big challenges at Big Blue: interview with Gary Smith
Just what does a global logistics VP do at a company that has virtually no distribution assets? For IBM's Gary Smith, the answer is to run what must be the world's most complicated outsourcing program.
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.
You might assume from his title—vice president of global logistics for IBM's Integrated Supply Chain division—that Gary Smith spends his days overseeing a sprawling international network of distribution assets. And 10 years ago, that's what the job would have entailed. In those days, the Armonk, N.Y.-based company was primarily a computer hardware and software maker, and the company maintained substantial logistics assets—trucks, warehouses, forklifts and the like—needed to move both materials and finished products to destinations around the world.
Today, however, IBM is shifting to an IT service model—with "services" broadly defined to include systems integration, providing on-demand access to computer capacity and software, and re-engineering whole supply chains. And Smith's job reflects that. Smith may be responsible for global strategy development and line execution for logistics across IBM's hardware, software, technology and services businesses, but what he's overseeing is not a company-owned logistics network. Instead, it's a complex network of third parties that actually provide the physical services for the giant company, which pulls in annual revenues of $89.1 billion and does business in more than 160 countries. In other words, Smith's division functions as the ultimate lead logistics provider (LLP).
For an organization like IBM, outsourcing makes sense, says Smith. It allows the company to remain agile and responsive. And it allows IBM's costs to fluctuate with volumes. Today, no single logistics provider can meet all of a company's global needs, Smith adds. His division's mission, therefore, is to know who is good in what areas of the world and in what segments of the business, and then to orchestrate their activities.
Prior to joining IBM, Smith worked at both PepsiCo Food Systems (a 2,000-employee division that supplied 15,000 Pizza Hut, Taco Bell and KFC restaurants across North America) and Chicago-based truck and engine manufacturer Navistar International Corp. He earned an MBA from the University of Detroit and a bachelor's degree (magna cum laude) in economics from Boston College, under whose auspices he spent a year studying in Paris, France, at the Institute of European Studies and the Sorbonne. He spoke recently with DC VELOCITY's editorial director, Mitch MacDonald, about using logistics as a competitive weapon, the virtues of a non-asset-based operation, and why Mitch might as well hold on to his 1986 IBM AT.
Q: Chances are, when you were a kid and someone asked what you wanted to be when you grew up, you didn't answer: a chief logistics officer at a Fortune 500 company. How did you get here?
A: I probably followed the same circuitous route taken by a lot of the other folks you've profiled in DC VELOCITY. I certainly didn't plan on this. I started off with Ford Motor Co. in what back then was called the supply staff training program and is now known as the supply chain training program. That was followed by assignments in global purchasing, planning, manufacturing, finance and so on, first at various Ford divisions and later at other companies. I obviously started to narrow my focus as time went on.
Then about 15 years ago, I joined Pepsico Food Systems as vice president of operations, with responsibility for physical distribution of supplies and equipment to all of its restaurant chains around North America. We had 1,000 tractors and 1,500 trailers and a whole mess of great people servicing the Pizza Huts, the Taco Bells, the KFCs, etc. At that point, I really started to get excited about the pure complexity and the pure challenge of optimizing this kind of network. From there, it just grew.
Q: It's true that we often come across individuals who have come from a much broader background and as you said, narrowed it down. Do you think that broader knowledge of the different moving parts of a business enhances your understanding of logistics?
A: Without question. I honestly don't believe you can be a good logistician in the broadest sense and contribute to an end-to-end supply chain if you don't have an appreciation for the various other functions. We have a saying within IBM that wherever you are in the supply chain, you have to look left and you have to look right. In other words, you have to understand and appreciate the implications of what you see happening both upstream and downstream in the supply chain. If you've been there, upstream or downstream, you tend to be much more aware of what's important and what's not.
Q: That's a great way to put it. Believe it or not, it wasn't that long ago—say, five or six years back—that if I were doing an interview like this, I could expect to hear a lot about the company's transportation network or its national contract with rail carriers and so on. But now people really have expanded their scope. I think it's for the best where the profession's concerned. It is certainly for the best for the companies that we're working for.
A: I think that's also reflected in the recent name change of the Council of Logistics Management to the Council of Supply Chain Management Professionals.
Q: Give us the nickel tour of the logistics operation for which you are responsible. What are some of its key attributes?
A: The scope of our responsibility includes the entire IBM company. We're responsible for anything that moves physically. That's everything from our technology business to our low-end PC business to the high-end and low-end server businesses. As for processes, that includes transportation, imports and exports. It includes the reverse logistics associated with remanufacturing and de-manufacturing. We also place heavy emphasis on network design and network optimization through the use of support tools.
Q: What is de-manufacturing?
A: It's probably a company-specific term, but at IBM, de-manufacturing refers to the process of going in and taking back assets and harvesting the components and parts. After we test the components, we may sell them into the secondary market or we may upgrade them to what we call "as new" and use them in production again.
Q: Well, I'll tell you what, you guys have my contact information. If you want my circa 1986 IBM AT, just let me know. I'll box it up and send it right over.
A: You probably wouldn't be happy with the price we'd give you!
Q: You're probably right.
A: So anyway, that's what we do. We act as what I call a logistics service provider within the IBM company. We are non-asset based. That was a clear change in strategy for us. We're now responsible for about $1.5 billion in cost. I have a team of about 1,500 individuals around the world. They're located in approximately 50 countries and 70 different sites. We move roughly two to two and one-half billion pounds of stuff around the world every year.
Q: That's an interesting angle—or for lack of a better word, spin—that you put on that. You actually see yourself as a logistics service provider serving one major customer.
