David Maloney, Editorial Director, CSCMP’s Supply Chain Quarterly 00:02
The Covid-19 pandemic showed us just how vulnerable supply chains are. Today, we face many threats: shipping delays, a lack of workers, failing infrastructure, transportation rates that are out of control, cybersecurity threats, and of course, a worldwide pandemic that is still very much with us. But with each of these threats comes opportunities. Welcome to this limited podcast series from CSCMP’s Supply Chain Quarterly: the Top 10 Supply Chain Threats. In this introductory podcast, we look at the risk of looming threats and how they could affect our supply chains in coming months. Here is your moderator for this segment, Mitch Mac Donald, group editorial director emeritus of Supply Chain Quarterly.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly 00:51
Hello, and welcome to the first installment in our supply chain risk podcast series. Joining us today to kick things off and discuss current risks and challenges facing global supply chains is Mark Baxa, interim president and CEO with the Council of Supply Chain Management Professionals, or more commonly referred to simply as "CSCMP." Mark, thanks very much for joining us today to kick off this important series.
Mark Baxa, Interim President and CEO, Council of Supply Chain Management Professionals 01:14
Mitch, it's my pleasure. It's great to be here with you and your audience. Thank you for the invitation.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly 01:20
When we last spoke, which was mid-September, the queue of containerships, waiting to enter the ports of L.A. and Long Beach had hit an all time high of 70 vessels. In the five or six weeks that have since passed, it's only gotten worse. As a matter of fact, just this week, President Biden gave a speech focused solely on supply chain issues hindering our economic recovery, and for guys, like you and I, who've been toiling in these supply chain vineyards for decades, it was striking simply to have that as a topic that was the sole focus of a presidential address. I think it all points to the fact that, as it relates to the pandemic, clearly global supply chains were broken, and a lot of them still remain significantly impaired. Prior to your work leading CSCMP, you had to grapple with supply chain risks as a practitioner with Monsanto, and now as a supply chain consultant. From that varied perspective, what do you see as the top risks that supply chains are facing this year, and how can we make them better?
Mark Baxa, Interim President and CEO, Council of Supply Chain Management Professionals 02:22
Well, I think it's a really great question, and I'll start by saying it's not the same for everyone. However, we do have some overarching forces, if you will, that I really like to talk about in terms of compression in the supply chain. It's really not about bottlenecks and constraints, it's really about force that, well, is relentless, and seems to be never-ending. And those forces are creating walls and barriers. Nearly every turn, we face these barriers, whether it be in the ability to forecast demand, because of shifting consumer buying habits; the needs of consumers that fold them into the very manufacturing and/or retail-ready solution providers that acquire these goods to sell to consumers, or build the goods that we sell to consumers. We have a reverberation throughout our entire supply chain, not just here in the United States, but globally. You talked about the situation with containerships sitting off the port of L.A. reaching record highs. Well, on a global basis Sea-Intelligence issued a report just about a week and a half ago where they talked in terms of, in rough numbers, we have about 3,300 container vessels around the world that are in service, and about 12 and a half to 13% of those vessels at that point in time were at anchor, waiting for birth, and a large share of those were off the coast of China, empty, waiting for fulfillment. So, it's not just about what's here, loaded, right? So, in the transportation sector, we face challenges that, where we have multiple, if you will, different business partners, so multiples of them that serve the final mile, getting into the final mile or into the consumer or business hands, whether it be raw material or more finished goods at any level. So, what President Biden has certainly signaled is, I want the American people to know that we understand that we believe that, fortunately businesses the answer—and I say "fortunately," because this is where the supply chain exists.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly 04:32
Right.
Mark Baxa, Interim President and CEO, Council of Supply Chain Management Professionals 04:33
Bringing back, you know, these industry partners and bringing visibility to this. Right now, it's signaling a high priority. Let's face it, when the President speaks, regardless of party, people should probably listen. We don't always have to agree, but on the other hand, there's a reason for it, and you know that there's a lot behind those statements, right? There's been mounting pressure. What I think faces us, number one, is the reliance on our business partners for strategic insights and collaborative investments to make things happen the way, perhaps, we'd like them to happen is going to require some very critical partnerships. We can't solve the problem by ourselves. The second part, I think, in terms of the supplier base and delivery mechanisms is, who are those business partners and how solid are they, and are they willing to in fact, become more transparent in their own supply chain so that you, as the purchaser of the goods or raw materials, can verify that there's reliability, consistency, and sustainability of the business model? And I think the third piece is, it's back to people and information. So, I our continual evolution of digitization and supply chain has been very noteworthy, and something that we essentially can't live without. We're still in a people-oriented world that requires intelligence and requires capability and competency, and we have to be ready to take some risks—calculated, moral—right?—above-the-board risk, right, and when I say risk, I'm thinking about, you know, faster past the solution. You got to be quick, you've got to be agile. Those are the kinds of risk we need to be willing to take if we can make the investments, if we have the ability to do that. If you don't, then you have to align with some partners that perhaps have the wherewithal to help you investigate solutions that you might be willing to invest in and take some risk at the level you can you know, that you have the appetite for.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly 06:33
It sounds like from what you just said, a lot of what's happening is the pandemic served to really bring to the front, and in some ways provide a catalyst to things that were already underway. Does that sound consistent with what you just described? Or would your answer to the same question two years ago have been very different?
