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Prioritizing the Digital Agenda for Organizations · Speaking of Supply Chain

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You're listening to Speaking of Supply Chain, a Mebak podcast. This is a
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show for logistics professionals looking to learn more about the latest innovations in supply chain.
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Each episode will feature a conversation on topics such as mitigating supply chain disruption
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and reducing risk, current automation trends, sustainability initiatives, and more. Let's
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dive right in. Hello, and welcome to Speaking of Supply Chain, where
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we explore trends, current events, and innovations impacting the logistics and supply chain
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industries. I'm your host, Ellen Wood. Today we're excited to be joined
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by Madov Durabat, vice president of supply Chain Strategy at KOPA, and Isa
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Morales. And she is a consultant with me Bok Consulting. So welcome Madav
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and Issa. Tell us a little bit about yourselves. Thanks for having us.
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By the way, I'm saving Morales, I'm the global hydropn Network Design
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practice, located in Madrid. Six and a half years with me back prior
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to joining me back on the client side, and round about a decade to
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when supply chain design and strategy Awesome. That's quite quite a resume right there.
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What about MRAV. Tell us a little bit about yourself. First of
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all, thanks for having me, Elan and glad to be here. I
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am Vice President of Supply Chaine Strategy at Coopa Software. In my role,
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I work very closely with our customers, with our partners as well as our
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product teams to make sure we stay current in terms of our customer challenges as
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well as making sure that we have the right products we bring to market as
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well. I spent four years with KUPA Software, two of which included with
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Lamasoft which got acquired by Cooper back in twenty twenty and prior to Lamasoft and
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Copa spent almost twenty years and other supply chain technology companies like I DO Technologies,
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DA Software and Ken Access. So that's my background and I live in
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Atlanta. It must be nice and warm there. It is very cold here
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in Indianapolis. It's very nice. It's manbe seventies today. Oh that sounds
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very It's also nice. Sorry, Ellen. Well, let's get to our
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topic today, and so we are going to talk a little bit about how
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companies are responding to risk when it comes to their strategy and network design projects.
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So what are we seeing in supply chain right now is what is the
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current state because it changes so quickly. So if one thing that we have
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seen over the last couple of years, Allen, is that single points of
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failure within our supply chains are exposed. So whether it is dependencies on a
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single source where bulk of your revenues are dependent upon, our customer commitments are
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dependent upon, or geo concentration of whether it is resources, manufacturing capacity,
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sources of supply, et cetera, is all exposed. The other side of
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the coin is that the demand side. So we all how consumption patterns have
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changed. If you look at early days of the pandemic, suddenly the tops
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started selling faster than bottoms. Why you know, we're all sitting here on
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zoom calls and want to dress up nice on top. Right, So patterns
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like that were quite interesting and something that companies were not experiencing before. So
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a few changes that I have seen organizations implement. It was amazing how quickly
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companies were able to accelerate their digital journeys and digital transformation. So that's one
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good thing that came out of it, and also of working you know,
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like Isabelle was talking earlier, right. As a consultant, she used to
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travel a lot and now she gets a lot of stuff done from home.
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Right, So all of us working remotely and being able to come together still
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as teams and trouble shoot and fix problems and keep the world running and keep
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the supply change running. That's something to something that is commendable. So that's
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what I saw in the last couple of years. Yeah, I think that
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that's a really good point, and all would like to pick on the digital
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aspect. I think we have definitely seen that a digital agenda has come at
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the top of their priority for organizations. I think in the past some of
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the supply chain teams had difficulties in creating a business case because oftentimes generating those
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returns was quite difficult to capture to make a financial business case. But I
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think the pandemic actually helped in showing the organization what's the impact of not having
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those digital initiatives or those platforms, tools and data infrastructure in place. So
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that's definitely something that we have seen. Also the demand for such projects.
