LEADERSHIP 18 Become the Supply Chain GOAT by Stanley E

JULY/AUGUST 2021

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FEATURES 10 The SCMR Interview: Bobby Burg, Southern Glazer’s Wine & Spirits By Bob Trebilcock

LEADERSHIP 18 Become the supply chain GOAT By Stanley E. Fawcett, A. Michael Knemeyer, Amydee M. Fawcett and Sebastian Brockhaus

26 It’s time to adopt a customer-centric attitude By Yemisi Bolumole, Scott J. Grawe, John Caltagirone and Patricia J. Daugherty

32 Rethinking cybersecurity: Hidden vulnerabilities in the supply chain By Zachary S. Rogers, Thomas Y. Choi and Seongkyoon Jeong

38 The future of warehousing: The four cornerstones of competitive advantage By Arun Kochar, Sumit Chadha and Arpit Sharma

COMMENTARY Insights...... 4 OPERATIONS ADVANTAGE 44 BENCHMARKS 48

SPECIAL REPORTS 52 2021 Warehouse/DC Equipment Survey: Preparing for post-pandemic volumes

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SUPPLY CHAIN | DEDICATED TRANSPORTATION | FLEET MANAGEMENT SOLUTIONS IN THIS iSSUE Leadership matters

e all know the old saying: “When the one state after another going gets tough, the tough get going.” closed bars, restaurants, W It has been repeated so often it’s cliché. cruise ships and other ven- I’d like to suggest a variation: “When the going ues where alcoholic drinks gets tough, leadership matters.” are sold. At the same To say that supply chains have had a tough time, demand for alcohol time of it would be an understatement. Despite for consumption at home the positive vaccine news here in the United soared. As Burg told me, States, global supply chains are not out of the the two channels have very woods yet. As we know, India is both a significant different packaging and Bob Trebilcock, source of supply and a mess; there are credible distribution requirements. Editorial Director reports of new variants and outbreaks in China, Yet, the team at Southern btrebilcock@ accompanied by the threat of targeted shut- Glazer’s found ways to peerlessmedia.com downs; and the Wall Street Journal reports that adjust on the fly and keep Vietnam, the China Plus One destination for the goods flowing. That’s leadership. many supply chain managers, is now experiencing As you read through the rest of the issue, I COVID outbreaks and shutdowns. That doesn’t hope you’ll find other valuable lessons for supply begin to touch on the UK’s struggle with Brexit; chain leaders in today’s environment. You don’t the growing number of cyberattacks or the short- want to miss “Become the supply chain GOAT” to ages of seemingly everything. In a recent podcast, understand what supply chain managers can learn Hannah Kain, the CEO of the global manage- about leadership from Bill Russell, considered the ment firm ALOM, predicted that we’re going to greatest basketball player on the greatest team “muddle through” for another three years. of all time. And, in light of the recent Colonial But, in spite of all of that, the best supply Pipeline and JBS cyberattacks, be sure to read chains are finding ways to perform and deliver, “Rethinking cybersecurity: Hidden vulnerabilities even with one hand tied behind their backs. The in the supply chain.” difference: Leadership. Lastly, if you haven’t done so already, be sure to Leadership was the theme of my interview of register for the NextGen Supply Chain Conference Bobby Burg, the chief supply chain officer for at nextgensupplychainconference.com. This Southern Glazer’s Wine & Spirits, one of the year’s event will be held virtually on November world’s largest distributors of alcoholic beverages. 2–4. As always, I look forward to hearing from Consider this: In a three-week period last March, you with any comments or suggestions for future 45% of Southern Glazer’s customers shut down as stories in SCMR.

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10 The SCMR Interview: Bobby Burg, Southern Glazer’s SPECIAL REPORTS: Wine & Spirits Editorial 52 2021 Warehouse/DC Advisory Board The supply chain leader for one of the Equipment Survey: Preparing world’s largest distributors of wine and n Jack T. Ampuja for post-pandemic volumes Niagara University spirits discusses how the role of the supply chain manager is evolving, along with the 62 3PLs take to a rapid clip n Joseph C. Andraski The Collaborative importance of talent and diversity. Energizer 18 Become the supply n James R. Bryon chain GOAT Ernest & Young LLP Bill Russell’s winning formula for building n John A. Caltagirone one of the greatest teams of all time was COMMENTARY Loyola University Chicago team ego. 4 Insights n Brian Cargille Strategic planning under Hewlett Packard 26 It’s time to adopt a uncertainty: Long-term n Robert B. Handfield customer-centric attitude muddling-through North Carolina State Over the last year, customers have been By Larry Lapide University forgiving when it comes to delays and n missed expectations, but that goodwill Jim Kellso 44 Operations Advantage Arizona State University won’t last forever. The best supply chains How platforming builds must put their customers at the center of n Nicholas J. LaHowchic a more resilient supply chain their operations. Tompkins Associates By Caitlin O’Keefe, Bharat Kapoor n Hau L. Lee Stanford University 32 Rethinking cybersecurity: and Namrata Shah Hidden vulnerabilities in the n Robert C. Lieb supply chain 48 Benchmarks Northeastern University The most recent spate of cyberattacks on AI is driving new skills the supply chain and beyond should have n Clifford F. Lynch in supply chain C.F. Lynch & Associates everyone’s attention. Here’s a manageable By Marisa Brown scheme for protecting against cyberattacks n Eric Peltz by creating a system that provides equal RAND Supply Chain Policy protection from vulnerabilities to any and Center all suppliers regardless of their size. n James B. Rice, Jr. To subscribe: Subscribe or renew online at Massachusetts Institute scmr.com/subscribe or call (800) 598-6067. of Technology 38 The future of warehousing: (Outside of the U.S., call (508) 663-1500 x-294). The four cornerstones of Email customer service at [email protected]. Author’s Guidelines: Interested in writing an article n Larry Smith competitive advantage for possible publication in Supply Chain Management Anytime, anywhere fulfillment. Next- Review? See our Guidelines for Authors on scmr.com. Licensing and Reuse of Content: Contact our official day, same-day and even same-hour content licensing agency, Wright’s Media, about available usages, license fees, and award seal artwork delivery. Exploding product variety and at [email protected]. Please note that packaging choices. Hyper-localization. Wright’s Media is the only authorized company that PLUS subscribers: Access this issue, all can provide Peerless Media brand materials. archives and more at scmr.com/plus

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scmr.com Supply Chain Management Review • july/august 2021 3 InSIGHTS BY LARRY LAPIDE

Strategic planning under uncertainty: Long-term muddling-through

Dr. Lapide is a lecturer at the University of Massachusetts and an MIT Research n my Insights column, “Decision-making under uncer- Affiliate. He has tainty,”I discussed planning under uncertainty and extensive experience Irisk.* A payoff matrix supports rationale decision-making in industry, consulting, (DM) for both. It fully delineates the implications of what business research, might happen should each of the possible courses of action and academia as be taken when a future outcome occurs. well as a broad range of forecasting, planning, and supply Once developed, it is used dif- scenario planning-based approaches chain experiences. ferently for DM under risk vis-a-vis were developed by the team for strate- He was an industry uncertainty. The former assumes one gically planning for long-term futures forecaster for many can reasonably estimate the prob- that might occur. years, led supply chain abilities of random futures occur- This column focuses on the use of consulting projects for ring (by using historical data). On scenario planning for doing strategic clients across a variety the other hand, DM under uncer- (i.e., long-term) supply chain planning of industries, and has tainty recognizes that the chances under uncertainty, as an illustrative researched supply of futures occurring are realistically example ofDM and planning under chain and forecasting inestimable. By and large, the rel- uncertainty. I believe some of what was software as an analyst. evant body of knowledge deals with developed during the SC2020 Project He is the recipient of rationale DM under risk. might also be applied to short-term tac- the inaugural Lifetime tical and operational supply chain plan- Achievement in Scenario planning ning under uncertainty. Business Forecasting In 2004, I managed the launch of Forecasting into the long-range & Planning Award MIT’s Supply Chain 2020 (SC2020) future (10 years or more) rarely yields from the IBF. He Project. My last column, “SC2020 meaningful results. Rather than fore- welcomes comments Project Update: Uncertainties,” casting, it’s more useful in strategic on his columns at provided an update on major uncer- planning to identify possible scenarios [email protected]. tainties identified during its second of futures. For example, three futures phase.** During the third phase, are often generated and named:

4 Supply Chain Management Review • July/August 2021 scmr.com InSIGHTS

“optimistic,” “most likely” and “pessimistic.” what products will be successful, how to fos- The scenarios incorporate the broad range ter innovation and the extent to which intel- of major uncertainties devoid of estimates of lectual property (IP) can be protected. Also their probabilities. Even a “most likely” sce- considered is to what extent global (in contrast nario does not presume a probability, just that to regional) brands might be successful, and it is an educated guess. The strategic plan- what types of customized products and ser- ning approach developed during the SC2020 vices will be needed to be competitive on a Project was based on the scenario planning regional basis. methodology to help companies align their From the demand-side strategies, one future supply chains to possible futures, by moves to assessing the implications for supply evaluating a broad variety and wide range of networks needed to support and enhance the unique winning strategies. winning products and services. An assessment As stated in my prior risk versus uncertain- might evaluate the successful deployment of ty column, one ascertains the best strategic vertical versus outsourcing strategies, which plan for a company under uncertainty based place greater reliance on suppliers. Coupled on its own and its industry’s aversion to risk. with this evaluation is the extent to which For example, an optimistic risk-loving one international suppliers can be counted on in might gamble to try to get the highest pay- a future world where global trade might be off possible, while a pessimistic risk-aversion somewhat constrained. plan might gamble to get the best of the worse Next, one thinks about the investments that payoffs possible. are needed to develop the capabilities required Another, more practical best strategy might to achieve success. These include investments be based on a balance between the optimis- in training, technology and infrastructure that tic and pessimistic approaches. One of these will likely differ, depending upon winning approaches is termed “minimax regret.” This products and services, as well as the supply approach attempts to minimize the maximum networks. Lastly, this is followed by assessing regret of each alternative strategy, in which the implications for enterprise organization regret considers the opportunity cost of not and culture. selecting a best decision, if the decision- maker had hypothetically known a future, A scenario planning DM framework in advance. A strategy that achieves success in one future world may not turn out to be successful should First develop winning strategies another unfold instead. Thus, it is important The strategic planning approach espoused by to understand when successful strategies for the SC2020 Project involves two major steps. one future might turn out to be detrimental or The first step involves assessing how to be less successful in others. Basically, recognizing successful, while hypothetically conducting that the payoff for each future’s winning strat- business, in each of the future scenarios. egy will likely vary should other futures occur. In supply chain strategy planning, this step Once winning supply chain strategies have involves thinking about winning strategies been developed for each future, the second for each future evaluating several important step in planning for uncertain futures involves aspects. One starts off with the demand-side assessing how each winning strategy will by thinking about implications for future fare in the others. Once this is done, the products and services. This entails assessing scenario planning DM framework depicted in

