far out (but not too far)

There's an old business school case study about a man with a great idea who failed miserably. In the late 1960s, as car makers began outfitting their vehicles with cutting-edge steel-belted radial tires, a businessman in Ohio thought he saw gold in those tire treads. He rushed to develop the world's first patch kit for the new tires. The idea was great. The product was high-quality and affordable. And he went out of business after just over a year. Why?

The new tire technology was, indeed, a big leap forward in the automotive industry. So much so that the tires almost never failed in the first year or two of service. By the time demand developed for the patch kits, the entrepreneur was long gone.What this man learned to his sorrow is that there's a big difference between leading the parade and being so far out in front of it that the rest of the marchers never catch up.

One idea man who has avoided this trap is Dr.Yossi Sheffi. For over 30 years, the professor at the Massachusetts Institute of Technology has successfully walked that fine line,always managing to stay at the front of the parade without getting too far ahead of the rest of the business world.

Today, for instance, while on sabbatical at Cambridge University in the United Kingdom,Sheffi is looking for ways to help companies keep their supply chain operations secure in an environment of growing global hostility. To be sure, many consultants and analysts are focusing on ways to maximize security at company-owned facilities, but Sheffi is thinking well beyond that. He is focusing on how companies can ensure smooth supply chain operations and avoid being affected by events that take place miles, or even continents, away.

"The 9/11 terrorist attacks didn't just hit businesses in down town Manhattan. Companies as far away as, say, Kansas City were hit because the borders closed and they couldn't get freight in from overseas suppliers or out to overseas customers," Sheffi explains."We're not looking at mundane (yet important) things like how many guards to station a round the perimeter; we are talking about increasing security in terms of the ability to recover quickly."

Though the project is still in its infancy, Sheffi's ideas could some day become standard operating procedure in many companies. "The key is setting up some sort of framework if the first line of security fails and a disaster results," Sheffi notes. "Companies need to know how to prepare themselves to weather the storm. It's a far-reaching issue. The problem could be that your supplier in Malaysia gets hit. It could be that a West Coast port closes. Post 9/11, we realize now that you don't have to suffer a disaster directly. The disaster doesn't have to be a situation where someone puts a bomb in your plant."

Sheffi's not sure where his investigations will take him, but it's clear that he's enjoying the intellectual challenge. "It's extremely interesting because if you think about it, there's really no framework in existence to analyze lowprobability, high-impact events. And that's exactly what we are faced with in the world today-things that may not seem likely, but if they occur, can be catastrophic."

It's not all academic
This project, wherever it may lead,is just the latest in a long line of ground-breaking, industry-changing concepts Sheffi has grappled with over the years. He already has a long list of innovations, company startups and academic advances (see sidebar) to his credit.

His interest in transportation has been evident from the start of his career. Sheffi served in the Israeli Air Force from 1966 to 1971, and he remained in the air corps reserves until 1975. At the end of that year, he left Israel for the United States to study at MIT, where he worked on transportation planning needs in developing countries.

After he finished his graduate degree in 1978, he began a series of studies into ways advanced mathematical analysis and technology could make transportation more efficient. In 1985, his book, Urban Transportation Planning: Equilibrium Methods with Mathematical Programming Methods, was published by Prentice Hall.

The book contained not only a summary of Sheffi's collective works to that point, but it also hinted at some of the work to come. "By 1983, I had already started to focus on trucking-based transportation issues," he says, "and then shortly there after, I began looking at wider- ranging logistics issues."

It was at roughly this time that an as yet hidden entrepreneurial streak began to emerge."I realized I wouldn't ever be satisfied just standing on the sidelines," Sheffi explains."I needed to get into the game."

Launch breaks
Get into the game he did. He took a break from his academic chores to co-launch a company called Princeton Transportation Consulting Group, which developed leading-edge transportation network and load optimization planning tools. "I saw an opportunity to bring advanced technological capabilities to the world of transportation planning," he explains. Princeton rapidly built an impressive list of motor carrier clients, including P*I*E, Yellow Freight and several truckload carriers (many of which are today part of the Landstar Logistics group).

Ready for new challenges, Sheffi sold Princeton to Sabre, the division of American Airlines that had cornered the market of passenger "load planning" for commercial air carriers. Sabre saw an opportunity to extend its business into freight transportation planning, using the technology developed by Sheffi and his staff at Princeton as a springboard.

Next came a stint in private consulting, working for such major corporations as Rockwell and Ford. Much of Shef fi's work during this period, the immediate aftermath of motor carrier deregulation, centered on developing carrier consolidation programs, although that term had not yet come into wide spread use. "At this point, companies weren't paying attention to money that could be saved and efficiencies that could be gained by leveraging their freight volumes with a small group of carriers," he explains. "To many companies, something as simple as putting a requisition out to bid was a foreign concept."

Building on the transportation planning tools he had developed for Rockwell and anxious to test his entrepreneurial skills once again, Sheffi co-launched Logi Corp in 1988, one of the country's first non-asset-based third-party logistics service providers (3PLs). He sold the company to Ryder System Inc. in 1994. Today, the company exists under the name Ryder Integrated Logistics.