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Of course we're always feeling in the consulting site, but that's definitely at the
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priority of company's agendas. And I think we see a great example, or
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we have seen it in the past weeks. I was reading a Wall Street
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Journal article the other day on how Macy's has addressed the inventory issues, and
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it was quite interesting. It mentioned about how they started analyzing their credit card
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information data they have their own credit card, and then they started analyzing the
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consumer behavior and then based on that data, they were able to make decisions
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to adapt inventory, to cancel orders and so on. So I think that's
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a greedy, a really good example on how that digitalization, the usage of
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the data that's already being created every minute, every second in our systems,
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and how having a holistic view as opposed to siloed it set that company for
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success. So I think that's that's that's a really great example of how companies
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have achieved that thanks to digitalization and investment in that regard. If I may
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at one more point what Isabel was talking about the other change, especially when
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it came to getting digital transformation efforts approved through the finance organization. The awareness
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for supply tim and the importance of supply to him got elevated right in the
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last couple of years. Now, No, I don't need to explain to
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anybody what I do for a living. When I say supply team, people
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give me these sorry looks when I'm planning and stuff like that. But the
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reality is that the finance organizations started looking at supply chain as more of a
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strategic differentiator as opposed to just a cost center. And that has made the
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leader's ability to push the supply chain agenda further within the c suite as well
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as the boardroom as well. So that has been a very welcoming change of
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bill. Right that that was always the roadblock when we were trying to,
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you know, promote digital services or you know, different ways of solving problems,
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and it looked like an expense to them. And now they see it
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for what it is as an enabler and not so much just this you know,
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expensive piece of software or this expensive project that we need to do to
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make things easier. They they're willing to sit and listen and invest in those
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areas where the supply chain can be a cost driver rather than just a money
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dump. Yeah, Like there is a popline play as well, right,
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because you're making sure that the business continuity is assured and the product is available
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when the consumer or customer needs it, so there is a revenue realization aspect
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to it in making sure that the products get to the right destination, so
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that realization definitely is set in. Yeah, And I think also that organizations
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have come to the realization that supply chain design, optimization, planning and analytics
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needs to happen at a faster speed than what it used to happen maybe prior
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to twenty twenty. So the planning cycles need to be shorter, they need
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to be closely aligned, and they need to be holistic. And the only
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way to enable that speed is through technology at the end of the day,
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because otherwise it will take you forever to do it and then you lose the
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speed. Most definitely, I know that it's part of it's the consumer journey
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and how people are ordering things, ordering them online. They're expecting things delivered
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within two days. You know, Amazon has kind of taken over everything,
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and other companies are having to keep up with that Amazon model of delivering something
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quickly and having an easy returns process. And that means that all of that
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data, all of that information has to be available so that they can pivot
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if they need to. Currently, the inventory landscape, I think is probably
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one of the most complicated because we are seeing a massive variant from both ends.
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So you have from the inbound portion or from the sourcing portion, all
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of these delays in product coming from Asia, so that you have that great
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variance, and then you also have variance or yeah, uncertainty on the customers
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side. I think we're facing a holiday season now with Thanksgiving coming, Black
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Friday and Chris Smiths and so on, that it is being really uncertain,
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So consumers are also shifting buying patterns. And then historical data it's not so
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relevant anymore. So we also need to adapt and change the way that we
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plan for inventory that it's not so reliant on historical data because we're not behaving
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the way we usually behave. And then again we need to have shorter planning
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cycles, and for that you need also a solid tool that helps you do
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that. Yeah, from my perspective, I agree with everything Isabelle that you're
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talking about. The one thing that i'd seen was because of the lead time
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variability that Isabelle was talking about ELM in the last couple of years, organizations
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started shifting towards these just in case inventory models, So building up these inventory
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buffers so that just in case I don't get that supply on time, I
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want to make sure that I'm protected. However, a couple of things that
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happened if you look back into last year, what happened is that because of
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the China zero COVID policy and some of the transportation motion carrier constraints that we
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had experienced, what happened was some of the seasonal merchandise that was supposed to
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arrive on time and I ended up arriving late. So that shifted the swung
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the pendulum to the other extreme where suddenly organizations are finding themselves with too much
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inventory in certain spots and too little inventory in certain spots. So overall the