scmr.com Supply Chain Management Review • July/August 2021 5 InSIGHTS

Figure 1 is used to classify and then determine need to be put in place to monitor what is going which strategies to pursue. As depicted, initial on in the world, to revise strategies and to re- strategies fall into two broad categories. estimate the chances of each future happening. What is a sensor in the ground? Think FIGURE 1 Scenario planning DM framework about the 2001 event when China Mitigating uncertain futures leveraging scenario planning joined the World Trade Organization Scenario implications (WTO). It was a prescient indicator of China becoming the economic pow- Robust implications Contingent implications erhouse that we see today. The scenario planning method- No- No No- Detailed Risk Sensors ology above was brainer regret gainer review management in the ground piloted by the project team with several companies Sources: Dr. Mahender Singh, project director, Supply Chain 2020 Project, MIT Center for Transportation & Logistics Lawrence Wilkinson, co-founder and chairman of Heminge & Condell looking to do strategic supply chain planning. The pro- The first category, “robust implications,” cess is extremely intensive and requires participa- includes those strategies for which it is obvious tion from various cross-functional organizations, whether to consider executing them. These are not just supply chain. It must engage the market- termed: “no-brainer,” “no regret” and “no-gainer” ing, sales, operations/manufacturing and finance strategies. No-brainer strategies are those where organizations. It requires extensive meeting time significant payoffs are gotten under all futures. to come up with a winning strategy to initially No regret strategies are those that work well execute. A project team is then set up to monitor under one or more futures; and are relatively neu- the progress of the initial strategy, assemble data tral, or minimally detrimental under the others. to measure its success and update the strategy No-gainer strategies are just not executed because over time as a clearer picture of the future unfolds. they yield no payoff whatever future happens. Over time, the project moves from planning under The second category, “contingent implica- uncertainty to planning under risk. tions,” includes those strategies for which it is unclear whether to execute them—they are Muddling through toward uncertain futures winners in some futures and losers in others. The British term “muddling-through” espouses the These require more detailed review and analysis. approach that companies will need to take when Basically, as the future unfolds, planners need to dealing with planning under uncertainties, in con- gather data to more precisely gauge the payoffs, trast to risks. It is defined as “to manage to do as well as estimate the probabilities and risks of something although you are not organized, and do each future. Then risk management techniques not know how to do it.” Intractable problems can take-over when navigating future execution. only be solved by muddling-through until sufficient As the future evolves, contingent strategies data is gleaned to develop proven, data-based ways often need to be revised. Sensors in the ground to improve the situation. The strategic planning

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Aerospace • Chemical • Communications • Electronics • Energy • Life Science • Manufacturing InSIGHTS

methodology from the SC2020 Project is essential- pickup and delivery services. Amazon was suc- ly a muddling-through approach toward achieving cessful because its e-tailing operations can source success, while moving toward uncertain futures. product from a multitude of sources to be rapidly During the pandemic, many public officials delivered almost anywhere. muddled-through as they were pressed by the pub- Is this type of planning a job for the sales & lic to make real-time decisions affecting millions of operations planning (S&OP) team to take on? I lives worldwide—initially with very little science believe it is not. It would take effort from the true to go on. They first tackled the virus by identify- goal of S&OP, which is to navigate the enterprise ing several future scenarios regarding the potential to meet financial performance goals and objec- numbers of deaths. A worst-case scenario was made tives—such as meeting profit, revenue, asset-utili- public as a call to action, to alert the population zation and costs targets. The S&OP team does tac- how serious and contagious the pandemic was and tical planning under risk. Tactical and operational how many people might die if nothing was done to planning under uncertainty is best left to a special contain the virus. Other death-related scenarios quick response team that is enabled to make high- were also postulated based on how quickly the risk, real-time decisions under the hands-on guid- population could achieve herd immunity—both ance of an executive management team. with and without a vaccine. The virus contain- Author’s Note: To learn more about how com- ment planning and implementation process was panies handle the uncertainties that emanate from indeed under uncertainty, not risk. It is a tragic, natural disasters, I recommend managers read yet strong example of muddling-through DM. books by my colleague, Yossi Sheffi of MIT, who The uncertainties included how contagious has written and spoken extensively on this. His and severe was the virus, as well as whether peo- first book on the topic was The Resilient Enterprise. ple would follow simple rules like wearing masks, Managers will glean guidance from his knowledge washing hands, social distancing and tolerating that includes how to organize teams (such as busi- lockdowns. The decisions were politicized because ness continuity and quick response teams) dedicat- no one really knew exactly what to do, for lack of ed to muddling-through disruptions to a company’s data—but many nevertheless had strong opinions. It customer base and supply chain, due to natural wasn’t until early 2021 that virus containment strat- disasters. And, how companies have used strategic, egies changed from uncertainty-based to risk-based. tactical, and operations planning under uncertainty In my Insights column, “Annual e-tailing update: for these often-catastrophic events—focusing espe- COVID-19 virus shakeup,” I discussed the COVID- cially on clawing back lost revenue opportunities as 19 performance of e-tailers.*** The big winners quickly as possible. jjj included Walmart, Amazon, Target and Home **** Depot because they managed to muddle-through References based on their prior experiences in handling disrup- *L. Lapide, “Decision-making under tions caused by natural disasters, such as extreme uncertainty,” Supply Chain Management Review, weather-related events, earthquakes and wildfires. Mar/Apr 2021. Those retailers already had experience mak- **L. Lapide, “SC2020 Project Update: ing “quick-response” real-time decisions under the Uncertainties,” Supply Chain Management uncertainties caused by natural disasters.**** The Review, May/Jun 2021. traditional brick-and-mortar retailers recognized that ***L. Lapide, “Annual e-tailing update: COVID- they needed to focus on several simple guidelines 19 virus shakeup,” Supply Chain Management to thrive under the adverse conditions: stay open as Review, Nov 2020. much as possible; take care of your employees and ****L. Lapide, “Are you capturing enough ‘quick- infrastructure; and synchronize your e-commerce response’ revenue?” Supply Chain Management business and store operations to provide seamless Review, Mar/Apr 2018.

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The SCMR Interview: BOBBY BURG, SOUTHERN GLAZER’S WINE & SPIRITS

The supply chain leader for one of the world’s largest distributors of wine and spirits discusses how the role of the supply chain manager is evolving, along with the importance of talent and diversity.

BY BOB TREBILCOCK

Bob Trebilcock is the editorial director of Supply Chain Management Review

ome people choose supply chain management as a career. Others fall into it as they’re building a S career. And then there are those who are born into the industry; essentially, it’s in their DNA. The latter describes Bobby Burg. The senior vice worked in operations ever since, with responsibility president of operations and chief supply chain of cer for some 6,300 associates. In addition to manag- at Southern Glazer’s Wine & Spirits, the country’s ing the company’s warehousing, distribution and largest distributor of alcoholic beverages, Burg of - logistics operations, Burg has a broad portfolio that cially began his career in the industry in 1984, when includes planning and procurement, labor relations, he joined his family’s South Carolina-based wine environmental, health and safety protocols, security and spirits distribution business after graduating and chairs the crisis management operations for the from the College of Charleston. However, he had company. From 2000 to 2006, Burg also served as worked around the business from the time he was Southern Glazer’s chief information of cer. old enough to hold a summer job. Over the next nine We spoke in May 2021, as the country was years, Burg learned the business from the ground emerging from the pandemic, business was ramp- up, driving a truck and working in the warehouse fol- ing up and shortages were on everyone’s mind. A lowed by stints in sales, procurement and commer- major focus of the conversation was the people cial pricing. Along the way, he earned an Executive side of the supply chain, including the future of MBA from Queens University in Charlotte, N.C. supply chain management, talent development He joined Southern Glazer’s in 1993, when the and diversity and inclusion at Southern Glazer’s company acquired his family’s business. He has (see sidebar).

10 S C M R • J /A scmr.com scmr.com Supply Chain Management Review • July/August 2021 11 The Interview: Bobby Burg

SCMR: Bobby, if noth- who let data drive their deci- ing else, the pandemic has Bobby Burg: sions. And I want people who put the focus back on the senior vice president, operations can communicate the things people side of supply chain & chief supply chain officer, 59 years old they want to do with a pas- management. Talk about sion and dedication. In a big the importance of people at 1984: B.S. in Business, company like Southern Glaz- Southern Glazer’s. College of Charleston, S.C. er’s, it’s easy to keep quiet BURG: Our people are 1991: M.S. in Business, Hugh McColl School of for fear that someone isn’t the key to our success as Business, Charlotte, N.C. going to like your idea. But I an organization. In fact, I 1993: Joined Southern Glazer’s encourage contrary opinions, would say, without excep- shooting holes in ideas to 2000: SVP and chief information officer tion, that the reason we make them even better and were successful during the 2006–2016: SVP, supply chain strategy bringing in ideas that may pandemic is largely due to 2016: SVP, operations and CSCO sound crazy at first, but may the type of leaders we have just work. I want to create an in our safety group and environment where people our procurement team, to feel comfortable expressing name two. So, I think it’s important to recognize that the themselves, making a difference and adding value. When people in your charge are the most important asset that I started this group, we didn’t put titles on business cards. you manage. I mean, yes, we have processes to move cases We’re all one team. and get orders out the door. That’s obviously important. But, at this stage in my career, I think that spending time SCMR: How do you integrate people from outside supply to get the next generation of leaders ready to take over for chain onto the team? me is the real end game. That’s the only way we stay ahead BURG : In the last few years, we’ve made a huge invest- of our competitors, including those in other industries. ment to move to a digital platform. Before then, we had a typical high-volume, low-cost, one-size-fits-all approach SCMR: What do you look for in the managers you hire? to order fulfillment. Now, with our platform, we can look BURGI: believe supply chain benefits from someone who at a store, restaurant or bar as if they were an individual is a little more aggressive, innovative and forward-thinking consumer. We can offer a lot more customization and a lot in their approach, so the first things I ask when I’m recruit- more service differentiation. That’s a real shift in the way ing for a high-level role is: Do they have confidence and we interact with customers, so we have had to find people passion, and do they believe in themselves? Will they push who understand the changes going on in the consumer the envelope and try something that might produce a big side of the business. It’s a different mindset. We’ve been win? Incremental improvement is good, but sometimes on that journey for two or three years now. you have to make a big bet to really move the ball. I tell my team that we can’t be afraid to fail. If it doesn’t work, SCMR: Is the role of the supply chain manager changing? you learn from your mistakes and make better decisions BURG : If we’ve learned anything in the last year, it’s that in the future. supply chain is more important than ever. That said, I think the traditional definition of supply chain has matured SCMR: Do you always look within the industry for talent? beyond source, move, pick, pack and ship. And, it has cer- BURGI: look for the brightest and best player I can tainly moved past the least-cost model as the number one get on the team. If a person has never played the sport criterion for supply chain managers. We’ve learned that before—if they’ve never been in our industry or worked in people will pay a little more to be guaranteed that they’ll supply chain—we can teach them the business. I want to get something. Otherwise, there’s no value in an Amazon find people who are good thinkers, who are analytical and Prime-type subscription.

