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I interviewed Reginaldo Montague who discussed supply chain risk and the importance of understanding suppliers.

Dustin:            Thank you, Reginaldo, for spending your time to share your views today on supply chain risk. Can you start by providing a brief background of yourself?

Reginaldo:        Sure. I have approximately twenty years of experience, primarily in manufacturing for consultancies. My most recent role was as vice president of operations for a cosmetics company.

Dustin:            What is supply chain risk?

Reginaldo:        In terms of supply chain risk, I like to stick to the APICS definition, which defines it as decisions and activities that have outcomes that could negatively affect information or goods within a supply chain.

Dustin:             Do you have any examples of supply chain risk?

Reginaldo:        Yes, I do. For example, you have a disruption in a supply chain caused by a plant shutdown due to, say, a labor dispute, for example. You may have just delays because of a poor supplier, or you’re going to have a system breakdown, where your computer systems might be antiquated, they break down and cause, essentially, a shutdown of your ability to deliver the goods to your customers.

Dustin:             How can supply chain risk be addressed?

Reginaldo:         It can be addressed. If I take each of those examples, in the disruption example I think companies should be focused on understanding what their suppliers are doing, visiting their suppliers, doing scorecards for their suppliers, understanding what the labor situations are with their suppliers, even reading annual reports for those critical suppliers. In terms of delays, again, supplier management becomes very important, ensuring that the suppliers are of the highest quality possible and, where possible, where needed, working with suppliers. You may want to eliminate some suppliers and replace them with new ones or improve the ones that are in place by providing your own expertise. It really depends on how your supply chain is structured.

Dustin:             Any other examples?

Reginaldo:        Yes, one of the things you find during very extreme circumstances, you may find that, for example, governments might shut down borders or if you think about the SARS outbreak in Asia, there may be difficulties in getting key suppliers out, as I think many of your listeners and readers know that many of the computer supplies come out of Asia. Any of these activities—either man-made or natural disasters—can have a terrible impact on supply chains. If you think about manufacturing facilities that operate on a just-in-time principle, if you stop providing them with the materials and raw components needed to conduct their manufacturing, such as what happened during 9-11, those facilities come to a halt. It’s very difficult to continue production. I argue that maintaining lean inventories and reducing costs, it’s all a very good goal; however, the tradeoff is that we’ve placed many supply chains at risk, and as a result, what we need to do is, as part of the annual business and planning cycle, as part of the S&OP, we need to review those risks and understand where there might be opportunity to mitigate them.

About Reginaldo Montague




Reginaldo Montague

Supply Chain & Operations Executive with Global Experience


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I interviewed Tom Craig who discussed outsourcing to 4PLs versus 3PLs.

Dustin:             Thank you, Tom, for spending your time today to discuss outsourcing 4PL versus 3 PL. Can you start by providing a brief background of yourself?

Tom:                 I have worked on what’s referred to a the shipper’s side in supply chain management, domestic and international, broad scope responsibilities as to order processing, inventory management, warehousing print or domestic international. At some point I decided I was gonna take that and start up my own business with consulting, and that’s what we’ve done. All our people have real-world supply chain experience, real-world logistics experience. They’ve worked with carriers, shipper side, whatever it happens to be. We think that brings some unique perspective to what we do for clients.

Dustin:             What are the advantages and disadvantages of outsourcing 4PL versus 3PL?

Tom:                 Basically, it depends what you want. I view the 3PL as the traditional model that’s been around, where the parent company is some sort of transport company, forwarder, warehouse, and its core business has expanded out into doing additional services for its customers. But the primary intent has always been to bring business to the mother company.

                        So, 4PL, to me, it’s a contrast, a standalone supply chain service, and the key differences between the two are the 4PL is a neutral party; it’s not there to bring business to the parent company. It has both a tactical and a strategic viewpoint, which, often, the 3PL does not have, strategic in particular. The 4PL is more of a manager rather than a performer of tasks. Also, the 4PL looks at the supply chain process as opposed to just the function itself. Those are the differentiations. The question what you want is what you particularly have for your outsourcing application.

                        Traditionally, many have gone to the 3PL  because they get the most attention. The 4PL has gotten more work, more business, more visibility on the European side of the activity. I find two interesting things—maybe three—going down the road. I find it interesting that some 3PLs are also positioning themselves or selling themselves as 4PLs. Remember the differentiations I gave you. They’re sort of masking over their differentiation, but some major companies have given their business over to the 4PL branding of some 3PLs, which I find an interesting trend. I don’t know if it’s a trend but something that’s happened. How they can become a 3PL and be a 4PL given the difference between the two types of business.

