Making the Summit: How REI Consistently Delivers in an Environment of Rapidly Changing Consumer Behavior

Dive into this engaging discussion about changing consumer behaviors in the retail space and how supply chains have needed to adapt and try new things, particularly when it comes to eCommerce and returns.

Special Guests:

• Bill Best, Vice President of Supply Chain and Logistics at REI
• Justin Ha, Senior Director of Solutions Design at DHL Supply Chain

Transcript

Speaker 1 0:10

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 today's episode is making the summit how REI consistently delivers in an environment of rapidly changing consumer behavior. My guests are bill best. Who's vice president of supply chain and logistics for REI and Justin ha senior director of solution design at DHL supply chain. Okay, so before we get into the discussion today, I thought it'd be helpful if you could both introduce yourselves. Tell us a little bit about who you are, your role, your company, bill. Why don't you go first?

Speaker 2 0:59

Great. Thanks. Will my name is bill best. Uh, I lead supply chain at REI I'm vice president of supply chain and logistics. The scope in my purview includes of course, the logistics international inbound, the domestic transport to stores, our omnichannel or digital delivery services, uh, as well as supply chain strategy, supply chain technology services, sort of at it, somewhat it function within our organization and then, uh, distribution operations.

Speaker 1 1:28

Okay, great. And Justin?

Speaker 3 1:29

Yes. Hello. My name is Justin ha. I'm a senior director with the solutions design team at DHL supply chain. I've been with the company for a little over 12 years and in my current role, I lead a team of engine years and logistics professionals that design warehousing and distribution solutions for our customers. And within that role, I'm also the lead solutions representative for our retail and e-commerce sector acting as an SME in that vertical and providing more focus support. Great.

Speaker 1 1:59

Thank you both for that. Um, and bill, I I'll start with you, you, um, you know, the time of year is, is fourth quarter early. Um, we're looking at another peak season. Um, you know, we, you went through one of these during a pandemic last year and you know, I'm wondering if, um, what, if anything changed, um, in the pandemic and maybe changing now that we're coming out it, um, as we look at 2021 for peak season,

Speaker 4 2:28

Sure. I think there's a couple of things, uh, that are the same. They just scaled<laugh>. So, uh, digital continues to lead the day, um, as it relates to, um, getting product to our customers. And so scaling to serve the digital demand, uh, is critical, um, beyond, uh, the digital retail stores are open. Um, and you know, we certainly all saw hiatus of retail store, but then that was followed by, uh, um, some apprehension about getting back into crowded retail environments. Uh, and so finding the balance of making sure we're serving well, the customers that did choose to go into the store and the customers that, um, uh, chose to shop online, the nuance the, this year really is about inventory. And there's no mystery in this. We all understand the challenges of the inbound supply chain and building up inventory. Um, and when we went into COVID many retracted from their inventory purchases and anticipation that this could be a long Prota protracted, um, a condition in business and wanted to be careful about cash. Um, and then, um, probably equally we all went back to market saying, oh, this isn't as, uh, disruptive as we otherwise thought, fire the factories back up and produce more than you did before and keep up with demand in that cascade it all the way back into tier two suppliers and otherwise that, uh, we're seeing the impacts of that still going, where we've been fortunate is that we've been able to build our inventory, uh, to levels that are a little bit better than where we were at in 2019, uh, in, uh, in many categories. But there are certainly other categories where it deal really hard. And the best example that I share with people is go look at a car lot. How many cars are on the lot? It's visceral. It's very, very clear that goes all the way back to tier two components and suppliers, et cetera. Uh, and it's not much different on other consumer goods.

Speaker 1 4:39

Got it. So just, and, um, I know as a, as a DHL employee that I'm getting a lot of questions about the inventory questions and the global supply chain, um, from a solution standpoint at DHL, you know, what's, uh, what's your general response when talking to customers or partners in industry around, you know, how do we unclog? Um, it is right now, a very clogged global supply chain.

