Maybe it has to do with living on a farm outside Toronto with his wife and six kids. Perhaps heading to more bucolic environs at the end of a busy workday helps George Stalk clear his mind. Whatever his source of inspiration, there's no denying the results: Time and again, the star consultant has demonstrated a remarkable ability to see things others miss.
Back in the '80s, for example, when the rest of the business world was hailing quality as the definitive source of competitive advantage, Stalk was quietly investigating another possibility. What he came up with was the then-radical notion that although cost and quality matter, the real key is time. As Stalk says, "If you give me two companies, both the same size, but one with great merchandise and a lousy supply chain and one with mediocre merchandise and a great supply chain, the one with the … great supply chain will win every time. They can just react faster."
Stalk is still at it today. Now a senior partner and managing director at the Boston Consulting Group Inc., he specializes in helping clients come up with what he calls an "unassailable competitive advantage." And yes, he continues to toss out profound insights like a peanut vendor at Fenway Park on a Saturday in July.
During his nearly 30 years with BCG, Stalk has consulted to a variety of leading manufacturing, technology, and consumer products companies throughout North and South America, Europe, and Asia. For over a decade, he lived and worked in Japan, where he studied Japanese manufacturing strategies and techniques. To demonstrate that those Japanese techniques could be exported to North America, Stalk once ran a client's factory in the United States— an experiment that yielded substantial cost reductions and quality improvements as well as a tenfold reduction in throughput times.
Stalk is the co-author of several business books, including Kaisha: The Japanese Corporation, Hardball: Are You Playing to Play or Playing to Win? and the best-seller on time-based competition, Competing Against Time. He has just wrapped up his latest book: Memos to the CEO: Strategies in Our Future, which is scheduled to be published in the first quarter of 2008. He spoke recently with DC VELOCITY Group Editorial Director Mitch Mac Donald about how he first got involved with the supply chain, the three hallmarks of supply chain excellence, and how the profession nearly became known as "business systems management."
Q: Tell us about the Boston Consulting Group.
A: The Boston Consulting Group was formed in 1963. It was a bit of a maverick in the business consultancy world in that from the very first day, it focused on corporate strategy. That was something new back then. Until BCG was formed, pretty much all of the business consultancies were focused on optimizing various functions, like sales effectiveness and quality and so forth. Our founder came along and recognized that there was another whole way to look at this issue of business success—that there was a case to be made for looking across all the functions in deciding how to create competitive advantage. That competitive advantage is at the root of profitability. Without competitive advantage, there is no profitability, or in some cases, like the airline industry, there is only enough profitability to barely hang on. The airlines are among those industries that hang on by their fingernails because they have a hard time establishing competitive advantage until somebody like Southwest comes along with a different business model that actually is advantaged, and they make all the money in the industry.
Q: Was it that unique approach to business consulting that attracted you to BCG?
A: That was a big part of it. That approach seemed very logical and very appealing. I joined BCG in 1978. I had never intended to be a management consultant. I was much more interested in high-tech industries because I had done a lot of work in computer graphics and computer design. I joined BCG with the intention of staying for a couple of years and then moving on, which is pretty much the modus operandi of consultants. They never intend to stay longer than two years. We call it the rolling career horizon. It rolls from two to four to eight to 16 to, in my case, it will be 30 next year.
Q: At what point did you start getting involved in the supply chain?
A: When I was in Japan in the 1980s, I began to get very seriously entangled with supply chain issues, but I wouldn't have called what I was doing back then "supply chain." Quite frankly, I was interested in Japanese manufacturing. In particular, I was interested in some things that people weren't even talking about back then. At the time, they were still talking about quality and inventory and such. What they missed—and still, quite frankly, do miss—is the notion that Japanese manufacturing results in factories that produce stuff much faster than traditional manufacturing. They are able to produce at higher levels of variety without the cost penalties that most Western factories encounter. That enables companies like Toyota, for example, to broaden their product line so that by the late 1980s, they had a broader product line than General Motors even though they were only a third the size.
Q: Did that change your perspective on how business strategies are developed?
A: Yes. When I came back from Japan in the mid '80s, I went to our CEO and said, "Look, I know we see ourselves as generalists, but I am not going to be a generalist. I'm going to focus on time because time affects all businesses."
Time is a critical management variable that few people actively manage until a competitor demonstrates to them that they could do it much faster. Most people respond to it when it becomes a problem, but a few see an opportunity in it. So time became my focus from about 1985 to the early '90s. We used time everywhere. We were actually doing re-engineering before re-engineering became popular because time-based competition is re-engineering plus time plus strategy. The notion was, you really make your money if you can do something differently than a competitor as opposed to just getting better. If everybody gets better, nobody makes any money. It all gets tossed away in the marketplace.
Q: So you focused on time as a key competitive differentiator?
A: Yes, and now there are lots of examples out there of companies that see opportunities in time. It is certainly true today in supply chain practices. Zara is an example of a company that's cleaning up in Europe's department store and specialty store business because it can replenish stock in stores faster than its competitors can and it takes advantage of that. Zara is able to replace the stock on its shelves once every two weeks. Its competitors are on two- to three-month cycles.
Q: Is that something Zara deliberately set out to do?
A: Absolutely, although your question is a good one. Many companies seem to back into a time-based approach almost accidentally and only later realize that it is the reason for their success.
That wasn't the case with Zara, however. Zara started off with a little company in the northern part of Spain. It had local manufacturing—kind of like Benetton did back in the '80s. It began to branch out, and its business grew, but it views itself a little differently than everyone else does. Though everybody sees them as a high-quality purveyor of goods to fashion markets, the Zara guys know that their true advantage is the supply chain.
