Chuck Lounsbury is widely respected as one of the grand figures in supply chain from the logistics provider side. Mr. Lounsbury is a recognized industry veteran with more than 30 years of service as both a top executive and college and graduate-level professor specializing in the constantly evolving field of transportation, logistics and supply chain management.

His three-decade logistics career has included such corporate posts as senior vice president, strategy, marketing and acquisitions for Ryder; president and CEO of Skyway Freight Systems, and group vice president at Toro. His industry leadership includes service as a member of the Council of Logistics Management [CLM] and as an officer of its Round Table. His teaching efforts have brought him executive faculty status at the Kellogg Graduate School, Northwestern University, and executive development programs at such institutions as Stanford, The University of Wisconsin and Case-Western Reserve.

In recognition of these and other efforts, Lounsbury was this spring named to receive the highest annual award of the Transportation Marketing & Communications Association (TMCA)-'Marketing Executive of the Year' honor.

To date, this World Trade series has focused on presenting the views of supply chain leaders of American corporations. Now, with Lounsbury, we introduce an extraordinarily knowledgeable expert from the supplier side of the equation, and with a broad industry perspective to share.

WT: What is your broad picture view on how supply chain has changed?

Lounsbury: Initially, supply chain meant the effort to organize inventory level, primarily for production within a given company. That involved getting manufacturing and purchasing and marketing and engineering to work together to achieve a better forecast. That led to fairly sophisticated MRP2 systems. But as supply chains started to evolve, it became obvious that for real efficiency you needed to connect with suppliers and you needed to connect with the customer. So you went from an enterprise supply chain to an inter-enterprise supply chain.

WT: That said, how would assess supply chain performance?

Lounsbury: Supply chains have gotten better and better and better. Partly, that follows from the recognition that if you have a superior supply chain, you're probably going to win. If you ask who has the best supply chains, the historic answers are: Dell, Wal-Mart, Sara Lee, and Cisco.

Nevertheless, there's lots of room for continued improvement. I can't tell you the number of warehouses I've walked through that are stocking product that arrived by air freight. If you ask: 'Why airfreight something only to have it sit at a distribution center?', they say, 'Well, this was backup; or, we made an emergency order and then found out we didn't need it.' Mistakes like that cost companies billions.

WT: What are the key tasks in this new setting?

Lounsbury: This 'partnership-type' approach means companies really have to trust one another for the accuracy of the data they share. Yet even today, many companies continue to be very guarded about what strategic information they are willing to share-say, information about a new product launch or what their own internal revenue and profit projections might be. They still don't want to give out what they perceive to be competitive information. So, in my mind, getting partners to really trust one another continues to be one of the most difficult aspects the task.

WT: Where do companies turn for solutions?

Lounsbury: In the past ten or fifteen years, companies have increasingly turned to 3PLs to help achieve this. That's why, in 2005, the 3PL market grew 16 percent and went over the $100 billion mark in gross revenues for the first time.

WT: Why do companies prefer the intermediary?

Lounsbury: Intermediaries like 3PLs often have the IT capability to link the requisite data systems together to create a data warehouse where information can flow in and out. This means that, from a visibility standpoint, all the partners can see where their inventory is and whether it's moving in the direction of the customer.

WT: Sticking with data for the moment, are there issues beyond the willingness to share it?

Lounsbury: Yes, frankly, much of the data that gets shared is simply wrong. Dirty data leads to very poor decision making. When, say, you're designing an RFP, maybe 50 to 80 percent of the data you get is wrong. I've had this happen over and over. You're preparing a very detailed proposal for a customer, it's based on the information they supply, and it's just wrong.

WT: Why is that?

Lounsbury: A bunch of reasons. They'll give you a month's worth of data and tell you that it's typical for the year. That's almost always wrong-no business is twelve months flat. Or, they don't have the data. I'll say can you give me numbers on shipments in the past year. By origins? Destinations? SKUs? They say they'll get it to me, and a month or two later they just don't have it.

WT: In addition to reluctance to yield data, what problems seem important?

Lounsbury: Everyone wants to determine what final demand will be. But forecasting demand is very uncertain. You're trying to guard against ordering more than you need, but not having too much. These things continue to test the ability of partners to respond. And as you look at these working together, what you're finding is that oftentimes they just don't mesh well. You are bringing together organizations with different internal structures, different terminologies and, often, different management philosophies. And for that reason, this continues to test the trust of the partners.

WT: Do companies have the simple resources they need to undertake today's more demanding supply chain task?

Lounsbury: Often not. Companies have tried to lean down so much and downsize so much that often they no longer have the necessary resources. And, they're facing an incredible challenge when the 74 million baby boomers retire. They are going to have this gigantic brain-drain. Most companies don't even have a plan for this. They don't have a lot of bench strength anymore. And, in some ways, outsourcing adds to this.

WT: How is that?

Lounsbury: When you outsource, you are outsourcing a capability that you think is non-core to your business. But, at the same time, you're also outsourcing the infrastructure and the capabilities to do that thing in the future. You're losing that, including the people.

If you look at what's happened in the U.S., we have de-industrialized the United States; we've gone from 19 million manufacturing people down to 12 million. Once you tear out this infrastructure, you lose the talented people. It won't be easy to bring it back.

WT: Companies we interview says they are moving to closer relationship with fewer suppliers. Is this happening?