Speaker 3 5:05

Yeah. I think, uh, you know, a tough, uh, question to answer then, uh, it just seems, um, it just really varies by, uh, like they'll sort of mention, it could vary by industry as well, uh, for someone that can see across, uh, multiple sectors, you know, generally I think, and the, to turns have been going down, uh, I think it's because, you know, like the disruptions we have is interrupting the ability to forecast accurately. So sometimes you fall behind and as you try to quickly catch up, then you overshoot. Uh, and then as that sort of accumulate, I think it's having a lot of stress in the ports, as we know that we hear about on a daily basis, a lot of the inventory are getting caught up in transit. So all that said, I think, um, you know, for, for certain industries like fashion, it's, it's quite, uh, difficult, especially fast fashion where they go through styles pretty quickly. Uh, so the skew life cycle is, um, you know, shorter than, uh, you know, general merchandise. So I think those are probably the most difficult ones, but, uh, for something like, you know, general goods and, and consumer, you know, maybe not as, uh, impacted because, you know, in their network, they got inventory to sort of, um, meet the demand, uh, as of today, uh, while they're still waiting for, uh, some of their goods to make it through the transit and into the warehouse.

Speaker 1 6:26

Thank you. Um, another hot topic now is labor shortages in the market. Um, this is everybody during peak season is looking for, uh, uh, part-time labor. REI is probably no different bill. Um, what kind of strategies do you guys have in place to make sure you've got the right labor force to deliver on the season?

Speaker 4 6:52

Yeah, so, um, a, um, you know, we're, we're, all of us in the, in the, um, retail industry are, are kind of chasing some of the same types of strategies, right? So I'd say first off, um, our strategy is be market aware and by market aware that's local market where I'm hiring, not trying to approach it in a macro way, um, because the labor needs and expectations are different and they're not necessarily intuitive of by market. Um, some of the rural markets are every bit and as high a demand as the more urban, uh, markets, um, you know, and, um, would come to, uh, counterintuitive, uh, outcome relative to, uh, hiring practice and, and, uh, equitable pay. So living with age has been an interesting conversation for a long time. Um, but that's been stood on its head a bit. Um, and, you know, um, beyond that we're pulling some of the same levers, you know, we've staffed up. Um, we, uh, actually have reorganized our labor force to, uh, index more toward our, our heavy days are, so retail's not a Monday through Friday business. It's really more of a Thursday through Monday business. Um, so we've bolstered our weekend staffing. Uh, we've taken, uh, and grown our off shifts. We've incorporated shift differentials. Uh, others have done some of those same things, um, but aligning the labor and staffing up to when the work's happening and making sure that we're market aware in how we compensate

Speaker 1 8:29

Justin with, um, DHL running, you know, hundreds of facilities across the us and Canada. How do you, um, do what bill was suggesting around being, you know, market aware, but also, you know, fair across your whole labor force? Um, what's, what's that balance and how do you strike it?

Speaker 3 8:49

Yeah, it's a tough one, especially this year. I think, um, you know, I think I heard a fact, uh, the past two months in the us about three to 4 million people have exited the workforce, uh, each month, which is, uh, I heard is, uh, you know, record setting numbers. Um, so it's, you know, pretty alarming for every industry really to be finding staff that they need to hire. Um, you know, I think a little bandaid solution, uh, and we're no, um, immune to that, I think for the peak, uh, in addition to what bill talked about, we have sites where we have, uh, surge premiums for those peak periods where we will pay additional, uh, you know, couple of dollars per hour for that period of time. We're also bringing people on early full ex expecting that, um, we may not have work for them, but, uh, also anticipating the turnovers that happen. We're just, overstaffing in, uh, anticipation of the work coming as well. So, you know, a lot of ways we are doing everything we can, uh, so that we can service that customers. Um, but yeah, to how to balance with the rest of the, uh, the market. Um, you know, I think generally our HR team is amazing at knowing what the market rates are and staying competitive, uh, at the same time, again, just, you know, making that investment when we need to, for those peak periods, because for some companies that's really the period that makes or breaks their year. So it's quite critical.

