When he started out in this business we now call logistics, most of Cliff Lynch's daily assignments had to do with analyzing rail rates and herding errant boxcars. "Not terribly challenging, but a place to start," as he puts it. Things were different back then, of course. Transportation was subject to heavy state and federal regulation. Logistics was a term reserved for military operations. Rail was the mode of choice for most shippers. PCs and bar codes were unknown.
Times have changed. And as the industry matured, Lynch kept pace, learning to manage truck and rail transportation without a deregulatory safety net, unraveling the mysteries of technology, and even doing his first third-party deal ("We just called it outside warehousing. We didn't know we were in the 3PL business back then."). Over three decades, he rose through the ranks of Quaker Oats, shedding titles and picking up responsibilities as quickly as the industry itself was changing. Eventually, he moved into the food conglomerate's top logistics position.
Where is he now? Not at Quaker Oats, where he had hit the glass ceiling. In 1987, Lynch went over to the other side, parlaying the experience he earned being a shipper into a job selling services to other shippers. That job was a position running Trammel Crow Distribution, a major logistics service provider.
When Trammel Crow was sold to Exel Logistics in 1993, Lynch decided to strike out on his own. Today, he presides over C.F. Lynch & Associates, a Memphis-based logistics consultancy, and advises some of the world's leading third-party logistics companies. He recently spoke with DC VELOCITY Editorial Director Mitch Mac Donald and shared some thoughts on the changes he's seen.
Q: You've obviously seen a great deal of change both in the market and in the way logistics professionals go about their daily tasks. As you look back, what's driven the most profound changes?
A: You're absolutely right. I went to work for Quaker Oats right out of college (I majored in transportation at the University of Tennessee, which at the time was one of only three universities that even offered such a program).I started off in Chattanooga, Tenn., as a traffic clerk. Back in those days in the food industry and, well, just about every other industry, rail was the major mode of shipment. All grocery manufacturers were boxcar shippers, so my first job in the industry involved making sure the boxcars were spotted at the right warehouse door every morning. Not terribly challenging, but a place to start. As you point out, everything was heavily regulated. You didn't ship anything without going through a rather tortuous process of determining the rate and the route. I soon moved on to become a rate clerk and spent some time in St. Joseph and Los Angeles in pretty much the same kind of position,moving up a notch each time.I then went to Chicago in 1962 as a southeastern grain rate specialist.
Q: What made rail the mode of choice? Was it price?
A: Yes. The market started to shift in the mid to late 1970s, though. The rail industry was really starting to fall apart. Their pricing wasn't allowing them to be profitable. As the pricing and other advantages of rail started to wither away, more companies started looking at motor carrier services.
Q: So when trucking began to achieve some price parity with the rails, you took advantage of over-the-road options because they offered better service?
A: Better service was a big part of it, but there were issues beyond that. We weren't as concerned about service as we are now. Consistency in transit times was really the key thing. Even though a shipment might have taken six days, your confidence that it would get there in six days every time allowed you to build that into your inventory models, and everything ran fairly smoothly.
It was also around this time, the early 1970s, that many, many corporations began taking a hard look at their cost of doing business. People became more concerned about productivity and costs, and logistics was a big part of that. We started to receive more attention from senior management, although not anything like what we have today. I guess that wasn't always good, because they were trying to figure out where all the money was going, particularly when the cost of service went up.
Q: What sort of changes did that drive?
A: We began to be more productivity conscious, in addition to looking for ways to reduce costs. You have to remember that the transportation industry was tightly regulated at the time, so there weren't all that many cost-cutting options available. As a result, we had to look at how we could get more out of the money we were spending.
Q: So even though it wasn't necessarily the type of attention from the boardroom one would like, you found that upper management was taking a keener interest in logistics operations?
A: We sure did. It was a direct result of all this pricing and productivity analysis, and it did lead to some positive developments. Remember that up to this time, most everything we did—whether in transportation or distribution—was purely transactional. It wasn't really about service at all. It was just "I want to make a shipment from A to B. I do it. You send me a bill. I pay it." In analyzing this, we started to wonder if we couldn't negotiate some service enhancements, even if the price was fixed by government regulation. The way to do that, of course, was to establish some longer-term relationships. It was the start of some practices that are very common today. In some ways, it was an early stage of what we would now call outsourcing, but in very limited terms.
