chief lo·gis·tics of·fi·cer
/CHēf ləˈjistiks ôfəsər/
• person responsible for the detailed coordination of assets, business processes and information to satisfy customer (or soldier) demand
• the person responsible for the forgotten second half of marketing: satisfying demand
The first logistics officers took a mathematical approach to supplying troops
Alexander the Great, or Philip II as he was originally known, in addition to being history’s first great captain, was also its first logistician. At age 21, shortly after assuming the Macedonian throne, young Alexander embarked on a conquest across Asia that would last the remainder of his life. He led 40,000 soldiers and 6,000 horsemen to Asia Minor, and did with a meager supply of food.
Alexander carefully planned the timing of the sea journey to Asia Minor—he made sure that his 30 days of rations would last 10 days beyond the harvest date in the country he was attacking, which provided him with a seamless supply of food and water until he conquered a city or kingdom. On land, his army could only carry a 10-day supply of food. They covered 19 miles per day, hurtling across Persia and India with a group of men that would eventually exceed 90,000.
Alexander’s success was largely in part due to his detailed logistical planning. Detailed knowledge of terrain, the opposing armies, and harvest calendars gave him an advantage over his unprepared opponents. He eliminated the usual retinue of servants, wagons, and spouses from the marching army, allowing his men to move quickly across terrain. And, perhaps most importantly, Alexander developed alliances with conquered and friendly locals who provided his army with an uninterrupted stream of supplies.
Many great military commanders and generals that followed, such as Hannibal, Napoleon, the Duke of Wellington, Henry Kaiser, also took innovative, mathematical approaches to protecting their supply lines, and attacking their enemy’s.
In business, it took a long time for logistics officers to get respect
In business, the logistics wakeup call happened in 1962, when noted management expert Peter Drucker published an article in Fortune magazine titled “The Economy’s Dark Continent.” His thesis was that the hermetic, promotion-obsessed people who managed and directed the U.S. economy were, for all practical purposes, blind, by dint of their ignorance of and obliviousness to the logistic dimension of their jobs. Drucker noted that “almost 50 cents of each dollar the American consumer spends for goods goes for activities that occur after [my italics] the goods are made.” Distribution—or logistics, as it was then construed to mean—was half of the ball game. Nevertheless, the writer declared, in a much-quoted passage:
“We know little more about distribution today than Napoleon’s contemporaries knew about the interior of Africa. We know it is there, and we know that it is big; and that is about all.”
The logistics function was spread out among such in-house departments as engineering, traffic, shipping, warehousing, and accounting. No one was in charge of the various functions and activities that came under its amorphous head. Management’s visibility of these processes—of this dark continent—was limited. Hence the CEO’s field of vision and ability to maximize profits was limited, and he couldn’t be a very good CEO, could he? Such was the essence of Drucker’s indictment.
A related problem, according to Drucker, was the difficulty of evaluating the cost of logistics. The varying nature and definition of the logistics function group, from company to company, combined with the lack of accurate or easy-to-use computational measuring tools made it difficult to find out how much these functions cost their respective companies, further blurring them. However, for Drucker, the basic reason for American business’ logistic obtuseness continued to be, essentially, a matter of attitude, that is, the perception, both within the factory walls and from without, that anything associated with logistics was unskilled or donkey work. Thus, Drucker charged, “because, to a technically minded man, most distribution work is donkey work, he tends to put a donkey in charge, more often than not a man of proven incompetence.”
To Drucker, the most blatant illustration of American business’ logistics obtuseness could be seen when one opened the door to the mercantile twilight zone known as the shipping department. “Even in the best-managed plant things change dramatically as soon as one goes through the door labeled ‘Finishing Room’ or ‘Shipping Department’ [where] there is suddenly a mob of people. Everybody seems to rush and no one seems to know why and where.” In short, all was pandemonium.
