From "An Unprecedented Year" to "Back to Normal": Removing Supply Chain Boundaries Post-Pandemic

The post-pandemic world is presenting the supply chain industry with new challenges. This discussion provides an overview of what to expect in the coming months and how companies can prepare to respond to the unexpected as the world gets back to normal. 

Special Guests: 

-Chris Adderton, Vice President, Council of Supply Chain Management Professionals 

-Bridget Typovsky, Senior Director of Solutions Design, DHL Supply Chain

Transcript

Speaker 1: 0:09

Welcome to all business, no boundaries, a collection of supply chain stories by DHL supply chain, the north American leader in contract logistics. I'm your host will Haywood. This is a place for in-depth discussions on the supply chain challenges keeping you up at night. We're breaking beyond the boundaries that are limiting your supply chain. Let's dive in this episode is from an unprecedented year to back to normal removing supply chain boundaries post pandemic. My guests today are Chris Allerton, vice president council of supply chain management professionals and Bridget Topolsky senior director of solution design at DHL supply chain. Welcome to you both. And thanks for being here. Thank you. Okay, so for starters, I gave your name and title and organization, but if you could take it maybe a step further and tell us who you are and a bit about your organizations and the responsibilities of your role. Chris, why don't you start?

Speaker 2: 1:04

Thanks. Well, I'm Chris Anderson, I'm vice president, the council of supply chain management professionals, the largest professional association in the global supply chain. We serve our member community with a mission to connect, educate, and advance the supply chain profession. We produce the state of logistics report on an annual basis, which was just released in June. We also collaborate with a number of academic institutions and produce the epic report in collaboration with the university of Tennessee and IHS market about global risk economy, politics, infrastructure, and capability. We've also partnered recently with MIT to produce a sustainability report, which has just been released this week. We have over 200 events a year in our local chapters and non COVID environments. Those that converted to virtual environments, and we have our annual edge conference every year in September, which we're scheduling live in Atlanta this year. So we have a broad network of affiliates associates. We also have as full-blown se pro level one certification protocol, but our mission is clear to connect, educate, and advance the supply chain profession. So hopefully our contributions today will help do that as well. My role is chief operating officer role and maintaining industry relations.

Speaker 1: 2:20

Super thank you. And we are very much looking forward to being back face to face with you at the edge conference this year in Atlanta and a couple of months. Uh, Bridget, could you please introduce yourself?

Speaker 3: 2:30

Yes. My name is Bridget[inaudible]. I am part of our solution design and engineering team for DHL responsibilities to support our north American operations and facilities. We have over 50 professional design engineers on our team, and we work integrated solutions from network transportation and warehouse with primary focus of growing the business and working new business opportunities. Pursuits looking at automation, looking at new technology, piling technology, collaborate with our operations team, our business development team, and other parts of our organizations to continue to grow and service our customers.

Speaker 1: 3:06

Great. And thanks for joining as well. So we are, I think I hope almost post pandemic and certainly feeling some different kinds of effects. And, you know, if you listen to the headlines today, or even as a consumer prior to certain things, you hear a lot of stories around the supply chain, not really working, um, supply chain challenges, everything from semiconductors to cars, to, you know, basic consumer goods, not being able to find those things in stores. I wonder if we can maybe dig a little deeper into the headlines and try to understand how we're seeing that manifest itself and maybe what some of the drivers are in the market, Chris, from your members, what are you hearing in terms of what's going on out there and how are they reacting to it?

Speaker 2: 3:48

Well, I think the core of the pain and agony we've all experienced either as a consumer or as a business partner has been triggered by the dramatic impact of a consumer change, right? The impact of COVID on human human interaction changed behavior dramatically. Look at food consumption. Virtually the restaurant industry was shut down temporarily and people shifted to home consumption and you just don't manage that kind of volume in a short time without basically having the classic bullwhip effect, right? One thing happened and had a dramatic impact downstream, similarly, you know, efficient supply chains that were predicated on timely transit times and documented transit times were disrupted as well. Just placement of cleats, displacement of crews all compounded those problems and prompted people to shift dramatically and drive significant demand in some segments of the supply chain and basically shutting down others. So that's the fact of what the daily operations are dealing with. And it's very hard to, even if you're already agile to be that agile, to, to manage dramatic demand changes in the consumer behavior and ultimately in the operation of your organization.