Speaker 1 10:15

Bill, did you have another comment on that?

Speaker 4 10:17

Uh, I was just gonna make one more comment that, uh, you know, we're also investing in automation because part of the problem statement here is the supply doesn't match up to the demand, uh, with the pivot to digital. So many folks are adding distribution operations that just pushes into labor. So some of that has been by how we're choosing to automate some of our processes.

Speaker 1 10:41

So what, what processes in particular have you found to be best, uh, targets for automation? Where have you made the most headway? It

Speaker 4 10:49

Depends on how, you know, how much invest you wanna make. And, uh, some of those investments are a little bit longer lead time, but order assembly is, uh, a very latent process and costs everyone more money than, uh, than bulk picking and or case level picking. So in our digital business, uh, our approach to order assembly, um, we use pocket sortation, uh, as an approach to that, and everybody has a little bit different profile, but, um, I can do the same amount of volume with about a third to 25% of the amount of labor demand, uh, from a throughput. And it's very resilient. So, um, you know, there's one example example.

Speaker 1 11:36

Yeah. And for, for our listeners who may not know about pocket sortation, can you just quickly describe what that, what that looks

Speaker 4 11:43

Like? Yeah. So, uh, for, for those of us that are a little bit older, remember the days of dry cleaning<laugh>, uh, and imagine you're picking up your dry clean, and you're pressing the button and it's bringing the dry cleaning to you. Uh, pocket tion is sorta like that. The pockets are all R F I D tagged. It can take multiple I multiple wine items from an order. It will sort all of your shirts, put them together and deliver them to you at the front of store. So is not an order assembly, um, thought process that needs to happen. It's, I've got three pockets, I've got three items. I put three things into the box, the bag, uh, or otherwise, and I send it on its way and you can do in seconds. What would otherwise take a minute? Mm-hmm<affirmative>

Speaker 1 12:30

Mm-hmm<affirmative> Justin, um, what, um, kinds of automations have you seen most applied? Um, over 2021 looking towards peak,

Speaker 3 12:40

I think, uh, mobile robotics definitely have, um, made a search, uh, just things like, you know, locus, robotics, and sixth river systems. Um, those, uh, AMRs that really help, uh, or pickers by working alongside of them. Uh, so we've made a number of installs with those internet work as well. And, uh, the other thing that's been really, um, picking up as of late is, uh, gets the person solutions, uh, and that's both in mobile robotics and somewhat of a traditional robotics. So it be something like auto or, uh, and then there are other similar technologies around that, uh, that does some of the as RS type of activity as, as well as gets the person and also, you know, the good old, uh, Kiva like systems, you know, there's a number of, uh, vendors that are, are providing similar solution to that. So that's also been picking up quite a heat that we're also exploring a lot of opportunities with.

Speaker 1 13:37

Yeah. So bill, as a, as a retailer, um, with all of these technologies coming at you, how do you, um, efficiently, you know, evaluate them and put them into operation? I mean, it would seem like it could be overwhelming almost, uh,

