Executive Briefings

Former Analyst Heads Project To Help Supply Chains Prepare for the Unpredictable

A conversation with Larry Lapide, research director of Supply Chain 2020, a project of the MIT Center for Transportation & Logistics.

Larry Lapide was tapped a year ago to head a multi-year research effort looking into the future of logistics and supply-chain management that was initiated by the MIT-Zaragoza International Logistics Program. Immediately prior to accepting this post, Lapide served in various executive positions with AMR Research, Boston, where he specialized in supply-chain research and analysis. Previous to AMR, he managed a variety of supply-chain projects at Accenture for high-profile customers in both the U.S. and Europe. Lapide also has worked with Data General, Arthur D. Little, and Benchmarking Partners, and as a lecturer in the Management Sciences department of the University of Massachusetts. He holds a Ph.D. in operations research from the University of Pennsylvania's Wharton School, a master's in electrical engineering from MIT, and a bachelor's in electrical engineering from The Cooper Union-all of which qualified him as a self-described "egghead" in the non-academic worlds in which he had previously worked.

Q: What attracted you to the job at the MIT Center for Transportation and Logistics (CTL)?
Lapide: I'll give you a little background. Professor Yossi Sheffi (CTL director) had spent a year on a sabbatical at Cambridge University in England. While he was there, he ran into some people from the state of Aragón in Spain and these people wanted to build competency in the logistics area. They had taken an abandoned U.S. Air Force base and converted it to a state-of-the-art logistics park, called PLAZA. They had created a private group to run the park and to sign up companies that would put distribution and light manufacturing facilities on this plot of land.

But, as they talked to Yossi, one of the things they recognized was that, in order to develop a strong logistics base, they needed an institution to train people in logistics. And they wanted MIT to help with that. So, after some discussions, a multi-year education and research partnership was struck between PLAZA, the government of Aragón, MIT's CTL and the University of Zaragoza, which is located in Aragón's capital city. The academic part of this partnership is the creation of a graduate school of international logistics and supply-chain management. The first classes began in September of 2004 with courseware that is modeled after the MIT Master of Engineering in Logistics program. This is an international program that is taught in English and marketed to students from all over the world. It is called the MIT-Zaragoza International Logistics Program. Already we have more students for this program than we expected. Next year we start the Ph.D. program and launch more executive education short courses. But we are beginning with the international program and that is the one MIT is most involved with from an academic perspective.

Now, the research piece of the partnership. It is aimed at doing research that is global and that is about the future of the supply chain and what companies need to do to be ready for the future. Yossi wanted to get ahead of the curve to research where things are going rather than the more traditional academic research that typically looks at the past and the present. He was looking for someone outside of academia to run the research project, which we are calling Supply Chain 2020. He went around and talked to people he knew who were, frankly, a little older, and who were in reasonably good financial shape. But also people who wanted to do something interesting and unique. That's the pitch he gave me, and it worked. I essentially have had three careers and I am at an age where the idea of doing something unique and challenging and important appealed to me. I have a Ph.D., so I always was an academic at heart anyway and the opportunity to be in academia again was intriguing. But really it was the topic itself-to work on a big project looking at the future of the supply chain was a dream job.

Q: How did you decide where to begin?
Lapide: I spent the first seven or eight months at MIT just figuring out what we were going to do, what research we would try to conduct and how we would go about it.
We have divided the project into two phases and we have started Phase I, which is basically a one-year study to determine what makes excellent supply chains. We want to do much more in-depth research than has been done before on why some supply chains work very well, versus the hype that you see out there. In consulting and the analyst environments it was all about the short-term-what is the latest hot process or technology. But here we have to be much more diligent in our research and really understand the underlying critical success factors of a supply chain, in the long run. Before we can talk about the future of the supply chain we first want to understand what makes a great supply chain today.

Q: How are you doing that?
Lapide: That gets to the structure of the project. We decided we needed a group of people to serve as a guidepost, so we created an Industry Advisory Council (IAC). Since we want to make the research applicable to industry, we wanted to pull about 20 people from industry to serve on the IAC. They will provide us feedback on the project and give us ideas, but also provide source material for the research. In creating this council, I looked for people who have been around the business from 15 to 25 years and who are passionate about the supply chain. This wasn't necessarily the people with the biggest titles-they didn't have to be vice president of supply chain. I was more interested in the person who was a thought leader. So we selectively invited people to participate and pretty much everyone we invited agreed to serve. We ended up with 26 great people, whose names are all listed on our web site. [Ed. Note: see wet.mit.edu/ctl/www] About 80 percent of them are from corporations and the other 20 percent are from suppliers-software companies, consultants and 3PLs. I wanted people who see the business of supply chain across all types of companies.