                        The other thing I see happening down the road too is, I see as a trend that supply chains are going to require greater diversity, greater flexibility. The reason I say that, there is an ongoing discussion about globalization versus on-shoring, nearshoring, or what I call de-globalization. Will manufacturing move back to the States, move back to Europe or wherever it happens to be? I don’t see that as a major trend. I think globalization is here and will remain here. In fact, I see the next step of globalization going into emerging economies, be they in Africa or wherever they may happen to be. That’s gonna bring on the complexity and diversity and the flexibility. That’s going to require basically management supply chain, a global supply chain, a truly global, it’s going to be a twenty-four-seven requirement.

                        People can say it already is a twenty-four-seven, but the expansion to some of these other areas is going to make that even more of a twenty-four-seven, and that’s where I see the role, also, of a 4PL stepping up. To manage that type of global operation, you’re going to need skill-sets or a 4PL who has a supply chain focus on strategic and tackle type of viewpoint. And some cases actually outsource the process and outsource the managing of that process through other parties. Because of the globalization increasing, you’re going to be dealing with more third parties spread over the globe, be they manufacturers, retailers through Europe, customers wherever they happen to be, logistics partners. This is where I see a 4PL to step up without as much direction from the shipper to give to them. It’s down the road, it’s a trend. Been there. It gets on-and-off attention but I think what I see is expansion in more of a global practice by corporations, even more of a requirement for the 4PL.

Dustin:             Why would you want to outsource to a 4PL?

Tom:                 Basically, I would outsource to a 4PL if I don’t, if I just simply say, “Here’s what I want done. Here are the metrics. Here’s what I need to be done. I need you to act as an extension of me.” That’s where I see the 4PL; it’s an extension of the shipper’s logistics department. He’s not somebody whose main focus is whatever the parent company runs. If you cannot have your own logistics organization somewhere in the world that you want, then this becomes a way to have your own logistics organization in an outsourced environment, where you do not have to have the same sit-down, “Here’s what I want you to do tomorrow,” and so forth. Instead, saying, “Here’s what we’ve got to do. How do we do it?” You’ve changed the conversation from giving orders to discussing the best way to manage what has to be done over the next quarter or whatever the time frame is.

Dustin:             Do you have any recommendations for people considering whether to outsource to a 4PL or a 3PL?

Tom:                 It depends what you want; it depends on your needs. Most people, if their requirements are more focused, limited in scope—that’s not meant to be a negative when I say “limited in scope”—then probably a 3PL is going to be what you want. If your requirements are more complex, what you need, then I would say look hard at a 4PL. That’s the best way I can parse it apart and differentiate. It’s based on the complexity and scope of what you’re looking to outsource.

About Tom Craig




Tom Craig


LTD Management



Logistics / supply chain professional and consultant who designs and implements solutions that work

LinkedIn Profile

I interviewed Nancy Zhou who discussed the importance of engineering process management when sourcing from China.

Dustin:             Hello, Nancy. Thanks for spending your time today from China to discuss China’s supply chain issues. Can you start by providing a brief background of yourself?

Nancy:              Sure, my pleasure. I’m Nancy Zhou and it’s already over eighteen years—actually, from this year I will have accumulated nineteen years experience working with multi-national companies. My career started from lab technician, quality engineer, quality manager and supply chain manager. During all my past experience, I have dealt with a lot of suppliers in China, —middle-scale, large-scale, small-scale, even homemade suppliers. There’s a lot of story and knowledge I can go during my past experience. At the same time it has also enriched me with some education like P.M.P. and also the M.B.A. All of this education also brought me very good insights and also educated me on management from Western companies and Western countries.

Dustin:             How do you improve manufacturing capability and quality in China?

Nancy:              That’s a very good question, and we can say China already has enjoyed a good, very solid improvement in the past thirty years. What I can say is that the past eighteen years, a lot of Chinese suppliers, manufacturers, didn’t have a sense of management. They didn’t think too much about the quality; also, they didn’t care much about the commitment. But over the past twenty years, I think there has been a big improvement on several items.