Speaker 4 13:54

It, it can be, I think, uh, like any solve, you gotta know the problem that you're trying to solve. You gotta understand your problem statement and then you start shopping for what are the opportunities, uh, uh, in that problem statement. Um, we also use goods to person in our, uh, in our F in one of our facilities, our newest facility, we have an automated storage and retrieval system. Um, and fundamentally you take the latency of human labor out of the walking and travel distance. And the shuttle system that we use can move much faster than a human could do it. And I can pick a lot faster than a human, uh, than a human, uh, might otherwise be able to do. Um, so, uh, it depends on the process that you see where your greatest opportunity is. And it also depends on, um, what, what your investment is going to look like. We, uh, we too looked at, uh, folks like sixth river and, and others that are, um, the, the robotic, um, that is going to follow, uh, and, or work in clusters to eliminate some of the walking for the human and the human can interact with multiple robots, um, versus, uh, versus a single tot. And they're pushing it along. So what's the problem statement you're trying to solve? Is it latency, uh, is it accuracy, understand your problem statement, and that will help you lead you to where some of your opportunity is right now, labor is a problem statement. What are some of those opportunities? They may not be a hundred percent as fast as humans. So robotic arms are very popular and for the right profile of product, they can do a lot of work in a dark room when nobody's watching in a very accurate format when I couldn't have otherwise had a human doing it. And you can kind of have an always on, um, uh, mentality about that. Um, and so, uh, there may be processes right now that, um, choosing to do nothing because there's no human inner, uh, opportunity, uh, versus having a robot that can replace, even if it's, uh, as fast or slightly slower. Um, those, those technologies are gonna continue to evolve, uh, and will continue to have opportunities to enhance the, um, the efficiency of the operation.

Speaker 1 16:11

So a question around some of the pace of change that's happening within the supply chain industry overall, and within REI bill and DHL, Justin, you know, what's your perspective on how to learn fast or fail fast courage to test these kinds of concepts that you hear. I mean, how do those practically play out and, you know, when do you know, it's time to move on versus implement something that you feel confident with?

Speaker 2 16:38

Yeah. I'm happy to jump in here. I think there's three kind of principles and then maybe Justin, uh, comment, and we can go from there. But I think the first thing is no, no one you're sacrificing good in the pursuit of perfection kinda leans into that speed piece. Right. Right. The second and accompanying comment that I would make there is that sometimes, and maybe more often than we admit the whiteboard, math is good enough to get us moving. And it's good enough to leverages the courage to do something versus being paralyzed in that pursuit of perfection. And then the last thing I'd say is, as a leader, it's my job to know when to help the team differentiate the need for the detailed math versus the opportunity to move forward with the whiteboard math, if you will, and choose to iterate and find the best outcome and, or find when it's time to stop

Speaker 1 17:33

Justin from a service provider standpoint, how do you work with customers to strike that right balance?

Speaker 3 17:39

When I think of learning fast, you know, it's really about not hesitating in a way, of course, you need to take the time and do the right analysis to make your decision, but I've seen enough in instances where even with all the work completed, it's hard to make that decision. Like bill said, we're never gonna get that perfection in terms of, you know, the answers that we're looking for. So there's always a, an element of risk and sometimes it's small, sometimes it's big. And, and I think to varying degrees, people have different appetite to, to take on those risk. But I think there's definitely more instances where people will tend to err on the side of caution. So if the business case is really a split decision or a really close one, I think some organizations have the site to stay the same instead of taking on the, at risk of the change. But it's becoming more evident that that type of approach may not be sustainable in today's market. Things are changing fast. And I will say, you know, we have customers who will always look at different alternative solution or technology that they wanna explore like EV every five years. And the answer comes up the same, your ROI is gonna be five years, but, you know, if you think about it, the reason why it's always that same answer is because our baseline would always change as well. So wage rate that we looked at five years ago is different from today's wage rate. So in other way of looking at it is if you actually took that risk gone, or just accepted that ROI turned five years ago. Now you would've entered into that stage where your assets are paid off, and you're gonna reap in benefits of millions of dollars of savings that would bring you on the plus side of that ROI equation. So, yeah, I think it's, it's really about not hesitating and sometimes being just courageous to take on some of the risk that are calculated and that have been planned for. So

Speaker 1 19:34

Bill, when you get into the situations with your team where you're in sort of the gray zone on a business case, are you finding that you're putting your thumb on the scale and pushing them, uh, more today than you have in the past? Or has that not changed?