But when we stepped back and looked at this council we realized that nearly all of the members were with U.S.-based companies. Because this is a global study, we also wanted to get a European perspective, so we created a European Advisory Council as well. That group has 14 members-again, people who have been in the business for a long time and who are with fairly well known companies. Together we have about 40 people on councils. So that is one source of research.

Being academics, we also do literature searches to see what has been done in this field in the past, which is our second source of research. And the third piece will be visits and interviews with companies-IAC members and others-to talk about their supply chains, as case studies. We may even talk to their suppliers and customers. So those are the three primary sources we are using.

The people actually doing the research work are our students and our faculty. In addition, we are working with some other academic institutions that have expressed interest. For example, we are just starting some research with Dr. Hau Lee at Stanford on the future of logistics parks. Over time, we want to extend this out beyond MIT to other institutions.

Q: What will you focus on in Phase Two?
Lapide: OK, so the first step is to understand supply chains today. The second step is to understand how those supply chains might evolve over time. In order to do that, we have to understand the macro factors, such as how China might develop. China's story today is primarily about low-cost manufacturing. In 2020, China's story might be all about consumption. If it becomes a world super-power, it also will become a consuming nation. And it may not even be the low-cost manufacturing place anymore. So how would that shift alter global supply chains?

I like to talk about $200-per-barrel oil. In 2020, it is conceivable that the oil supply will be much shorter and cost a lot more than it does today. How will that impact supply chains?

In the second phase of this research, we need to start looking at what is going to happen to supply chains based on the trends we see today and the macro factors that might impact those trends. That is what the latter part of the project will be about.

Now, there are two types of macro factors. One is external forces that lie outside of the company, that really are out of its control-things like government regulations, globalization of trade, what happens to China and so on. But there also are supply-capability macro factors like technology that companies can use to adjust and modify and improve their supply chain. This also includes process innovation, manufacturing advances and so on.

To look at these we are going to use a methodology called scenario planning. This is NOT forecasting. That's a critical point. You can't forecast 10 to 15 years out because the world is changing too quickly. It just doesn't work.

But with scenario planning you talk about possible futures, or scenarios. Scenarios are a set of circumstances that might occur in the future, such as a shortage of oil. This is a plausible possibility and there are a lot of reasons why oil might be scarce in 10 or 15 years. So that may be a component of a specific scenario. Then we ask, what does the supply chain need to do to react to that scenario? So scenario generation really is about identifying possible futures and then asking how supply chains would have to adapt in that environment. It is more about preparing companies for what might happen rather than telling them what is going to happen. We don't know what is going to happen. But the idea is to help companies be in a position where they are flexible enough to be able to adapt to whatever the future holds. So that is the final product of all of this-to be able to help companies figure out what kinds of strategies to put in place today that will prepare them for multiple possible futures; and to identify stakes in the ground-things they need to watch over time-to see which of these futures is developing and to make adjustments. That is the final product.

Q: That will be in the form of a book?
Lapide: Yes, there definitely will be a book. That is one of my deliverables. Actually, there probably will be two books. The first will be about excellent supply chains, based on our first phase of research. The second book will be about the future and what we have to do to get ready for it.

Q: Do you find that members of the advisory council, within their own companies, already have started thinking about these things?
Lapide: Most of them are not focused this far out and rightly so. They wouldn't survive for 15 years if they didn't think first about the next quarter and next year or two. So the challenge we have for council members is to keep them interested in looking at the future. And the key to that is what can they do about it today? So in addition to looking out to 2020, we will be focusing closely on the next three to five years.

