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.