Speaker 1: 5:02

Okay. So a different degree of agile or maybe a different definition of agile. Bridget, go ahead. What are you guys seeing on the DHL side?

Speaker 3: 5:10

Yeah, I would say, I mean, the landscape is changing and it's changing faster that we're, we're seeing. So, you know, pre COVID, you know, supply chain was starting to move more quickly than it had in years past, we were starting to get into technology. A lot of startups, you know, robotics in the industry that's popping up, it's migrating from manufacturing to where they've been in existence. They were migrating into supply chain and making those adjustments for those types of processes and activities. What you saw with COVID kind of coming in is supply chains were having to adapt to the consumer consumers. Couldn't go into stores, consumers where everything was locked down. So that propped up supply chains that weren't into the e-com the NBC network. They had to figure out a solution, a very quick solution to accommodate that consumers who said they would never that route like the traditional bricks and mortar or forced to migrate to that out of necessity. And I think what we're seeing now from that standpoint is how much of that landscape is going to stay in place. How's it going to kind of settle? I don't think it's going to go back to what it was before and may not stay to the height that it is right now, but all that was kind of changing within supply chain and those what Chris alluded to as far as the shutdowns, et cetera, you know, we're starting to see now the more pronounced wave within the design typically designs are six, eight months to get an operation up and ready. But because of things are slowly starting back up there wasn't enough in process for steel chips. Everybody heard about it hitting the cars and et cetera, but it's also hitting, you know, the robotics, you know, that you're putting in your designs, labor shortages, right? As far as people may move from certain areas, different geographic, they changed where they were living due to the COVID impact. So we're seeing labor shortages. We're seeing, you know, buildings itself, you know, uh, lumber, steel, et cetera, that you would have have for industries for your homes, et cetera, is also impacting supply chain and warehouses. So all that is kind of having a ripple effect as looking at your designs where before it was looking at labor, maybe putting innovation and having a two to three year payback at minimum for technology to offset the cost of the capital now because of labor shortages and increase in salaries and the mans of that nature. You're now looking at ROIs that are a little bit longer because it's a necessity because you can't find enough labor in the market. You can't find a big enough building. So now you're doing the more compact buildings or you're going vertical, but then going vertical, you need steel. So we're seeing that kind of impact kind of change how you design and how you kind of plan forward. It's been a little bit of a challenge from a standpoint because you can't control it. It's slowly coming back on the market. We're starting to see momentum coming back up. Manufacturers are creating new plants, et cetera. So I think it's going to take a while for us to kind of see it kind of start to level out, but those are the challenges we're having them. Sir, Chris, you've seen it in the industry as well.

Speaker 2: 7:59

Yeah. Th th that's exactly what's happening. I mean, they're all they're components to your cost of operations, right? And transportation supply chain components are all one there's costs of capital and all those other types of things, inventory carrying costs and transfer costs. But the industry had been designing and working closely on a defined flow of materials and transportation that was pretty universally across the globe disrupted. And normally those disruptions happen in isolated geographies or industries. And it happened everywhere at the same time, which created a unique set of people competing for many of the same resources dramatically. And while we're talking about COVID during the COVID period, there were 22 major global weather related disruptions that got totally overridden by, by the COVID issue of the human capital engagement. You couldn't predict this, right? It's literally, it's, it's one of those risk profiles that no one could cost. People are evaluating whether their design models were correct and sustainable. Given the other uncertainties we're dealing with in the epic report, we talk about economy politics, infrastructure, and capability. Usually it's one or two of those things you're dealing with in a risk profile and in a geographic part of the world. But right now it's been all four of whether it's tariffs, political disruption, political change, domestically changes in policy, which used to be longer term views that you could plan for. Now seem to have four year cycles. That's very hard to, to bridge it's point to make a decision on ROI. Also inventory costs are significant on anyone's balance sheet, but capital costs have been historically low. What's going to happen. If there's a whole group of CFOs that have never had to deal with high inflation models, it's going to create a different mix. And I think people are trying to figure out what the future can and should look like. And it's not clear. Therefore you have to have scenario plan. You have to make a set of judgements and have contingency plans, probably more robustly than you've ever had. Classic cases in the supply network. Most of our members would talk about primary vendor qualification and visibility. Now people are looking at their secondary and tertiary suppliers in the marketplace. So they know their health, they know their capability, they know their security in so many ways that are critical upstream. And that was obviously evidenced in the issue we realized we had with protective equipment.