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levels of inventory are gone up. However, there is a significant imbalance in
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terms of, you know, having a feastar faming situation for lack of better
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words, that we're seeing. The other aspect to this, as well as
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the flow packs to the market also radically shifted over the last couple of years,
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whether it is because of poort congestions, transportation capacity shortages. Now if
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you look at Mississippi River is drying up right now. There is the water
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levels are significantly lower, so the transportation through Mississippi River in general is getting
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pretty challenging if you're following the news. So because of issues like that,
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given that the flow paths the mode of transportation itself is starting to change,
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organizations can no longer can look at inventory and inventory optimization as efforts in isolation
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from supply chain design. You need to look at this holistically. If my
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flow paths are shifting, for example, I'm instead of receiving the products from
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the port of Savannah, now I'm starting to receive the products at the port
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of Mobile, Alabama. What that means is now my shipping shipping from location
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has changed, so accordingly, my inventory levels and the form and function of
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inventory needs to flex as well. So I just wanted to call that nuance
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out also, so kind of inventory optimization efforts need to be looked at in
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tandem with the flow paths to market and how the supplies in design itself is
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involving. Yeah, that's that's a really great point, Madaf. That inventory
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optimization actually goes hand in hand with that flow path optimization and also actually with
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network design as well. So if you think about what are the drivers or
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at least some of the drivers one of the drivers of the inventory issues that
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especially retailers are experimenting. It's because of this sourcing from Asia right, with
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really long lead times, very little flexibility in terms of canceling an order or
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changing an order. They are really really long times. Because of that lack
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of flexibility, companies are forced to buy in advance of the season, to
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buy in massive quantities for the whole season, and then in the end that
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ends up adding inventory and also adding risk for situation situations like the ones that
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we're seeing at the moment. So when you think about inventory optimization from a
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network design perspective, and if we blend in near shoring, it's not only
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about saving transportation costs, it's about also saving inventory and protecting yourself against these
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variances that we're saying at the moment. Yeah, so probably if you have
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a supplier that it's closer, then not only you have a short a lead
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time, but you also have probably more flexibility. So if you detect a
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demand signal that tells you that you should buy less, then probably you have
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a greater chance of canceling that order. So I just wanted to build on
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that point because indeed, inventory optimization goes hand in hand with a flow path
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optimization and network optimization. So that's why I also think that you need not
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only one tool that addresses a specific issue, but you also or need there's
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overarching tools that gave you a holistic view. That's actually you you trigger an
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interesting topic right there, are about reshoring or on shoring, or even I
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hear about the term French shoring. Right. So when you look at these
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kinds of trends, especially besides the lead time compression when it comes to near
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shoring, one of the things that we see is also the environmental sustainability aspects
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of it, because when you reduce the amount of distances that goods need to
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travel, there is a carbon footprint benefit that can be associated with that.
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Besides to speak to market however, you know when you're talking about near shoring
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or reshoring, it also has got a cost implication. Now, whether it
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is CAPEX investments, whether it is labor costs that could potentially go out,
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even if I can offset some of that with transportation costs. Right So,
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all that again has got significant implications in terms of supply chain design, and
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what we're seeing is organizations increasingly doing this tradeoff analysis saying what is the tipping
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point when does it make sense to nearshore or on shore? And in tandem
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with that, what is a cardboard footprint savings associated with that. In fact,
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one of the high tech companies that we work with, they're going through
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exactly these type of scenarios right now around their supply chain design. Yeah,
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that's that's a that's a really great point on ESG emissions And something that we
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are incorporating in network studies is actually the footprint associated to being in a specific
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country. For example, So when we look at network design, let's say,
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let's let speak about the case of Europe. Let's say you are looking
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to an alternative too, of moving a distribution center to Poland versus moving it
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to Czech Republic or Eastern Germany. So labor costwise, probably the most affordable
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is going to Poland. But when you look at it from an ESG perspective,
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having a DC Impoland has a significantly higher footprint because Poland sources energy a
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lot of energy out of coal, which has a higher higher emissions. So
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and I fully agree with that. In CEO two emissions not only from transportation
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mode but also from energy sourcing are being now considered a network design. So
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that's quite a shift in the different things that a network design is going to
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consider when we're including not only you know, near shoring and what was it,
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friend shoring, French shoring, Yes, but to consider all of those
