Q. Since the terrorist attacks on the World Trade Center and the Pentagon on Sept. 11, there have been interruptions in supply chains around the world. What should logistics and supply-chain professionals do to be on guard against such an eventuality again?

A. It's twofold. On the one side, on the customer side, they need to make sure that, given the events of 9/11 and the concerns since then, steps are taken to safeguard the delivery of products to customers as it's designed and intended. And I think the second element of it, as to our own operations at Dow, is the safeguarding of raw materials into our operation. It's really from two perspectives. One is the security of supply and the other is to make sure that what's coming into our plants is what we want to come in.

Q. What in general are the components of a successful disaster prevention or recovery program?

A. I think first you basically bring together a multi-functional team and think through the different facets of what we now face in the world and do some out-of-the-box thinking in terms of what kind of key events could take place. Then you have to walk through a possible scenario that you need to be prepared for.

Q. Are supply-chain professionals advised to have contingency plans ready?

A. Yes, and I think most everybody is going through that right now. I would make this one comment: I don't see the process now as any different from what one would normally do in terms of developing some disaster-type plan. What is different is that we are expanding the areas of concern because of what happened on the 11th and of what's happened since then.

Q. How do you mean, what's happened since the 11th?

A. The 11th was basically a set of terrorist activity involving aircraft. And now with the anthrax scare, various bio-scares, concern is broadening out beyond just the area of shipping security. It's kind of like the Tylenol scare of a number of years ago: How do you make sure your product is tamper-proof or tamper-resistant? How do you safeguard it in transportation? How do you make sure the vehicles and people coming into your facility are what they purport to be and what they are supposed to be? The chemical industry has a comprehensive program called Responsible Care that addresses these issues. Responsible Care includes specific, detailed codes and requirements around distribution, emergency response and product stewardship. This forms the foundation of our safety and security program. Since Sept. 11, the American Chemistry Council has issued additional guidelines to all its member companies on transportation security and site security. These are available at www.americanchemistry.com. The council also is offering free training seminars to its member companies on these new security guidelines.

Q. Some are building in additional safety stock, but there is the downside of the added cost -

A. - Absolutely.

Q. Any other downsides?

A. I think there are. It's not just the cost of capital invested in the inventory. It's storage space and the capacity of the supply-chain network to handle those buffers. I'm not in a just-in-time position in my business, so I can only imagine those people - particularly the automotive industry and some of the others, like computers - who've already downsized their supply-chain networks. They've got to be facing the enormous consequences of this, having to re-size the capacity in those networks to handle those buffers and wide spots.

In our case, as you know, the chemical industry has done a good job of improving the supply chain, but we aren't where these other industries are going for a variety of reasons.

Q. Can you elaborate on that?

A. We are a process industry, which is different from making widgets or computers or automobiles. You have specific products that you are manufacturing. The other part of it is that because we are continuous process businesses, we typically use pipeline and bulk transportation that is different from the others. As an industry, we haven't been pressured the same way as, maybe, automobiles or computer industries have been. But we are feeling that pressure and we have been putting the building blocks in place and have some accomplishments behind us. Our vision is to achieve supply-chain excellence.

Q. What was the impact of 9/11 on you?

A. We had minimal supply-chain disruptions around Sept. 11. In our industry, a supply-chain interruption can have an immediate impact on your ability to manufacture. In the chemical industry, where our raw materials come in by barges or railroads or tankers, and we're using large volumes of materials, if there is anything that changes the arrival date, it has an immediate impact on your ability to operate. And even though we might not be operating just-in-time, we are operating a much tighter schedule than in the past because we have taken inventories down, and we have downsized our supply-chain network such that a late arrival can have significant impact on our plants, and more importantly, on our customers. Because they are trying to take inventory out of their operations, a late arrival can quickly mean a plant shutdown. But surprisingly, there were minimal disruptions from Sept. 11. There were some delays in raw materials arriving at plants, but we were able to ship product to customers on time almost everywhere.

Q. How has industry taken inventory levels down?

A. No different from any other. It's the study of the entire supply-chain network, looking methodically at the key building blocks that make decisions relative to inventory, and looking at those work processes so that you can reduce the quantity of inventory. More specifically, I think ERP systems have helped, because we have better information flows in the organization; and externally, by partnering in collaboration with customers and suppliers, I think [ERP] has enabled us to do that. Further, I think it's helped to understand our demand forecasting methods and to improve those; along with use of MRP and other capabilities, ERP helps us to reduce inventory.