Speaker 3: 10:40

Yeah. It's also even flexibility to have the facilities, right. Of being able to pivot, to adjust as the market and just what I've seen. Like I said, I've been in the industry for over 20 years for the landscape to change. It was, you know, it was a long horizon. You would slow migration. From my standpoint, I would say, five, six years ago, you start to see it speed up. And what I'm seeing now, it's getting faster and faster, right? Things are getting implemented, tested. And within the supply chain a lot quicker than in years past, those are things that you have to embrace. The consumer's driving it a lot, you know, from a standpoint, the expectation of our consumers, you know, speed service level customization, being able to kind of have, have it when they want it delivered to wherever they want it. The flexibility of being able to have it delivered to your work, your house, et cetera, you're starting to kind of see them drive the changes that you have to adapt to. So that flexibility of, you know, you're looking at capital, you know, to offset some of the labor impacts that we're seeing, but also you want capital that can be flexible, that can accommodate the change that you don't know what's coming two, three years out, but you want to have operations that can be flexible enough to absorb those changes and grow with the consumer as they change the playing field. And that's becoming a lot shorter of a horizon that we've seen in years past.

Speaker 1: 11:58

Yeah. So I'm hearing a lot about how the rate of change is increasing. I'm also hearing that the complexity level has gone up pretty considerably in a short period of time, or maybe accelerated a lot. I'm wondering both from an industry perspective and then it, from a provider perspective, how are you guys thinking about human resources or innovation, et cetera. And how does it change the way that you think about how your organization, how the industry has evolved?

Speaker 2: 12:25

Yeah, it certainly has. There's a couple of major trends. One is demographics are shifting, right? And, and, but there's also a major shift in the operation of the supply chain, from a physical to a digital and to a technical need in that marketplace. As more things go to automation, the demographic shift is, you know, some core workforces in manufacturing and in transportation are aging out and it's been very difficult to attract new workers to those jobs due to location in lifestyle. Obviously everyone knows it's not an easy job being an over the road trucker, but it's also not an easy job being a plant operator, particularly as people who were originally trained in those jobs. And in the later stages of their career were doing physical, electrical, mechanical things. And now ton of the work has gone to sensors and automation and production runs. That's had a big impact on that, but the, the technical requirements for a more dispersed and complex networks important to, uh, we were fortunate to have Arthur Valdez, chief supply chain officer at target speak at our virtual conference last year. And he talked about them implementing programs. They have on a five-year horizon in months, and the need to have their vendors understand that they went from a hub-and-spoke classical distribution model with warehouses and local trucks to distributing from stores in their e-commerce. Walmart has the same model, and now they have 1100 distribution points or more, and that's a very much more complex and difficult model. And the need for accuracy and visibility in those net types of networks is incredibly important. So you can satisfy that consumer that is not walking a store, looking at choices, but already has decided, and you have to fulfill with a unique level of accuracy. Same thing applies in other industries as well. That's just the most recent example I can give.