12 Supply Chain Management Review • July/August 2021 scmr.com SCMR: Is it changing the roles of your people? planning for 2021, last year’s data is meaningless. So, our BURG: Yes. In procurement, for instance, we’re retraining planners are reinventing the way they work with our com- our people to do analytics and predictive analysis and let- mercial partners to do better forecasting. Instead of histori- ting software push out the POs. Our facility managers still cal modeling, we’re trying to look at more predictive future have to verify deliveries and cube out the truck to maxi- modeling. To do that, we’re going outside the organization mize the cost of freight. But the bigger part of the job today to get information. For instance, we’re getting information is making decisions about fill rates, the timing of deliveries on trends and consumer buying patterns from Nielsen and to meet customer service levels and tracking and tracing. other agencies. The economy may be opening back up, but We’re using technology to be more proactive, less reactive we’re still affected by what state governments do. Some are and streamline our operations to reduce the number of opening up sooner than others. Some have more restric- moves. That has been difficult for some people, but many tions than others. And, even if restaurants do open back have risen to the challenge. up, we don’t know if people will want to go out and pay for a product that they’ve been consuming at home for the last SCMR: What skills are needed today? 12 months. These are the kinds of things we’re factoring BURG: We’re looking for good analytical skills, good into our forecasts now. critical thinking capabilities and business resolution process knowledge. If you have those, we can teach SCMR: Have you experienced the worker shortages that other you supply chain. industries are dealing with? BURG: When it comes to drivers and capacity, trucking was over-demanded before COVID, and its worse now. Southern Glazer’s The warehouse worker shortage isn’t getting any better either. People are not available. Just last night, I wanted to Wine & Spirits at a glance get an Uber food delivery. There was not a restaurant near • Operations in 44 states plus the District my home that could deliver, so we went out and picked it of Columbia and Canada up. And then, with all of the big e-commerce companies • 14.8 million square feet of space across building out new facilities, lead times to build a new ware- 41 distribution centers house or do a major project have almost doubled in less than two years. • 2,600 trucks

• Represents more than 1,700 wine, spirits, Bringing in the next generation beer and beverage suppliers, and more than SCMR: Given the competition for people, what should orga- 7,000 brands nizations do to attract talent into the field? • Makes 6.4 million deliveries to more than BURG: We have to offer good or better benefits to this gen- 250,000 customers annually eration of worker, whether it be health care or doing things as simple as an appropriate work/life balance, PTO, vaca- tions and those types of things. And, of course, we’ll have to SCMR: How about at the corporate level, where procurement continue to match or exceed the compensation of our tradi- or planning might reside? tional competitors, but also stay competitive with warehouse BURG: As a result of the pandemic, planning is experienc- and distribution companies like a Sysco, Amazon or any of ing the biggest operational change I’ve seen in my 40 years the big beer distributors. in the industry. There was no model for a pandemic because no one was around during the Spanish flu. We have about SCMR: Recruitment is only the first step? 70 planners around the country who work with our commer- BURG: Yes, once you get ‘em in, how do you retain them? I cial counterparts in each market. Before COVID, they were believe we have to treat supply chain roles like careers. That very comfortable with their historical numbers. But, as we’re includes in our facilities. I also think companies are going

scmr.com Supply Chain Management Review • July/August 2021 13 The Interview: Bobby Burg

Automation’s role

SCMR: Southern Glazer’s was an early adopter of high levels of automation. Talk about the role of automation. BURG: Automation continues to be a priority and we want to continue to evolve the skill sets of our operations to maximize our abilities. It’s also critical as we make the shift from a high-volume, low-cost supply chain model to one designed around customizing services for our customers.

SCMR: Can you give an example? BURG: A year and a half ago, we opened a new facility outside of Houston that is currently a 38% touchless system, meaning once they are received, 38% of the cases aren’t touched again until they’re shipped out. We were probably 10% to 15% touchless in our best facility before that. We’re in the process of opening up a new facility in the Dallas area that will be 51% touchless, and we’d like to get to 70% in the future.

SCMR: Is it a labor play? BURG: For us, automation is not about labor reduction. Instead, we want to be able to take in all of the growth we’re experiencing without needing to add people. And, we want to improve the skills of the people we have so that we can reposition them to work with automation. Hopefully, we can keep them within the family by teaching them new ways to do things.

SCMR: What technologies are making that possible? BURG: In Katy, Texas we have a robotic depalletizer that automatically puts cases onto a shipping lane and runs about 25% of the case volume. Normally, that would be done by someone manually picking cases from a pallet and putting them on a belt conveyor. In several facilities, we’re using a case-handling AS/RS—basically a shuttle system that can handle the weight of liquor cases. The one in Katy has 21 bi-directional robots that can pick cases in the right order sequence for truck load- ing. We also use it to handle returns: Cases come off the truck and are conveyed right into the system until they’re needed for a pick. In major markets, we’ve used pallet handling AS/RS systems for years to feed our case pick modules. In the fall, we’re going to install our first automated palletizing system in Nevada for our beer distribution business. In the future it will have other applications.

14 Supply Chain Management Review • July/August 2021 scmr.com to have re-think their work-from-home policies. Work- Developing talent ing from home for the last 14 months has changed a lot SCMR: How are you developing the next generation of of employees’ views of their jobs, especially for jobs that supply chain leaders? involve a lot of heads down computer work. Companies BURG: Our leadership team has a long list of programs that offer a more flexible work environment are going that people can take part in. At the highest level is our to have a leg up, regardless of compensation. Work/life Exceptional Leaders Program, which provides very, very balance, spending more time with your kids—those have come to the forefront with this virus.

Diversity matters Evolution of the supply chain SCMR: The supply chain is perceived as old, white and male. SCMR: How is your supply chain evolving? How is Southern Glazer’s addressing diversity and inclusion? BURG: One of the things we learned over the last BURG: Diversity and inclusion is incredibly important. year is that we have to take more control over our As an aside, two of my three senior vice president reports supply chain. When you off-load processes to third are women. We’ve made tremendous inroads in gender parties based solely on price, you lose control over diversity in the company. Beyond supply chain, Southern the speed at which your supply chain can react. So, we have been evaluating our relationships up Glazer’s has very strong diversity and inclusion programs the supply chain so that we can manage our own across the company. We believe we have to represent our destiny, especially in times of crisis. The other big customer base in our employee base in a fair and equitable change is that efficiency, or doing everything based way. We just finished a survey for supply chain and our on the lowest cost, is no longer our No. 1 criterion. team believes that we are ahead in terms of diversity in job We are redesigning our supply chain around quality, the ability to customize things to our customers’ allocation, job attainment and promotions. I also believe needs and the ability to react and serve our custom- that it’s very, very important that every manager not only ers in an agile manner. Cost is still in the top three, endorse our diversity and inclusion efforts, but live by but it’s no longer No. 1. them because it makes us a better company. For instance, we’ve been having “courageous conversations” with our SCMR: Can you think of an example? diverse teams across the country around George Floyd. The BURG: We used to use third party freight forwarders to move product around the globe. They not only ag- last piece is that it takes people at my level to continue to gregated the POs, picked up the loads and put them teach, mentor, guide and coach those under me. At times, onto containers, they knew what kind of equipment those have been difficult conversations and other times, we needed for a load, whether or not product had to they’ve been great conversations. go into air-conditioned trailers, or that a supplier only allowed pickups on Tuesdays and Thursdays. Over SCMR: Is diversity a hiring screen? time, we became less knowledgeable about our business and more dependent on partners. Now, we BURG: When we do job postings and recruiting, we are want to not only own the commercial relationship, always looking for diverse candidates. On the other hand, we we also want to own the supply relationship and not steer away from quotas, and if diverse candidates don’t apply be so dependent on third parties. for a role, it makes it difficult to hire. That’s a challenge for the industry.

scmr.com Supply Chain Management Review • July/August 2021 15 The Interview: Bobby Burg

Diversity and inclusion at Southern Glazer’s

As noted by Bobby Burg, Southern Glazer’s Wine & Spirits is working to incorporate diversity and inclusion in its hiring practices for the supply chain team. It is part of a company-wide effort to develop a workforce that looks like and reflects the company’s customer base. “It makes us stronger,” Burg says. Those programs are overseen by Terence Goods, the senior director of diversity and inclusion. Goods says that Southern Glazer’s efforts are comprehensive, to include not only gender diversity and people of color, but also the LGBT community, veterans and diversity of thought and experience. More recently, Goods and his team have been leading initiatives to educate the workforce on supporting employees with disabilities. A recent company-wide effort was a crowd-sourcing initiative that Goods refers to as the “Idea Distillery.” All 22,000 of the company’s employees were invited to submit ideas on how to better drive diversity and inclusion. Nearly 10,000 employees expressed interest and more than 500 ideas were judged, with 11 winners. First place was an idea to embed diversity-related goals and objectives into executives’ annual goals, an idea that is being fleshed out. One of the more recent initiatives that impacts the supply chain is the “vendor inclusion program,” a supplier diversity program led by Southern Glazer’s procurement team. Goods says the program will launch in phases, with the first phase focusing on the non-beverage side of the business. “We’re beginning with three categories - professional services, marketing and temporary labor,” Goods says. Southern Glazer’s has launched a business incubator program on the beverage side of the business, focused on helping women-owned and minority- owned craft wine and spirits companies establish and build their businesses. The program provides education resources to companies just starting out, such as how to create a business plan or what they might need to know about labeling requirements and compliance. “Our end goal is to help them develop a relationship with Southern Glazer’s, but it’s okay if we can just help them stand up and grow their businesses,” Good says. “A few years down the road, they may want to partner with us.”

