Episode 744 11.02.21
Supply Chain: Ready or Not
Greys Sosic, professor, USC Marshall School of Business, addresses the overarching challenges impacting the global supply chain. She explains that in the last several decades we have witnessed the supply chain attempting to become more efficient—and it was highly successful as long as it was working and didn’t have any big disruptions. The good news in all of this, she says, is that digital transformation is a good solution and we are realizing the benefits of digitally transforming supply chains.
Below is an excerpt from the interview. To hear the entire interview on The Peggy Smedley Show, visit http://www.peggysmedleyshow.com, and select 11/02/2021 from the archives.
Peggy Smedley: So Greys, I’m excited to have you on the show today…. I thought maybe you could give us an overview from your perspective, talk about the big challenges right now that are impacting the supply chain.
I know we’ve all suffered the pandemic and that started this giant tumbleweed, so to speak, of what started causing all these problems. But I think it started long before that. But I think even the supply chain, I think problems with the pandemic, just put a magnifying glass on everything.
And we really started seeing how they could be worsened. But I think we started experiencing a whole lot of issues when we started discovering our… And from my personal perspective, we’ve got an issue with circularity and sustainability and we’re going to get into all that, because we’ve got a lot of time to spend together today.
But let’s just start from your bigger picture of what’s really some of those big overarching challenges that are facing the supply chain? I know that was a big mouthful, but I’d just love to get your take on it.
Greys Sosic: Sure. I mean, we have over the last several decades, seen how supply chains were trying to become more efficient like Toyota model, just-in-time inventory was seen as something great. And it really was great, as long as it was working, as long as we did not have any big disruptions.
And what we have seen this last year was an event with very small probability, but with a huge impact. And nobody was really prepared for that. So, everybody was trying to be lean, trying to reduce their cost to be more efficient. And all this came partially because of globalization as we were all seeing more competitors, so we had to become more efficient to be able to find customers.
But once some cracks started showing, then things kept getting worse and worse. So, I was all excited till a few weeks ago to go to the LA Opera after such a long time and to see Trovatore.
and then I read an article in LA Times saying how one of those like 50 or so ships that are stuck in the Port of LA floating in front of it, has the scene and all the equipment to do the set for Trovatore was coming from Switzerland and it would not arrive on time.
And so, the people in LA Opera had to hire 45 workers to actually build the whole set in 10 days and improvise just to be able to open the season. So re-announced that with some of the very basic things that we can forget to think so much about.
We were all looking at, how can we use more technology? How can we use blockchains? How can we use Internet of Things to make things better and faster and to communicate? But we forgot that if we don’t have products, when we need them, where we need them, and in the quantities that we need, then technology cannot really help as much.
Smedley: So, when you look at that, that’s a really good way to get us going in this conversation. So, the vaccines are a perfect place. I mean, we needed a lot of vaccines now, whether people wanted to take the vaccines or whether we understood them.
From a global pandemic perspective, was there a workforce to administer them? Did we not have the right PPE equipment? Was it the perfect storm that you just described, just in time, and all of these things because we didn’t have the right chips and there’s all kinds of things to make goods and services and things happen.
I mean, is it just manufacturing plants couldn’t deliver like you described? I mean, what was the bottleneck where? I mean, was it just a bottleneck globally, globalization, like you said? I mean, it just seems like everything just shut us down at one place to the next, to the next, and that’s a supply chain, right? I mean, it’s collaboration.
Sosic: It is a supply chain, but it seems different things were happening. And each of them has its own way to impact. And they all just converged and created this huge mess. One of the things that I show to my students is just the thing and I still remember from the beginning when people couldn’t find toilet paper and it was like, why is this such a big thing?
Well, we did have toilet paper, we just didn’t have the right type of toilet paper. We had toilet paper for businesses, like those huge rolls. We did not have the small rolls for personal consumption. And people were staying at home, not going to work.
With many other things, the planning wasn’t right. The forecasting wasn’t right, because we did not plan for these things. And it could be hard to switch capacity from making one product to make another product. I mean, I have a colleague who just now he had a car crash, needed to buy a car.
And the prices he was quoted were ridiculous, even for used cars, because there are no chips that are needed to make new cars. And there is a shortage of cars. And how did we come here? Well, people were staying at home, car manufacturers reduced production, and chip manufacturers switched to different products. And now that car manufacturers need chips, well, these guys have contracts that they need to fulfill.
