The Art of War and Supply Chain Management: Applying Sun Tzu to Supply Chain Management

"The Grand Duke said É One who is confused in purpose cannot respond to his enemy (III.23)."

In this particular quote, Sun Tzu is talking about the importance of clearly-stated missions. The words of the Grand Duke can easily be translated to mean: To know your purpose, you must have a clearly stated mission and vision. The vision and mission have to be clearly stated, clearly articulated and, most importantly, must be clearly understood at all levels of the organization.

Sun Tzu said, "Knowledge that does not go beyond what the generals know is not good." In other words, a mission that is not understood at all levels of the organization is not good. Sun Tzu's rule for finding a good leader to relay the mission is, "See who is able to make rules clear and commands easy to follow." Leadership is responsible for ensuring that the mission is clear and provides the vision necessary to get the organization moving forward. A large specialty retailer discovered that its lack of clarity in its mission for supply chain visibility resulted in an extra $38 million in inventory — daily — in its supply chain. However, a fully-understood mission on supply chain visibility later corrected this error.

The supply chain leadership is also responsible for setting fully-understood goals that do not create ambiguities that lead to sub-otimization for the supply chain by encouraging local optimization counter to the goals of the supply chain. One drug firm learned this lesson the hard way: Its supply chain goals rewarded traffic managers for maximizing full truckload deliveries from their distribution centers. When they did a full accounting of the supply chain goals and missions, they discovered that one traffic manager was rewarded for saving $25 per truckload by waiting until the trucks were full truckloads. The result was an additional $500,000 in interest charges.

The Army learned the same thing when it changed the accounting and billing practices for tank engines. In the mid 1990s the Army established a financial policy that rewarded individual installations for "entreprenuership" in managing such major repair parts as engines. In the short run, this looked good to the installations — a choice between replacing one of the four modules of the engine for $125,000, as opposed to buying a new engine for $500,000. However, the practice of replacing the modules skewed the demand data and forecasting models for tank engines in the long run. In addition, the practice resulted in soldiers having to replace multiple modules over the course of time, which was costly in terms of labor and replacement parts. The Army recently changed the financial accounting policies to rectify this sub-optimizing policy.

Supply Chain Leadership

Leadership is one of the themes woven throughout Sun Tzu's writings. Supply chain leadership is distinctly different from supply chain management. And while the subject of supply chain leadership has not always been a hot topic, it is necessary to move a company to a new level of excellence. Leadership is about people, not assets. Keynote presentations at major logistics conferences always address a company's management team, and annual reports address the management team's positions and goals; the element that is missing is leadership.

In the first chapter of The Art of War, Sun Tzu says, "If people are treated with benevolence, faithfulness and justice, then they will be of one mind and will be glad to serve," which shows that workers simply want to be treated fairly and have the faith of their co-workers and supervisors. In chapter eight, Sun Tzu offers this advice on leadership traits: "Good Generals act in accord with events — not quick to anger, not subjected to embarrassment. When they see possibility, they are like tigers. Their action and inaction are matters of strategy." Good supply chain leaders have to set the example so that they are above embarrassment and above embarrassing their employees in public. In addition, because the leaders have planned ahead, they are ready to take action when an opportunity appears.