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

When it comes to supply chain management, there is no doubt that companies are in the thick of a battle to beat their competition and gain dominance in market share. Could the ideas penned by the real-life warrior named Sun Tzu be the key companies need to focus their efforts?

When it comes to supply chain management, there is no doubt that companies are in the thick of a battle to beat their competition and gain dominance in market share. But the fog of war is heavy, and the map pointing toward success is often poorly drawn. Could the ideas penned by the real-life warrior named Sun Tzu be the key companies need to focus their efforts?

Sun Tzu, depending on the translation you read, was either a great warrior, a compilation of several writers in ancient China or a fictional character. The consensus among historians, however, is that he did indeed exist and lived during Wu Dynasty between the sixth century and the third century BC, coming to prominence around 519 BC and slipping into obscurity prior to his death.

His writings were first introduced to the Western world when French missionaries translated them between 1772 and the early 1790s. Significantly, Napoleon Bonaparte studied the translation and applied it in the battles of Jena and Austerlitz. During the Napoleonic Wars, Baron Henri Jomini and Karl von Clausewitz served as both allies and opponents of Napoleon at various times, and after the wars they wrote about Napoleon's tactics and strategy, which were based on Sun Tzu's teachings. Their writings form the basis of today's modern military thought and, in fact, the principles of war. For example, the teachings of Sun Tzu were put into practice during such U.S. military operations as Operation Desert Storm and Operation Iraqi Freedom. During Operation Iraqi Freedom, the use of speed and deception produced a much shorter war with much fewer casualties than expected; it also allowed coalition forces to capture the Rumallah oil fields, averting an environmental disaster in the form of burning oil wells.

The military implications are clear, but how can one draw the relationship between Sun Tzu and supply chain management? The writings of Sun Tzu, which are collectively called The Art of War, are over 2,500 years old, and yet they are as applicable today as they were when they were first written. Throughout Sun Tzu's writings are the themes of leadership, communication, planning and preparation, and discipline. Additionally, The Art of War was written in a universal style that lends itself to templates, which have been translated into topics from financial to business management.

This article will explore the themes of The Art of War in light of matters of vital importance, clearly-stated missions, knowing yourself, speed, competition, the importance of remaining current, the use of after action reviews (AARs), and collaboration — all as they apply to supply chain management and supply chain leadership.

Sun Tzu and Supply Chains

In the second chapter of The Art of War, Sun Tzu states, "War is a matter of vital importance to the state; the province of life or death; the road to survival or ruin. It is mandatory that it be thoroughly studied." Few would argue that supply chain management is a matter of vital importance to any company. In fact, the biggest cause of the dot-com implosion was companies' failure to properly establish supply chain strategies. For example, one major toy chain paid more in coupons to compensate for late deliveries at Christmas a couple of years ago than it made in profit. Truly, leaders of all companies that want to ensure the most efficient supply chain operations are in place and posture their company for survival and growth must study supply chain management.

What should be the matters of importance in supply chains and to corporations? They are those items that are of vital importance to the customers. It is imperative for the survival of a company that these items be benchmarked internally and against the competition to ensure that the good or service is delivered better and faster than the customer desires or than the competition can offer. If what you are measuring is not important to your customer or to customer support, it should not be important to the company and, therefore, should not be measured.

"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.

In chapter three, Sun Tzu explains that, "Generals are the assistants of the nation. When their assistance is complete (defined as good and wise; loyal and capable), the country is strong. When their assistance is defective, the country is weak. ÉThose whose upper and lower ranks have the same desire are victorious." Supply chain leaders are truly the assistants of the corporation. When the supply chain leaders are strong, the company is strengthened; and when they are weak or exhibit a lack of loyalty, the company is weakened. Strong leaders also enable a victorious company by developing and fostering a corporate culture in which each member has a shared set of values.

Sun Tzu tells readers, in chapter six, that, "The power of those united is whole, while the power of those who are divided is reduced." Corporate culture and shared values assist in uniting the whole. Early in the book (in chapter one), Sun Tzu says that if leaders can be "humane and just, sharing both the gains and the troubles of the people, then the troops will be loyal and naturally identify with the interests" of the leadership. It is well documented that Gen. George Patton did read Sun Tzu as part of his personal professional development, and he said, "No effective decision was ever made from the seat of a swivel chair." What Patton, as well as Sun Tzu, is telling us is that leaders have to get out of the office, leave the computer screen and see what is really happening on the shop or warehouse floor. For example, during Operation Iraqi Freedom I frequently got on a forklift to pull orders, move pallets and load trucks to see what the weather conditions were doing to productivity at the Theater Distribution Center in Iraq. By doing this, I was able to understand the great reduction in productivity created by the 50-mile-per-hour sand storms, and I was also able to see first hand that these conditions required an additional guide on the truck and a ground guide for the forklift operators to ensure that safety was maintained.