16 Supply Chain Management Review • July/August 2021 scmr.com intensive and immersive leadership training to about 25 people a year. That program is sponsored by the CEO and chief commercial officer and is very difficult to get into. But it is broad-based across all functions, The importance of analytics including supply chain. Underneath that, there are four SCMR: Are you investing in analytics? or five other leadership programs, and supply chain BURG: Analytics has become so much more impor- currently has four people in those. They run from tant when it comes to forecast modeling and predic- four weeks to 10 weeks. Some are more applicable to tive analysis. We really ratcheted up the analytical skills of our team so that we can take information managers and directors, and some to vice presidents. we’re getting from organizations like Nielsen and We’ve also participated for years in a program for from our retail customers in the takeaway space— female leaders at Columbia University. the retail stores—and the on-premise space—the bars, restaurants and institutions—and then inte- SCMR: Is mentoring important? grate that into our historical data to create a much BURG: All of my reports have two mentee relation- more predictive model of what’s going to be needed in the future. ships with people who are two levels to three levels below them. They work with them for a period of 18 SCMR: What’s driving that? months on personal and professional development. In BURG: Right now, it’s supply shortages. Lead times fact, before this interview, my mentee was here for a have doubled and there’s less container space avail- one-hour discussion. I do think this is one of the things able, so we’re forced to forecast out six months in- that has been damaged by working from home. While stead of two months to three months. What’s more, there is no model for how to come out of the kind of I do agree that a large segment of our workforce can shutdown we experienced, but our supplier base is efficiently and productively work from home, you’re not relying on us for data and analytics to help them get going to get noticed, or get collaborative time to grow the right mix in their finished goods stock. Had we into a good manager, on a Zoom call. I’m very passionate not invested in an analytics team before COVID, we about having individuals at the manager level and above would not have fared as well as we did through this. in the workplace.

SCMR: Is it hard to get noticed in a company as large and distributed as Southern Glazer’s? SCMR: Any final thoughts? BURG: It can be hard to find advocates that can help BURG: Yes. One of the things I think is lost in the way advance your career in a company with 22,000 employees. people are trained today is the value of being well-rounded. I try to take a personal interest in those people in supply I was the CIO here for six years, and yet I had no classical chain who want to succeed, and I think my management training to be a technology leader. Traditional supply chain team does the same. We talk about the people who are leaders aren’t in charge of labor relations or environmental, showing passion, desire and ambition and try to make sure health and safety protocols. I tell my people all of the time that someone is watching their progress. That’s important that if there’s an opening in another department—say, they for retention. One of the things I tell my team all of the can work in promotions for a couple of years or manage time is that if someone leaves us for a reason other than a DC—let’s make that happen. You can’t get that kind of money, that’s on us. We should have identified that per- cross-functional experience working in a corporate office. son and challenged them so they didn’t get bored and At the end of the day, you can bring those new skills sets move laterally for another job. back to the supply chain and be a better manager. jjj

scmr.com Supply Chain Management Review • July/August 2021 17 LEADERSHIP TEAMWORK CUSTOMER CYBERSECURITY WAREHOUSING

BECOME THE SUPPLY CHAIN GOAT Bill Russell’s winning formula for building one of the greatest teams of all time was team ego.

BY STANLEY E. FAWCETT, A. MICHAEL KNEMEYER, AMYDEE M. FAWCETT AND SEBASTIAN BROCKHAUS

18 scmr.com OAT! It’s a little word, but it drives passionate debate in the sports world. Ardent fans argue vehemently over who G is their sport’s GOAT—Greatest of All Time. They rely on statistics, point to lifetime achievements and call out head-to-head match ups. Still, the question almost always goes unanswered. How do you compare the greats of any sport across eras—especially as technology, training and everything else (including the rules of the game) continue to change? You can’t expect any athlete to play, and win, “against ghosts, past, present or future.”

Now, with that disclaimer front and center, we’ll make “team ego”—an ability you need to master. the case for two GOATs. Let’s start the debate by asking: Why don’t most teams—including supply chains— “Who was the most outstanding player on the best team in build team ego? The answer is simple: The way they professional sports history?” If you are a sports fanatic, you manage their all-time greatest asset—their people—keeps may be disappointed the question is so easy. If you are not an everyone focused on the “me” instead of the “we.” The avid sports fan, you may have guessed the right team even if result: The collaborative and creative capacity needed you struggled to identify the player’s name. We’ve given you to become consistent champions is stifled. To help you a moment to think and here’s the answer: Bill Russell is the unleash the collaborative and creative power of your player, and his team is the Boston Celtics of the 1960s. people, let’s introduce the ABCs of team ego (see Figure Russell led the Celtics to 11 National Basketball Asso- 1). But first let’s take a quick look at how the Celtics ciation championships in 13 seasons, including nine of 10 became the winningest team in professional sports. championships in the 1960s. Now consider this:

The last two championships came in 1968 and 1969 FIGURE 1 when Russell didn’t just play as a Celtic but also The ABCs of team ego coached the Celtics—the first black head coach in

any U.S. professional sports league. This unprece- E AT IM dented, and never repeated, run of success led Sports L C Illustrated to name Bill Russell as the “greatest team player on the greatest team ever.” Perhaps you’re thinking: “That’s remarkable, but Afrmation Belonging why should I care? I’m a supply chain leader, not a sports analyst.” Here’s the answer. Your job really isn’t so different from Bill Russell’s. You both get TEAM EGO paid to win, not just to play, in your respective are- nas. Winning in today’s global marketplace, as in the NBA, is all about the team. Neither you nor Russell Competence could win on your own. Like you, Russell played

with great talent. Yet, the 1960s Celtics did some- E R T U thing most sports teams—and supply chains—fail C U L to do. They won because they learned to “surrender the me for the we.” Russell’s Celtics cultivated Source: Authors

Stanley E. Fawcett, Ph.D., is a professor of global supply chain management at Logistikum at University of Applied Sciences, Upper Austria, and chief engagement officer, ENGAGE2E… He can be reached at [email protected]. A. Michael Knemeyer, Ph.D., is a professor of logistics at Fisher College of Business at The Ohio State University. He can be reached at [email protected]. Amydee M. Fawcett, Ph.D., is chief executive officer, ENGAGE2E... She can be reached at [email protected]. Sebastian Brockhaus is an associate professor of supply chain management at the Boler College of Business at John Carroll University. He can be reached at [email protected].

scmr.com Supply Chain Management Review • July/August 2021 19 The greatest supply chain of all time

Team composition: The Auerbach Way Russell’s winning ways changed the game. Blocked shots A charter member of the NBA, which was formed in 1946, and fast-break points became statistics worth tracking. More the Boston Celtics’ storied history began in a less than fundamentally, in a game dominated by offense and individual stellar way. In its first four seasons, the Celtics piled up exploits, the Celtics dominated with team defense and bal- losses—and fired two head coaches along the way. In 1950, anced scoring. In the 1962-63 season, for instance, Russell the Celtics offered Red Auerbach $10,000 to change the averaged a career-high 18.9 points per game. Not a single Celtic team’s trajectory. Auerbach brought vision, tenacity and a finished in the Top 10 in scoring. Wilt Chamberlain, the scor- winning record to the Celtics. ing champ, averaged an eye-popping 50.4 points per game. Yet, Auerbach was obsessed with winning. More saliently, he NBA players voted Russell his third MVP award. Teammate was savvy enough to sense that the best teams—not the best Don Nelson explained: “There are two types of superstars. One players—win championships. He evaluated talent through makes himself look good at the expense of the other guys on the this team-first lens. If a player fit his team-centric vision— floor. But there’s another type who makes the players around right skills, right attitude—Auerbach would take risks like him look better than they are, and that’s the type Russell was.” drafting Chuck Cooper in 1950, the first African American What are your takeaways? Certainly, you didn’t miss the to play in the NBA. He also acquired the rights to sharp- value of Auerbach and Russell both being team-first lead- shooting guard Bill Sharman—a player experts assumed ers. Beyond shared values and shared leadership, consider would choose baseball over basketball. Sharman was the adding the following two rules to your to-do list. perfect complement to star point guard Bob Cousy. Dur- 1. The Auerbach rule. Evaluate talent through a team-first ing the next five years, Auerbach added quality players like lens. Fit matters: Every player must bring complementary enforcer Jim Loscutoof and sixth man Frank Ramsey. capabilities to the team (right skills). Every player must be By 1956, the Celtics were an offensive juggernaut, but willing to contribute to team ego (right attitude). a perennial playoff bridesmaid. They lacked the rebounding 2. The Russell rule. Cultivate a climate that makes it and defense to win it all. Too successful to pick early in the easy for team ego to emerge. draft, Auerbach traded two popular players—Ed Macau- ley and Cliff Hagan—to St. Louis for the second pick in Wins will follow the draft: William Felton Russell. Russell’s rookie season Now, a warning: As you pursue your quest to win, keep these brought Boston the first of its 17 NBA titles. two rules in proper sequence—and balance. That is, right composition, then right chemistry. The wrong players guar- Team chemistry: The Russell Way antee you will never achieve team ego. But even the right Russell fit Auerbach’s mold perfectly—a team player cast of characters might not either. The truth is that most obsessed with winning. Russell became the glue that held teams never figure out team ego. Chemistry is harder than the Celtics together through more than a decade of drafts, composition. The ABCs—affirmation, belonging and com- trades and retirements, including Auerbach’s own. Russell petence—can help you, the supply chain leader, cultivate described his team-oriented psyche, saying: “What I enjoy a culture that makes it safe to surrender the “me” for the most about sports is the internal team dynamics. How do “we.” But, the ABCs don’t just happen. You must invest in teamwork and preparation influence the outcome? How them daily, and over time, to cultivate team ego. close can great teams get to reaching team ego and ignoring individual achievement?” Russell’s Celtics had talent, but Why you should care about the ABCs they won because they cultivated team ego. Did you know that Bill Russell’s journey to GOAT almost Russell played a paradoxical role. He brought an intensity didn’t happen? At 6’10” Russell looked like the prototypical and a comfort level to the Celtics that made it easy for team ego ballplayer, but he grew very late. In high school, he wasn’t to emerge. Contributing to wins, not pursuing personal achieve- very good. Frank Robinson, baseball great and teammate at ment, was the goal. Each player knew his role and took respon- McClymonds High, described Russell’s game: “He couldn’t sibility for performing it. Russell set the example. His intimidat- even put the ball in the basket when he dunked.” Lacking ing interior presence and shot blocking freed his teammates fundamentals, nobody thought Russell had the game to to relentlessly defend the perimeter. His rebounding triggered play collegiately. He planned to work in the shipyards like the famed Celtic fast break, which Cousy ran to perfection. his father to save money for college. Together, they won more than any team in history. Then Hal DeJulio, a former player and occasional scout

