Supply chains are under intense scrutiny right now. That increases pressure on supply chain leaders, but also creates new opportunities to do things better for everyone: companies, customers, and the planet. Top influencer Rob O’Byrne gives his take on where we’re at and what’s coming next.
Procurious founder Tania Seary recently talked with Rob O’Byrne, CEO of Logistics Bureau, and a top 10 supply chain social media influencer.
Here’s his take on where we are, how we got here, and what’s next.
“Now, everyone knows how toilet tissue gets from factory to store.”
Not long ago, many of us struggled to explain supply chain management to our friends and family.
Now? The pandemic hit and suddenly everyone’s a supply chain expert, says Rob.
“Now, everyone knows how toilet tissue gets from the factory to the store, and it’s really put supply chain in the spotlight,” Rob says.
With that extra awareness comes an expectation that supply chains should work more efficiently — and that will change the way we all operate.
“We lost touch with local markets.”
Before we can make impactful changes, we need to understand how we got here.
Rob says the two biggest trends that shaped the pre-Covid era are centralisation and rationalisation.
Increasingly, large global players were centralising their supply chains through regional or global hubs.
Why? To improve management, visibility, and consistency — all of which are important for optimizing supply chain operations. But centralisation comes at a cost.
“The challenge is [these companies] are a lot more remote from their markets and sometimes you actually need to have a finger on the pulse,” Rob says.
“[You have] headquarters in one part of the world trying to dictate what happens in a supply chain in another part of the world. Sometimes they lose touch a little bit.”
Rationalisation led to similar challenges.
For all of the cost savings and visibility benefits, rationalising led to less contact with markets.
“[Companies] are tending to rely a lot more now on AI-based communication systems to talk with customers,” Rob explains.
Great for the bottom line, but frustrating for customers who often want to speak to an actual human instead of a bot.
“We can be in danger of alienating our market.”
“Companies still don’t understand the ‘cost to serve’ in their supply chain”
One of the greatest challenges right now in supply chain management is managing costs, says Rob.
And it’s more than “total cost of ownership.” It’s about knowing the end-to-end costs.
“So many companies still don’t understand the cost to serve across all the different channels in their supply chain. And that’s become even more critical during the pandemic because our distribution channels have changed,” Rob says.
“In the current climate, it’s really challenging because there’s so much expediting going on. We’re having to use different transport modes than perhaps we would normally.”
Visibility is also a struggle.
“That really came to the fore during the pandemic because everything was moving so much more rapidly,” says Rob.
“Supply and demand peaks and troughs have been so much more severe. The visibility of that real demand was so important, so there’s a much greater need for improved demand planning and inventory management.”
“Forecasts are always wrong”
To illustrate that need, Rob points to the huge demand for one specific medication during the pandemic.
Patients who used the drug to treat symptoms of a specific disease, were stocking up, while other people were buying it because they thought it might fight the virus. Hospitals also stocked up because people who needed the drugs would need more if they caught the virus. Demand skyrocketed.
“So I think that’s part of the challenge in terms of inventory visibility,” Rob points out. “It’s separating the true demand from the noise…that’s where we’re going to see much more sophisticated inventory management tools coming in the future.”
Although some companies still use spreadsheets for forecasting, “on the other end of the scale, there’s some really, really advanced tools being used and all of that is giving us much greater visibility of our supply chains.”
“We can use the weather to predict food sales.”
One example is creating demand forecasts based on weather, not previous sales.
Companies can actually predict food requirements at a shopping mall food court by analysing parking spaces and the weather.
They harness data on parking space occupancy, (from those red and green lights) combine it with the weather forecast, and predict how many people will turn up at the shopping centre.
“That’s real forecasting,” says Rob. “It’s not looking at what we sold last month or the month before.”
“Less lean and more fat.”
Along with smarter forecasting, what does the future hold?
Rob says a rapid retreat from lean management might be on the cards for many businesses.
“Lean was all the fashion for the last 10 years or so,” Rob recalls. “And at the time it was probably the right thing to do for the right businesses and the right products.”
But that’s all changed now.
“I just wonder for a lot of supply chains whether it was a step too far when we’ve seen the fragility of our supply chains over the last six months or so,” Rob says.
Where you have the traditional supply chain like an automotive factory, lean and ‘just in time’ works really well, but where you’ve got volatile markets we’re starting to see the cracks appear.”
“I think we’re going to see a little bit more fat, certainly in terms of inventory, just to buffer for uncertainties.” Because it will be a long time before market demand becomes anywhere near normal, and it may never look like pre Covid demand again, as alternative distribution channels become more popular.
Rob also says we can expect the decline of ‘traditional’ third-party logistics.
“There are a lot of companies around that ‘uberised logistics’ – whether it be transport or storage, and I think we’re going to see third party logistics particularly moving much more towards the gig economy. There’s no reason why not.”
“There are people delivering to my home at the moment who are doing it a few hours a day, and that’s where third-party logistics is going.”
“Let’s not waste packaging.”
Rob also predicts swelling interest in circular supply chains.
“We’ve got to wake up and start making our supply chains much more sustainable in every element of the supply chain,” Rob says.
“We’ve paid lip service to it and there are companies around the world that we hold up and say, ‘Look what they’re doing; they’re amazing.’
“But I think generally as an industry we’re just not really very good at it. People think it’s about reverse logistics but it’s not. It’s about removing waste in our products too.”
“Let’s not waste transport; let’s not waste packaging.”
“Supply chains aren’t competing against each other.”
Finally, Rob says supply chains have the opportunity to work together.
“We’ve been very slow in collaboration,” Rob says.
“I think in supply chain, a lot of companies have been fearful of sharing warehousing sharing transport – that physical end of the supply chain – because their competitors are going to see what they are doing.”
“We’ve had that mantra for years that supply chains compete, not companies. I don’t know that they do anymore.
“I think it’s more about brands and it’s about service. I really don’t see a reason why we can’t see a lot more collaboration in our supply chains.”
This interview is part of “The Future of Supply Chain Now” – a week of webcasts with the fresh opinions from the most influential people in supply chain. Brought to you by IBM Sterling Supply Chain and Procurious. Read more on Digitally Perfecting the Supply Chain and How Inventory Visibility will Drastically Effect the Customer Experience.