                        The first is the manufacturing; second is the quality and third is technology. These are the most important things. For the manufacturing improvement, we can say indirectly there have been improvements such as equipment investment, equipment maintenance and management, and also some modern management of manufacturing has been introduced in the past ten years, especially over the last five years. Also, we can see very good site management with more and more suppliers. They pay more attention to these, and they have improved a lot.

                        The last point is that we can also say that there’s a very good educated talent pool in China. The engineers and technicians have very good education backgrounds; they’re already introduced, educated in these very good skills, management, method, and so on. The second is the big improvement on quality and technology. Firstly, we can say the quality has become very common everywhere. It’s not just talk, but you can see something real has been happeing over the last 10 years.

                        We can see a lot of quality management tools. ISO is a very basic one. QCC, TCM, Six Sigma and so on. For the technology, we also see we have more and more professional tools in design, tools in production. You can see that especially in the mechanical industry. Also, the last point is the talent in quality and technology. Many people of the the young generation have received their education. Also, they’re really more and more accepted, more than management method. So, from this point—the manufacturing, quality, technology—we can see the real improvement in the supplier business in China in the past ten years especially.

Dustin:             And what about creating value and sourcing from China? Can you talk about engineering process management?

Nancy:              Okay, great. We can say that supply chains are a really long process from the demand and then to the other fulfillment. We always talk about some commercial issues, such as the price issue, however some very important functions have been ignored, namely the engineering function. We can say that from the very beginning, some kind of MPI new production, introduction, engineer, source engineer, SD engineer, SQ engineer, quality engineer, production engineer, etc. All these kinds of engineering functions are solid functions to support of the success of the supply chain in an executive level.


                        Supply chain has some strategic levels and also executive levels, but what I am talking about is that engineering process control will play more than one important role in the executive level of supply chain. That’s why we can create added value through some very good closed process control. We can think about the improvement, the new production, new parts, and also insure the successful process of the supply chain. We can also improve the communication and the big difference in contracts through the engineering language.

                        I can talk about some examples why we can create value for the supply chain. For example, tooling costs. In China tooling costs are very competitive still, and those are the tooling talent. The tooling development also has become more and more professional. All these kinds of jobs should be involved deeply by the engineers. Also, some kind of material substitution control and also the long-term relationship with suppliers, such as a supplier relationship maintenance and so on.

Dustin:             Do you have any final recommendations for global supply chain professionals that are dealing with China?

Nancy:              In China we’ve already developed the trade in the past thirty years, and we rely much on this, but we can say that it is far below the real competitors from China. They can say the direct price is lower in China, but in the past twenty years, China already built a very solid supply chain with the price, improved quality, and also a lot of engineering resources here. We can create value from this engineering function that, through the project managing methodology we can do some systematical procedure, process control, and also keep consistency and reliability, delivery, local communication. Also, the important one is commitment on the quality, delivery, and so on. I can say that to dig more value in supply chain when dealing with China, I think it should involve more in engineering services, engineering functions. I believe it will be more and more recognized by the foreign companies.

About Nancy Zhou



Nancy Zhou

Principal, Director

Channel Bridge Supply Development Service Co.,Ltd

LinkedIn Profile

I interviewed Manfred Bornemann who discussed the assessment of intellectual capital in supply chains.




Dustin:             Can you start by providing a brief background of yourself?

Manfred:           Sure. My name is Manfred Bornemann. I work in a consulting company in Austria. I started my career as an assistant professor at the University Graz. I did some research here the first years. I tried to do a lot on methodology and some backgrounds. I earned a Ph.D. in intellectual capital reporting, and I started to apply it in industry and in value chains and in regional innovation networks. I had the chance to contribute to a European research project InCaS - Intellectual Capitals Statements made in Europe, covering five major countries and involved major research organizations like the London School of Economics and the largest German research organization.

                        We were quite successful as we cranked out the guidelines. We reported intellectual capital for small and medium-size enterprises. This was retrieved together with the German material for more than one hundred thousand times so far. I think this is quite interesting, and it’s stimulating to continue research on that. More important is, I think, the application, because we should not work on ivory towers. We should try to keep it simple and straight and relevant. We tried to economize the methodologies, we try to develop materials to streamline the process and to make it well known all over the world. 

Dustin:             Can you talk about what is intellectual capital, and how does it relate to supply chains?