Q. Do planning and sourcing and collaborative technologies have a role in preparing you in the event of a catastrophe?

A. I think very much so. I think what we're talking about here in terms of information systems is really a key indication of all the integrated elements of the supply chain, both internally and externally. And if you are able to communicate and exchange that information effectively, when an upset occurs, you have a better sense of what the problems are and the consequences so that you can take the correct action at that point in time. Further, if you've done the right kind of contingency planning, hopefully, you have a pre-planned concept or capability and the right people involved in it to decide immediately what to do.

I don't think any organization is going to step away from what it needs to do in terms of the risks that we now see because of 9/11.

Q. Is there an added incentive to invest in IT?

A. I think that with the events of 9/11 that we're all going to want to take another look at how to make sure that that supply-chain network operates under more difficult conditions. In some form or another, every management team will have to ask the "what-if" questions. And if they do that, I can't help but think that the technology of today is going to be a tool that you're going to use.

Q. Some businesses lost valuable data. Should there be greater concern about data storage capability?

A. Our IS organization is looking at those kinds of issues - because what we are talking about goes beyond just the supply chain; it goes to every facet of the business. In a big company, it's imperative that we have plans to deal with these things. And like most big companies, we have a comprehensive backup and disaster recovery process for our I/T.

Q. The rub is that this comes when IT budgets are down.

A. Yes, there is concern with cost, but the number one priority is safety, and I think that if anyone thinks that anything needs to be done in addition to the things we have been doing, it will get the right resources. Many companies invested in disaster recover systems for Y2K and had them in place already.

Q. What kind of IT technology do you consider essential today?

A. For us, that is, in essence, the operation of our ERP system to make sure we have the ability to receive orders and satisfy those orders while at the same time manufacturing the right products at the right time to satisfy that demand. As you know, ERP isn't all that simple and it has a lot of integration points, but that's how we operate the business today. So if that begins to fall apart, we would immediately have problems. But we certainly couldn't do without the ERP system and the ability to do all the planning and operational work.

Q. The weakest links in the supply chain today, as you see them?

A. The weakest link is also the biggest opportunity. We've made some major headway there, and I feel very good about it. It's around the idea that the supply chain is integrated. It's a huge opportunity we've all been handed in the last few years since we've moved from a distribution mentality to a logistics mentality to a global mentality to the integrated supply chain. It's the opportunity to bring all the pieces of the organization together in an integrated manner so that we satisfy a customer's requirements and that we do it at the lowest total cost to serve. E-commerce will take integration to the next level. In the chemical industry, electronic hubs like Elemica will enable ERP-to-ERP connectivity between supplier and customer. That's the next big breakthrough that will enable huge productivity gains for both supplier and customer.

Q. And the biggest challenge?

A. There are short-term and long-term challenges. In the short term, our biggest challenge right now is to take cost out of the operation given the business environment. Long term, the biggest challenge - and it's also a key to this issue of cutting costs - is integration and taking it beyond the internal organization, taking it externally. We've all talked for years about partnering with our customers, and we're doing quite a bit of that today. But there's much more value that we can extract when we look at the value chain with our customers and with our suppliers. Technology, along with smart ideas and leadership, is how we're going to do it. Our Elemica implementation is going well. Since many of our customers are also suppliers, most chemical companies are getting on board with Elemica and see the value there. The next challenge will be getting Elemica to talk with other e-commerce hubs, such as those being created by the automotive and consumer products industries.

Q. What is the most important task before you?

A. It's twofold. Right now, we're going through a merger and doing a very effective job of creating more value from a much larger organization. But as a leader, you have got to make sure we're doing the right things short term so that we're successful in running a business. Longer range, what's really important for us as senior leaders, is making sure we're taking steps with the right vision and right resources for these longer-range opportunities, such as integration and taking advantage of IT and e-commerce. That's an extremely tough thing to do right now because while we're running a well-engineered organization, we've taken on a great deal of responsibility with the merger. We're fortunate that we have good, capable people. But at the same time, we have in many ways loaded the organization up with so much to do that leadership becomes a key issue as to what the right priorities are and what resources to allocate to them.