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the emissions and the sustainability as as part of it. That's not something that
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has typically been a huge focus, at least here in the US. I
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know your Europe is a little bit ahead of the US in terms of some
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of those environmental policies, but es are you seeing those those trends globally that
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that's becoming more of a factor when people are looking to make changes or adaptations
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to their network. Most definitely. Yes, we see this in I think
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every global study that we're doing at the moment, so not only in regional
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studies at a European level, but also global studies. And now there's definitely
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a push for switching to ocean mode all those lanes that were still served by
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air mode. So I think it's it's I think before probably the key KPIs
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where cost, Yeah, operational cost, inventory cost, but now risk and
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emissions are part of the basics of any network study. All Yeah, maybe
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I can comment on the specifically on the US perspective too, Allen, is
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a couple of things right from a regulatory standpoint. One is, if you
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see the Inflation Reduction Act that recently that White House assigned, there are provisions
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around environmental justice within that, So organizations need to be cognizant of, you
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know, the energy intensity right of their operations and what communities are disproportionately getting
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impacted from those from the energy intense activities as well. So that is one
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one example. The other example is the Securities and Exchanges Commission is also looking
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to tighten regulation around all these publicly traded companies. They're putting out these targets
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around their net zero emissions and so on and so forth, but holding companies
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accountable and making sure that any such claims from emission's production of stand to the
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test of audit as well, and with implications of significant penalties in case of
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companies so misrepresenting their emission progress right emission reduction progress. That is another thing
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that we're seeing as well. So as the regulation is tightening, it's I
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agree with Isabelle that this is becoming more of a global phenomenon at this point
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in time. You're absolutely right. It can't just be a buzzword. It
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has to be backed up by factual data and actual improvements in those areas.
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It can't just be something that you say you do in order to make everybody
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feel happy about it. That's correct, all right. So where do we
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go from here? What will success look like in the future for our supply
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chain leaders. I'll bring it back to where we started this conversation what I
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said in the beginning, which is the supply chain age that is shifting from
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being a mere cost center to something that is a strategic enabler for the business.
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So the chief supply chain officer now has a seat at the table and
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the onus is upon us to deliver on the promise to make sure that supply
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chain continues to serve as a differentiating function, not just as a cost center.
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So that's going to be that's going to be top of mind for a
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lot of the chief supply chain officers. Now, a couple of headwinds that
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I see coming our way. You know, on the flip side, there
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is some relaxation in terms of the ocean capacity constraints that we were experiencing.
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In fact, the ocean container costs are showing a downward trend right now,
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so which is which should give some relief on the flip side the labor shortages,
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the talent shortages. Yeah, I was recently at a forum with a
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number of chief supply chain officers and top of my for them is the people
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aspect of it, right, how do you make sure that they have the
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right retention mechanisms in place and talent attraction mechanisms in place as well, So,
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so that is people aspect is one thing, and then the topic of
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sustainability. You know, International Maritime Organization is going to tighten the regulation around
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the emissions around the ocean vessels come twenty twenty three and start grading vessels into
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ABCD based on the emissions. And accordingly, what ocean carriers may implement is
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something called slow steaming, which is slowing down the vessels so that they reduce
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the emissions. What that translates to is increased lead time, so the time
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of disruptions is going to continue. And just giving a couple of examples of
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that, right, So how do you balance these and still push that supply
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chain agenda to make sure that it becomes a strategic differentiator. Is that way
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that's going to be the big challenge and the opportunity for the supply chain leaders
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I fully agree with you just said. If I had to prioritize or summarize,
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only two points for the supply chain leadership is to not lose momentum and
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prioritize the digital agenda and the organizational agenda. Because you can implement a supply
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chain data leg you can implement a supply chain design tool or holistic supply chain
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planning tool. But if you don't have the processes in place and the people
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to drive value out of them, then the piece of the puzzle, puzzle
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is incomplete. And if you think about them, the maturity stages from from
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Gartner and supply chain planning, I think you have people, technology, KPIs,
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and processes and if I had to prioritize two of those, those would
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be technology and people. Fantastic. Yeah, I agree. So I know
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we're going to get into the people portion of that on another episode with Andrew
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from KOPA. So I look forward to Issa joining us again for that discussion.
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But that brings us to the end of this episode. Thank you so
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much Motif and Issa for joining us today. I hope everyone enjoyed the conversation.
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