Manfred:           Intellectual capital was a phrase coined in the mid-nineties by Karl Eric Sveiby and Leif Edvinsson and Tom Steward and other important people. After almost twenty years of research, I think we came up with a standard definition of seeing intellectual capital as the combination of human capital, structural capital and relation capital. All of them are intangible; they are invisible in terms of not really on a financial statement.

                        Human capital consists of the competencies of all the people, on their commitment to their organization, on their engagement and motivation to contribute. Structural capital relates to processes we have in the organization or developing organizational culture. Drivers like that remain in the organization. And then we have the most important part of value chains, which is the relational part. If you imagine working in an organization, you have customers and, of course, suppliers. We have to interact positively. We have to establish trust among the value chain, and the better we understand each other, the more value we can assert on our customer.

                        So, intellectual capital is all about making a value chain perform, innovate and make money, in order to create the highest value for the customer. The problem is, intellectual capital is sticky. We have to establish trust not only to our supplier but also to our customers. Customers should be easy but suppliers might have the tendency to take away some part of our value contribution. If they steal part of our market because they know how we do our business, this is, of course, not contributing to the relation. As we are in competition with each other, and as value chains are growing and they become more interconnected, this is a severe danger.

                        On the other hand, contrary to organizations, value chains have the advantage of much higher cost-saving potential. I think most of the organizations have been in competition over the last couple of years and exploited their cost savings. They remain on the integration value chain, I think this is a common topic, but it’s not only about logistics, and it’s not only about cutting time for something to deliver, but it’s the way we inter-operate with each other. Here intellectual capital comes to have the most significant impact. If we establish a clear understanding about the way we do business with one value chain, it’s not only our organization or our customer competing against all the others in the world, but one value chain competing against other value chains. At the end of the day, it’s whose intellectual capital is most competitive. If you find a position where we can develop our intellectual capital together. I think this is such a great opportunity to improve our global market share together.

Dustin:             What are the challenges in managing intellectual capital in supply chains?

Manfred:           The problem is exactly the same as in very, very large integrated organizations. There are, for example, middle managers and top managers with competing objectives. If you organize a system bases on objectives, for example, and you give two people the same objectives, they’re competing against each other. This might be fine if they’re innovating and if you said, “I have a a budget and I want the best idea,” and I start five things, but if you are working on productive cost-saving positions, this is no real option. If the teams are fighting each other and not fighting their competition, then it’s a waste of sources.

                        This is the most important challenge, I think, to working with objectives within a value chain. If you can create trust and if you can find agreement and find an alliance on who is doing what based on what qualification and what prior experience and what future developing scenarios, I think we have a good opportunity. That, as a matter of fact, this is, at least in my experience, one of the most critical issues. Competing against each other and forgetting that we are competing together against others, this is one of the most crucial issues, but there’s a second one.

                        The second challenge is given that you agree on a common goal and given that you want to compete together, there is a slight misunderstanding. For example, the term risk, for a lawyer a risk is all of the threats. The term risk—I just want to use it as an example—means to be avoided. And for an entrepreneur, risk means there is a new ocean, there is a new market, and we can go into that market; that’s an opportunity. And if you bring an entrepreneur on—this is the stereotype, of course—together with a lawyer, that case, of course they’d have a problem of misunderstanding, or at least they’d have to invest some time to come up with a shared understanding.

                        If you put that to technology or if you put that to some service level, the danger is, of course, much higher. The examples may be not that clear, but the danger for misunderstandings is the same. So, if we integrate not only one organization, but a whole value chain, and if we can establish shared understanding about priorities, about risks, about opportunities, and how we operate them in our value chain on the procedural level, then we have excellent chances. But right now I think the communication issue along the value chain is extremely important. The problem is, the organizations tend to focus on their internal structures. "I want to optimize myself and my own organization", and that, of course, could lead probably to suboptimal levels.

                        If I optimize my own organization, it could lead maybe to a disadvantage of your organization. But if we agree to collaborate and to have an alliance in the form of a value chain, we have to find a compromise on that. This sounds so primitive but, in reality and in my experience, this is one of the most essential problems in a value chain and intellectual capital and the assessment of the status quo of intellectual capital and shared knowledge about the impact of intellectual capital on each other’s value positions is helping them not to find a new compromise. The elegant part is we could identify completely new areas of business where we could optimize our resources. There are a couple of challenges. I think we resolved the identification of intellectual capital. We have a procedure. I think we can assess and evaluate the status quo of intellectual capital in organizations and in a value chain, so we have very, very good chances to optimize the whole value chain. We did that in a couple of industries like energy and health care and automotive supply and machinery, and we had excellent results so far. There’s a lot of work to do because this creation of shared understanding is not a matter of a few weeks; it’s a matter of years.