Q: This is long before anyone used the term "third-party logistics."
A: It sure was. I did my first third-party deal in 1960, but we just called it outside warehousing. We didn't know we were in the 3PL business back then.
Q: You were very much involved in operations at Quaker Oats in 1980 when both the motor carrier and rail industries were deregulated. Were the opportunities that deregulation brought obvious right away? Did companies start to realize the strategic potential of logistics?
A: It certainly started the shift in thinking. After deregulation, everybody's freight bill dropped. You didn't have to do very much to get those savings. You could just sit back and enjoy it. Senior managers often didn't realize that their people weren't necessarily doing a whole lot to make that happen. But it gave us the chance to be innovative and creative, really for the first time. To go out and make real honest- to-goodness business-like deals with carriers. It really gave us a chance to spread our wings. We even started hiring different kinds of people at the time.
Q: Why was that?
A: Prior to deregulation we wouldn't have dared hire anybody who didn't have rate analysis experience, preferably in rail. After 1980, all of a sudden we could bring in sharp young people who were articulate and handled themselves well because their primary function then was going to be negotiating. The job became much more businesslike than, say, clerical.
Q: So deregulation in the early 1980s had some obvious and immediate advantages for both business and logistics professionals. But in some ways this also proved to be the watershed point for the industry: Prior to 1980, logistics was just a necessary cost of business; after that time, logistics excellence began to be seen as a competitive weapon.Would you say that's true?
A: Exactly. It was also the start of a t rend that separated the men from the boys because, unfortunately, a lot of the really sharp people simply couldn't operate or didn't choose to operate in that kind of unprotected,unregimented environment. A lot of people didn't make it post-dereg. You really started to see a lot of shaking out, all the way up to the senior transportation level.
Q: Did you then see some profound changes in the way Quaker operated?
A: I sure did. I spent seven years at Quaker after deregulation. We continued to de-emphasize rail and use motor carriers because of tru ck's obvious service advantages. Because of deregulation we were able to make contractual arrangements with motor carriers with attractive price and service terms. So we continued that push. We also saw the early stages of the rise of intermodal services. In some instances, we found that intermodal gave us the perfect mix of price and service, with rail handling the longhaul, supplemented by trucks handling drayage at either end.
Q: Why did you leave Quaker?
A: I had been at Quaker for a long time by then.I was vice president of logistics—I started off as vice president of distribution, and then we changed the title to VP of logistics—I had been doing that for about 13 years. It was a great job, but it was as good as it was ever going to get. The senior people at Quaker were all from marketing disciplines. I thought I had moved my career forward as far as I could there, and I just got a little restless. A friend of mine was president of Trammel Crow Distribution. We had done business off and on for years. He suggested I come down and work with him for about a year, then he would leave and I could take it over. That just hit my hot button. I went down and met Trammell Crow, the man himself. I was so impressed with this guy. He was really a dynamic person, and I thought this could be fun. I went back home, resigned from Quaker and moved to Dallas in 1987. I was there for six years.We sold the company in 1993 to Exel Logistics.
Q: Did you stay with the company when it was purchased by Exel?
A: I decided that I wanted to try the independent consultant route at that point. Andy Wood, who was president of Exel at the time,offered to send a lot of business my way. So Exel became my first client.I actually kept my office in the building in Dallas for about a year after that.
Q: When you moved to Trammel Crow, you went over to the other side to work for a company whose business was to provide logistics services to shippers. How did your views change as you went from a buyer to a provider of logistics services?
A: It was a dramatic change. I didn't realize at the time what a drama tic change it would be. The most interesting thing about making a change like that is that you learn the difference between a friend and a customer very quickly.
It puts you on the reverse side of the equation. As a buyer of those services you think you know a lot about it.You look at the distribution companies and say, "These guys are making far too much money; they should give me a better price." When you step into the opposite role, your perspective changes immediately. You put proposals together and try to do a good job. You send them to people and sometimes you don't even hear back again. I had never been in a position where I really had to market myself or my company in a direct way like that. It was quite an adjustment. There are a lot of people who've made that change who don't succeed at it because it's just so different.
Q: Your involvement with Exel in the early 1990s, though, put you right on the leading edge of the thirdparty logistics boom.
A: It did, yes. Of course, as I mentioned earlier, the practice had been going on for a long time; we just didn't have that particular name for it.