Smedley: So, when we look at that, I mean, I’ve got to think these guys and gals are all a lot smarter than this. They had to know we were going to get to this point. We were going to need these goods and services.
I know we’re talking about just-in-time, I know we’re talking about this, but they have to know, they’ve got to look at the data. We’re talking about the Internet of Things. We’re talking about supply-chain management solutions.
Somebody’s got to be saying, “We weren’t just all staying at home, putting our feet up on the couch saying, ‘Oh, we’re not at the office right now. We can’t look at anything.” Somebody’s got to be saying, “Look, you just said there was a crack in the system here, but this sounds like a gaping hole.”
Someone’s just saying, “We’re not figuring this out, this is going to lead to some really big problems.” And we’re not going to talk about a recession. We’re going to talk about a depression coming here if we keep going in the direction we’re going, or a flood of I don’t even know what. You know what, because you’re smarter than I am, but where are we headed with this?
Sosic: No, I mean, thank you for saying that I am smarter than you, but I mean, this is something that a lot of people are trying to figure out, how and where this will end. I mean, one of the things is, if you look at the articles, the ratios with manufacturing or just the workforce, the factory is closed. So, there was no production. So, we didn’t have things to move around.
Then production started at some facilities, then we had issues with people who stayed home and decided they may not really want to go to the jobs they once had. So, some of the jobs that we need, we have a hard time finding people who will work on these jobs. But there was an article in New York Times recently about problems with finding drivers to move things from resources, from the port.
So, we are trying to make things, leaving the ships faster. And once they reach the ports, we cannot move them because we don’t have enough truck drivers. So even if we can make the items and when the items are being made, we have problems moving them around.
So here on the West Coast, the price of shipping something from the East Coast is becoming so huge, that all the prices are going up. I mean, it’s ridiculous how much some of the shipping quotes have gone up.
And the same thing is just shipping stuff from Asia. So it’s not just one thing. It’s having enough workforce to make things, having enough workforce to unload things, having enough workforce to ship things out.
Smedley: Well, we’ll give you a perfect example. We walked into the traditional local store that were UPS, FedEx store, you would ship a letter that traditionally was $15 is up to $58, $60. That can’t withstand that kind of shipping cost. We get it. But you just described if the Port of LA is bottlenecked, I mean, everywhere. A railroad car is bottlenecked.
It’s ongoing and it’s every shipping port. It’s a shipping port, it’s a railroad car. Every infrastructure is bottlenecked and that’s what we’re dealing with. So, I mean, if gasoline prices are going up, we’re just seeing the inflation side of this.
So, the solutions here, what solutions do we then go to? Are we talking about, is it digital transformation that’s going to find these, are we revamping our infrastructure to say, “Hey, our cities have to be re-imagined.”
Where do we then figure, if citizens are moving to suburbia, are they ever going to go back to the city? I mean, we can’t say we have to rebuild our infrastructure if we don’t even know what the infrastructure is going to be to support this.
Sosic: Yeah. So, I’m based in LA, and we’ve seen that there was a big wave several years back, people moving to downtown, trying to leave the suburbia, but then COVID came, and people started looking at houses again.
So, it’s a lot of change where people are going and where they want to live. But I mean, with some of these things, some of the health maybe is changing the salaries to bring more people to have more workforce that will be able to fulfill some of the demand, some of the needs that we have at the moment.
I know that also sharing in the Port of LA, they are trying to use more railroad to move things out of the port, which would also be helpful if how fast can they switch to something like that? We’ll see. But that would definitely help in reducing the congestion at the port a little bit.
Smedley: When we look at all of these things, we know that a good visual into all of our information helps us do things better, faster, quicker, easier. We know it’s people, technologies, processes. They all have to be working in tandem in order to work.
But we’ve all also learned in order to make all this is, we’re still struggling with things that happened as the pandemic started, during the pandemic, now we’re trying to come out of the pandemic. Did we not learn enough?
You mentioned about the toilet paper and it’s funny, and I’ve had this conversation with a couple of guests now that you can, prior to the pandemic, people didn’t know supply-chain what?
I mean, they didn’t understand what a supply-chain management system was. I mean, those of us in the industry might have, but now you can go into a grocery store, you can go into somewhere and someone will say, “Well, you know there’s a supply-chain problem,” and you chuckle because I’m not sure they understand it beyond saying there’s a toilet paper problem.