Dustin:             Can you briefly discuss the future outlook for assessing intellectual capital in supply chains?

Manfred:           We did a couple of projects in assessing intellectual capital in supply chains so far, and the problem is always the same. For the first year you do that, you bring in a project, and then you start to implement intellectual capital destruction. Everybody wants to shine; everybody wants to say, “I’m very contributing and very fit for our shared ambitions.” In the second year, as people create trust and they learn about the strengths and weaknesses about each other in more detail, they start to reflect and learn that others are coping as well. Then they start to admit not everything is gold that shines.


                        In the second year the credibility is much higher, and valuations of intellectual capital came down a little bit. In the third year the same happens; and then something stranges emerges, like a shared understanding. After, typically, two or three years, the players are really knowing each other and knowing the other’s business and knowing how the other’s are assessing their own strengths relative to my own, and I think then, the learning impact and the optimization impact really hones in.

                        This is just embracing how much you can realize in that phase if you reflect the learning potentials of the whole value chain in terms of intellectual capital. If you bring these people together maybe once or twice a year, the first phase there is nothing. They’re all high and all show off and all say it’s fine because they want to learn a new business, but then after some time, this is a matter of learning,trust emerges, and in a clear vision can be implemented all over the value chain. The good thing is that value chains are, at least in my experiences, relatively stable, so you have the time to learn, you have the time to grow an idea and to grow a concept, to implement change over a couple of years. This is not a matter of weeks, but a matter of years. Then you really can reap the profits.

                        I think this is the most important challenge: integrate the value chain, integrate our shared perspective of intellectual capital, and work on that, because the assessment is just the beginning. You have to work on intellectual capital, you have to optimize it, and you have to use it along the whole value change which is much more complex than using the concept just in one organization. So, there’s plenty of research and applications ahead of us, and I would look for that maybe a few years from now to tell of the developments.

Suggested Reading


1. Background reading on how to assess intellectual capital - based on an European Commission funded research project:


2. A case study for the automotive industry on my website:

About Manfred Bornemann



Founder and CEO

Intangible Assets Consulting;

Co-developer of InCaS - Intellectual Capitals Statements made in Europe

LinkedIn Profile


I interviewed Michael Shamrell who discussed the need to look at your processes because lots of cycle counts and inventory adjustments may not really be helping you.

Dustin:             Thank you, Mike, for spending your time today to discuss the fallacy of substituting massive cycle counting for deficient inventory control process accuracy. That’s a long title, so we’re interested to hear your views on this topic. Can you start by providing a brief background of yourself?

Michael:            My pleasure, Dustin. I’m Mike Shamrell. I have a long career in distribution, transportation, operations, inventory control, cycle counting, inbound-outbound freight, so on and so forth. Mostly consumer products and, also, a large part of my background is a lot of automation, automated storage-and-retrieval systems. So, without further ado, yes, this is a long title, but the situation kind of painted a picture for you.

                        We’ve had two client assignments recently, and in both cases—one was a six DC network, and the other was a single DC network that also had manufacturing. We have found that in both these cases, the clients were performing massive amounts of cycle counts. In one case it was 10,000 or 20,000 annually. The other case it was overstepped by almost eighty thousand cycle counts. The problem with what they were doing was, at the start of the year, they had a higher rate in their warehouse, and after performing all these cycle counts, they still, at the end of the year, had a larger rate and were making hundreds and thousands of inventory adjustments. It was very obvious from the start that the problem wasn’t the cycle counting, and cycle counting wasn’t overcoming the deficient process.

                        Again, the title, “The Fallacy of Substituting Massive Cycle Counting for Deficient Inventory Control Process Accuracy,” is kind of a long way of saying that you need to look at the process because, at the end of the day, all those cycle counts and all those inventory adjustments weren’t really helping you. To kinda get into one of the two clients, the single DC, we’re hooked to manufacturing, is probably easier to talk about and understand. To paint a picture of that client, they had a fifty-thousand-square-foot warehouse, about three thousand locations. Some of the locations were picked to like for each pick, and some of the locations were full-pallet for full-case picking. They were performing over seventy thousand cycle counts annually in a three-thousand-location warehouse; imagine that. Their event-error rate was stuck at .17 percent; they had a 17 percent event-error rate accuracy issue at the start of the year and at the end of the year. So, after performing all those cycle counts, they had still not made a movement for any more accuracy, which told us right away, there’s gotta be some process issues.

