material and so forth. That allowed me to get some more practical experience. When I left the military, I went and taught logistics and material handling at North Carolina State. Then I started a consulting firm. That firm has grown and prospered for 30 years and that is what I still do today. So I'm a pretty boring guy—I started out in this field 45 years ago and never changed paths.
Q: As you look back over that 45-year period, what are some of the biggest changes you've seen?
A:You mean like the discovery of fire, the invention of the wheel and the domestication of the horse?
Q: Well, I guess the invention of the wheel and domestication of the horse are related to logistics! What else?
A: OK. The first big change I've seen has to do with integration. I used to think it was enough to be an expert in material handling equipment; then I realized you really had to be an expert in material handling systems. Then I realized that you really needed to be an expert at manufacturing or distribution. Then I realized that what you really needed to be was an expert on the supply chain. We're moving away from the islands of automation to integrated systems; in the meantime, the integrated systems are going from material handling systems to manufacturing systems to distribution systems to supply chain systems.
Q: One arch overreaches the next?
A: Right. As I see it, when it comes to supply chain integration, there are six levels of supply chain evolution. The first level is what I think of as business as usual, where everyone concentrates on doing a good job in their own little silo. Then, in Level 2, we start working together as a company—instead of working vertically, we work horizontally across silos. The next level is visibility, which means we can now look outside the four walls—now we're looking up and down the supply chain so that we can do our own thing better. Next is collaboration, which means going beyond just looking up and down the supply chain to truly collaborating with partners up and down the supply chain so we and the supply chain can do better. Then comes synthesis, where you melt the links and truly integrate the entire supply chain. The last level, Level 6, is velocity, which is a theoretical thing because what that says is we're going to do synthesis faster, and faster, and faster.
Q: Is anyone at that stage yet?
A: No. No one's at the velocity stage yet. We have some synthesis beginning to take place. Collaboration is primarily best practice today. If you look at Procter & Gamble and Wal- Mart, they're really collaborating, but they haven't synthesized yet. That's the closest anyone has come, but they haven't achieved true synthesis because company boundaries still exist.
Q: OK, so one big change you've seen has been integration, and the way companies do and should integrate. Any others?
A: The next thing I'd point to is control. Today we have much greater sophistication in control systems, thanks largely to the creation of middleware. We've had ERP [enterprise resource planning], or business level, systems for some time now and we've had the operating systems—the warehouse and transportation management systems—for quite a while, too. But the real innovation has been in the middle-ware software that connects those business-level systems to the operating systems and then connects the operating systems to the equipment. Nowadays, when you change your ERP, you no longer have to change your whole world—you just change your middleware. The evolution of the middle-ware has really brought greater sophistication and more operability, maintainability, visibility, reliability and so forth.
Q: Let's talk about the move toward outsourcing. Tell us a little about that.
A: Well, first of all, you don't outsource to save money. You don't outsource to eliminate problems. You out-source so you can focus on your core. That's really critical. Now the challenge that lies within that, Mitch, is that if you're going to do a good job of outsourcing, you have to have a core competency of outsourcing. That can be kind of a Catch-22. Many times people say, "OK, this particular function is not a core competency, so I'm going to outsource it." However, since they are not experts at outsourcing, they screw it up and they wind up spending more time on the non-core activities than they did before.
Q: What's the work-around for that?
A: Don't do it that way in the first place. If you don't have a core competency in outsourcing, don't outsource. Better yet, develop a core competency in outsourcing. You don't just take a great distribution guy and randomly assign him to manage a 3PL [third-party logistics service provider].
Q: How do you develop a core competency in outsourcing?
A: It's a combination of getting a handle on your requirements, developing expertise in vendor selection and contracting, and building relationships. My latest book discusses how to do outsourcing. It's based on 20 years of experience doing it as well as on my experience as an expert witness providing testimony in cases where it was done wrong.
Q: Has anything happened in the outsourcing world over the years to improve that situation?
A: I think so. The 3PLs have evolved into professional organizations that are really doing things right—I like to think of it as giving you someone "to throw to." As I see it, the first part of building an outsourcing competency is learning to throw. The second part is finding someone who can catch. You need both parts. You can be the best thrower in the business, but if there's no one to catch, you're not going to get any touchdowns.
Q: Tell us a little about the 3PLs' evolution.
Q: Well, it has been interesting. They started with the simple stuff, which was handling overflow storage for their clients during peak periods. That's pretty simple—full pallet in, full pallet out. Then, they began to get involved in the distribution side—bringing full pallets in, but then actually distributing those pallets out. Then they began bringing full pallets in, distributing cases out. Then they brought full pallets or full cases in, and began distributing "eaches."