20 Supply Chain Management Review • July/August 2021 scmr.com for the University of San Francisco, came to an Oakland High- dad Charlie, who attended every one of Russell’s high school McClymonds game. There to help the Oakland coach, DeJulio JV and varsity games, even when Russell wasn’t good enough noticed Russell, who played a rare standout game. The next to get in the game. What motivated Charlie to come to every week, DeJulio offered Russell a scholarship to USF—before talk- game? After all, he didn’t even tell his son he was there. He ing to Phil Woolpert, USF’s head coach. With Russell anchoring purposely sat where Russell would never see him. Charlie the defense, USF won back-to-back NCAA championships. Rus- wanted to be aware of what his son was doing and going sell added Olympic gold in 1956. The greatest winner in profes- through. What does this mean for you? You need to know sional sports history almost never made it to the hardwood. what is going on with every member of your team. If you Now, we promised to make the case for two GOATs. don’t, you won’t teach, praise and correct meaningfully—or One down, one to go. We’ve hinted at the second GOAT— in the right balance. You’ll be as ineffective as Dilbert’s your people as your company’s all-time greatest asset. Few pointy-haired boss—blah, blah, blah. managers argue against this claim, but few invest as if they Russell also learned from Auerbach, who was a master- really believe it. Dilbert creator Scott Adams is hugely ful motivator in part because he used this know-your-player popular because he mocks the way companies treat their approach for affirmation. Here’s how Russell described Auerbach: people. Number one on his list of “great management lies” “Red’s genius as a coach was mostly in his skills as a motivator. is this classic: “Employees are our most valuable asset.” He was a master psychologist who knew that there are as many Guru Peter Senge explains: “We know how to engage in tech- different ways to psyche people as there are personalities. He knew nology and machinery, but we’re at a loss when it comes to invest- he had to yell at Heinsohn shrewdly and personally, whereas he ing in people.” This is where the GOAT debate really begins. bullied Satch and Nelson… with KC Jones, you had to be honest What is your source of competitive advantage? Technology gets and leave him alone; he’d do the rest. I watched Red spend time the oohs and aahhs—and the money. Scott Adams taunts that with the Celtics who played the least…he always talked to them employees are valued “somewhere toward the lower end of the enough to remind them how important substitutes are to a team. office supply hierarchy.” Too often, it seems he’s right. Like teen- He tended to be more supportive of them than of his regulars.” age William Felton Russell, employees are the underdeveloped, Russell added this technique to his game plan—on the court overlooked source of winning advantage. and as a coach. Consider his definition of a perfect game, some- Now, consider tomorrow’s competitive world. Rivals will thing he constantly sought to play: be fierce, disruption rampant. Technology cycles will be com- “First, of course, we had to win. I had to get at least 25 rebounds, pressed—and everyone is already eying AI and robotics as the eight assists and eight blocks. I had to make 60% of my shots, and I answer. But as everyone buys technology, how will you come had to run all my plays perfectly, setting picks and filling the lanes. up with a hard-to-copy edge? Also, I had to say all the right things to my teammates—and to Team ego may be your best investment. People, your peo- my opponents.” ple—and your supply chain’s people—are the only source of Here’s the point: Russell connected his words—teaching, the collaboration and creativity, the insight and ingenuity you praising and correcting—to his teammates’ performance and need to outthink rivals and win in the marketplace. Your peo- to the team’s success. Affirmation gets everyone into the game ple might even help you employ technology in game-changing and encourages them to bring their best game. ways. Can you afford to overlook their potential, relegating The bottom line: What we say elevates or deflates. Every them to the end of the resource bench? The good news: Rus- interaction we have with our team members either invites sell and his Celtics exemplify how you can cultivate the ABCs them into the game or takes them out of it. How effectively to encourage team ego to emerge. Let’s do some scouting. are you affirming your team members? To find out, try this little exercise. Affirmation is the art of encouragement • Step 1: Conduct a brainstorming session. Identify every- In basketball, as in supply chain management, encourage- thing you do that makes your people feel undervalued—i.e., ment isn’t just patting someone on the back, telling them unappreciated or incompetent. Write each item down. they are doing a great job. Encouragement is giving • Step 2: Repeat the exercise, but this time identify every- confidence of success. It’s not real if it doesn’t invite thing you do that makes your people feel highly valued—i.e., action such as practice and improvement. You teach appreciated or competent. Write each item down. always, praise often and correct when necessary. • Step 3: Do this exercise with every manager in your Bill Russell learned the power of encouragement from his organization, preferably as a group.

scmr.com Supply Chain Management Review • July/August 2021 21 The greatest supply chain of all time

Now, step back and be an objective observer. How would micro-manage you put yourself in the game and your team this exercise play out in your organization? What would you on the bench. Not even Bill Russell could win that way. see? Here’s a likely scenario. Managers are hesitant as they O.C. Tanner models affirmation—after all, it’s their build out their “unappreciated” list. Nobody wants to admit business. The company designs and manages corporate rec- they do many things that take the air out of their team. Once ognition programs. O.C. Tanner’s sales pitch is simple: “Cel- someone injects a little candor, others begin to identify their ebrating great work inspires people to invent, to create, to own deflating behaviors. They fill the whiteboard—top to discover. … The most influential way to appreciate people is bottom (see Figure 2). By contrast, as managers build their to provide a fertile environment where they can grow.” O.C. “appreciated” list, they tend to get a quick start. The goal: Tanner conducts research on what makes a great place to redemption. But they quickly run out of specifics. White work and how these behaviors enhance performance. Exper- space remains. If you’re keeping score, you need a ratio of five tise in hand, backed up by years of experience, O.C. Tanner to one appreciations to critiques to build an affirming culture. works with companies to create an affirming workplace. So far, we have talked about how to cultivate a positive, Like Bill Russell, senior leaders at O.C. Tanner walk the proactive work culture—your to-do list. Let’s take a moment talk. They don’t just say the right things, they listen intently. to identify two things you should stop doing. Stop being a 1. Peer-to-peer recognition. O. C. Tanner has created a distracted listener and stop micro-managing. Here’s how system that makes it easy for employees to give each other Russell identifies distracted listeners, that is people who “kudos” to express appreciation or recognize great work. hear, but aren’t truly listening. Peer-to-peer recognition strengthens connections, enhancing 1. Do you find yourself trying to come up with a “better” story psychological safety—and the odds employees will take risks, than the one the speaker is telling? share their best ideas and enjoy a positive employee experience. 2. Are you nodding yes when you are not really listening just to 2. Pet projects. The supply chain group invites, you might keep the conversation moving? say expects, each team member to contribute to strategy 3. Do you find that you forget FIGURE 2 what has been said immediately The af rmation scoreboard following the conversation? What do you do to make your team members feel... 4. Are you asking trivial questions to seem as if you are listening? INCOMPETENT AND COMPETENT AND UNDERAPPRECIATED APPRECIATED 5. Are you always interrupting THINGS WE SAY THINGS WE SAY because you feel you have a “more • Didn’t you read your email? • Thank you. I appreciate you. important” thing to say? • What were you thinking? • What are your thoughts on this issue? • If I had wanted…I’d have asked? • Help me understand your perspective. Did you keep score? Do you • I make the decisions around here. • How can I help…? practice any of these bad habits • Why didn’t you…? • What am I doing that makes your job harder? • I really don’t have time for that. that communicate: “I don’t value • Don’t you ever listen? you—or your ideas”? To earn trust, • Are you ever going to get around to…? you must be present. THINGS WE DO THINGS WE DO • Take credit for other people’s ideas/work. • Always give appropriate credit for ideas/work. You must also give trust. Rus- • Promote the “fake” open door policy. • Recognize each individual’s skills and strengths. sell says it this way, “You have to • Promote the “phony” suggestion program. • Offer authentic praise, even for the little things. • Run meetings that waste people’s time. • Write personal notes to acknowledge my team. trust them to operate on their • Assign busy work. • Trust my team to innovate and improvise. own (that’s why you hired them • Reward game playing and politics. • Mentor team members one on one. • Offer insincere praise. • Learn from each person–and acknowledge this. in the first place).” When you • Play favorites. call every play from the sidelines, • Always correct–even when it doesn’t matter. you take your team’s ability to THINGS WE DON’T DO THINGS WE DON’T DO • Not being present. • Belittle my team members in public. create away—and you commu- • Not really listening. • Use metrics to create harmful competition. nicate that you don’t really value • Not following though on promises. • Learn about each person individually. them. Your stop-doing list may • Offer meaningful and appropriate praise. be short, but it is critical. If you don’t listen or when you Source: Authors