Speaker 3: 14:26

Yeah, I would say from a supplier standpoint, what we're seeing is, again, the influence of the consumer. So speed to market changing the platform from going into a store, the bricks and mortar, you know, a lot of our customers, you would have brand recognition, you'd go into story. You would see displays, you would have that brand loyalty. That's slowly, you know, harder to get an established because now your interface is the internet when you can search and you're searching. And a lot of different options popups were creating that brand loyalty for any of that connectivity is now more challenging. The other part is, you know, during their comparisons, they can see stuff side by side. So the speed of getting into consumer is forcing it from the supply chain of late stage customization. So getting the components in close proximity to the end-user, and then at the point of sale is customizing to what that user wants. Everybody wants a, maybe a different color, a different thread put into their component to make it personalized to them. And that's how they're getting that, that loyalty to the customers where they can actually customize it and make that connection to the end consumer. So we're seeing a lot of that from, from ad standpoint, late stage customization, again, being closer to the end consumer. So you're going from national DCS to more regionals, to maybe even more Metro areas to get to that service level. So the consumer has it within three days within two days, you now seeing a lot of requests, you know, in certain areas where you can get certain select skews within hours delivered to that consumer. So those are the changes that we're seeing within supply chain is that flexibility to bring components in, without the skew being a sellable skew into the warehouse, or the supply chain is the components are coming in. And then, then you can do the late stage customization and have the right skew or the configuration for the end consumer. Once they place those orders, SLS or service levels agreements are, are, are getting tighter and tighter, you know, as far as getting to the end consumer. And if you're not able to do that, your competitors are driving that. So there's a lot of competition from that standpoint that we're seeing. And if you're not playing in that market, you're going to slowly fade away because everybody's migrating to having that flexibility or capability. And again, the consumer is driving it. The other thing that we're also seeing is you're the go green elements for the consumer. So how are you delivering that? It's customizing to that person, but it's also the presentation. That's where you're going to get the consumer that I like it. You gave me the right product, but that I have a good experience receiving it. When I opened up the package, was there a lot of done each in there? What, you know, was it an oversized box where, or from that standpoint, so the customization is not just the actual product itself, but it's also the package which it arrives in. And that's how you're establishing more of that brand loyalty or repeatable consumer coming back to that same account, because they had a great experience receiving the package as well as purchasing

Speaker 2: 17:11

It. Yeah. Well, I think that Brits basically highlighting a key position of supply chain and the C-suite is picking up on this. It is no longer just costs. It is value creation, all the things that Bridget just said, create the consumer experience, right? And it's closer to the consumer than it's ever been before I spent the first half of my career in sales and marketing. And the life value of that consumer is something you work on hard every time, every day availability, uh, packaging experience, user experience for every type of product is critical. And we don't talk about supply chain as a value creator enough. And that experience is what the successful people highlighted by someone like target, who spent the money invested aggressively increased their timeframes had two of the best quarters they've ever had. Now, granted, the demand swing was, was massive in their direction, but they were in a position to, um, invest to harvest the value of that consumer franchise that appears to be staying in Walmart. And some of the others that were leading in this space, there are many have seen the same benefit, but it's not just cost. It's how you invest to create value over time. And it's pretty clear that those that invested in recognize that are getting a return on investment in their supply chains and their consumer experience they're tied together.

Speaker 1: 18:41

Yeah. So that's interesting. I want to stick with this concept of time, Bridget, as you guys work with your customers, putting solutions together, how long of a contract are you talking about? What does that imply from a solution viability over time, given that there's all of this massive uncertainty that's come around in the pandemic and things are going faster, has that changed the way that you guys are thinking about solution design? What's the overall effect?