                        If you’re making that many cycle counts and you’re making probably twelve thousand inventory adjustments at the end of the year and you’re still back to where you started, there’s gotta be something wrong, some issues within your processes. It turned out once we started—and the other thing we noticed, too, was the customer backorder rate, their first-pass yield on customer orders that were dropped to their system were running about toward .5 percent, and the norm was much less than that. Their backorder rates were getting affected, and it’s all coming back to this root cause of why there were so many errors. We mapped the processes out, we mapped the full-case process out, the receiving process, et cetera, and we, right away, found the two biggest issues.

                         The first issue we found was that the pick-to-like system for each pick had several process methodology and procedural issues built into it. It wasn’t an operator issue; it was a lot of other issues, so we looked at that. Most of the inventory edits and errors found were in the each-pick area; about 95 percent of the errors that they were finding were in the each-pick area. The other thing we found as we went down through the process was at the end of the conveyer, each-pick orders were coming out and getting scanned and placed on predetermined pallets, LPs—we call ’em LPs, license plates—to go to certain storage or certain distribution centers. They were simply scanning the boxes, the cartons as they came off the belt, and that basically was the end of the process.

                        The system was then taking each order that was scanned and putting it in as shipped or already shipped or shipped status. We found that they needed to add one more step to that. They shouldn’t have been just deleting the orders as they came by; they should’ve taken each carton and scanned it and then scanned that same carton to a particular LP that was waiting. They were building four, five, six pallets at a time. The problem occurring was, the cartons weren’t always getting on to the right pallet, going to the right DC, so they had a problem there. There are two big problems. One was the pick-to-like process, the each-pick process; the other one was the end of the shipping process, the loading process, where the pallet building wasn’t accurate, there wasn’t enough being forced into the system to make the operators or assist the operators in getting the cartons on the right pallet. That’s kind of what happened at this DC.

                        The bottom line is: If your operators are performing thousands of cycle counts and the event-error rate is stuck at a high rate—10 percent, 17 percent, 25 percent, whatever—you probably need to go back and really look at your process. The other problem that came out as we got into this further was, these errors were all coming back to haunt the client in another way. They were being billed over four hundred thousand dollars in fines and penalties by their customers, and our contention was, we could do a lot of work in solving systems problems to make up for four hundred thousand dollars’ worth of fines and penalties. The issue was a very high error rate. The processes had some definite issues. And at the end of the day, all those inventory edits—if you’ve been involved in a lot of supply chain stuff—all of those inventory that they were making every day cause havoc with your forecasting systems, your purchasing systems, your manufacturing systems, they can cause havoc with your backorder system—and in this case the backorder, first-pass yield of 25 percent is not good—and, of course, they cause issues with your metrics and everything else that’s associated with supply chain. The message I’d like to leave everybody was: If you have a high error rate, you can’t overcome a high error rate by just doing thousands of cycle counts. At the end of the day, you’re gonna have to fix whatever the problem is in your process. Questions?

Dustin:             Thank you, Mike, for sharing. How can people get in touch with you if they have more questions?

Michael:; that’s my e-mail address. And I’m on LinkedIn, Michael Shamrell.

About Michael Shamrell



Michael Shamrell

Principal at Supply Chain Consulting, LLC

LinkedIn Profile

I interviewed Dan Grosz who discussed mass customization and the leveraging of predictive-analytics and business rule engines to add agility and intelligence to supply chains.

We’re at the cusp, if not already in the middle of this amazing change in manufacturing and consumption. The old paradigm was that you built the scale and priced things cheaply. In today’s world, with various advancement in information technology, supply chain, and, actually, the mechanical aspects of production, you now are able to produce items on a very small scale for the same cost that you could, in the past, product them on a very large scale.


Dustin:            Thank you, Dan, for spending your time today to share your views on mass customization. Can you start by providing a brief background of yourself?

