Interview with Gerry Smith, SVP, Global Supply Chain, Lenovo

Gerry Smith is Senior Vice President, Global Supply Chain at Lenovo, currently the fastest growing major PC company in the world. Gerry joined Lenovo in 2006 and is responsible for end-to-end supply chain management encompassing order management, supply planning, procurement, manufacturing, logistics and fulfillment operations. Gerry was recently named Supply Chain Executive of the Year at the SCM Logistics World 2009 conference, and Lenovo won the 2009 Supply Chain Excellence award recognizing innovation and superior execution in supply chain management.

Before joining Lenovo, Gerry held a number of leadership roles at Dell, including Vice President and General Manager of Notebook Development, of Peripherals Development and of the Display Line of Business. He holds a Bachelor's degree in Finance and Marketing from Pacific Lutheran University.

Lenovo is dedicated to building exceptionally engineered personal computers and mobile Internet devices. Formed by Lenovo Group's acquisition of the former IBM Personal Computing Division, the company develops, manufactures and markets reliable, high-quality, secure and easy-to-use technology products and services worldwide. These include the award-winning ThinkPad line of notebook PCs and the company's Idea-branded consumer PC products. Lenovo has major research centers in Yamato, Japan; Beijing, Shanghai and Shenzhen, China; and Raleigh, North Carolina.

It's been five years since the Lenovo acquisition announcement of IBM's PC business. What has changed in the supply chain?

With the acquisition in 2005, Lenovo jumped overnight from being the world's ninth largest PC company to the third largest. Along with that came the challenge of integrating two sizable supply chains, which had different target markets and were operating separately.

When I joined Lenovo in 2006 I pushed to have one consolidated supply chain. There was a lot of confusion - from Procurement to Manufacturing to Logistics - because we lacked a singular, common purpose. Operations needed to be stabilized first, and then the work began to bring the supply chains together, efficiently and consistently.

What parts of the organization did you focus on first?

We had to immediately improve execution, and needed the right set of key performance indicators (KPIs). When I first started, the supply chain had over 125 KPIs. We knew what we had to do, but we couldn't get there quickly with so many targets. It was almost impossible for anyone on an individual basis to see the end-to-end picture.

So we narrowed down this long list of priorities to four main KPIs: cost, on-time delivery, cash conversion and quality. These KPIs are focused, they are counterbalancing, and we think they are the right ones. We energized the teams around these KPIs by standardizing everything, defining roles and responsibilities, developing consistent processes, and driving efficiencies using Lean Six Sigma methodologies.

We instituted a very disciplined business management system to monitor and measure these KPIs. Keeping a pulse on performance requires a daily commitment to execute, as well as frequent reviews by executive management. A strong management system also provides the team with support when challenges arise and decisions need to be made quickly.

Finally, we put the right talent in place to focus on key initiatives. These changes have enabled us to make tremendous progress.

Did the company support this plan?

We aligned our Global Supply Chain (GSC) strategy with our corporate strategy. Lenovo has a very straightforward strategy - we call it Protect and Attack. Protect our key markets - this is China and our mature "Think" business with our corporate accounts. Attack our emerging, transactional markets and build a presence in the home/small business (SMB) segments across that space.

It's been a very successful strategy for Lenovo - and as the business expands we are seeing a lot of growth from the transactional market segment.

This two-pronged business strategy, established in early 2009 by our CEO, Yuanqing Yang, also required alignment of the supply chain to the customers in each market. To do this, we focused on tailoring our supply chain operations to customer needs, closely managing supplier risk caused by volatile market conditions last year.

How were you able to modify your approach, especially during the economic downturn?

In a recession, business realignment must be done quickly, as the speed of change becomes more important than ever. We redeployed the organization to drive a dual supply chain model based on the different needs of each customer segment - a "Responsive" model for relationship customers, and an "Efficient" model for our transactional customers. Our supply chains are now customer driven rather than a one-size-fits-all model.

For the Responsive supply chain, if a global customer needs a specialized solution, there's a variety of things we will offer above and beyond the norm to customize the product. Our Efficient model offers a different level of deliverables tailored for the transactional SMB market. These systems are built to plan and shipped via ocean to deliver a very low cost and predictable solution.

We resourced each model differently, and put different cost structures in place. We aligned our front-end fulfillment organization and back-end procurement teams top to bottom in this structure, and aligned with our Think and Idea business units as well. The supply chains run separately but are connected across common areas of procurement, manufacturing and logistics where we can leverage economies of scale and run them together efficiently.

Introducing the dual supply chains tailored to the market has helped us tremendously to weather the downturn as we now have a very customer-centric model.

How did customer demand change during the recession?

Even in a global recession, customer spending doesn't stop. But habits do change. Companies need to cut costs and focus on their core businesses during these times, and often will compromise on PC features to save money, for example.

