Bob Trebilcock: Welcome to The Rebound, where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post COVID world. This podcast is hosted by Abe Eshkenazi, CEO of the Association for Supply Chain Management, and Bob Trebilcock, editorial director of Supply Chain Management Review. Remember that Abe and Bob welcome your comments. Now, to today's episode.
Bob: Welcome to today's of The Rebound: The Five Things We're Watching Right Now. I'm Bob Trebilcock.
Abe Eshkenazi: I'm Abe Eshkenazi.
Bob: Thanks, Abe. It's easy to imagine that the world came to a halt at the end of March. For the past two months, we've all been at home, trying to keep up with work, chase our kids, bake bread and watch too much Netflix, but like rust, supply chains never sleep. It hasn't always been pretty. There've been successes and failures these last two months. Most important, there have been and will be lessons learned as the economy and supply chains rebound.
Now we don't know yet what will be different, but we do know that how we manage our supply chains, move our businesses forward and serve our customers will change. That's going to be the focus of The Rebound podcasts. Today, Abe and I are going to look at the five things we're watching right now. Hey, if we have time, there might be more. So Abe, let's start with the number one thing you're watching, the just-in-case supply chain. Tell me a little bit about what you're thinking.
Abe: It's an interesting concept that for years, as you indicated the supply chain was focused on a lean efficient and a very effective supply chain and the focus on just-in-time, whether it be in the home environment on next day delivery or even same day delivery from Amazon and a lot of organizations. As we moved into much more online buying, expectations have escalated for consumers and businesses alike.
We've seen inventories reduced. We've seen very effective and efficient supply chains respond to a whole host of opportunities, as well as disruptions that we've had in the past. What we've exposed though with this latest pandemic is a significant weakness in the supply chain. That is, as we've built a very effective supply chain in responding to the consumer or the commercial or industrial setting, what we've lacked is a capacity to respond to surges or shifts in utilization that were exposed as part of this pandemic.
We saw a significant surge, procurement or buying from individuals, as well as from companies on PPE that created quite a bit of shortages for quite a time. We're still dealing with those issues today. Additionally, we saw a shift in demand, away from an industrial commercial or a school or academic based setting into a home-based setting. We saw the challenges with producers as well as with suppliers in terms of shifting their production to meet this new demand.
Again, it wasn't an increase or decrease in demand. It was a shift in terms of where that product was being utilized. We've learned a lot from other disruptions, whether they be environmental or whether they be cybersecurity or terrorism. We've learned how to respond to the short-term disruptions in our supply chains, either by shifting production and or additional capacity from either organizations or other suppliers.
What we've realized in this particular case is that we are not capable of responding to the just-in-case based on the way that we've seen, on the way that we've developed supply chains for organizations. The shift in demand and the shift in the capacity of organizations to respond has created a significant gap for us. The challenge that we have is who's responsible to fill that gap.
Is it solely on the back of private enterprises or do we need a discussion on a public private partnership about how to respond to these types of searches or lack of response for PPE in the future? It's difficult to put it on the private enterprises solely when we're talking about national stockpiles or national reserves of what we now consider to be critical medicine or critical supplies for our economy and for our healthcare system. A very efficient supply chain.
Through this pandemic, we exposed a significant gap that we have, and not only in terms of responsiveness, but visibility and the agility that we are not truly prepared for at this stage.
Bob: That's an interesting point. One of the things I've been thinking about is we talk a lot about reshoring, bringing things back. Frankly, I think nobody wants to pay $60,000 for a Honda Civic. I think there's some things that you're just going to continue to offshore, but what I've started wondering in this just-in-case supply chain, if we start thinking about strategic products the way we think about the strategic oil reserve.
Will we bring back, on a strategic basis, things like the compounds that go into pharmaceuticals that currently are made somewhere else, outside of the US? That just-in-case, I'm wondering if that becomes, again, like the strategic oil reserves, do we look at things that we just got to have and figure out a way to do at least some of it domestically or stockpile?