Dan:                 Sure, and thank you for inviting me on your blog. I’m currently partnered with Pinnacle IT, which is a custom-software-and-network-management company located in Waterville, Maine. We do some very interesting high-end programming for a number of different companies, both regionally and, in some cases, nationally. My background, as we were talking before we started the recording, I actually was in the Far East for a number of years, working a number of different roles, ultimately ending up in IT. When I moved back from there, I was a management consultant at Coopers and Lybrand for a number of years and then shifted to IT, having various gigs with companies like Xerox and Timberland. Most recently, I was the VP of Information Systems at VIP Parts, Tires, and Service in Lewiston, Maine. Last year I moved over and kindled my entrepreneurial spirit by taking over Pinnacle. Pinnacle is a company that’s been in business for seventeen years, having been founded by Pam Kick, who is now VP of sales and operations planning and the CFO.

Dustin:             Thank you. Can you talk about what is mass customization?

Dan:                 We’re at the cusp, if not already in the middle of this amazing change in manufacturing and consumption. The old paradigm was that you built the scale and priced things cheaply. In today’s world, with various advancement in information technology, supply chain, and, actually, the mechanical aspects of production, you now are able to produce items on a very small scale for the same cost that you could, in the past, product them on a very large scale. That’s really revolutionizing the way our products are built and the way they’re sold and the way they’re purchased. An example of that is the recent trend in 3-D printing, where you basically download a design and you manufacture your own product; you can obviously customize it to your heart’s content because you control how it’s produced.

Dustin:             And can you talk about why mass customization is important?

Dan:                 Well, it turns the whole notion of the industrial infrastructure on its head. It takes us back to the old days, where you essentially had a number of distributive artisans and making things for people on a bespoke basis, and then you had the industrial revolution. We had these giant factories producing items to scale and having to produce thousands and millions of widgets in order to be economically effective. Of course, that spawned globalization and supply chains extending out to China, and all that is about to change, where people will be able to produce things on demand, exactly what they want rather than having to buy something that somebody sells them that they might not need. It has enormous implications in terms of society, in terms of the economy, in terms of international relations, but I think the bottom line is, I think it’s pretty good news for the U.S., and it might not be that great for countries that rely on mass production, like China.

Dustin:             Where have you seen some success?

Dan:                 We’re just on the cusp of this, and, again, 3-D is one example. More recently, I’ve been reading some very fascinating articles about the impact this will have on pharmaceuticals, bioengineering, where, essentially, you’ll be able to decode your own genome and have companies build custom or bespoke pharmaceuticals to just treat exactly what ails you. We’re not quite there yet, but we’re on the cusp of it, and it’s gonna be very, very big.

Dustin:             How is software evolving to influence supply chains and how supply chains serve customers?

Dan:                 Great question, Dustin. Supply chains really came to the forefront in the late eighties and early nineties, had some great work done by companies like PRTM, and the Supply Chain Council which published best practices and reference models. Now, with the advent of the Internet and cloud computing and advances in software engineering, what’s happening is that we can extend the supply chain and integrate it on the back-end with other key business functions like customer service, sales, as well as manufacturing and essentially create unique supply chains for specific types of customers. We can do that by extending legacy systems, building enterprise frameworks around, serve silos, and connecting things that used to be silos to the Internet. We can plug things like predictive analytical engines that are cloud-based legacy systems. We can plug external business-rules engines that drive the way call centers, for example, respond to customer requests and drive the supply chain. All that is really starting to have a major impact on the ability of companies to service their customers in very different ways than they were able to do that in just the recent past.

Dustin:             That sounds fascinating and I look forward to hearing updates on how this develops in the near future.

Dan:                 We’ve actually got some interesting projects at Pinnacle that are doing just that for various companies, so I’ll be glad to do that.

Dustin:             Can you talk a little bit about predictive analytics and how it relates to cutting-edge supply chains?

Dan:                 Yeah, well, this is very interesting. The traditional concept has been, for supply chain, is around the forecast. Newer views, more advanced views of the supply chain by people like Richard Sherman from the Supply Chain Council, who just, by the way, published an excellent book and I highly recommend, talk about demand management. What does that really mean? It means bringing fulfillment together with demand creation and managing it. An interesting aspect of demand creation is being able to find predictive analytics and looping it back to your supply chain. What does that mean? It means having some very powerful engines constantly looking at what consumers are buying and how they’d be saving and then looping that back to the kinds of offers that are made to the customers almost real-time to their bedsides or their contact center sales systems.

About Dan Grosz




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