But what that really means and into the bigger scheme of things, but are we not now getting to the point, or we still got the same challenges? Is this always, I always use the word, a shell game. Is it all smoke and mirrors? We’re still not learning from the lessons of our past, because I always say we have to learn from our past, but yet our past is different as I mentioned earlier, because we’re not doing the same things.
You just said, not everybody wants to be a truck driver, not everybody wants to work in the Port of LA. Our jobs are different, our cities are different. So, we can’t use the lessons of the past to be the lessons for the future.
Sosic: No. So, things are changing. And you mentioned technology and you mentioned IoT before and so on, and it’s funny because when I started teaching supply chains, the technology part was not really that interesting because I didn’t have much to talk about at the time. It’s been ages ago.
In supply chains, if you look at 50, 60-years-ago, the big thing was containers. That was the big invention that changed supply chains. And when I was talking about technology, it was mostly talking about software. And then people started talking about RFIDs (radio frequency identification) and we thought, oh, maybe that’s the next big thing.
And RFIDs came and it didn’t really do that much. It did help a little bit, but did not create such a big revolution that it’s supposed to create. But then we started talking about the Internet of Things, then we started having technology. We started having robots to help with fulfillment.
We started sharing automated unloading here in the Ports of LA and Long Beach. So, things really started to look like technology is changing quite a bit. I was reading about the Port of Rotterdam that is supposed to become a smart port.
They introduced this 42 container that is going around the world with all the sensors, trying to teach us about what is happening with the goods, with temperature at the goods moving and so on. So, it was really looking like technology is coming, supply chain will really prosper in such a great new environment.
And then COVID came, and it just gave us a low blow because it said, “Okay, we can have technology, but we have to fix some other things before, so that we can use this technology.” We can have a smart port, which can tell us where the container is, but if we cannot have anybody to move it out, we will not be able to do much with the technology.
So, we have to fix some of these basic things first, before we can start to reap all the benefits the technology can bring us. I personally was really very happy when all of these new things started coming and I hope we will start talking more about them soon, and start talking less about these more basic things that are creating all of these bottlenecks right now.
Smedley: Are we talking production capacity, or we talk about truck driver availability? Back to those basics that we have to do? And I even think about, we have to get back to even further, and you and I talked about this even before we got on the air, is talking about circularity.
I mean, those are the things; sustainability, the things that matter most, or we’re just back into some of the same mistakes we’ve repeated that we don’t even understand why they’re so devastating, but they are so devastating.
Sosic: Of course. It’s been funny, when I started teaching sustainability, it will be over 10-years-ago, if you went to look at companies’ websites, there were just a handful of companies saying anything about what they are doing in terms of sustainability or similar things.
And some of them were just doing it to show that they are doing something without really putting a lot of meat behind it. It seems that now at least some companies started doing something and for some of them, it’s just because they realize to be able to get enough resources, to have products they can sell, they need to do something about it, just to create availability of this product.
If you just keep using things and not giving things back, you will run out of resources. And so, for me, that’s one of the really important things just to look at how our supply chain is created. Are we closing the loop, and if we are, how are we closing it?
Are the companies just putting some sustainability reports out there to show the support that they are doing something without really doing much that has an impact or not?
Smedley: Do you think, and I’m curious, are there still—this will be the sad part if we come out there—are there still, and you don’t have to give me any names, but are there still companies out there that are still playing lip service to the idea of sustainability, or they really don’t understand in circularity what it really means?
They say they’re doing it, but when you dig deeper, they’re like, “Wow, they still have a lot to learn on what this really means.” And although there’s some companies that are good at it, there’s still other companies who use the words and you go, “Yeah, you still have a lot to learn on what this really means to society and mankind and future generations and today’s generations.”
Sosic: Yeah, there is a lot of greenwashing out there. And as you said, we will not go into names. And there are companies that are really putting great effort. And it’s always nice to talk about these examples and companies that are helping their supply-chain members upstream and downstream to do things in a better way.
But at the same time, there are these that are just putting some things and, “Okay, I help reduce my impact in this area by 10%. At the same time, I am increasing it in 10 other areas by 20%.”
So, I think there are still too many companies not doing what they are supposed to do, but I do think that there has been a change, at least over the last, what, 10 years. I think more companies are starting to look at least some things they can improve.