Abe: I think that's a part of the discussion today, Bob, is how do we prepare for disruptions in the future? We know there are going to be disruptions, but we don't know- and more than likely it will not be like it is today. It's going to be a different type of disruption, but where does redundancy and excess capacity, the responsibility for that lie?
I think this is part of the challenge that we have, in terms of putting together a public private partnership, whether it's reshoring on the active pharmaceutical ingredients as you're describing, or a personal protection equipment, our capacity to not only keep them in the stockpile, but to ramp up production in a very short timeframe. These are policy decisions, as well as the operational decisions, as well.
The government, as well as private enterprises have a role here in how do we align the responsibility of government to be the backstop for the economic, as well as the healthcare system? Then where do we put the responsibility of private enterprises to come up with their capacity as well, every supply chain, professional and organization, that's having this discussion today about what the new normal or what new demand looks like, and with the lack of visibility or the lack of agility right now?
You combine that with a shift in utilization and surge buying - it's a very difficult data set for supply chain professionals and companies to try to normalize how to respond to the disruption that we've seen today. Then moving on to the policy side, as we start to re-shore or consider those products is critical to our national defense or national security we're just going to see difference in trade policy.
Are we going back to the tariff wars where we now see additional policy changes affect the supply chains? This is not a single decision that we're going to onshore this because it's critical to our national defense or national security without a residual impact to other supply chains.
Bob: When you were talking about the pandemic exposing the weaknesses in our supply chain, I was reminded of a Warren Buffet line that in the good times, the proverbial high tide raises all boats. He says that in the bad times when the tide goes back out, you see who's been swimming naked. I think we've been seeing a lot about who's been swimming naked and that's not always pretty.
All right, number two, this is one that's near and dear to my heart, which is how do we protect our supply basis? I think you and I talked after the 2008 crisis, a lot of companies did things to get through that. They cut their inventories, so they didn't have things on the shelf. They cut orders. They weren't getting in raw materials and parts and supplies. They extended payment terms.
All of those things had a significant impact on their supply base that I think people weren't thinking about when they were making those moves, they were strictly thinking about survival. The challenge became when demand came back, and in some instances in some industries, demand snapped back quicker than people anticipated. They didn't have finished goods on the shelf. They didn't have parts, raw materials or components, and they didn't have suppliers.
They ended up scrambling, and those people who had taken care of their suppliers were able to get a competitive advantage. I'm wondering, as we look at coming out of this, if big manufacturers or retailers to the extent that they can, have learned those lessons, or are they repeating the same mistakes? Have they identified the suppliers that are critical to their companies and have they even looked down to the tier three suppliers, sorry, who are critical to their supply days and asking what they can do to protect them?
I don't know the answer to that, but I know from things I've been reading that it's certainly what the writers at Supply Chain Management Review are urging their readers to do. I don't know if you're hearing it at ASCM.
Abe: The companies that are evaluating their supplier relationships, I think the more forward thinking organizations are viewing them as partners, as opposed to vendors. I think if you evaluate your supply chain, whether it's tier one all the way through to the raw materials, to the product side on the development, if you have visibility across their supply chain, then you can identify how you need to collaborate and coordinate your activities with your suppliers.
I think we're going to see much more collaboration and coordination on the supply base because I think organizations are recognizing that their vendors are part of their integral supply chain, that they really are not a separate organization. That they need to nurture and they need to treat them the way they treat their own employees in their supply chains, the criticality of the suppliers.
I think this is one of the things that we're starting to see in the pandemic is the impact on small and medium size businesses is much more severe than it is on larger organizations that are more well-funded and able to withstand that kind of disruption or a gap in service today. A lot of small and medium size organizations are not able to withstand the shift or the delay in orders or production.
The relationship that organizations, large multinationals, have to have with small and medium-sized enterprises has to be reviewed with an eye towards coordinating and collaborating as partners, as opposed to vendors, and taking a look at what you need to do to protect your supply base. Going back to the first discussion that we had, what happens in case of?