Sun Tzu also says that disorder will result from a General who is "morally weak" and without discipline. During the previous administration, although the Army was not in disorder, the actions of a Commander in Chief who was morally weak did indeed create a loss of morale throughout the military. Leaders have to set the example. They have to provide vision that is understood, and they must provide supply chain leadership, discipline and training. In all operations it is true that standards lead to habits, habits lead to discipline and with discipline all things are possible. The supply chain leaders must set the standards and then follow them.

"The supreme importance in war is to attack the enemy's strategy." The supreme importance in supply chain management is to have a supply chain strategy that will meet the needs of the customer. Do you have a supply chain strategy? What is it? Do your employees understand it? What are your strategic objectives? What is your supply chain's strategic advantage? Is it quality, responsiveness or customer support? If you are not focusing on what is important to the customer, you are focusing on the wrong things, and it is time to re-evaluate your supply chain strategy.

Therefore, leaders who understand strategy "preside over the destiny of the people and determine the stability or instability" of their organization, according to Sun Tzu. In order to lead a company to new levels of excellence, one must understand the supply chain strategy of the organization and be able to articulate it to the employees in such a way that they fully understand it also.

Know Yourself

"Know your enemy, know yourself; in a hundred battles you will never be in peril." To be invincible, according to Sun Tzu, you must know yourself (or your supply chain) and must assess your company's supply chain and your competition's supply chain in the following five areas:

1. The Way — this is the vision that was spoken of earlier in the article.
2. The Weather — in military operations the weather is an uncontrollable variable that can be an advantage or disadvantage. In business there are uncontrollable variables as well. If your plan and vision incorporates contingency planning, you will be prepared to take advantage of such uncontrollable variables as the economy, the growth phases of a company or product, and the acceptance of a new product.
3. The Terrain — in military operations the terrain, like the weather, can be an advantage or a disadvantage. You have to consider the business terrain in which you are operating. Proper planning and knowing yourself will enable you to avoid these terrains and/or use them to your advantage.
4. The Leadership — this is covered in the section titled "Supply Chain Leadership."
5. The Discipline — remember, with discipline all things are possible.

So, what is the best way to know your company's supply chain? In my experience, the best way to see and know a supply chain is through the use of detailed process maps or flow charts. The only way to develop an accurate flow chart of your processes is to get out of the "swivel chair" and physically walk the process. Take the action from the beginning until the end. In the Army we charted the actions necessary to go from a soldier ordering an item of supply through the supply chain until the item of supply was received and used by the soldier.

While walking the process it is important to ask" "Why?" The rule of thumb is that by the fifth "Why?" you will discover the root cause of the problem. While asking "Why?" it is also important to document the actions and results of every process in the chain and the time necessary to accomplish the actions. Be sure to look for actions that are non-value added, so they can be removed from the process.

Speed

"Speed is the essence of warfare." Unarguably, speed is also the essence of supply chain management. Speed in supply chains can take the form of faster cycle times, faster customer order times, faster customer response times, faster time to market or even a faster escape out of a non-profitable market. The key is that "speed" must not be confused with "hastily done." An efficient supply chain is dependent on accurate information and, in the end, should allow your company to reduce piles of supplies.

And remember: sometimes "faster" is not necessarily faster. During Operation Iraqi Freedom, the Patriot Air Defense folks decided they could get parts "faster" by calling back to their "sources" in the United States rather than depending on the established distribution system. They arranged for shipment of their parts on the next available premium delivery service airplane coming from the United States to Kuwait, an option that they believed would have their parts in country "five hours earlier" than could the distribution system I set up. Their plane did indeed leave five hours earlier than originally the scheduled plane. However, what they did not take into account was the information on the delivery routes; their plane went through Bahrain before going to Kuwait, and their parts ended up stranded in Bahraini Customs for two days before even reaching Kuwaiti Customs. The part they needed was also shipped via the established distribution system and arrived three days earlier than the "faster" shipment.

Competition

"If your troops do not equal his, temporarily avoid his initial on rush," states Sun Tzu. In other words, if you are taking on a competitor head to head, make sure you are ready for his/her initial engagement, and to do this you have to be prepared, which is another one of the themes woven throughout The Art of War. The case of home improvement giants The Home Depot and Lowe's is a good example of studying and preparing to take on your competition. For a long time, when I was growing up in North Carolina, the only home improvement store was Lowe's. Then along came The Home Depot, which amassed over 1,000 stores in 20 years and is famous for being the fastest company to hit $150 billion in sales. In light of this, Lowe's had to assess and form its strategy, which appeared for several years to be to open a new store within a few blocks of The Home Depot and take them on head-to-head. However, when Lowe's reassessed that strategy, it realized that females start the majority of home improvement projects. This prompted Lowe's to start carrying more pastels, more furniture and more appliances in their stores, thus increasing their stock price by 82 percent over a two-year period. The Home Depot's counter to this was to go into the appliance business, and, after less than two years, The Home Depot is now the third largest retailer of appliances.