22 Supply Chain Management Review • July/August 2021 scmr.com development. Every six months, employees pick pet projects, all going to be nice to each other.” It’s about each person form teams, and equipped with Lean six sigma skills, they work accepting a simple fact: “If I want to belong, I can’t, I won’t, the problem—or opportunity. They then return and report, shar- let my team down.” Belonging means living up to the stan- ing their results with top management—and with one another. dard set by peers; performing at the same high level every- By living what it teaches, O.C. Tanner has repeatedly been one else does. Russell explained the mindset, noting that named one of Fortune magazine’s “100 Best Companies to each teammate, “seemed to understand perfectly that every- Work For.” one had to play his part for us to win.” Russell approached the game with what he calls “out- Belonging is the science of safety side-in thinking.” He was inclusive—he wanted teammates What is belonging? Employees talk about belonging as if to belong, and to succeed—until they showed they weren’t work is a second home. Colleagues become a second fam- willing to pay the Celtic price and contribute to team ego. ily. They feel emotionally safe. This sense of security is Sam Jones, the Celtics’ go-to scorer, made this point clear, now called psychological safety. The science is clear: Psy- saying he couldn’t recall a single instance when Russell chological safety gives employees permission to share ideas “jumped on anyone’s butt. … Anybody who didn’t fit in, and take risks—to be themselves—without fear of being he’d just dismiss him.” criticized by peers and organizational leaders. Russell set the example. He paid the price. If you Intuitively, Bill Russell sensed the need to cultivate psycho- weren’t willing to pay the same price, you didn’t belong. logical safety 30 years before academics began using the term. Southwest Airlines, led by another iconic winner, Herb An NBA season is quite disruptive, filled with travel, crazy Kelleher, proves the staying power of belonging. Kelleher schedules and strange hotels and food. Russell wanted to cre- founded Southwest in 1967 as a scrappy, low-cost, no- ate a sense of home and stability for his teammates. He threw frills airline. Over the years, Southwest has done almost Christmas parties for them and their families. In 1962 he everything to keep costs down, except scrimp on culture. even took shocked rookie John Havlicek around town to get Following are two examples. a good price on a stereo. Now, let this thought sink in. How • To reduce maintenance and training costs, Southwest many two-time NBA MVPs take the new guy under their only flies one plane—Boeing’s 737. wing, almost like a big brother, to go shopping for a stereo? • To keep planes in the air and costs per seat mile down, Russell explains: “All of us were strangers in a place far from Southwest turns its aircraft in 15 minutes—one third the home. But we made it into a unique situation. Cousy started industry average. it. He was absolutely sincere about being a good teammate.” The result: Southwest is incredibly productive—and Belonging helped Russell and his teammates build a strong profitable. Southwest scored profits 47 consecutive years, sense of team identity—the Celtic Way. an unprecedented and likely never-to-be-repeated run Here’s the point: People want to belong to something spe- of success. cial, to be a part of something bigger, cooler than themselves. How does Southwest do it? Before answering, let’s remind Winning, and winning a lot, made being a member of the Celt- you that Southwest doesn’t own any proprietary technologies ics truly unique—a once-in-a-lifetime opportunity. That’s one or business process secrets. Culture is Southwest’s secret. reason why players seldom left the Celtics. To belong, they Back in 1967, Kelleher made this connection—happy employ- were willing to pay a price. That price shows up in two ways. ees deliver delighted customers. So, he invested in belonging. 1. Personal sacrifice. The Celtics made the fast break a Kelleher focused first on getting the right people on board. weapon. Russell’s willingness to sacrifice made it work. Rus- One classic story goes like this. A hiring VP approached sell’s 20-plus rebounds per game triggered the break. Yet, Kelleher, concerned that she had interviewed 34 people for Russell knew that Cousy wasn’t going to pass him the ball ramp agent and had yet to make a hire. Kelleher’s response: when he filled the lane, at least not if Heinsohn was on the “If you have to interview 134 people to get the right attitude other side. Heinsohn got the pass—and the basket—every on the ramp in Amarillo, Texas, do it.” Southwest hires for a time. Russell’s response: “He simply had so much confi- “warrior spirit, servant’s heart and fun-LUVing attitude.” dence in Heinie. So, I had to discipline myself to run that Once on board, employees are given autonomy, the lee- break all-out, even if I knew I wasn’t going to get the ball.” way to express themselves and try new things. As this classic 2. Personal accountability. Belonging isn’t saying: “We’re story illustrates, they enjoy psychological safety. Years ago, on

scmr.com Supply Chain Management Review • July/August 2021 23 The greatest supply chain of all time

a Dallas to San Diego flight, Karen Wood, the flight he did best. What I did after that was to give Cousy the ball attendant, made this pre-flight announcement: as soon as I got it and then fill the lane so he could go to “If you haven’t been in an automobile since 1965, the work. That way I was helping him to play his game, which proper way to fasten your seat belt is to slide the flat end into was exactly what our team needed.” Of note, neither Cousy the buckle. To unfasten, lift up on the buckle and it will nor Auerbach ever called Russell out. He simply decided to release. And as the song goes, there might be 50 ways to leave invest in Cousy’s success. your lover, but there are only six ways to leave this aircraft: two What are you doing to invest in your team members’ success? forward exit doors, two over-wing removable window exits, and 3. Model the behavior. Preparation precedes power— two aft exit doors. The location of each exit is clearly marked a reality Russell understood perfectly. In high school, he with signs overhead, as well as red and white disco lights along started studying other player’s moves, what made them the floor of the aisle. Made ‘ya look!” effective. He would imagine himself guarding them, think- Passengers didn’t just pay attention, they applauded when ing through every move and countermove. He even prac- Karen finished. Individuality, humor and doing whatever’s nec- ticed in front of a mirror at night. Russell’s enthusiasm for essary to serve the customer became the Southwest way. preparation was contagious. Satch Sanders said: “We rose Like Russell, Kelleher modelled the desired behav- higher because of him.” ior, stepping in to handle bags, dressing as Elvis Presley Are you modeling the behaviors you expect to see from and arm-wrestling a rival CEO for rights to the slogan: your team?” “Just plane smart.” Not surprisingly, employees LUV

belonging to the Southwest family, and according to an FIGURE 3 Indeed.com survey they feel they do—at a rate 2.5X Employee statements on belonging higher than key rivals. Southwest changed its logo to a Treat each person as an individual. heart because “without a heart, it’s just a machine.” Celebrate the accomplishments of the team–and team members. Figure 3 is a checklist to help you see how well People stick around because they feel like the belong to something special. your company stacks up against what employees say Everyone is empowered to make a meaningful contribution. create belonging. Hire from within: Allow employees to advance in the organization. Meetings are more like town hall discussions. Care for the whole person–e.g., a gym and health services. Competence keeps the final score Company has an authentic interest in team members beyond work. With your people in the game, bringing passion, collabora- Company works consistently to build a sense of community. tion and creativity to work every day, how do you help them Team members are given space to try new things and learn from failure. go to the next level? Elevating competence—i.e., helping Bene ts and salaries show the company cares about employees. teammates step up to their best game—is how you make Source: Authors winning a habit. Let’s check in and check out Bill Russell’s three go-to moves to make his teammates play better. One more thought: How would you measure your suc- 1. Recognize and value individual skills. Russell made it a cess as a leader? Here is Russell’s standard: “I always habit to scout his own teammates. He said: “I needed to know thought that the most important measure of how good who the different players were, what their tendencies were, a game I’d played was how much better I’d made my their habits, their preferences. I had to learn about their think- teammates play.” In today’s socially conscious world, this ing, their temperaments. For me to play my best game, I had to standard will be one of the most valued and satisfying discover theirs.” Russell’s goal: Play to his teammates strengths measures of your success. and cover their weaknesses. Wegmans, the family-owned, underdog grocer from Are you playing to your team’s strengths? Rochester, NY, employs the ABCs to fend off fierce rivals 2. Invest in team members’ success. Consider this story. Aldi, Amazon and Walmart to maintain its winning, and “One night, while I was leading a break on the floor, I noticed growing, ways. Let’s review Wegmans game plan. Bob Cousy over my shoulder, running behind me. I told myself • Affirmation. Wegmans philosophy is: “Employees first, something was wrong. … Bob Cousy, to this day, is the best customers second.” Nicole Wegman, senior vice president, I’ve ever seen in the NBA at running a fast break. What I was claims: “We have these incredible people in our company… inadvertently doing was taking him out of his game, out of what and 46,000 heads are better than one.” Wegmans invests

24 Supply Chain Management Review • July/August 2021 scmr.com as if they really believe it. FIGURE 4 • Belonging. Wegmans revels in Are you building a “me” or a “we” ego? not just being family-owned but How would our employees describe their working environment? also in creating a family-like feeling. Put a checkmark in the appropriate column. Calculate your score (0-12) Employees enjoy autonomy and psy- PREDICTORS OF “ME” GO PREDICTORS OF “WE” GO (TEAM EGO) chological safety, providing honest Score feedback through Wegmans’ Open Af rmation 0 1 Door Days, Huddles and two-way • Mangers don’t listen • Mangers care about my opinion Q&A with the SVP of store opera- • Must deal with frequent criticism • Receive frequent positive reinforcement tions. The result: Employee turn- • Individual contributions expected • Individual contributions celebrated over is one-third that of rivals. • Compensation among industry’s worst • Compensation shows I’m valued • Competence. CEO Colleen Wegman says: “Learning and grow- Belonging ing means that you’re given the • Little control over tasks and job • Possess autonomy • Rigid and demanding workplace • Flexible and accommodating workplace opportunity to improve every day. No • Feel like just another number • Viewed as a valued member of the team matter what part of the company you • Must be careful about what I say and do • Can be myself without worrying work in, it is important to us that everyone is engaged in our business, Competence supports what we do, and contin- • Dead-end job • Opportunities to continually learn ues to learn and grow.” Every year • Training focused only on current job • Training opens future opportunities Wegmans invests more than $50 • All training is focused on work • Training enhances personal well-being million in learning, grants scholar- • Seen only as employees • Use skills to make positive social impact ships to 5,000 employees and offers management trainee, leadership TOTAL SCORE development and mentor programs. One sign that competence is elevat- What does your score mean? ing: Most store managers joined the Scores of an 8 or underr indicate a need to re-evaluate cultural orientation Wegmans team as high school or col- Scores over 10 indicate a culture that promotes creativity and collaboration lege students. Steps to team ego overhaul If action is needed, try the following exercises Cultivating team ego has helped Wegmans stay on Fortune’s “100 Best Break your team into groups of 3 to 6 people. Have each member read this article. Have each group member brainstorm 5 to 10 ideas to cultivate a Team Ego. Companies to Work For” since 1998, Bring the group back together to discuss the individually generated ideas. claiming the No. 4 slot in 2021. As a group, select the 3 to 5 ideas that can be most impactfully implemented. Like the Celtics, the ABCs work Make these best practice ideas the target for pet projects. best when they work together. Try out Establish priorities for the remaining ideas. the diagnostic in Figure 4 to evaluate Bring groups together to share both sets of ideas. Re ne/establish priorities. Allocate resources. whether you are cultivating a “me” Document implementation and results. ego or a “we” ego.