What are your plans when there is a disruption, whether it be regional disruption or a global disruption as we're experiencing right now, like most organizations work prepared for regional or isolated disruptions. Most organizations, if not all organizations were not prepared for a pervasive pandemic disruption to all economies, as well as all supply chains. I think there's going to be quite a bit of effort on the relationships and on the vendors as partners in the future.
Bob: Number three, what's the future of technology and automation? I know when I go to the ASCM conferences, your technology and automation tracks are always some of the most popular, they're the standing-room only tracks. I've been wondering as I watch through this, if people are going to postpone their investment plans or if they're just going to keep moving forward.
I talk to a lot of automation suppliers, and one of the things they've been telling me is that they've had some postponements, but more frequently they've been getting calls with people saying, "I know I've got to invest. I know I've got to upgrade my capabilities." I think a lot of that's from distributors because of the shift to e-comm and whatever. The flip side of that is I read a story in The Wall Street Journal this weekend about how AI is going by the wayside in terms of corporate investment. What are you hearing at ASCM, what's your take on the future of technology and automation?
Abe: I think what we're seeing is an acceleration of an investment in digital transformation. We started to see this over the past two to three years where organizations were viewing their digital supply network as a matrix, as opposed to the linear model that we've been accustomed to in supply chain. The focus on digital transformation, digital twins and AI, blockchain.
I think what started to become a need for a lot of the competency for individuals, organizations were not necessarily diving into the investments, but they were starting to recognize how they can be incorporated into their operations. We saw quite a bit of the demand from organizations about expecting their employees to be aware of AI and blockchain, not necessarily implement at this point, but just to understand what are the implications for the future.
More and more we're seeing significant invest in digital transformation as a way to respond and in a way to be much more agile to respond into the future. I think we're only going to see more of it, but that has to be matched with an investment in talent. I will say that one of the big differences that we've seen in this disruption versus 2008 and 2009, during The Great Recession was that almost every organization pulled back on their professional development and on their commitment to employee training during the recession.
We're not seeing that this time, we're seeing a commitment to ongoing development and professional training for their employees, which I think is critical because as the investment in technology increases or maintains, you need to have the talented individuals to be able to not only evaluate all the data that's coming up, but more importantly, being able to have the appropriate competency and capability to make the right decisions for the organization.
From our feedback that we're getting from companies is that digital transformation is a strategic priority, maybe the top two or three within their organization. It has to be matched though with an investment in talent.
Bob: That brings us to number four, which was talent. That was a great segway. When you talk about that investment in talent, Bridget McCrea, who does my executive ed and certification writing literally just turned in a story, talked to you, also talk to a lot of the universities and what some of the universities said is the one thing they're hearing about executive ed is, "We'll see you in September." With travel bans companies aren't going anywhere, but they also feel like it's really accelerated the trend towards online learning.
A lot of universities did webinars series during this period and got a lot of traction with that. Do you think this is going to accelerate that trend towards digital executive education or digital certification?
Abe: Absolutely. I think organizations are looking for talent and they're going to see it in academic institutions. They're going to see it from credentialing organizations, such as APICS, but the focus on competency and skills has changed dramatically over the past 5 to 10 years. It used to be that a subject matter expertise or functional capabilities were sufficient for supply chain professionals.
As long as you were functionally competent, you knew how to do your job you were compensated and recognized for it. That's the price of entry today. The expectations now for supply chain professionals have elevated, along with risk, resiliency, sustainability, a whole host of different competencies that supply chain professionals are expected to have. First among that is to your point, a shift in development where we've seen a lot of organizations hiring out at four year schools.
We're also seeing a lot of organizations take a look in different career paths for individuals in supply chain. We're seeing an expectation on critical thinking and being able to take a look at the big picture, macro focus of the organization and problem solving. These are expectations along with a couple of points that we brought up before - collaboration and coordination.
These are advanced management skills that individuals need to have. Oftentimes that's through real-world experience. Rarely do you get these types of experiences at an academic institution. Part of the challenge that we have is, do organizations provide mentorship, or training, or job rotation or shadowing for individuals so they can get that exposure to the different roles and responsibilities that they expect the individuals to drive?