Lounsbury: That is a long and gradual trend, and the reason is that the pain of separation becomes greater as the 3PLs and suppliers have become more ingrained with their customers. Once, if you were in a transactional type of business, it was quite easy to just bid it and charge suppliers. But if you're in a business that requires a lot of expertise and knowledge and understanding of the business, then it's hard to change.

WT: How will new technologies alter the equation?

Lounsbury: For example, that gets into the whole idea of RFID, which is kind of a hot topic right now. Yet the adoption curve for RFID is going much, much more slowly than everyone predicted.

WT: Why is that?

Lounsbury: People are saying that RFID is the greatest thing since sliced bread. Yet, what you find is that while the RFID tag is capable of providing a great deal of data, the IT systems as yet have no way to capture much of it. So the next investment in IT won't be so much to buy the tags as to develop the internal IT capability to use the data the tags carry.

WT: What's the timeline on that?

Lounsbury: Companies are using RFID now, largely for backroom inventory. The real future value of RFID will be in capturing information from the customer, grouping that information together, and using RFID as 'signposts' along the way. That will give you 'rolling warehouses'-which consists of what is in the trucks at any given time. That in turn will let you shrink the size of back rooms because you can better match what's on the trucks with what needs to be on the shelf; and that will increase your turns. Twelve turns a year will go to 18; 50 turns to 75-whatever the best in class in your industry is.

WT: We report regularly on the status of transportation systems-shipping, rail, truck and air. What is your assessment of those systems?

Lounsbury: They are in absolute crisis. Let's start with the ports. Between 70-80 percent of the containers coming out of Asia reach port in Long Beach or Los Angeles. Neither one of those ports can expand physically. The only way they've been able to handle more throughput is to run longer hours, which upsets the neighbors. And it upsets the drivers-they've put penalties on drivers for picking up freight during the day. With container freight growing at 15 percent a year, these ports are absolutely at capacity. And they have labor issues-the longshoremen there, who've had a long history of difficult labor relations, can virtually shut down the retail economy just by walking out or doing a slowdown.

WT: What needs to be done?

Lounsbury: What you need to do is get the containers out of the port more quickly. It's a perfect application for a unit-train that moves them out to a staging area 15, 20, 30 miles inland.

WT: And the other modes?

Lounsbury: Rail has real promise, but the railroads are unwilling to make much new investment. In fact, the amount of trackage in service in the United States has declined steadily over the past 20 years. And railroads today are coining money. They're putting huge fuel surcharges in.

Trucks are another problem. We don't have enough trucks; we don't have enough drivers. We have openings for 20,000 drivers today; it's going to be 100,000. We don't have cheap fuel. We don't have port infrastructure, we don't have rail infrastructure. And this adds up to a somewhat disturbing fact.

WT: And that is?

Lounsbury: What we are now seeing-for the first time in years-is a rise in the percent of total logistic costs compared to GDP. It's been running about 8.5 percent; this past year it bumped up to 9.5 percent.

WT: To what extent does that rise trace to fuel costs?

Lounsbury: A great deal of it does. Sometimes fuel costs are 50 percent of the shipper costs. Now, for the first time, you're seeing diesel fuel over three bucks a gallon, so you know the trucking companies are going to have to try to pass that along somehow. You've seen what has happened to UPS' earnings. FedEx is going to have the same problem. In the long run, fuel costs will change people's behavior. In the short run, there's not much you can do about it.

WT: Looking longer-term, how will it play out?

Lounsbury: For one thing, fuel costs will put another strain on lengthened supply chains. That's why I think that China, which certainly offers wonderful cost savings in labor, will have less of an advantage. You may well see resurgence in Mexico.

WT: Does supply chain length concern you?

Lounsbury: Yes, when goods take long to arrive it creates particular concerns. If you're in a market like electronics or toys, the shelf life on these products is in some cases eight to twelve weeks. If something goes wrong, you're a dead duck. If you miss the Christmas season for toys, that's it.

WT: Do you see other international trends?

Lounsbury: We are already seeing intense competition from the BRIC countries-that is, Brazil, Russia, India and China. Pretty soon they will be 40 percent of the world's population with a GDP equal to the U.S. And those countries will not only compete for trade, they'll compete with the U.S. for natural resources. In the 70s, oil was a political issue; now, it's a capacity issue.

WT: Security issues also come into play these days?

Lounsbury: Global security will continue to be huge. And it matters a lot how we try to achieve it. There are U.S. Senators talking about inspecting every container. If we tried to inspect every container coming into a U.S. port, we would shut down the total supply chain. And in any case, the risk is not where it comes into the U.S., but where it's loaded, so they're focusing on the wrong end of it. They're talking installing radioactive detection equipment at every one of the ports-that's just not reasonable.

WT: You're still teaching. What's striking about your students?

Lounsbury: Two things strike me about the students I see today. First, almost all the students want to work for a railroad or an airline; almost none of them want to go into trucking, although trucks move 80 percent of bulk freight. They just don't think the trucking industry is very glamorous. And second, a lot of my students come in with an engineering background. Their impulse is to optimize things. But if you're really going to do supply chain, you need to be expert at building deep relationships with your suppliers and customers. Relationship management is as important, or more important, than the ability to write an algorithm.

WT: Any final thoughts?

Lounsbury: Yes, I'd like to share something about customer satisfaction. I've done deals with companies where we met every one of their criteria, and the customer is just not satisfied with the performance. The customer says, 'Well, it's just not meeting my expectations'-even though we'd done a good job of scoping out what those were. I found that most customers don't want a lot of choices. Customers want exactly what they want.