Speaker 3: 19:06

Timeline is definitely speeding up, you know, pre COVID designs would come in, you could stand up an operation within six months. You're looking at, from an ROI standpoint, you would look at manual versus putting in some layers of mechanization or automation. And your contract terms are usually not three to five years. You're looking for that, you know, three-year or so payback to kind of justify the technology to implement it. As you now kind of go after, you know, we're coming out of the COVID, you're looking at what is the impact of supply chain? Well, now we're having issues with sourcing parts, right? Steel, computer chips, which run, you know, robots run, you know, our RF units run the controls within our mechanization. All those are having tremendous lead times with mechanization. You could put something up in 30 or so weeks. We're seeing the lead times now for installing a mech solution of 50 plus weeks. So it's a year. So those are, those are drastically kind of having an impact for from that standpoint. And then you lay in the other factor, which is real estate shortages. Having availability for building the labor market is getting saturated in traditional campuses. So now we're looking at alternative campuses, we're looking at an alternative locations that still balanced service level still have great population, a dense population for staffing. Those operations are more automation, more robotics are coming into our designs, not just for the cost of greater throughput, but also to subsidize the labor shortages, to look at those tasks that may maybe be more repetitive that we can kind of automate, and maybe the ROI is the wash or close, but it also gives you less dependency on a labor force for, from that standpoint. So all of that is kind of impacting how we're, we're looking at those designs approaching it. The other part right now, just because of the lead time on things is, you know, operations businesses are still growing. So we're still implementing. We're still driving. That is how can we phase into starting out at either a manual or starting out in a phase, one of a design and how can I design continue to grow as the supply chain turns back on as our volumes continue to increase. So now where you kind of do a design for three to five years out, you're now looking at your designs, can I do a phase one? How can we make that as most efficient as possible? And then also how's that going to go into a phase two phase three to a final state solution, and it may be three separate implementations that you're looking at. So it's taken smaller chunks of a big picture and how to make it seamless to our customers from a standpoint of implementation startup and ramp up.

Speaker 1: 21:41

Yes, Chris, similar question to you, whether your members are outsourcing or insourcing supply chain activities, and you mentioned a couple examples of some companies that have maybe invested ahead and benefited through the pandemic. Are you seeing more of a groundswell in terms of how your companies are resourcing or adapting their supply chain organization?

Speaker 2: 22:02

I think they're looking at multiple alternatives. You know, even if the sourcing model people talked about reassuring, it's truly alternative showing, right? The shifts from other, you know, politically challenged areas or long transit times. So others near shoring is obviously a big trend having alternatives and having the ability to adjust scenarios as they unfold is really what people are doing. Getting greater visibility. Everyone is looking to, you know, there's an old economic rule, do what you do best to do what you do least worse. So if you're trying to adopt new technology, oftentimes it's better to go to an outsource model, unless unless you have a core competency, that's a differentiator, right? And people are looking at, you know, greater use of three PLS because they have a greater visibility to the market. They have a better understanding of network design, even large corporations. It's difficult for them to remain agile and resilient if they're dedicated to an internal mechanism, right? You always have to be looking for external benchmarks and external reference points. You know, we do research in that area. W we, we have a document called the process standards. A lot of people that to compare themselves externally, but yes, I think people are much more open to say it doesn't necessarily have to be built internally, but there are still major investments that preclude people from pivoting quickly. The reason you're seeing a lot of new technology come up, it's easier to start from a Greenfield and, and design and build than it is to remodel and refit. Normally, unless you have a great real estate location and it's got great labor and then everybody else would like it, and you might want to sell the asset and go someplace else if you're having an extraordinary return. But I think the, the bias to tradition is gone. It's just been wiped out because it's so hard just to stay where you are and hope for the best, which, you know, in some cases people would consider it. I'll just hunker down until the hurricane blows over. Well, this is, this is a long hurricane. It's a, it's a 12 months blizzard. If you will, we're all living through it. And it doesn't seem like it's ever gonna, you know, there is no return to normal. There's a new set of situational issues that we're all gonna deal with in all aspects of supply chain. And it's, you know, buy, make, move, sell, right? Everything from how you source materials, you know how a chip can cause you to be unable to sell$45,000 vehicle because of one component part that's pretty rare, but the system was designed that way, right? Lean, lean principles would have said, you know, what's my risk profile. You know, single plant sourcing, how good is your co-packer relationship and how much you paying a premium to allow them to be on call, if you will, versus your own plants, being able to run or running less than capacity. And certainly, you know, we keep talking about this, the changing consumer behaviors never been this dramatic. And I think Bridget made the point. People that would never have considered some of the digital purchasing or a shift to take place and the low cost of shifting. I mean, we have some pretty amazing supply chains out there. It's a new book out on Amazon. If you want to read a pretty classic story of evolution and continuous investment, it's pretty, pretty amazing story.