More importantly, there are different ways for individuals to get into and recognized within supply chain. Historically, finance and engineering were two well-developed paths for individuals entering supply chain. As supply chain has become much more recognized in academic institutions, there are a whole host of economic institutions providing baccalaureate or master's level programs.
If you match that with the certification that either APICS or some other organizations have, you're seeing that individuals are compensated extremely well for the talent that they bring on. It's also important to note that we had a shortage of supply chain professionals before the pandemic. Indications, I think Bridget's story indicated that for every six jobs, there was one eligible candidate. This pandemic has only exasperated the situation.
We need more individuals. We need greater competency and commitment to individuals in supply chain and we have a whole host of opportunities with diversity and inclusion, with job rotations, with job sharing, with internships and job rotation. There are ways to embrace opportunities for individuals, either an entry level or advanced career opportunities within supply chain. You just need to get the right education. You need to get the right credentials and employers want to hire you.
Bob: My two biggest questions, and I'm going to go through this quick so we can get to number five, but what I wonder is will the pandemic, particularly with what's happened at the university level, is that going to slow down the entry of new graduates, and the second is at the line level, are they going to come back? There's a lot of concern about the healthy workplace or a safe workplace, particularly around docks, truck drivers, warehouses, factories, that sort of thing.
All right. Number five, our last one. Abe, I'm going to turn this one over to you because I know it's near and dear to your heart. What does the circular economy look like going forward?
Abe: Really interesting question because, as we're working our way through the recovery, I think a lot of discussion about what are the decisions that organizations need to make today to respond to this disruption. One of the concerns that we have is that the focus will be on short-term recovery decisions, as opposed to long-term sustainable improvements for the organization. This includes a focus, not just on the economic expectations for organizations.
Obviously, every organization needs to be financially stable in order for them to not only keep their employees, but to make the necessary investments in their assets. Secondly, a focus on the impact that supply chain has on the environment, as well as on people. We're looking for organizations to step up their accountability and responsibility. As we've seen with the business round table last year, indicating that their social responsibility is among the key aspects of organizational outcomes, I think we're looking for organizations to embrace sustainability beyond the risk and resiliency of operations.
We're seeing it in the raw materials. We're seeing it in ethical practices. We're seeing it in a consideration for the way that we use, recycle and the waste that we have within our supply chains. This is a great opportunity to make the necessary investments to a circular economy, where the accountability for responsible supply chains is as high as the accountability for financial returns. We have an opportunity today.
I'm hopeful that, as organizations make the necessary decisions to respond to this pandemic, they do so with an eye towards a future that is sustainable, and accountable and responsible for organizations. We're seeing consumers be much more aware of what supply chain means today. Two to three months ago, very few individuals had an understanding of what supply chain means to them, or how it impacts their lives.
I think we've seen full force the impact of the benefits of supply chain, as well as the fragility of the supply chain. Individuals and consumers and patients alike have expectations about their supply chain. What's in their products, how it was manufactured and how it impacts the environment? We're going to see from our literature much more focus on conscious consumerism and the ability for organizations to clearly state where they stand on their sustainability activities, including environmental, as well as ethical practices.
Bob: Great. Right now during the pandemic, just to wrap this up, I think one of the challenging things has been to be sustainable, given-- I don't know what you're experiencing in Chicago. Here in New Hampshire, they no longer take corrugated as recyclable because there's no place to put it. There have become so many things that from the way we typically thought of sustainability, from the recycling side of it, some of those things have gone by the wayside and I'm hoping that as we all get back on our feet, as we start to rebound, we start to see more of that.
That's all the time we have today. Thanks for joining me and Abe, and we hope you'll be back for our next episode. We're going to look at what AGCO, one of the world's largest manufacturers of agricultural equipment, got right during COVID-19. I'm Bob Trebilcock.
Abe: I'm Abe Eshkenazi.
Bob: Thanks so much.
Abe: Thanks, Bob.
Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.