The Chief Logistics Officer finally emerged
The only way to assert control of this messy, neglected process, Drucker insisted, was for businessmen to look at their business in a new holistic way—by seeing logistics, as an integral part of the manufacturing process, rather than a boring auxiliary of it, as was so often the case. “At a time when American business faces great competitive pressures from abroad—especially from a unified Europe whose industries can hold their own in technology, manufacturing knowledge, equipment and salesmanship,” he continued, sounding an almost eerily prescient note, “raising the effectiveness and cutting the costs of the American distributive system may be a more important and more urgent job than most managers yet realize.”
And so, by building upon the basic vision of modern American marketing, a vision based on seeing logistics as the reverse side of marketing—as well as a set of interrelated activities unto itself comprising transportation, warehousing, traffic, finished goods, inventory controls, packaging and materials handling—Drucker helped set the stage for and helped usher in the brave new world of what came to be called integrated logistics management, and the intellectual basis of what we today consider modern logistics.
Where the first half of marketing is creating demand, the second half of marketing is satisfying demand. And the Chief Logistics Officer is the person responsible for this second half of marketing.
The field of operations research, which emerged from the logistics of WWII, has provided the toolkit of mathematical models, statistical analysis, and mathematical optimization for Chief Logistics Officers to manage a set of resources. A logistics officer’s team can use these tools to take a mathematical approach to balancing a maximum objective (profit, performance or yield) and a minimum objective (loss, risk or cost), improving this balance over time, and providing visibility to the CEO every step of the way.
In 1991, the Council of Logistics Management commissioned a study to determine the potential of applying this same mathematical approach to service organizations, and as it turned out the principles of logistics were even more important in service organizations than in production firms. In a service organization, there may not be warehousing or inventory, but the fundamental coordination of assets, business processes, and information, to achieve maximum and minimum goals, remains the same. Hence a Chief Logistics Officer should not only be responsible for delivering the goods, but also for delivering the service.
Now new logistics technologies are helping disrupt industries
The Gulf War, the Internet, Dell and Amazon have triggered an arms race in logistics technology. We’re seeing a parade of disruptions, from WebVan, Kiva Robots, Shipwire, Fulfillment By Amazon, Shopify Fulfillment, and on the services side Salesforce is helping businesses holistically satisfy the demands of their customers. Presuming a Chief Logistics Officer just manages warehousing and transportation of physical goods is suddenly sounding quaint and naive.
In 1995, the U.S. Armed Forces asked a question: can a cargo plane also serve as a warehouse? And when it lands, can containers be offloaded so that they themselves operate as mini-warehouses, and can in turn be broken down into micro-warehouses at the pallet level and transported to the front? And can we then roll it all back up to the cargo plane-level at a later date? This was part of Gen. John Shalikashvili’s Joint Vision 2010. In this hierarchical scenario, where does the warehouse end and transportation begin?
In 2002, I published Delivering the Goods, and posed a larger question: can we view the entire world as one large warehouse? As it stands, there is a science to laying out and optimizing the operations inside the four walls of a warehouse. There are fixed costs, tradeoffs between cheap human labor and expensive, hard-to-upgrade automation, and information that can be used more and more intelligently. Given a range of inputs, it’s possible to rapidly AB test different iterations inside the warehouse, and incrementally improve the outputs indefinitely. Our three measures of success are faster, cheaper and better. By freeing ourselves of PowerPoint diagrams of warehouses and trucks, can we innovate new ways to satisfy our customers?
We’re seeing the answer today: Instacart is offering a same-day grocery delivery and pick-up service from more than 20,000 different grocery stores. Amazon Flex is upending last mile delivery with office workers dropping off packages in their evenings. CloudKitchens is using underutilized real estate in cities to enable restaurants to set up kitchens for the purpose of catering exclusively to customers ordering in. UPS Flight Forward is testing drone delivery.
We believe we’re in the early stages of a logistics revolution, with a pipeline of disruptive technologies, including autonomous vehicles, artificial intelligence, 3D printing, mobile distribution centers, unmanned kiosks, smart lockers, cloud-based workflow automation, augmented reality, telepresence, and more.