At about the same time, we saw the transportation 3PL evolution. At first they leased trucks and drivers. Then they actually took responsibility for moving the load. Then they started doing transportation management systems. Then they started doing routing. There has been an evolution on the material handling side and the transportation side. The interesting thing is what we're seeing now with those two coming together.
Q: That falls right in line with what DC VELOCITY is all about—we founded this magazine on the premise that you can no longer separate material handling or internal logistics functions from transportation or external logistics functions. Your last comment indicates that the 3PLs have done a better job of integrating their logistics operations than many traditional shippers have.
Q: Certainly some have. That's because they view their core competency as logistics. By contrast, some of the more traditional shippers may have a good warehouse but a lousy transportation setup—or conversely, they may have a solid transportation operation and a lousy warehouse. Actually, what we're seeing more of today is companies that really have strong transportation departments when it comes to truckload and less-than-truckload, but they don't know bees from applesauce about ocean shipping. Many times what they've done is take the weakest member in the transportation department and give that person responsibility for ocean. Then they wonder why their rates aren't any good!
Q: Over the years, you must have seen major changes in the way we share information and communicate?
A: Absolutely. What we have there is the whole issue of machine-to-machine communications, which is middleware, messaging and the like. Time was when the fax machine represented a huge innovation. Then we went to EDI, and now we're going to Internet-enabled commerce and communication. It is just unbelievable. You and I couldn't imagine working without the tools we have today, but it wasn't that many years ago that we didn't even have computers on our desks.
Q: We have all these new tools, but we still seem to be busier than we used to be.
A: Yes, all those articles that told us we'd have more leisure time in the year 2005 or whatever turned out to be a bunch of garbage. What really happens when new and faster tools become available is that you have more messaging, not less messaging. The demand for messaging becomes greater and greater and greater. Who knows where it will lead. I'm glad I'm not 18 years old—I'm not sure if I want to keep up with the pace the way things are going.
Q: We've talked about changes in integration, control, outsourcing and communication. Is there anything else you'd like to add to the list?
A:Well, there's the whole issue of using supply chain proficiency as a strategic competitive advantage. This is huge, huge, huge. There is certainly the Wal-Mart story to point to, but it goes well beyond that. It's almost all the big boxes—the Best Buys; the Targets; the Bed, Bath, and Beyonds; and the Linens & Things. You know, the boxes have really proved that supply chain efficiency allows you to reduce costs and do awesome things.
Q: Let's shift gears. If you could point to one single challenge that companies face in achieving logistics excellence, what would it be?
Q: Is it because they're averse to change or is it something deeper?
A: There is certainly an issue of resistance to change, but it's also true that we deal best with things that are reproducible. Take light switches, for example. I like the light switch because you flip it up, the light goes on; you flip it down, the light goes off. And when you come in tomorrow and flip the switch up, the light will go on again. It's predictable and it's reliable. With people, it's a whole different story. Yesterday you flipped the switch up and I hugged you. But today—maybe I got up on the wrong side of the bed or am upset by a car wreck I witnessed on the way to work—you flip the switch up and I poke you in the nose. People are not machines; they're not predictable, reliable or maintainable. There is a real challenge: How do we get people to perform in ways that are predictable, reliable and maintainable when people are by nature anything but predictable, reliable and maintainable?
Q: Is that an argument for greater automation and less hands-on decision making?
A: If you were to make the decision solely on the basis of economics, absolutely. However, you don't automate just to eliminate the people. What you do is you simplify the role of people so they become more predictable, reliable and maintainable.
Q: Give them less range of variability?
A: Yes. If you reduce the range of variability, there will be fewer opportunities for screw-ups.
Q: What advice would you offer someone interested in getting into this field?
A: First, I'd advise that person to listen, observe, ask and comprehend—to learn to pay attention to what you're seeing and what you're hearing and what you're smelling. I really think it's critical that you have the ability to grasp what's taking place.
Second, I'd tell them that to succeed, you've got to have a drive or passion for pushing the limits. You've got to make that happen. It is the two together. The first one gives you the ability to understand reality. The second one gives you the ability to change reality for the better.
Q: Any closing thoughts?
A: Yes, I'd like to comment on the challenges of implementing any kind of supply chain project—the 90-90 rule. The first 90 percent of a project takes 90 percent of the time. The second 10 percent of the project takes another 90 percent of the time! The reality is that anytime you go live with anything even remotely sophisticated, it's not going to be perfect. There are going to be hundreds of things that go wrong. You'll need to be prepared to deal with those implementation difficulties; you'll need to have the proper staff and the proper systems, as well as enough time to deal with those issues because you will have them. I think that is really a key point.
About the Author
Group Editorial Director
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.
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