Speaker 2 19:48

I would say that I'm probably in a privileged position that might team will push back. Sometimes that affords me the opportunity to consider and weigh that in and decide when to put the thumb on the scale. The reality is, is that it's a change management equation. And if you don't bring people along in change, you don't affect change. So the moral of that is bringing people along. I think the other thing is just pausing and recognizing that how we have done business historically cycles, rhythm of business patterns within the business history are no longer serving us in the last two years. And we're having to think about things a little bit differently. And if you lack courage to make dis within the margins of those ambiguities, you're gonna struggle and your company will suffer.

Speaker 1 20:38

So shifting gears a little bit into kind of the broader market around omnichannel, there are a lot of manufacturers and a lot of retailers in the market, and they're all trying to adapt their models to keep up with consumer demand. What competitors are doing just in, at DHL. Are you seeing models that are becoming more alike that we're applying with different customers or is it still sort of a grab depending on individual companies?

Speaker 3 21:10

Yeah, certainly seeing that across the board in terms of needing to change. Um, I think which kind of fits into the theme we're just talking about. Yeah. I think e-commerce usually in the past was always sort of, I guess the younger sibling of retail, like you got your brick and mortar and it's additional channel to it. And then we saw the rise of retailers that only chose to do e-com, but now we got a mixed bag of retailers. Who've got multiple channels. And then now that that's sort of transitioning into other parts of the industry, like consumer who would normally just send large shipments to other retailers are now having to open up that channel as well. You know, auto technology sectors, they're all getting behind that, uh, theme. And yeah, I, I would say these things are being more common across the board because consumer behavior has changed and everyone's trying to meet that in the right way. And when we talk about eCommerce, it's so easy to generalize in one concept of just going online and buying, but behind the scenes, there's different avenues of fulfilling that order as well. So it's not just a pick packing ship from a distribution center sometimes, you know, there's other ways of doing that, like drop ship where ordering and all that process is happening somewhere else. And another party will be taking care of the distribution part of it and in many other different ways. So within eCommerce, I think, you know, there's complexity there also. So we're recognizing that and trying to find a solution for really across the board. How, how do we support the emergence of these type of borders? Now, when we talk about omnichannel, I think we've said it before as well. A lot of the times it's really difficult to optimize all solutions altogether in a single building. Cause the profile of the orders are so different from retail to wholesale, to e-commerce, you know, you sometimes have to pick and choose where you want to win. So do you suboptimize all of them so that everything kind of plays nicely together or do you choose to optimize you the biggest channel and then take the hit on some of the other channels? So I think that's the challenging part. A good thing is there's emerging technologies and solutions out there that is bridging that gap a little it and making it more agile and flexible. But that's still the reality in my perspective that, you know, you would never optimize fully, uh, what an omnichannel distribution would look like.

Speaker 1 23:42

Bill, where do you look for ideas or best practices in industry?

Speaker 2 23:48

Yeah, so I think the thing I would lead with is as you consider what others are doing, your first responsibility is to know your why know what you're solving for and give attention to that, you know, for REI, the why is always gonna revolve around customer and member. And from an omnichannel perspective, one of the whys for us is because customers and members expect us to be delivering in a timely manner. And in a competitive lead time, we've done some work to understand that specifically on what it drives from a top line revenue perspective based on that behavior. And we've learned that it's worth the investment to make sure that you have inventory in proximity to the customer that can enable speed, that lets you first off complete those sales, right? Whether, uh, that's through SIF for coming out of a distribution center. So the speed matters, but what also matters is reliability. So if I get an order in two days, one time and the next time it's six days, right? That doesn't build loyalty and doesn't build customer confidence. So the consistency and reliability is important. There are a number of different solutions and ways that people will address this. It's gonna rely on the scale of their business. It's gonna rely on what's the scope and scale of their network and how they choose to use inventory. Whether they choose to have Omni centers, whether they're doing retail and digital, or whether they're doing those in separate facilities and their business models gonna drive that so that they can optimize the handling characteristic to best serve as customer outcomes. Right? So it's a boomerang. It always comes back to what's the customer outcome, what's your, why? What are you solving for and the solutions and or the leveraging of multiple facets of what others are doing will inform the right outcome in service of your customer.