Who do you take? that keep your people from bringing their best ideas and Let’s ask a final question: “Russell, Wilt, Jordan, best energy to the game. They don’t just get everyone LeBron—if you have to pick, who do you take?” into the game, they pump your people up so that they Here’s Russell’s response: “You pick Bill Russell—for can do what they do best to give your team an edge. a reason—the way I play, my team wins.” That’s your Havlicek paid Russell the ultimate compliment, goal too—to help your company win. saying: “He made other people around him better. And to win, your company needs to out innovate More than anyone else. Ever.” The ABCs can help and out execute rivals. The ABCs remove the barriers you pursue this legacy. jjj

scmr.com Supply Chain Management Review • July/August 2021 25 LEADERSHIP TEAMWORK CUSTOMER CYBERSECURITY WAREHOUSING

It’s time to adopt a customer-centric attitude Over the last year, customers have been forgiving when it comes to delays and missed expectations, but that goodwill won’t last forever. The best supply chains must put their customers at the center of their operations.

BY YEMISI BOLUMOLE, SCOTT J. GRAWE, JOHN CALTAGIRONE AND PATRICIA J. DAUGHERTY

26 Supply Chain Management Review • July/August 2021 scmr.com uyers’ expectations regarding logistics customer service have consistently increased over the years. Demands for better, faster service have become the norm, not the exception. B Almost all customers seem to expect fast service along with flexible delivery options that are customized or tailored to their individual needs. In a previous article*, we termed this the “age of customer impatience.”

Of course, the escalated expectations responded and adapted to new demands. For have, in large part, been driven by the shift the most part, this response has been better from the dominance of traditional retailing than one would have expected. to a substantial emphasis on e-commerce Most important of all, customers became and omni-channel retailing. Many consum- more aware of the intricacies of supply chain ers expect to be able to choose from a range management challenges as they dealt with of shopping options such as ordering from out-of-stocks, delivery lead times that often their mobile devices or computers, shopping far exceeded two-days and difficult returns, in stores, shopping online and picking up in all while coping with rising service costs. The store. Logistics plays a key role in making all upside is that most became less impatient and of this happen seamlessly. more forgiving. Of course, with the brick-and- Fast forward to 2020-21. As COVID-19 mortar economy shut down for all but essen- rewrote the rules of retail, it’s not an overstate- tial services, they didn’t have much choice. ment to say that even more extreme demands This made us wonder if customers’ appar- have been placed on supply chains during ent attitude adjustment represents a per- the global pandemic. The pandemic acceler- manent change, or, if, in reality it will be ated the shift to online shopping at the same temporary? Have customers merely adopted time as social distancing rules and infection a temporary workaround to their service outbreaks in facilities limited the number of expectations, or are we witnessing a slow but employees in stores and distribution centers. steady shift away from the age of customer Staying connected in the contactless economy impatience? Will customer behavior in a post- became critical, and supply chain professionals COVID world retain some of the “patient”

Yemisi Bolumole, Ph.D., is a professor of supply chain management at the Haslam College of Business, University of Tennessee. She can be reached at [email protected]. Scott J. Grawe, Ph.D., is the Robert and Jane Sturgeon Fellow and Chair, Department of Supply Chain Management and an associate professor of supply chain management at Iowa State University. He can be reached at [email protected]. John Caltagirone is the founding director of the Loyola Business Leadership Hub, and executive director of the Supply Chain and Sustainability Center at Loyola University Chicago. He can be reached at [email protected]. Patricia J. Daugherty, Ph.D., is the Debbie and Jerry Ivy Chair in Business and professor of supply chain management at Iowa State University. She can be reached at [email protected].

scmr.com Supply Chain Management Review • July/August 2021 27 Customer-centric

habits learned during the pandemic, or will customers environment, it is hard for our customers to justify simply revert to a “what have you done for me lately” poor service when the impact to their organization mindset? Cue the age of customer impatience. can cause machines to be down and product not to To explore this issue, we went to the experts: ship. COVID may have given us some leeway for a People who deal with customer-related issues on period of time, but for the most part that has passed.” a daily basis. This group of professionals provided Not surprisingly, there remains an emphasis on their perspectives on how companies coped with the need for maintaining strong customer relation- customer service pressures during the past year and ships—especially now. Relationship building should how they anticipate this will affect future business include operating in a trustworthy and empathetic operations. The individuals work in a wide range of way, being able to anticipate customer needs and areas including retailing, distribution, manufactur- generally being customer obsessed. As one respon- ing, transportation and consulting. The following dent noted: “All managers in the supply chain have narrative provides an overview of key issues. to be aware of the trend for consumers to expect product/service delivery on demand. With folks in More than ever, businesses must adopt a their homes all day every day, they are begging for— customer-centric attitude and now expecting—delivery on demand with all of Many of the people we talked to said that for now, their purchases. That mentality will seep into other most customers are understanding. For example, parts of their customer service expectation psyche.” they will accept extended lead times as long as In keeping with the relationship trend, one issue those lead times are predictable. As one respondent emphasized by a number of the interview respon- stated, “Many customers are happy just to be receiv- dents was the need to make business operations ing product in this (current) environment. So, add- more personalized than ever. “Customers want to ing predictability to the mix is delighting customers feel like the product or service has been vetted and at least for now.” tailored with just them in mind,” said one respon- How long will this goodwill last? Perhaps not dent. Added another: “Every aspect of customer for long: Another respondent predicted that “the service must be personalized to the consumer’s pandemic excuse is going away. Customers are no behaviors, wants, biometrics and expectations.” This longer tolerating three days to five days and longer is possible—not easy, but possible. “estimated” delivery windows. They want what Without a doubt, these changes have been com- they want with a guaranteed delivery in two days or ing to supply chains for years, but in 2020, keeping less—consistent with the Prime promise.” an eye on what delights each customer was more While some respondents acknowledged that “cus- important than ever. Retailers need to personal- tomers are looking forward to getting back to the ize services based on customers’ actual needs and way that things were before COVID,” others sug- behaviors. Unfortunately, while many companies gested that “what customers expect hasn’t necessarily have been doing this for decades, one of our respon- changed a whole lot. They expect timely (service). In dents noted: “It is not as common as it can be—or today’s environment, they understand the opportuni- as it should be.” Some companies, for instance, try ties out there to have systems and technology to track “lazy ways” to personalize their messaging, such as shipments and, therefore, why couldn’t they get the using form fillers. Not enough companies “do ade- information sooner?” Another added: “In the B2B quate research or listen enough to truly personalize

28 Supply Chain Management Review • July/August 2021 scmr.com the customer service experience,” a respondent said. market due to the ramp up and sheer magnitude of Another illustration of the changing business envi- small shipments and customer service expectations. ronment came from a company with a changing per- These different service expectations will not spective on what makes a “strategic vs. non-strategic be limited to traditional delivery dimensions. Sev- customer.” Segmented customer service has long eral interviewees commented on an expectation been the norm, with the most important customers that customer needs and concerns will most likely typically demanding and receiving better service. experience a permanent shift: “Even when we get However, these norms are being redefined as com- some type of normalcy back, customers will have panies are finding that even “non-strategic” custom- changed.” In particular, they will “have a heightened ers are expecting more. As one manager noted: “We awareness of risks to their health.” Businesses must recently took on new business with a non-strategic determine how they “can support customers’ needs customer and the agreement was that we would for product, but also their well-being.” monitor for the potential of late pick-ups. While this A number of suggestions were made including, has been an expectation for some time with strategic fewer touchpoints in the order cycle, and, ideally no- customers, this is becoming a basic service offering touch deliveries and transactions. Given the expec- for customers in all segments. The challenge is how tation that the customer flight to digital and omni- to automate to cover those requirements for smaller channel commerce might be here to stay, firms have volume customers. Overall customers are asking for to recognize that e-commerce and digital channels more activities that they want to push to vendors.” equate to increased complexity. One way to meet these new challenges is by Dealing with greater complexity and developing new ways to serve customers in differ- developing enhanced responsiveness ent ways than have been used in the past. As an For at least one of the firms in our sample, consumer example, one interviewee referenced Delta Airlines’ response to the pandemic resulted in: “a jump in response to lost sales and cancelled flights. “The retail e-commerce from a little less than 10% to difference in customer experience between March more than 30%. That increase in volume has exposed 2020 and October 2020 has been astounding,” the delivery capability vulnerabilities in the retail ecosys- interviewee said. “It took numerous phone calls, tem. Time definite delivery expectations have been e-mails and six weeks to eight weeks of waiting in the competitive equalizer between e-commerce and March. In October, it took one 10-minute phone brick-and-mortar retailers. While e-commerce retail- call to make a cancellation. There has definitely ers still have an assortment advantage, many have been a trend toward adaptability in serving customers lost the availability and lead time advantage.” in different ways than in the past.” The COVID-19 pandemic presented the ultimate stress test for business operations, especially Communication is critical as many traditional B2B channels shifted—out of Customers often are not only impatient; they are necessity—to incorporate a B2C channel often anxious. Therefore, communication is critical. Our within a very short period of time. Business opera- respondents had a number of suggestions, including tions will continue to be complex but these kinds making it easy for customers to make contact, provide a of rapid shifts escalate the level of complexity that one-time contact resolution and deliver immediate supply chains are having to deal with in the B2C answers to e-mails and text messages. One person