Some people think 2020 sounds a little like science fiction, but our approach, scenario planning, is not science fiction. The things we will look at really could happen and companies will have to react to them in a pretty significant way. The best example of this is Royal Dutch Shell, which actually developed this method for business in the late 1960s (the military had been using it before that). And the success story is that Royal Dutch Shell had looked at a scenario called "oil crisis" before the 1973 oil embargo ever happened. And when it did happen, Shell was able to react in a much better way than its competitors because it had at least looked at the possibility. So that is what we are trying to do in this project. What are the things that can happen and what can we do to get ready for them? And, of course, in all the brainstorming that goes on, ideas come out that are relevant and useful for people today.

Q: Do you see any disruptive technologies on the horizon that you think will impact the next 10 or 15 years?
Lapide: I think RFID may be, or not just RFID but the whole area of auto identification-enabling smart items that can transmit where they are, where they have been and what they have done, or what has been done to them. Whether it proves to be disruptive or more evolutionary is something we will only know over time and I think it may take over 10 years to mature. We do know that it will impact the supply chain. The really critical issue, in my mind, is whether it will become commonplace or whether it will be a competitive differentiator for companies. My guess is that adoption will happen slower than most people think-this is just my opinion, I don't have research yet-and that it will be 2015 before some companies start getting really unique and significant competitive advantages with it. There may be a lot of people using auto identification as a replacement for barcodes but only leaders will be using it in innovative ways that will give them the competitive edge. Using it not to just figure out where things are but to figure out where they have been and where they are going and the state they are in-these are the critical things.

The other big story is China. I think as its economy grows, China will be a less attractive place to do offshore manufacturing. When you put that in concert with an increase in energy prices, I think it is likely over time that we may start to see more local manufacturing and distribution. Today's concept is to manufacture in a low-cost country and sell in a high-cost country. Equalize the economies a little more as the underdeveloped countries get developed, and it may make more sense to manufacture products closer to where they are consumed. Maybe the global economy will look much more regional than it does today. And, again, that will impact supply chains because it will affect where companies put distribution centers and plants as well as where they source and sell.

Q: How do you think the pace of change during the next 15 years will compare with the past 15 years?
Lapide: I think things will change even more rapidly in the next 15 years. That's why we can't forecast, why we have to look at possibilities. And it's why you really can't leverage current trends by projecting them out.
And it is why I am so excited about this project. I believe this is the first effort to look at the future of the supply chain in a formal research-driven way. It is unique and it is important and it is big and I am really happy to be involved.

Larry Lapide was tapped a year ago to head a multi-year research effort looking into the future of logistics and supply-chain management that was initiated by the MIT-Zaragoza International Logistics Program. Immediately prior to accepting this post, Lapide served in various executive positions with AMR Research, Boston, where he specialized in supply-chain research and analysis. Previous to AMR, he managed a variety of supply-chain projects at Accenture for high-profile customers in both the U.S. and Europe. Lapide also has worked with Data General, Arthur D. Little, and Benchmarking Partners, and as a lecturer in the Management Sciences department of the University of Massachusetts. He holds a Ph.D. in operations research from the University of Pennsylvania's Wharton School, a master's in electrical engineering from MIT, and a bachelor's in electrical engineering from The Cooper Union-all of which qualified him as a self-described "egghead" in the non-academic worlds in which he had previously worked.

Q: What attracted you to the job at the MIT Center for Transportation and Logistics (CTL)?
Lapide: I'll give you a little background. Professor Yossi Sheffi (CTL director) had spent a year on a sabbatical at Cambridge University in England. While he was there, he ran into some people from the state of Aragón in Spain and these people wanted to build competency in the logistics area. They had taken an abandoned U.S. Air Force base and converted it to a state-of-the-art logistics park, called PLAZA. They had created a private group to run the park and to sign up companies that would put distribution and light manufacturing facilities on this plot of land.

But, as they talked to Yossi, one of the things they recognized was that, in order to develop a strong logistics base, they needed an institution to train people in logistics. And they wanted MIT to help with that. So, after some discussions, a multi-year education and research partnership was struck between PLAZA, the government of Aragón, MIT's CTL and the University of Zaragoza, which is located in Aragón's capital city. The academic part of this partnership is the creation of a graduate school of international logistics and supply-chain management. The first classes began in September of 2004 with courseware that is modeled after the MIT Master of Engineering in Logistics program. This is an international program that is taught in English and marketed to students from all over the world. It is called the MIT-Zaragoza International Logistics Program. Already we have more students for this program than we expected. Next year we start the Ph.D. program and launch more executive education short courses. But we are beginning with the international program and that is the one MIT is most involved with from an academic perspective.