And in many cases, some of the first efforts you do in terms of sustainability can actually help reduce your costs. That’s the least they can do, just let’s say, adopt these things that are helping them improve their profitability. And hopefully they will be pushed because I think that our younger generations are more concerned than the older generations about what is happening.
And if there is enough push from consumers, I think things will change. So, there are brands to know that have such customers following that people don’t really care about what they do because they will still keep buying their product. And that may be a problem because if the company doesn’t have a push from the customer side, doing something that may increase their cost, may really not be in their self-interest.
Smedley: What advice, I guess, someone who’s been studying this for over a decade or decades in understanding supply chain and helping companies to understand sustainability now. And we talk about circularity and those types of things and resiliency and understanding customers, your future customers.
You might not realize the pain of it now. What advice would you really say to them? You say, “Look, you’ve got to start doing it,” but what steps should they start doing if they haven’t started it yet?
Maybe the larger ones have, but those SMBs, those small, medium-sized businesses that really say, “Look, I don’t even know where to begin to really tackle this. It’s so big for me.” What would you tell them?
Sosic: Well, for small companies, a good thing might be, okay, look at your own operations, but also look at your partners, depending on where you are in supply chain, you may have your suppliers for instance, who are ordering things from you who may be willing to help you, to teach you, to guide you, and give you some advice.
As I said, there are a lot of big companies that are willing to work with their suppliers and the customers to educate them, to direct them towards resources that can be used to help them invest in cleaning their processes through their manufacturing company.
And in many cases, the things that may seem more expensive initially, may end up to actually be cheaper at the end. If you replace some of the ingredients in your manufacturing process, that may be more expensive, but you may need to spend less on cleaning your outputs, let’s say water coming out of your system, the green energy is becoming cheaper, redesigning your product so that you use fewer components.
Fewer materials can reduce your cost because you have less inventories to plan and you can then have less money tied in inventory so it’s a sweet inventory.
So, there can be a lot of different things a company can do. And again, if you talk about smaller or medium-sized companies, talking with the bigger partners can be a good starting point because bigger companies are likely to have a sustainability officer who can, and they want to make their entire supply chains greener, not just the company in itself because everything in your supply chain can have an impact on you.
And so, they may be able to give them advice to help them guide them at least, how to start and where to look at, in order to become more sustainable.
Smedley: Greys, do most companies who are small, are they almost afraid, and maybe I’m wrong at this, but it would seem to me that some of the smaller companies, they’ve been a partner and they’re almost afraid to admit they don’t know what they don’t know.
But yet if they’ve been a good partner to somebody in the supply chain, by asking makes them a better partner and in the supply chain, everybody plays a critical part. And sometimes by saying, “Look, I want to improve it,” a better partner or a larger partner says, “Look, we value you. And the fact that you want to do this makes us want to be your partner even more, and we want to help you,” because it’s not a win-win if one side’s winning and the other one’s losing, right? I mean, and that supply chain just only gets stronger, correct?
Sosic: Correct, and this would be my view. It’s not a shame to admit that you are not sure how to do something. And you are asking for advice how to improve because it benefits the entire supply chain. As I said, if one part in supply-chain messes up, the entire supply chain suffers.
If let’s say you are a big company sourcing from different players, if one of them is doing something that is not really sustainable, this impacts your performance and your score as a sustainable or a non-sustainable company.
Smedley: And I think we’ve seen that. I mean, that’s part of the problem and it’s almost like nobody wants to admit that’s part of what happened here during the pandemic and everything. We saw the crippling of a supply chain across the world.
I mean, somewhere we saw some things go terribly wrong that affected all of us, every citizen, everyone in some form or fashion, we all felt it hit us. The supply chain just stopped. And we were all, even if it just meant toilet paper, our paper products, we all understood what the supply chain meant.
Sosic: Yes. And coming back to the toilet paper, there were some of the comments, “This is because of global issues,” but some of these things are made locally. Toilet paper is mostly made locally. So, it wasn’t because it was difficult to get things out of Asia or from other countries.
No, it was just local things that did not function properly. So, if supply chains go down, we are all suffering and it’s one of the questions that I ask my students at the beginning of the class is how old are supply chains?
And I hear answers sometimes, a few decades, a few hundred years. And I said, “How do you think they built pyramids? You always had supply chains and we always have to depend on them.”
They are becoming more complex because we live in a more complex world. And the more complex something is, the more likely it is that it will have some issues and we have to be prepared. We have to have contingency plans to deal with them.