The customer value proposition is at the heart of Lenovo's approach to supply chain design. We reevaluated all of our product offerings, processes and end-to-end costs. Product development and procurement teams took a closer look at product design and parts sourcing to determine what tradeoffs could be made to meet the new benchmark for customer value.

Repositioning our supply chain really helped us meet these demand changes. Lenovo's new structure better enables us to anticipate and serve the needs of customers around the world.

How were you able to manage risk on the supply side?

Like most companies, weathering the recession required that we have a deeper focus on our supply base in all parts of the world. Volatility forced us to develop new practices to manage supplier risk.

We enhanced our supplier development reviews focusing on first, second and third tier suppliers. The focus was not only on suppliers of highly specialized or high volume components, but also on vendors that make basic, yet essential, parts. Losing either could have resulted in supply chain disruption.

We've solidified a number of long term agreements. Those have paid great dividends - in the tough times we took care of each other, and as the markets recovered they helped Lenovo ensure we had continuity of supply.

Moving forward, strong collaboration with our suppliers will provide greater visibility within the end-to-end supply chain and increase our responsiveness to changing market conditions. These relationships are our lifeblood for success.

How important is contract manufacturing for your business?

We continue to maintain a mix of company-owned and outsourced manufacturing. We regularly assess our global manufacturing network to ensure it's fully optimized for our size and scale in the industry, and designed to best meet Lenovo's tactical and strategic needs for our customers.

We look at three areas in our manufacturing sourcing decisions: cycle time, cost per box, and the delivery commitment to the customer. This model offers us a lot of scale and flexibility. We will typically manufacture more complex products in house. Less complex products - such as netbooks, consumer PCs and others - are often manufactured externally. Our partnerships with ODMs are driven by cost and capacity, especially as we've moved to more direct-ship methods.

Our partners do a great job on certain types of products, but our internal manufacturing is optimized for responsive, higher-service type requirements. This balance of manufacturing sourcing has worked very well for us.

How do you grade Lenovo's supply chain overall performance in client satisfaction?

We're currently ranked first in notebook PC delivery and customer satisfaction according to market research firm TBR. This is a huge accomplishment and one of my proudest moments in this job. We are on par and surpassing Dell and HP in some areas. Four years ago we were not even close.

You mentioned on-time delivery as a key performance indicator.

It's incredibly important. We expanded the idea of delivery performance to represent overall "serviceability." This is defined in two key areas: reliability and speed. Reliability is shipping product to the first date committed to customers. Speed is related to order-to-delivery cycle time. Lenovo conducted customer surveys, and found these are the two most important requirements.

We've had dramatic improvement in materials management, putting inventory (DOI) buffers in place across all commodities, upgrading and training our procurement talent, improving our supply demand forecast, and implementing value stream mapping. In order to further improve on-time delivery, we were able to cut out 30 hours of manufacturing cycle time internally and we required the same from our external partners. In addition, a lot of improvements were made in our logistics network, ensuring consistency and efficiency across the end-to-end supply chain.

What are your biggest external challenges?

Component supply is incredibly constrained right now. The rise of multimedia products - mobile phones and other consumer electronics - is siphoning off demand for memory, displays and other components. With tight availability, prices increase, lead times extend and delivery dates get pushed. In addition, logistics capacity is tight. Fuel costs have gone up considerably in the last year.

Our global supply chain has really effective business management systems to ensure supply continuity and logistics control. As I said before, we have great relationships with our suppliers, and we're managing component constraints through long term agreements, buy-aheads, and inventory management. On the logistics side, we have the flexibility to vary our mode of transportation, and we're doing more and more ocean shipping. Ocean freight is obviously more cost efficient and environmentally friendly, and we're conditioning our sales teams and customers to increase its use. We've got a very dynamic logistics network, and we're able to leverage ocean shipments while maintaining on-time delivery commitments to customers.

Sounds like visibility is critical.

The fastest way to fail is not having clarity and visibility to data or a problem. If I know something is going to break and I know it immediately, I can marshal my team to respond, react, and drive change. If we get it 30 days later or 60 days later, we fall behind the competition.

The key, for me, is having the architecture and backbone: if I can see the data immediately, I can respond. And if I can respond quicker than my competitor to lock up supply, I can potentially turn a problem into an advantage. We have spent a great deal of time on business transformation to ensure our systems deliver transparency and instant access to our supplier and customer data.

We use Lean Six Sigma (LSS) and instill a culture of continuous improvement. We've seen dramatic improvements in manufacturing and logistics cycle time, cost per box and scalability using LSS.