Q: From your perspective, some 40 years in the making, have the basic principles of l ogistics excellence remained the same?
A: Service is obviously much more important than it was in the early days of my career. We used to manage toward costs. We tried to give consistency of service, but there was very little emphasis on improving service. Just do the best you can at the amount of money that you want to spend. People were willing to live with that.
Of course, there was another side to that. Customers and consumers weren't as service conscious as they are today. When you and I would order our secret decoder rings from the back of the cereal box and the ad said "Allow 4-6 weeks for delivery," we lived with that! We weren't necessarily doing anything wrong, that was just the environment and mindset at the time.
Even in the 1990s, we were still in the large shipment mode. We were shipping truckloads. We really did not like to ship less-than-truckload orders to our customers. That is what led to these consolidation programs with some of the public warehouses—when customers placed small orders,it was really important to try to find a way to make a truckload shipment out of them. Consolidation was a great way to do that.
Q: We published an article titled "expedited as usual" in our January 2003 issue about the stigma once associated with having to hire an expedited carrier. It wasn't all that long ago, if you had to make a small, expedited shipment, it was because something else in the system had screwed up.
A: Exactly. It was a big deal. I mean, who's going to pay this premium? We were still in a large shipment mode and giving people the product they wanted, but giving them more than they wanted usually. Then, of course, we started get ting into efficient consumer response, continuous replenishment and those kinds of things. In some ways it was a step backward. True, it helped the buying end manage inventories better. But frankly, though there are some who disagree with me, I'm not sure we have reduced total inventories very much. In many cases, we have just shifted them back up the pipeline.
Q: As you look back at the shift in the market from strictly price and performance to more of a blend of price, performance and service excellence, would you say the shift was really prompted by the opportunity to pay more attention to service?
A: The conditions and market factors were part of it, of course, but you can't overlook the role of technology. The technological systems that have come on line,especially in the past 15 to 20 years, have enabled us to do things that we previously could have only dreamed about. When I left Quaker in 1987, not everyone had a PC on his or her desk as they do now. I remember the first portable computer I ever saw. The IT vice president at Quaker let me take it home one night and I couldn't even work the thing. I could hardly lift it.
Q: How much has the emergence of technology driven change? There are many folks who now point out that a logistics professional doesn't just manage the flow of material anymore, but also a parallel flow of information. Do you agree?
A: I do, but I also like to point out that although many of the things we do today are enhanced by technology, the technology remains only a tool. The goals and objectives have been around for years. Low cost. Good, consistent service to customers. These are not new things. But our abilities to optimize our operations to meet those kinds of objectives have certainly been enhanced by technology. You're also right in the comparison of managing information flow as well as material flow. To be successful today, logistics people must understand the value of the technology that is out there and how they can best apply it. They can't just depend on the IT department anymore.
Q: We're bombarded with technology. You have smart tags; you have bar-code scanners. You can use sophisticated systems to analyze this, model that. Is the technology overwhelming operations as much as it is enhancing them?
A: Things like bar coding, scanning and radio-frequency identification have helped the distri buti on center tremendously. Things like transportation and warehouse management systems have offered huge advances in efficiency. But some of the more sophisticated cradle-to-grave, enterprisewide systems really over-promised their capabilities. Not all, but certainly some. Many companies that invested in these technologies have ended up with a disaster on their hands. There are others that have been very good. I think you have to be careful what you buy and from whom. With these far-reaching systems, you do need a lot of support and involvement at the front end from the IT department.
Q: What does your crystal ball show regarding the future of logistics?
A: I think we' ll see a continuation of many of the themes we've already touched upon. The technology is going to continue to improve. I think the systems and the people involved in logistics are going to be more sophisticated. I also think we're going to start to see more career logistics professionals rise to the top of their corporations. I've always suggested that the only true supply chain manager in a corporation is the CEO because nobody else has full control of the cradle-to-grave process—or farm to pantry, as we used to call it at Quaker.
Q: So the top corporate positions will no longer be largely the domain of sales and marketing people?
A: Exactly. I feel strongly about this. Although I have had some long, painful discussions with people who disagree with me, I believe logistics is just a piece of the supply chain. You have purchasing. You have manufacturing. You have marketing, finance, IT. All are involved. All play a role. You have the whole company. The company is the supply chain.