Q. Tell me about the challenges you see facing supply-chain managers as we move into the new year?
A. One of the things that will really become crystal clear, particularly as the marketplace continues to become increasingly competitive, is that the supply chain is a game-breaker, but not because of the advancements in technology or all the cute bells and whistles on the internet. Supply chain is a game-breaker because it really is the quintessential piece of the business that is up close and personal with the customer. There's going to be a deepening understanding that this supply-chain methodology we are talking about is in fact really all about customers; as individual companies we may be using different technology and different thought processes in our particular supply chains, but it's all really focused on the customer. And I think there's going to be a burgeoning understanding that rather than pure technological advances in products and/or services, people are going to begin to realize the power of selling their supply chain as a competitive advantage. And this will become even more apparent if we see any softening in the economy.

Q. With what you've seen in the economy in the last quarter, how does that affect your outlook here?
A. The typical reaction to any softness in the overall economy usually causes people to retreat, to go back to business as usual and begin paring back on initiatives. But I would submit to you that those who do that in the area of supply-chain management are going to lose, and they're going to lose big-time. If you continue to persist and continue to innovate and continue to be aggressive around supply-chain optimization, your company will be in even better stead in a softer marketplace than it would by returning to business as usual.

Q. In the event we see that softening, will it be a hard sell in corporate America for companies to stick to their guns on the supply-chain front?
A. That will be a hard sell across the board, because the tendency will be to go back to a very short-term focus. But if you continue your supply-chain focus with both short and long-term objectives, it will help you weather the storm in the downturn and give you an opportunity to leapfrog over competitors that lack the vision to stick with their knitting. But that's atypical to what almost every industry, not just automotive, has done in the past. So really, any change in the marketplace, whether an uptick or a trough, presents a prime opportunity for optimizing the supply chain and doing something different via optimization that causes customer satisfaction to be better and your bottom line results to improve.

Q. So how will the smart supply-chain manager proceed?
A. The smart manager is going to have to have a lot of intestinal fortitude, and the smart manager is going to have to be able to equate customer satisfaction to supply-chain efficiency and be able to show that the supply-chain efficiency that's driving customer satisfaction also is strengthening the corporation's bottom line. Most enterprises presently don't have a very good way to quantify the value of speed in the supply chain, unless their business is with products that have a shelf life.

Q. If the marketplace does take a turn downwards and companies are faced with the struggle to maintain their supply-chain initiatives, what does that mean for all the emphasis on collaborative planning and forecasting that we've talked about now for three or four years, but in reality only a small segment of the business population is actually doing?
A. You're right in that most of the talk about collaboration to this point in time has been more hype than actual performance and implementation. But if the economy would turn downwards for any length of time, to walk away from collaborative initiatives is exactly the wrong thing to do.

Q. You note that it's been more hype than implementation. Is that because deep down there is a lack of trust between trading partners - they don't want to share this data - or is it a lack of financial commitment to the endeavor or an absence of understanding as to what this effort could actually produce?
A. Yes, yes and yes. It's a little bit of each, but there's more a lack of understanding not only of what the quantifiable outputs of collaboration are but what the overall impact on customer satisfaction can be. In most industries, the great majority of supplier-customer relationships at best have been cooperative but not truly collaborative, and there's a huge difference between being cooperative and collaborative. In a collaborative mode, the whole reason for being is to make the enterprise win. When I say enterprise, I'm talking about the overall value stream - the overall supply chain. Right now we're in an era of hype and cooperation, but we need to move to collaborative implementation, because that's where the real gains are.

Q. How do you turn those relationships around?
A. Part of the problem here is that a lack of understanding still exists in some corporate quarters as to what supply chain really is. People have a real hard time even trying to decide, if they were to collaborate, who would they collaborate with, and who can help me get this effort off the ground? Many companies have purchased a lot of software that they haven't even run. And not only have they not run it, they don't know how to run it. That makes people leery and contributes to the fragile status of collaboration. And though it's a great buzzword - and has been for the past four or five years - we're still in our infancy with regard to what collaboration in the supply chain is and how to go about implementing it. I do think that the development of the e-marketplaces in general will be an enabler to moving from tacit cooperation to true collaboration by making the process less painful. If a company finds it can collaboratively work in an e-marketplace online, real time and inside firewalls without being hurt, it quiets some of the trepidation about taking that next step.

Q. How do you achieve the buy-in from your other suppliers, particularly for other industries that lack the disciplined tier structure the auto industry has developed?
A. You have to be able to demonstrate the win-win nature of the proposition. One catch is that you can't always formulate a factual business case to present to your trading partners because this may be untrodden ground, but you have to be able to convey your sincere gut understanding that this is the right thing to do. And your trading partners really have to feel that you are in this together for the long term and truly are going to optimize the chain - not optimize my operation at the expense of yours - so together we can drive first-time quality and speed. And by definition, that will drive out costs.

Q. What about for a company that doesn't have the kind of leverage Ford has with its trading partners ... how do they make that connection?
A. There's no easy answer to that. You have to figure out from the very beginning how to make it work so certain elements of the supply chain don't end up having to bleed to near death for five years until the enterprise reaches the promised land.