Lean Six Sigma helped us improve our supply chain core processes by 30 percent last year. We closed over 400 projects not just in GSC, but across the company. We hold quarterly reviews to track our progress. We want to make sure LSS doesn't become a bureaucratic "check-the-box" type training, so we are careful to have finance do the auditing. It's driving a culture of continuous improvement.

What kinds of traits do a CPO or Supply Chain executive need to drive change in an organization?

Leaders in this industry must develop a global mindset - and by this I don't mean learning how to run an international organization, or understanding multiple languages or working with suppliers in different countries. A global mindset means developing an entire approach toward problem solving, information processing, managing people, seeking compromise, bringing teams together, building relationships with suppliers, and running an organization in a borderless economic environment.

The global mindset also helps with demand planning and market sensing capabilities - these are key competencies.

People need to be flexible and adaptable, to recognize the need for change both personally as well as organizationally. If you don't change you fail, and Lenovo's gone through a lot of change in the past few years. We laid the foundation in the last two to three years, and we're seeing the results of that now.

You're an American working in Singapore. How tough was that transition?

I've worked here now for about six years. I was the last person you would have thought would make an overseas move. My wife and I have four children, and back in the U.S., we were deeply embedded in the community where we lived. I was active in our church, and I was always running around to soccer practices and other family activities. No one would have predicted that I would be an expat someday.

But moving to Singapore was without a doubt the best thing I've done for my career. Living in a different country changes who you are. It has helped me to be so much more aware of different points of view and different ways to approach a problem. It helps you avoid "groupthink" and it broadens your experiences. I
encourage all my high-potentials to take an international assignment, and I've built my team with people from all around the world.

What do you suggest to international assignees on how to best adjust to these types of moves?

From my perspective, you have to immediately integrate yourself and your family into that region's local community. I coached my kids' sports teams at their international school and we met a lot of other families that way. Being involved in community organizations or other groups can help develop a social base quickly. If you're traveling a lot and the family is on their own, it's valuable to have that network of friends locally.

There's nothing better for your career as well. You can't place a value on being located in Asia when it comes to relationships with Asian suppliers. You can talk with suppliers without either of you having to make special arrangements. You can make supplier visits without being jet-lagged or more spontaneously if needed to address issues. And being here in Asia, many more regions are accessible - you can be in several countries in a three hour flight.

Supply chain is all about relationships, and relationships are built on face time. So being able to visit suppliers frequently helps drive success in the inter-company relationships.

How do you keep a global team motivated and effective?

Keeping your strategy clear goes a long way. Our goal is to become the number one supply chain in the PC
business in the next three years. We also aspire to be in the top 10 globally across all industries. This is
something that everyone can understand and get behind.

To rally our people around common principles, we have developed a culture of meeting commitments and
taking ownership. This simply means "we do what we say and we own what we do." We call this the
"Lenovo Way," and we emphasize it not only as a principle that shapes our culture, but as a critical element
in our business strategy. It is important that our leaders embrace this way of thinking to grow as individuals,
as well as to help others develop and succeed.

What kinds of talent development programs do you support?

The number one reason for success of any company is its people. Once you believe this, human capital management becomes vitally important. Our employees have development opportunities at both the corporate and the supply chain organization levels. Key talent is identified through a company-wide HR assessment program, as well as through leadership and personality profiling such as DISC. Our high potential employees are then provided with various tools to develop a global mindset through extensive mentoring, 360 feedback, executive one-on-ones, international assignments, and Lean Six Sigma training.

We have developed several supply chain-specific programs to invest in our people. For example, our GSC Organization & Leadership Development program - known as GOLD - provides our top talent with opportunities to develop their global and strategic thinking, gain customer insight, and also hone their leadership style.

It is important to employees that we invest in their future with the company, hold them accountable for results and reward them for their efforts. Also, we actively promote diversity in our staff to foster innovation and continuous improvement. This makes us much stronger as a global team.

Developing talent internally is key as Lenovo grows and scales. So we're making a big investment in people in the GSC organization.

Where are you taking the supply chain going forward?

We just finished our fiscal year with the lowest cost per box in Lenovo's history, our delivery performance is meeting industry benchmarks and we've made huge improvements in cash management. And we continue to have best-in-class quality across our notebook and desktop PCs.

The game changer for us will be transforming the supply chain to become more demand driven and customer focused. This means moving from an internal to external view, using data and customer feedback to drive everything from product design to new delivery methods. It means transforming and simplifying our processes and metrics to be more customer centric.

Lenovo is in a great position now to win. We are the fastest growing major PC company, and have the number one market share in the largest PC market in the world - China. We are positioned to be the top one or two PC companies in the next five years. Chasing that top spot is a lot of fun.

Every day, I am amazed at what our team accomplishes. And it's only going to get better.

March 2011

See the recipients of the 2009 Top 25 Supply Chain Executives Award.