With an enviable track record already in place, Sheffi led the team that launched Syncra Systems, a firm specializing in collaborative planning systems and software for retailers and their suppliers. He served as chairman of that firm until August 2002. At around the same time, he co-launched e-Chemicals, a firm that provided Internet-based connectivity and exchange services to the chemicals industry. e-Chemicals was acquired by AspenTech in 2002.

His most recent start up, Logistics.com, was launched in January 2000. The company provides logistics planning and execution solutions that guarantee cost savings to shippers and carriers. Sheffi managed the operations directly during the company's formative stage, then recruited John Lanagan,COO of Schneider Logistics, to run the operation so he could return to academic interests at MIT. He has since sold his interest in Logistics.com, which itself was recently acquired by Manhattan Associates.

Back to school
Although he's now back in the world of academia full time, Sheffi takes an active interest in business endeavors outside the classroom. In addition to his projects on supply chain security planning, he is also closely involved with a major auto ID project at Cambridge University. With more than 80 major corporations funding the research, the MIT/Cambridge University auto ID project was established to determine the most appropriate applications for automatic identification technology.

What's unclear to Sheffi at this point is whether or not auto ID-based systems really hold as much promise for operational efficiencies as its proponents claim."I think the jury is still very much out on this," he opines. "There are two potential areas of contribution to the supply chain for auto ID and RFID (radio-frequency identification) tags. One is running the existing game better. The other is opening up a chance to run an entirely new game."

Sheffi concedes that simply running the existing game better will have some immediate benefits."Right now, many operations need to have a person out in the DC checking on what's going on," he explains. "An immediate benefit will be replacing many of the things that we now do manually, so it will certainly save some administrative cost. It will also improve performance. We'll get more accurate inventory. We'll get some process improvements. We'll get better tra nsportation tracking, better inventory management. This is where we will see the most immediate impact in both the DC and the retail store."

Nonetheless, Sheffi feels the technology could be vulnerable to over-engineering. "There's the very real issue of auto ID's being capable of doing more things than some companies need and that may slow its adoption, unless the price points get very, very low," he says. "For a lot of operations, a barcode scan at origin and then again at destination is all that's needed, so an upgrade to RFID would be a bit of a waste.

"To be revolutionary, though, rather than just evolutionary, I'm looking for game-changing things. I'm not sure yet that auto ID will actually change the game," Sheffi explains. "I'm still trying to see the revolutionary side of this, and I'm struggling a bit with that. I can certainly see how RFID can allow us to do many of the things we currently do better. Beyond that, I'm just not sure."

Sheffi is quick to acknowledge that bar-code technology has already brought revolutionary change to the industry. "When the bar code appeared, it did change the game because it could only be compared to entirely manual tracking and record-keeping. But, when you compare RF's capabilities to those of the bar-code technology, what you have is simply a bit of an upgrade in the way things are already being done."

That said, Sheffi is far from ready to say auto ID technologies like RFID are being over-hyped. "You have to be careful," he notes. "With new technologies, it's always very tough to predict all the ways in which they will be applied. It's almost impossible to guess all the unintended consequences and the things that nobody thought about."

The potential does exist, he believes, for auto ID technologies to pave the way for advances in some other supply chain systems. "The ability to get a lot more accurate data through the supply chain in real time will give a muchneeded boost to development of intelligent decision-support systems. Now they can be fed by real data, rather than data with a 5-percent margin of error. It's moving us closer and closer to real time."

Staying power
Looking ahead, Sheffi remains convinced that the next big thing will be the last big thing, that is, the Internet. "The Internet is a game-changing technology," he says. "Right now, the economy is a mess, and everyone is just worrying about their job, so I think it's understandable that the Internet is not getting the emphasis that it was at many companies just a year or so ago. The recession is really biting. It's hard to talk to anybody right now about anything other than cost savings, cost savings and cost savings."

Nonetheless, Sheffi still believes that the dot-com collapse will end up as simply an asterisk in the annals of business history and that the Internet remains the future of business. "We've just started to see the tip of the iceberg. Companies will very soon start to harness the real power of the Internet with real applications. It is the only technology that will allow real collaboration. It is the only technology that will allow the real-time flow of information. I have no doubt that the potential is absolutely enormous. In the next phase, much of what is developed for the Internet will come from real companies with real products and real services, not, as we saw in the past, from Internet companies that had little more to offer than a concept wrapped in a new technology."

Though it's easy to look back 18 to 24 months, see the remains of hundreds of dot-coms scattered around the landscape, and conclude that all the hype of the late 1990s was just that-hype, Sheffi believes that would be short-sighted. In fact, it may lead many to miss a huge business and investment opportunity. Never afraid to take a contrarian's view, Sheffi thinks the Internet could prove to be the force that drives the market back upward. "I actually think that we will see, in the next four to six years, another phase of crazy Internet investment. This will happen as people start realizing the unbelievable potential of the medium."

Modern business history supports his view. "You have to keep it in perspective," he advises."Look at rail companies, and telegraph and telephone companies, and television. They all went through this. When the telegraph came into being, there was an explosion of companies offering services based on this new technology. After a few years, things settled down, a lot of the companies disappeared, and Western Union set the standard for using the technology and building a business around it. Several hundred auto companies emerged at the start of the last century. Fortunes were lost, but the automobile stayed. The basic technology stayed. It will be much the same for the Internet."