Q. We have written about the Inbound Planning Engine (IPE) Ford is using to optimize material flow inbound to its assembly plants. Given what you are saying, why are you limiting the application of that optimization model to your Tier I suppliers?
A. It's not a matter of limiting it altogether; that's just our first step. We want to make sure we test and perfect the methodology, then we intend to extend application of the model down through all tier levels. Since we're talking about it, let me point out that there are a lot of counter-intuitive elements to this project. For example, in our old business model, if I told you I was going to increase the ship frequency of material and perform inbound material movements in accordance with timed window pick-up and delivery, the expectation would be that freight dollars would go up. But in reality, it didn't go up. Now that we are shipping more frequently and in an orchestrated manner, we know exactly when each truck is going to be where. This allows us to have only one trailer and one driver instead of four or five of both in a particular lane, so the trucking company is getting a much higher turn rate on both their human asset and their equipment, we have less material in the pipeline, the freight cost goes down, and the need to expedite is reduced. And that's not intuitive.

Q. What's in it for the supplier?
A. It allows the supplier to "lean" out their system and operate a much more disciplined production operation when they know they have to ship a specific quantity every day at the same time, as opposed to us coming in every one or two weeks and picking up a boatload of product. Frequency and speed establish a different discipline in the overall manufacturing process. There's also a quality angle here as lot sizes decrease. If the supplier is only providing 20 pieces per day instead of 20,000 pieces at a time in periodic shipments, the likelihood is greater that the supplier has taken a closer look at those 20 pieces. And conversely, if a problem is identified, there's not a lot of waste in the system. Most enterprises don't make good quality decisions when it comes to large batches. If we were talking about a batch of 10,000 and I came to you and said the batch is suspect and they all look like this one, you probably would say "can we re-work them," and we'd end up with our shoes and socks off trying to figure out if there was a process we could put these parts through to try to make them right and avoid the expense of dumping 10,000 pieces. We just don't make good decisions in large batches, so we need to force as best we can and as quick as we can batch sizes of the lowest possible number.

Q. Have most corporations squeezed the excess costs out of virtually every aspect of their operation but the supply chain?
A. Yes, to an extent, but a lot of those costs have come out of the enterprise in silo fashion, and that's not where the real gains are. In the main, we're quickly losing our ability to squeeze out any more costs if we continue to look at silos - my plant, your plant, supplier X's plant - and keep looking at those facilities as individual and distinct chimney entities. But if we start looking across those plants in terms of flow of material, there are considerable savings to be gleaned. I like to use the phrase "dirt to dollars," as in 'how can we transform at the speed of light a scoop of dirt into a saleable, high-quality product that the customer will be excited about receiving?'

Q. For that type of an initiative to work, at what point or on what level within the corporation does it have to start?
A. The driver has to be at the top of the organization. Without the expectation and support of the chief executive and the senior management team, the guy on dock in Plant III won't have his heart in it. It is a cross-enterprise exercise. The first thing that has to happen is that you have to get all the functional areas in your own operation lined up, which is a formidable task by itself. Most corporations still are very function-oriented: they have a purchasing operation, an engineering operation, a manufacturing operation, a distribution operation ... in some instances, we act like all these functions are distinct disciplines, that none of these activities actually touch each other. Flow is about aligning all those functions with a focus on the customer so you can make that transformation from dirt to dollars at the speed of light. So the first challenge is internally, getting your own house in order, and then you must apply that same methodology across the other members of the supply chain, to suppliers, carriers, lead logistics providers ... they all are a piece of the equation. We need everybody to view this as a serious flow problem.

Q. How are you approaching this at Ford?
A. At Ford our goal is to achieve Six Sigma levels of quality in everything we do. We focus on speed, speed and speed, and the earned output of that is customer satisfaction, and the earned output of that customer satisfaction and customer excitement is shareholder value.

Q. Isn't the customer right now - for automakers as well as for so many other industries - a moving target with changing customer demands and buying practices?
A. The customer is a moving target, but that customer isn't nearly as schizophrenic as we may make them out to be. The customer really is looking for about six "rights": the right product, the right quality, the right time, the right place, the right information and the right value. Every time. So when one asks, 'what does the customer want,' I don't care if it's about vehicles or ladies' hats or hula hoops, those are the six elements that any customer seeks. And regardless of the industry, the entity that can provide those six rights flawlessly at Six Sigma levels of quality is going to win. The catch is that in a lot of industries, we are just now figuring out what those six rights really are. For example, information visibility on a real-time basis is something that probably hasn't been on a lot of folks' radar screen heretofore. The customer is interested in knowing where things are on a real-time basis. The concern is 'when am I going to get it - for real, when am I going to get it?' And that's a different mindset. It's a very simple question, but it's very difficult to do with a complex supply chain. However, it's mandatory for survival as we move forward.

Q. How does cost figure into these six rights?
A. First of all, the customer doesn't give a rip about your cost as a manufacturer. The marketplace is going to set the price, and your ability to control the cost just determines how much profit you are going to make ... The control factor with that new market equation is that you have to be focused on cost, but the way you focus on cost is by focusing on those six rights for the customer at very high levels of quality.

Q. What do you see happening in the human resource area in supply chain?
A. When you understand the power of supply chain, you recognize that the skill set involves a lot of industrial engineering and analysis, planning and execution. Most companies typically have operated their supply chains in a fire-fighting mode, but we're moving to a true supply-chain management mode, which is an analytical, precisely orchestrated flow of materials and information. Consequently, the skill set for supply-chain managers has been racheted up dramatically in the past several years, and it's going to go even higher.