Speaker 1 25:48

Great. So last topic, I know another thing that REI is known for as a member of REI myself, is the returns policy. And I think we could spend multiple podcasts talking about returns as a subject. So I wanna limit the question to just within the last 18, in 24 months when we were in the pandemic, what kind of trend did you see from a returns volume perspective and how are you seeing it play out today?

Speaker 2 26:18

Yeah, so, well, I think many retailers feared the bull whip of, Hey, retail stores are closed and we both enjoyed because of the opportunity to get the inventory back face, seem to a customers, speed, returns to store. And we worried about the bull whip of initially there was a slowdown in returns and or backlog as customers who would've otherwise gone to store started to pivot, to mail in returns. What we knew and had to adapt quickly around was how are we delivering consistency and reliability in the service of returns. Customers want their money back first and foremost, and they don't want it to be sitting without any communication. So communication became paramount in that conversation as well. And then customers are sensitive to the cost and most expect free returns as a component of the returns. And just as a component of how eCommerce works today. So we had the buildup of returns and we sort of worked through what I'll call a quasi accrual process and we go, Hey, it's coming, wait for it, wait for it, wait for it. Sure. Enough as retail reopened, we saw a, a bubble. We worked down through that bubble. We expanded some of our mail in operations to make sure that we could both address the bubble and then, and give reliable returns processing time. Uh, as we came out of that, now that we've accomplished that we can continue back on that mission of how do we make sure that we give the best experience to our customer. And we look for features that can be further enhancing to our member experience.

Speaker 1 28:01

Great. Justin, is that a similar trend that we've seen for other DHL customers?

Speaker 3 28:06

Yeah, definitely. There were some retailers out there who extended their return policy as well, you know, during some of the shutdown so that my customers felt like they urgently needed to figure out how to return stuff. You know, they could wait a little longer and that would've been acceptable. So I guess that could have contributed to that bubble. Well, as well, when, when things open people are kind of getting rushed into make those returns. Yeah, not much to add. I think one thing I could maybe add a comment around is around what bill said about the customers wanting their money back quickly. And there have been some solutions and ideas out there, which I think some companies actually already doing, including Amazon when you've done a lot of transaction with them and, and built some type of, you know, uh, trust in that engagement. Now, if you also return your next product, even before that product hits the warehouse, you're actually already refunded that amount. So it's kind of like the retailers taking a bit of trust us and that yeah. That product will get to us. So once you, you know, package the good and drop it off at a post officer or wherever the drop office they scan to say, now there's a tracking ID associated with that return. They will process the refund already so that you get that money back. And I think that has had some positive feedback from the cut customers as well.

Speaker 1 29:27

Yeah. And hopefully spend that refund back with the original retailer. Right,

Speaker 2 29:33

Right. I, I would say we like to think about taking that one step further relative to our sustainability mission. I know some retailers will just say, Hey, keep it we'll credit you. And for us, uh, the opportunity to make that gear available to another customer, even at a reduced price, uh, in our eCommerce or use gear channel is a great opportunity to introduce somebody to the outdoors, with quality gear that helps them have an enjoyable experience and continue that experience. So we love it when we have the opportunity to be able to get that gear back into that channel as well. Versus there I say, leaving it to however the customer might want to dispose of it.

Speaker 1 30:21

Great. Great. Well, thank you both for joining today and for your perspective on these things, very interesting times in the industry, for sure. And hopefully coming into a bit more of a normal kind of operating environment as we move into 2022, we hope if you enjoyed the conversation today, please share it with a friend and rate 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 5 31:10

I.