K-Mart and Wal-Mart are another example of not being prepared to take on a competitor head-to-head. Again, growing up in North Carolina there were top-end stores, like Ivey's (now Dillard's) and Talheimers' (now Hecht's); middle-tier stores, like JC Penney's and Sears; and the lone discount retailer — K-Mart. Now, with the way I play golf there was no need to go to the more expensive stores for my clubs, shoes and golf balls. So, I shopped at K-Mart in Raleigh for my golfing needs. When Wal-Mart appeared on the scene, becoming the largest retailer in the world, K-Mart was stuck searching for a strategy to compete. The retailer tried matching supply chains, but just couldn't find a way to beat Wal-Mart. Then, K-Mart seized on the idea of a "whatever you buy we will take it back, no questions asked" returns policy. This unfortunate move resulted in $980 million in returns the last year before K-Mart declared bankruptcy. K-Mart's inability to compete, as well as its lack of preparation, resulted in one of the largest bankruptcy filings in U.S. history.

Training and Remaining Current

"If officers are unaccustomed to rigorous training they will be worried and hesitant in battleÉ" Sun Tzu says the greatest of crimes is to be unprepared for battle, while the greatest of virtues is to be prepared for any contingency. The only way to ensure that your leaders are not hesitant in the face of competition or decisions is to make sure they are well trained.

And just as the military invests millions of dollars annually to prepare soldiers for any contingency in combat operations, companies have to be willing to invest in training for their employees to ensure success in business operations. Toyota invested $50 million in the University of Toyota to ensure employees receive the proper training necessary for success.

There is a difference between training and education, however. Education is a classroom type of learning and is important, but training, in contrast, is a hands-on form of learning. Toyota requires every employee at its Ontario, Calif., parts distribution center to have 80 hours of training every year: two full weeks. This is one of the reasons that the retention rate for employees at Toyota is over 95 percent since the distribution center was opened in 1996.

Another key area of training is cross training. This form of training is critical for supply chain success. Nothing is more frustrating to a customer asking for assistance or asking a question than being told that the person with the answer is on vacation and no one else is trained to do that action.

The Use of After Action Reviews

"Therefore, when I have won a victory I do not repeat my tactics but respond to circumstances in an infinite variety of ways." What Sun Tzu is telling us here is to change our tactics after we've looked at what we did right or wrong in the heat of battle. In the Army, we use a process known as the After Action Review. The process is used after every training event and every operation to determine what went right according to the plan or what went wrong and why. This process is not designed to fix blame for something that went wrong, but instead it is meant to find out why something went wrong and how to preclude it from happening again. The After Action Review process can be a lengthy process, a hasty process, or as simple as a 3x5 card with three ups and three downs. The main thing is that you are able to answer the questions — "How do we sustain the ups? How do we fix and prevent the downs?"

The Army's After Action Review process is a seven-step, straightforward approach to getting to the root cause of the problem:

1. What was the plan?
2. What actually happened? Did we follow the plan?
3. What went right? How do we sustain that?
4. What went wrong?
5. Why?
6. How do we fix it?
7. Who is responsible for ensuring that it is fixed?

The keys to the success of the After Action Review process are honesty and the final two steps. You will notice that who messed up is not a point here. The focus is on what went wrong and how to fix it. A person or office is assigned the responsibility of ensuring the problem is fixed because of the old adage: We only do well what the boss is checking. If no one is assigned the responsibility of ensuring the problem is fixed, it will be repeated. In combat operations repeating the same mistakes could mean the loss of lives; in business, it could mean the loss of customers and eventually the loss of the company itself.

Collaboration/Mergers

"Replace the enemy's flags and banners with your own, mix the captured chariots with yours — treat the captives well and care for them." If you merge with another company or buy them out, ensure that the employees of the company are all treated the same. If you have a company uniform, make sure that on day one everyone is in the uniform of the parent company. Failure to do so results in confusion for the customer and morale problems for the employees. The assimilation of "captured" employees into the old company was one of the reasons the Roman Empire flourished and survived for so long.

Conclusions and Applications of Sun Tzu Today

Sun Tzu provides a commonsense approach to leadership and supply chains. His words are as true today as they were 2,500 years ago when they were first written. Sun Tzu tells us that we must know ourselves. Getting out of the office and seeing what is really happening in our supply chains is the best way to accomplish this. You must also develop a detailed process map of your processes, which will give you a good tool for training your employees, as well as improving your supply chain and customer service. Know yourself and know your processes and you will be successful in supply chain leadership.

Throughout The Art of War, Sun Tzu lists the qualities of leaders and gives examples as to how leaders should act. He reminds us that supply chain leaders are truly the key to the success or ruin of a corporation.

When the successful supply chain leader discovers a problem, or a plan does not proceed as expected, Sun Tzu says an After Action Review should be conducted to determine why the plan didn't work.

Finally, what Sun Tzu shows us through his ancient writings is that, as far as we have come in the past 2,500 years with technologies and customer demands for faster service, the basics of leadership and root cause analysis for problems will still lead you to the top.

Colonel Joseph Walden, a CPIM in the U.S. Army, speaks extensively on supply chain management, including speaking at The Logistics & Supply Chain Forum.