The first revolution in logistics began thousands of years ago, and the second revolution began 150 years ago. The third and latest revolution began in the 1970s, and we believe we’re in the early stages. Let’s a take a quick catchup tour, and then look at what comes next.
Revolution 1: Agricultural Revolution
The first revolution in logistics came with the domestication of animals and plants. This marked the beginning of an agricultural way of life and more permanent civilizations, with humans no longer needing to wander to hunt animals and gather plants for their food supplies. The best logistics system of its day, and one that would endure to the twentieth century, was the one built by the brilliant, irrepressible, and somewhat mad Alexander the Great, who wished to conquer the world. Perhaps the most distinctive aspects of his system were the advance supply depots for his armies, and the basic math behind supplying a large expeditionary army. The distances and dimensions of Alexander’s 4,000-mile march across Asia, before the invention of trains, planes or automobiles, still boggles the mind.
Revolution 2: Industrial Revolution
The Industrial Revolution brought along with it the second revolution in logistics. This is when the world transitioned from hand production methods to machines that could produce identical products en mass. Waterways, roads, and rail were reconfigured to transport bulk materials long distances. This all led to an unprecedented rise in the rate of population growth, and ultimately WWII. As John Keegan, the distinguished military historian, writes in his landmark book, A History of Warfare, “It was America’s industry that overwhelmed its German and Japanese enemies, though only because American shipyards also supplied the transportation to move it.” In 1941, it took the U.S. an average of 150 days to build a Liberty ship. By the end of 1942, this was cut down to an astounding four days and fifteen hours and they were turning out a ship a day, a rate maintained until the end of the war, thus helping to win the crucial “Battle of the Atlantic.” This was the personification of the arsenal of democracy and of American logistical can-do.
Revolution 3: Information Revolution
Computers and Fedex
We mark the late 1970s as the earliest phase of the Information Revolution, and along with it the third revolution in logistics, with the advent of the computer, and the tracking number. Fedex founder Fred Smith is famous for saying, “The information about the package is as important as the package itself.”
The Gulf War and the Internet
In the early 1990s, the Gulf War provided a major test for all this new technology. During this operation, the Army moved more than 41,000 cargo containers on 500 ships and 10,000 aircraft to Southwest Asia—numbers that are in many ways unbelievable. This massive “push of logistics” quickly overwhelmed the theater infrastructure, and by the end of the war in 1991, half the sea containers were still sealed with their contents unidentified. Thus began the next phase of the Information Revolution, with Fedex.com and Amazon launching in 1994, and the Department of Defense initiating Vision 2010, a landmark paper envisioning a future of “total visibility of all people and materiel, so as to instill confidence in the troops with definite information about when and where goods would be delivered.” The logistical guesswork and improvisation of the past was unacceptable. Advances in inventory control and automation set the stage for large U.S. businesses to begin selling online.
Mobile phones and Amazon
The iPhone launched in 2007, helping bring online access to the 45% of the world’s population covered by 3G mobile networks, growing subscribers 35% per year, and helping the Internet to become ubiquitous around the world.
Meanwhile in the U.S., Amazon has grown to control more than a third of all online retail spend, and 5% of all retail sales. More people spend money online with Amazon, than with all other retailers—combined. The rocket ship for Amazon’s growth has been its marketplace—the platform where Amazon allows third-party sellers to use its retail and logistics infrastructure to sell and deliver items to Amazon shoppers. It accounts for almost 70% of Amazon’s retail sales. Combine the “Amazon-effect” with global economic challenges, and increasingly polarized geopolitics, and it should come as no surprise that most companies are rethinking their supply chains
We believe this “global awakening” is in its infancy, and that it will take decades for the following theses to play out:
Reinventing supply chains
Advances in robotics, transportation, chemistry and biology will enable industries to reinvent their supply chains.
Building platforms for on-demand services
As more industries are pressured to offer more services on demand, they’ll need help getting C-caliber people to deliver A-caliber results.
Exporting eCommerce logistics
The Internet enables non-US businesses to emulate US eCommerce, but they need logistical support.