Interestingly, when you look at Zara U.S., it doesn't run like Zara Europe because they can't replicate the supply chain here. But they know that. Eventually, they are going to fix the U.S. model. They are going to figure out how to do the same thing in the United States.
Q: What makes Zara's European supply chain so effective?
A: Well, in Europe the company has a very fast supply chain because it uses local manufacturing. Local manufacturing is set up for fast turnaround. In the end, you don't have to be the fastest on the road; you just have to be faster than your competitors—which, in Zara's case, are the established department stores and most of the big specialty stores.
Though it would like to take advantage of the lower costs, Zara doesn't do a lot of sourcing from China. The reason is that it can't afford the time delays from China. In retail, the secret is having what is selling and not having what isn't selling. It's as basic as that.
Q: It's hard to argue with the "basics."
A: If you give me two companies, both the same size, but one with great merchandise and a lousy supply chain and one with mediocre merchandise and a great supply chain, the one with the mediocre merchandise and the great supply chain will win every time. They can just react faster.
That's critical in the retail business. It is just impossible to predict what the market is going to do. The guy who can respond to the market the fastest once they get the signals back wins. The guy who can't ends up marking stuff down because he bought the wrong stuff for the wrong time—that's really what kills you.
Q: Backing up just a bit, I get the sense you were actually doing supply chain stuff before the term even existed.
A: You're right. It isn't like we were sitting there saying, "Wow, we are doing supply chain; where is the rest of the world?" But we were looking at business systems, and supply chain is a big chunk of that because it's the supply chain that connects together the major elements of the system. When we talked business systems, not only did we talk about those connections, but we also talked about what went on inside of those major elements.
When I first started peeking inside Japanese manufacturing, I realized that the factories were 10 times faster than Western factories not because the Japanese system was 10 times faster, but because the manufacturing element was 10 times faster. What was really interesting about working with the Japanese is it became clear—I saw it first at Toyota— that once the factories became extremely quick and very cost effective, the Japanese turned around and said, "Well you know, all this stuff is getting wasted in the supply chain," although at the time, as you said, they didn't call it "supply chain." So Toyota merged the sales company with the manufacturing company. I was in Tokyo at the time that it happened. The conventional wisdom was that Toyota was becoming more customer-oriented, more marketing-oriented. The conventional wisdom didn't prevail, though. Within two years, all of the executives in the sales company had been replaced by manufacturing guys. Here, the press was running around saying, "Finally, they are becoming consumeroriented," but in reality what had happened was that manufacturing had taken over the company.
It took a very deliberate, focused program to make sure that no more time or money was spent distributing and selling cars than was needed to make them. They did this in Japan first. Japan was the first place in the world where the 15-day car actually happened.Where you could order a car that hadn't been built and 15 days later, you would get it. The whole supply chain had to work in harmony for that to happen, but we weren't calling it "supply chain." We were calling it "systems" or "business systems," which is very pointy headed. "Business systems" is probably the more accurate term, but over time, the less accurate and less pointy-headed term always wins, so "supply chain" eventually won.
Q: Would you say there is a set of core characteristics that distinguish one company's supply chain from another in terms of a competitive advantage?
A: First and foremost is that the CEO has to know he's in charge of the supply chain. The companies doing the best job of competing on the basis of their supply chain are the ones where the guy at the top knows that and everybody who works for him knows that—and knows that the guy at the top is watching them.
The second hallmark is that people are measured on system performance, not on individual functional performance. Success in a functional silo, like achieving lower transportation costs, is all well and good, but what are the ramifications of that? Is it causing problems in other parts of the company or even hurting the bottom line?
The third hallmark is that they understand time and that they are hell bent on taking time out of the system. The objective has to be taking time out of all steps in the chain. It might be the hardest part of improving the supply chain because you've got to start changing stuff—changing factories, changing lot sizes, changing shipment sizes, and so on. Instead of 15,000 container ships, you might want to go with 4,000 because they can make more frequent trips.
Q: I expect you find it frustrating that after extolling the virtues of integrated supply chain management for all these years, we're still having to warn against the consequences of siloed thinking?
A: I know. It is amazing. You know, the very same companies will have multi-functional teams designing new products. To them, that is normal. And it is normal. It is the way to do things. The notion that managing the supply chain should be a similarly multi-functional task just doesn't seem to be considered normal.
An automotive company I did some work with decided to consolidate production of V6 engines to save money. Their thought was to get the production volumes up and consolidate operations in one big factory, rather than three. But they put the factory in Europe. Well, that is great for V6s for European cars, but actually V6 is not the predominant engine in Europe. It is a V4.Most V6s actually go into mid-sized cars in the United States. So now these engines are being shipped in containers from Europe to the United States. So far, so good. Most likely, the guys who ran the numbers said, "Well, you know, we are still lower cost even with the shipping penalty." Then you run into some kind of blip in demand or a quality problem, and suddenly this extended supply chain begins to work against them. You'd be amazed at how many thousands of V6 engines at this company ended up having to be shipped by air because they were in a panic.
Q: Globalization really has served to complicate a lot of the supply chain-based decisions, hasn't it?
A: Absolutely. There's this continued flight toward lowcost sourcing. Lowering your costs is resulting in an expansion of your footprint, but it doesn't usually carry with it an understanding of the system costs. As always, however, there are faint signals of a new strategy. There is a company in the United States called American Apparel, which does all of its manufacturing in Los Angeles—they have 3,000 people making T-shirts in Los Angeles. They're on record as saying they cannot source from China because it will mess up their business model. Their business model is one of rapid replenishment. They recognize that, so they know immediately that low-cost sourcing overseas is not a strategy that fits with their business model.