A: Absolutely. We look at ourselves as a lead logistics provider. It hasn't always been that way, however. In 1995 we were basically an asset-based distribution company. We had outsourced some of the business, but for the most part we had substantial assets—warehouses, trucks, forklifts, racks—in a lot of countries around the world. But when we began the strategic discussions for the Integrated Supply Chain division, we decided on two things. One, we wanted to be non-asset based, which would give us the flexibility that we needed in the future. Second, we wanted to be as variable in our cost structure as possible so that as volumes fluctuated, our cost structure would shift accordingly. I think the third element is that we wanted to substitute logistics capabilities for assets where possible—so that as we rationalized our manufacturing around the world, we could close down facilities knowing that our logistics network was sufficiently reliable and responsive to allow us to maintain service levels.
Q: What one or two "tools" in your personal skill set have proved most important to your success?
A: I think I'm an exceptional listener. We have just a fantastic global team. I truly mean that in every sense of the word. We all are aligned to a common strategy. We all understand the expectations from a performance point of view. The best job that I can do is try to listen and make sure that there is alignment, and then get the hell out of the way and let these guys do their jobs.
That team has played a critical role in our success. When you go into a logistics transformation as we did, you really have to analyze not only where you're going strategically, but also the skill sets and the experience that you're going to need to get there. I think many companies stumble when they try to do it with their existing resources. What we did here is determine early on that to be a lead logistics provider vs. somebody who simply does the logistics, you need a different skill set, a much broader skill set. You need people who are capable of asking penetrating questions, people who are more strategic thinkers, and so on. I guess the point I want to make here is that we recognized that early on and were able to go out and recruit people with the skills we'd need from around the world.
Q: That certainly sounds logical. It seems that a lot of what you're saying falls in line with the whole notion of moving from a purely tactical cost center operation to a more strategic operation that actually can enhance the company's bottom line.
A: That fits right in with how we see the supply chain's role within the IBM company. Our chairman and the whole company are aligned around a core strategy, called "on demand." A big part of that strategy has been the creation within IBM of a true end-to-end line supply chain. We are, I think, somewhat different, especially for a company our size, in that we don't just have a staff head of supply chain. The guy who runs the supply chain has responsibility for all 20,000 supply chain individuals around the world. The power that this brings to not only develop a strategy but to execute that strategy is tremendous.
Q: How about challenges? As you look to be a lead logistics provider, what are some of the biggest challenges or hurdles you face?
A: At the top levels, I think we certainly need to make sure that our supply chain stays aligned with our corporate strategy. That must be done on two fronts. One is what I will call the physical supply chain, which is the support of our hardware business. More importantly, and I think you'll find this interesting, is that we actively try to apply supply chain principles to the labor-based environment. Service is a big part of our business today and is going to be much bigger in the future. So the concept is if we can manage a physical supply chain efficiently and then take those same principles and apply them to a labor-based supply chain, we may have something here that is unique and a major game-changing opportunity.
At the operational level, from the logistics point of view, I would say our challenges are similar in the sense that we want to make sure we stay completely integrated and aligned with our supply chain. Specifically, I think our greatest challenges are to stay flexible and productive, to remain efficient because our world is a rapidly changing world. There are so many environmental elements that impact the logistics business around the world today. If we can be responsive, flexible and resilient, then perhaps we will be able to create a logistics competitive advantage for our company.
Q: What are some of the biggest changes you've observed during your years in the logistics field?
A: The growing recognition that logistics can be a competitive weapon. I would also say that the opportunity to manage a series of suppliers—logistics suppliers—around the world is something that I think has gone from theory to reality. I do not believe that there is a single logistics service provider who can be the only service provider that a company would use, especially in a global environment. The key thus far for us is to sit on top of various suppliers, having the industry insight to know who is good in what areas of the world and in what segments of the logistics business, and orchestrate their activities to achieve a common objective.
Q: Is there anything that hasn't changed much in the past 15 years?
A: Well, there's our dependence on dedicated and knowledgeable professionals in the operational environment, if you will. Sure we have technology to make us more productive and improve communications, but at the end of the day, freight still must be moved through physical means. You still need a team of capable operations people—whether they drive trucks, serve as loading masters at airports, or handle import- and export-related operations. We remain heavily, heavily reliant upon teamwork and people who really understand the basics of the business.
Q: How about a little forward view? I'm sure you're constantly looking at where you were, where you need to be, where you are today, where you want to be tomorrow. What developments within the logistics realm do you think we'll look back on 15 years from now as game-changing events?
A: That's an excellent question. I think I'd like to answer that in two ways. First, I think 15 years from now, we're going to look back with admiration for those individuals who recognized the world for what it is today—who saw the supply chain as an interconnected global network in which the effects of an incident in one part of the world ripple through the logistics network and can affect you no matter where you are.
Q: And the second thing?
A: The second is the opportunity that we have going forward to try to leverage our internal service capabilities on behalf of our clients around the world. I think we can help companies reduce their time to value if they want to transform their logistics operations because of the experience we have and the knowledge we've gained.
Q: What advice would you offer to people just starting out in the field?
A: You know, Mitch, the only thing I think I would tell a group of young people who are interested in embarking on a career in logistics or supply chain management is that you don't have to be formally trained in either of those two disciplines to be successful. You just need to have an open mind. You have to understand the importance, the critical importance, of leadership and teamwork and team management. You just have to have a tremendous passion for this kind of stuff. If only 10 percent of the people who start off in this area stick with it, that's going to be substantially better than what we have today. I believe that we're still coming into our own in terms of the impact that logistics and supply chain management can have upon a business.
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.