Now, the research piece of the partnership. It is aimed at doing research that is global and that is about the future of the supply chain and what companies need to do to be ready for the future. Yossi wanted to get ahead of the curve to research where things are going rather than the more traditional academic research that typically looks at the past and the present. He was looking for someone outside of academia to run the research project, which we are calling Supply Chain 2020. He went around and talked to people he knew who were, frankly, a little older, and who were in reasonably good financial shape. But also people who wanted to do something interesting and unique. That's the pitch he gave me, and it worked. I essentially have had three careers and I am at an age where the idea of doing something unique and challenging and important appealed to me. I have a Ph.D., so I always was an academic at heart anyway and the opportunity to be in academia again was intriguing. But really it was the topic itself-to work on a big project looking at the future of the supply chain was a dream job.

Q: How did you decide where to begin?
Lapide: I spent the first seven or eight months at MIT just figuring out what we were going to do, what research we would try to conduct and how we would go about it.
We have divided the project into two phases and we have started Phase I, which is basically a one-year study to determine what makes excellent supply chains. We want to do much more in-depth research than has been done before on why some supply chains work very well, versus the hype that you see out there. In consulting and the analyst environments it was all about the short-term-what is the latest hot process or technology. But here we have to be much more diligent in our research and really understand the underlying critical success factors of a supply chain, in the long run. Before we can talk about the future of the supply chain we first want to understand what makes a great supply chain today.

Q: How are you doing that?
Lapide: That gets to the structure of the project. We decided we needed a group of people to serve as a guidepost, so we created an Industry Advisory Council (IAC). Since we want to make the research applicable to industry, we wanted to pull about 20 people from industry to serve on the IAC. They will provide us feedback on the project and give us ideas, but also provide source material for the research. In creating this council, I looked for people who have been around the business from 15 to 25 years and who are passionate about the supply chain. This wasn't necessarily the people with the biggest titles-they didn't have to be vice president of supply chain. I was more interested in the person who was a thought leader. So we selectively invited people to participate and pretty much everyone we invited agreed to serve. We ended up with 26 great people, whose names are all listed on our web site. [Ed. Note: see wet.mit.edu/ctl/www] About 80 percent of them are from corporations and the other 20 percent are from suppliers-software companies, consultants and 3PLs. I wanted people who see the business of supply chain across all types of companies.

But when we stepped back and looked at this council we realized that nearly all of the members were with U.S.-based companies. Because this is a global study, we also wanted to get a European perspective, so we created a European Advisory Council as well. That group has 14 members-again, people who have been in the business for a long time and who are with fairly well known companies. Together we have about 40 people on councils. So that is one source of research.

Being academics, we also do literature searches to see what has been done in this field in the past, which is our second source of research. And the third piece will be visits and interviews with companies-IAC members and others-to talk about their supply chains, as case studies. We may even talk to their suppliers and customers. So those are the three primary sources we are using.

The people actually doing the research work are our students and our faculty. In addition, we are working with some other academic institutions that have expressed interest. For example, we are just starting some research with Dr. Hau Lee at Stanford on the future of logistics parks. Over time, we want to extend this out beyond MIT to other institutions.

Q: What will you focus on in Phase Two?
Lapide: OK, so the first step is to understand supply chains today. The second step is to understand how those supply chains might evolve over time. In order to do that, we have to understand the macro factors, such as how China might develop. China's story today is primarily about low-cost manufacturing. In 2020, China's story might be all about consumption. If it becomes a world super-power, it also will become a consuming nation. And it may not even be the low-cost manufacturing place anymore. So how would that shift alter global supply chains?

I like to talk about $200-per-barrel oil. In 2020, it is conceivable that the oil supply will be much shorter and cost a lot more than it does today. How will that impact supply chains?

In the second phase of this research, we need to start looking at what is going to happen to supply chains based on the trends we see today and the macro factors that might impact those trends. That is what the latter part of the project will be about.

Now, there are two types of macro factors. One is external forces that lie outside of the company, that really are out of its control-things like government regulations, globalization of trade, what happens to China and so on. But there also are supply-capability macro factors like technology that companies can use to adjust and modify and improve their supply chain. This also includes process innovation, manufacturing advances and so on.