Speaker 1: 25:28

So acknowledging the fact that we'll never get back to pre pandemic, if you could sort of look in your crystal balls, when do you think this aftershock stuff that we're working through now will normalize a bit, how far out do you think that is? I won't hold your personal into your forecast, but I will ask you to go first bridge it.

Speaker 3: 25:45

Yeah. I mean, you talking to our, some of our vendors, I really think it's going to take us through next year, to be honest with you. I think it's probably middle of the year. We're going to start to kind of see it starting to flatten plateau. And then how far is it going to come back down to what we saw before, but it's a slow burn. I think we're starting to see industries address it by working extra shifts and creating manufacturing plants that are producing that stuff. But to get it through the supply chain through the till, and it's not just hitting one industry, it's hitting multiple, their chips are hitting supply chain, but it's hitting the car manufacturer, tending the computer industry, et cetera. So it we're all vying for these same components, but I really do believe it's going to be probably through middle of next year. We're starting to kind of like, Hey, we're coming down. I don't think it will be back to where it was, but I do think it's going to come back to normal expectancy as we get into 2020.

Speaker 2: 26:37

So Chris you're right. Yeah. You know, I have the benefit of being able to lay off the liability because I just mark it as a great partner for ours for a couple of our pieces of work. And I get to see their economy and risk teams forecast. And I think it's pretty consistent with what Bridget said. It's more timing and magnitude of the change. Is it a gradual ramp up as they're going to be this exploding demand? The only caution I have, I spent, I've been kind of a mongrel dog, pedigree sales and marketing, and spent time at Nielsen, spent time with a CPG company. And now it was supply chain, but the uncertainty is really around the consumer and the human behavior we've got going on in the world. I mean, there's still so much uncertainty relative to this. And, you know, we just did a review of the upcoming release of the epic report. And normally that's a demographic view and an infrastructure analysis, a lot of economics, but it really is human behavior politics. We're seeing, you know, things that haven't happened in decades. You know, you're looking at the political unrest in significant parts of the world that are critical to growth, a significant shift in demographics in China, as their economy is elevated that the economy, you know, low cost countries were always sort of the source. We've seen India and Vietnam and, and others benefit Mexico benefit from the increased costs in China. But then the politics, the uncertainty, even our own domestic market, I think is something that's uncertain. I think if those things, if we don't have another rural unrelated activity, I think we could actually see improved growth above the forecast. I mean, that's, that's the piece, but I'm not naive enough to think there isn't some other hurricane coming from somewhere that we can't see, or maybe it's a media who knows what's next. Um, uh, we've all been watching way too much Netflix and the disaster movies I deleted from my inventory.

Speaker 3: 28:31

One good thing though, is I think these events that we've had over the last year or so I think a lot of businesses have taken note from a standpoint. So I think you're starting to see, you know, I mean, we've always had contingency plans. That's part of our process and our DNA for our costumers. But I think you're starting to see our customers and our vendors and suppliers. I think it's becoming more of an awareness. You've got to have these plans in place, flexibility, alternatives. You know, the single node network is, is, you know, people are now are like redundancy. What happens if something happens in a certain geographic, etc. So I think this awareness has, it has been big enough and long enough that we, you know, the duration of it. I think it's making our customers, um, the suppliers, vendors, et cetera, more aware of contingency planning, flexibility, and having alternate source points to meet or, you know, and continued to grow and survive through these kinds of episodes. Cause you're right. There will be something else down the road, right? Hopefully it's not as what we just experienced or as large, but I think it has raised the awareness with everybody to have those plans and contingency plans in place.

Speaker 1: 29:36

So I guess we should be expecting the unexpected from here on, okay. Well you both for joining today, I really enjoyed both of your perspectives on this and we'll look forward to whatever comes next in the market. And I think it sounds like we're operating in a much more flexible way than a month ago. Thank you. Join the conversation

Speaker 2: 29:53

Very much. Enjoyed it.

Speaker 1: 29:56

If you enjoyed the conversation today, please share it with a friend and rate us on apple podcasts. You can find us online at dhl.com/all business, no boundaries and follow us on LinkedIn and Twitter at, at DHL supply chain. We'll see you next time.

Speaker 4: 30:27

[inaudible].