Mark Baxa, Interim President and CEO, Council of Supply Chain Management Professionals 06:53
Well, I might have layered in a little bit more around talent development, and, because if you recall a couple of years ago, and still today—perhaps even more—so we're beginning to recognize that there was stressors in the availability of talent and skill sets to evolve our supply chains, right, because we were, we were looking at, then, at that time, still, economic growth, and we were facing a number of unique challenges just from a GDP growth perspective around the world. Also in 2019, we were on the heels of recently introduced section 301 and 232 tariffs between China and the United States. So, we also had the—right?—we also had the factor of people looking at alternative sourcing—nearshoring versus far-shore sourcing, or offshoring, or a hybrid model. And certain industries can get there faster than others. We had USMCA, a conversion over from from NAFTA, and benefiting perhaps more collaborative, duty-free production opportunities and sales opportunities between Mexico, the U.S., and Canada—that was layering in. These are things that, you know, in terms of market forces, geopolitical shift, also created some challenges for us. I would say, though, you're right, Mitch, the supply chain continues to look at ways to lean its processes out, overcome challenges in the form of resiliency and redundancy, now, more so than perhaps in 2019, because in '19, we were still in a place of managing inventory, you know, managing working capital, just in time, speed to market. We were also in a recovering economy from the mid-2000s, right, still, where, you know, vessel capacity was, you know, in certainly large quantity. The demand was lower than when we moved into the, you know, into the teens, that era, and then we started to hit 2020, so we had a great period of growth during that time. So, we were also focused on, like I say, managing lean supply chains, looking for information, AI, machine learning, predictive analytics—those kinds of things were a high focus. But today, we're not doing more of the same. Today, we're revisiting how we do things, and we hear a lot more about resiliency and redundancy. And again, what lit the match was the geopolitical shift, and, you know, suddenly, you know, at the time, President Trump hit the brakes of the bus, everybody's on the floor, we get an immediate 25% increase in cost of goods coming out of China for so many things that we buy.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly 09:28
Yeah,
Mark Baxa, Interim President and CEO, Council of Supply Chain Management Professionals 09:28
And that—right?—that begin some of the whole global shift around where is this going to end? Where's the end? Do we see an in sight? How do we how do we do this? How do we engineer our ways through this so that we can contain costs? And now, today, you're not hearing just-in-time inventory. In fact, that would probably be a really tough sell to even talk about that if we're doing anything from a supply chain learning and concepts perspective. Now it's about, how do I build in the most economical way the redundancy resiliency within my supply chain, where can I contain costs while doing that in other parts of the supply chain so that I can meet consumer demand, and on top of that, where did all my strategic alliances go, particularly in the transportation industry, when everybody seems to be going after the, you know, the the latest bid for the highest dollar?
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly 10:20
You know, we've always been able to count on supply chain and logistics as including a heavy dose of managing and dealing with change, hopefully in a positive way, and what you just described, Mark, I think it's spot on. What's different from 2019 is that risk management and supply chain resiliency, it was there, but it just now needs a lot more attention and understanding of how to approach it, right?
Mark Baxa, Interim President and CEO, Council of Supply Chain Management Professionals 10:46
Right. And people knew about it. I mean, we've we've survived tsunamis, we've, you know, we survived hurricanes. I remember, very well, Katrina, and the challenges that industry faced on getting containers following Katrina. It was very difficult. It was very difficult to get Port of New Orleans reopened, the whole geo ports shift here in the United States, but certain industries had capacity. For example, I don't think we ever ran out of coffee. Right? So people were ready. There were some, you know, so there, there's always been a plan for resiliency and redundancy. The question is, is it economically feasible, was it tested, and was the supply chain prepared to enact that? We're all feeling a new phase of life now, right? We have to really understand how to build contingencies, how to expand our supply chains, elasticity, so that we can handle what comes our way with reasonable effort, reasonable cost, and still the ability to meet and/or exceed customer expectations.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly 11:50
And it brings us to a perfect close, Mark, and especially that point that came up a few times: Throughout all of this, the focus on the customer is really going to be the bull's eye that everyone has to remember the supply chain is all about. It's all about serving the customer.
Mark Baxa, Interim President and CEO, Council of Supply Chain Management Professionals 12:07
It is.
Mitch Mac Donald, Group Editorial Director Emeritus, CSCMP’s Supply Chain Quarterly 12:09
I want to thank you again, Mark, for joining us for a great conversation. This has actually been a perfect introduction to our podcast series on supply chain risks. I also want to thank you, the listeners, for tuning in. If you haven't already done so, please subscribe to this podcast so you can listen to our upcoming episodes for more great insights on the topic of supply chain risk. I'm Mitch Mac Donald, and thanks again for listening in to the Supply Chain Quarterly podcast.