To look at these we are going to use a methodology called scenario planning. This is NOT forecasting. That's a critical point. You can't forecast 10 to 15 years out because the world is changing too quickly. It just doesn't work.

But with scenario planning you talk about possible futures, or scenarios. Scenarios are a set of circumstances that might occur in the future, such as a shortage of oil. This is a plausible possibility and there are a lot of reasons why oil might be scarce in 10 or 15 years. So that may be a component of a specific scenario. Then we ask, what does the supply chain need to do to react to that scenario? So scenario generation really is about identifying possible futures and then asking how supply chains would have to adapt in that environment. It is more about preparing companies for what might happen rather than telling them what is going to happen. We don't know what is going to happen. But the idea is to help companies be in a position where they are flexible enough to be able to adapt to whatever the future holds. So that is the final product of all of this-to be able to help companies figure out what kinds of strategies to put in place today that will prepare them for multiple possible futures; and to identify stakes in the ground-things they need to watch over time-to see which of these futures is developing and to make adjustments. That is the final product.

Q: That will be in the form of a book?
Lapide: Yes, there definitely will be a book. That is one of my deliverables. Actually, there probably will be two books. The first will be about excellent supply chains, based on our first phase of research. The second book will be about the future and what we have to do to get ready for it.

Q: Do you find that members of the advisory council, within their own companies, already have started thinking about these things?
Lapide: Most of them are not focused this far out and rightly so. They wouldn't survive for 15 years if they didn't think first about the next quarter and next year or two. So the challenge we have for council members is to keep them interested in looking at the future. And the key to that is what can they do about it today? So in addition to looking out to 2020, we will be focusing closely on the next three to five years.

Some people think 2020 sounds a little like science fiction, but our approach, scenario planning, is not science fiction. The things we will look at really could happen and companies will have to react to them in a pretty significant way. The best example of this is Royal Dutch Shell, which actually developed this method for business in the late 1960s (the military had been using it before that). And the success story is that Royal Dutch Shell had looked at a scenario called "oil crisis" before the 1973 oil embargo ever happened. And when it did happen, Shell was able to react in a much better way than its competitors because it had at least looked at the possibility. So that is what we are trying to do in this project. What are the things that can happen and what can we do to get ready for them? And, of course, in all the brainstorming that goes on, ideas come out that are relevant and useful for people today.

Q: Do you see any disruptive technologies on the horizon that you think will impact the next 10 or 15 years?
Lapide: I think RFID may be, or not just RFID but the whole area of auto identification-enabling smart items that can transmit where they are, where they have been and what they have done, or what has been done to them. Whether it proves to be disruptive or more evolutionary is something we will only know over time and I think it may take over 10 years to mature. We do know that it will impact the supply chain. The really critical issue, in my mind, is whether it will become commonplace or whether it will be a competitive differentiator for companies. My guess is that adoption will happen slower than most people think-this is just my opinion, I don't have research yet-and that it will be 2015 before some companies start getting really unique and significant competitive advantages with it. There may be a lot of people using auto identification as a replacement for barcodes but only leaders will be using it in innovative ways that will give them the competitive edge. Using it not to just figure out where things are but to figure out where they have been and where they are going and the state they are in-these are the critical things.

The other big story is China. I think as its economy grows, China will be a less attractive place to do offshore manufacturing. When you put that in concert with an increase in energy prices, I think it is likely over time that we may start to see more local manufacturing and distribution. Today's concept is to manufacture in a low-cost country and sell in a high-cost country. Equalize the economies a little more as the underdeveloped countries get developed, and it may make more sense to manufacture products closer to where they are consumed. Maybe the global economy will look much more regional than it does today. And, again, that will impact supply chains because it will affect where companies put distribution centers and plants as well as where they source and sell.

Q: How do you think the pace of change during the next 15 years will compare with the past 15 years?
Lapide: I think things will change even more rapidly in the next 15 years. That's why we can't forecast, why we have to look at possibilities. And it's why you really can't leverage current trends by projecting them out.
And it is why I am so excited about this project. I believe this is the first effort to look at the future of the supply chain in a formal research-driven way. It is unique and it is important and it is big and I am really happy to be involved.