scmr.com Supply Chain Management Review • July/August 2021 29 Customer-centric

indicated that it is important to “show respect for an excuse to slow down the flow of information. customers’ time. If you can’t provide an immediate Another way that technology can be used to solution, customer service should call back when address changing customer needs is through the use they can address the issues.” of data for market sensing, with a focus on predict- In particular, “efficient and effective feedback ing changes and monitoring the environment. More regarding order status is paramount. Customers companies are realizing the importance of gathering expect heightened communication as to the status of data for the early identification and projection of their orders.” They want “rapid service, high OTIF trends. Data is critical to supporting a customer- (on time, in full) and clear/timely communication. centric approach. We were told that “it will be Product availability and on-time delivery are the important for companies to have more user data in most important customer expectations.” order to offer personalization across the different touch points.” Technology and data A recent WSJ story reports how Walmart, Amazon Communication in a multi-channel environment and other retailers employed the use of Artificial adds complexity. This may require adopting new Intelligence (AI) to handle the post-holiday returns ways to collect and exchange information, including volumes by predicting customer returns cases where live chat, video, apps, social media and communica- it was cheaper for the customer to retain the prod- tion through web sites. Our respondents also said uct, while still issuing them a refund. This is an that companies must be nimble, fast and advanced example of what the writers Joe Ucuzoglu and John with technology to enhance the buying experience in Hagel III discussed in a Harvard Business Review the experience age. It is important to determine the article in April 2020, writing: “Imagine customers appropriate balance between human interactions and who are not only willing to share their data with a automation. One respondent indicated: “We have company, but eager to share more of it. What would invested heavily in helping customers learn about this take? Most fundamentally, customers would and utilize our products. This involved developing need to see that their data is being used for their videos and using social media.” Another added: “I benefit, in ways that they highly value. If that hap- fully expect social media and communication to play pens, they will be eager to share more about them- larger roles in both influencing buyers and assisting selves to receive even more value. It’s time for many customers in how to fully utilize the products.” organizations to ask themselves: How are the data The importance of technology to enhance com- about customers being used to help customers?” munication was summarized nicely: “While customer To better understand customers’ needs in this way, service has always been critical to the success of an one of the companies we spoke with has developed organization, its significance has evolved to encom- a new team to focus on global as well as regional pass communicating at every step within the chain. opportunities. “The people that are involved in Information must be available on demand via the the team are from different backgrounds, experi- most efficient medium as dictated by the multi- ences and knowledge. Often the most innovative channel user.” While COVID may have slowed down ideas come from combining two complete and the movement of goods to the customer, it was not opposite worlds.”

30 Supply Chain Management Review • July/August 2021 scmr.com The elephant in the room: Amazon It’s not all bad news A number of people cited the need to compete with To put the best possible spin on it, the pandemic has Amazon and the e-commerce giant’s “unquenchable thirst been a learning experience. Providing both an accel- for delivery on demand.” Speed to market on new prod- erator and stress test for firms willing to embrace and ucts and particularly on every day deliveries is judged by adapt to changing customer demands. Many firms did customers relative to Amazon-type timeframes. Customer in a few weeks what would normally have taken them loyalty can quickly fade. As one respondent put it: “If years to achieve: Implement a digital strategy with consumers don’t get the products they are looking for, it technological capabilities that enabled a rapid, mean- seems they will go online to another retailer.” ingful e-commerce response. However forced it might Many of our interviewees commented on the need be, learning is still learning and in some cases, offers to change in order to keep up. Even before the pan- firms the opportunity to crisis-proof their supply demic and economic crisis, traditional brick-and-mortar chains while capturing market growth in the midst of retailers had been struggling to compete with Amazon, the pandemic. One of the most positive reactions is as well as other e-commerce leaders. COVID acceler- captured in the following quote: “The COVID situ- ated these struggles, and perhaps suggests that busi- ation also helped us learn more about the resiliency nesses can no longer count on things returning to a of our supply chain. Although the supply chain fared post-COVID “normal.” Interviewees mentioned drivers very well, we identified some areas that we could within the business environment that did not meaning- strengthen.” Further, “Because our supply chain held fully exist several years ago, and that Amazon continues up so well, we believe that we gained market share to make significant strides into the B2B channel. “Busi- as volumes on several key products are through the nesses now have to compete with those service levels to roof. Adapting to unexpected demand is a problem, remain relevant,” an interviewee said. “Furthermore, if but a great problem to have.” manufacturers do not add value to products or services, they risk becoming irrelevant and obsolete as they will Remember the basics be offering only a commodity that can be delivered Our experts reinforced the idea of foundational faster with an Amazon type approach.” requirements. The minimum requirement is good Another respondent also remarked on the carry-over product availability and on-time delivery supported effect of the Amazon experience to the B2B market. “The with timely communication. They believe that most remote nature of the past six months has dramatically customers are accepting of supply shortages, but increased everyone’s reliance on being able to buy any- that doesn’t mean they lower their expectations as thing they want online and get it quickly and easily. This evidenced by this quote: “With spending more time new expectation will crossover into the industrial product at home, customers became stricter about quality. world, too. And many companies will need to find ways to They pay more attention to how it arrives at simulate the Amazon experience with their product and the door.” jjj service offerings.” This is particularly significant when we *** consider that a recent McKinsey report that suggests that * “The New Age of Customer Impatience....” Inter- consumers are likely to maintain their pandemic-induced national Journal of Physical Distribution & Logistics shopping behaviors beyond 2022. Management, 2019. Vol. 49, No. 1, pp. 4-32.

scmr.com Supply Chain Management Review • July/August 2021 31 LEADERSHIP TEAMWORK CUSTOMER CYBERSECURITY WAREHOUSING

32 Supply Chain Management Review • July/August 2021 scmr.com RETHINKING CYBERSECURITY: HIDDEN VULNERABILITIES IN THE SUPPLY CHAIN

The most recent spate of cyberattacks on the supply chain and beyond should have everyone’s attention. Here’s a manageable scheme for protecting against cyberattacks by creating a system that provides equal protection from vulnerabilities to any and all suppliers regardless of their size.

BY ZACHARY S. ROGERS, THOMAS Y. CHOI AND SEONGKYOON JEONG

“They first went after our gas and then they went after our hot dogs.”

hat’s Christopher Krebs’ accounting of recent cyberattacks on Colonial Pipe- T line, the biggest U.S. fuel pipeline, and JBS USA, one of the world’s largest meat packing companies. Krebs is the former director of the federal Cybersecurity and Infrastructure Security Agency. He continued on to say to NBC: even future viability. That’s a warning that “No one is out of bounds here. Everyone Walmart, Target, Equifax and many oth- is in play.” ers would double down on after surviving Just a day later, the Biden administra- their own cyberattacks in recent years. tion put cyberattacks on a par with terror- ism. It also said that all companies large This is not a practice drill. and small need to determine how to con- Three years ago, cyberattacks cost front this threat to their operations and the world’s companies upwards of

Zachary S. Rogers is an assistant professor of supply chain management at Colorado State University. He can be reached at [email protected]. Thomas Y. Choi is a professor of supply chain management at the W.P. Carey School of Business of Arizona State University. He can be reached [email protected]. Seongkyoon Jeong is a doctoral candidate in supply chain management at the W.P. Carey School of Business of Arizona State University. He can be reached at [email protected].

scmr.com Supply Chain Management Review • July/August 2021 33 Cybersecurity

$600 billion, according to the cybersecurity protection Following is a framework that allows companies to protect firm McAfee. Needless to say, cybersecurity has become themselves from the cyber-vulnerabilities associated with an even bigger business lately, with the rate of attacks smaller suppliers, without spending an inordinate time increasing during COVID-19. And some estimates of its monitoring them. cost have now hit the $6 trillion annual level. Quite simply, cyberattacks are an exponentially high-growth business. Assessing the current situation With the increasing scope and proliferation of these One of the largest cyberattacks in history was the breach of attacks, it is all hands-on-deck at many firms. Other than IT, Equifax in 2017. Hackers were able to infiltrate Equifax’s no individual department is more affected by these attacks back-office systems when a small, third-party contractor than supply chain management. More than 60% of cyberat- failed to update a vulnerable system for two months after tacks launched against publicly traded U.S. companies in the release of a security patch. By breaching the third- 2017 were supply chain-based, meaning attackers launch party software operated by the Equifax supplier, attackers their assaults at firms by first compromising one of their sup- entered Equifax’s system and compromised sensitive infor- ply chain partners and then using them as a launching pad. mation of approximately 150 million people. As supply chain networks become increasingly con- It is unlikely that Equifax had significant oversight of nected, it has become common for hackers to compromise the timeliness of software updates performed by their sup- one firm, steal login credentials to their supply partners’ pliers. However, they were held fully responsible for the back-office systems and then breach the partner. And just failures of their suppliers, as they were ultimately required as no company is out of bounds here, no supply chain part- to pay up to $700 million in damages. Yes, there are conse- ner is too insignificant to be the conduit for a cyberattack. quences beyond service disruptions and exposure of confi- Smaller firms are often targeted because they have fewer dential information in cyberattacks. resources dedicated to cyber-defense, making them more One of the major issues Equifax faced with this breach susceptible to attacks. It doesn’t even matter to the attackers was the lack of transparency it had into the activities of its that smaller suppliers may not have a large trove of customer supplier. The supplier at fault was an individual contractor. It information or valuable financial assets. Instead, and often would be unusual for the supply management team of a large more valuable, many possess login information that, if company like Equifax to devote significant resources to the stolen, attackers can use to penetrate back-office systems monitoring of such a small supplier. This is partially because of the larger firms with more resources. many supply management teams engage with vendors In fact, the misperceived anonymity of smaller companies through the paradigm of a strict A-B-C supplier hierarchy. is an advantage in cybercrime because they are often viewed as relatively unimportant. This is counterintuitive for many Conventional wisdom can hurt supply managers. Traditionally, supply managers spend a dis- Suppliers are often grouped into A, B or C categories based proportionate amount of time dealing with larger suppliers. on the level of spend dedicated to each supplier. A-B-C clas- They are incentivized to do this as they are often graded on sification also allows supply managers to operate under the KPIs such as cost savings and maintaining a steady stream classic 80/20 rule, devoting the majority of their time to a of mission-critical components—both of which are often limited number of key suppliers. achieved by working with a few key suppliers. Ironically, The general rule of thumb is that the 10% to 20% of this can come at a cost of paying less attention to smaller, suppliers representing the top 80% of a firm’s spend are non-critical suppliers, inadvertently opening the door for classified as A-level suppliers. C-level suppliers at the other cyberattacks through these neglected supply chain partners. end of the spectrum encompass those with which a buying Unfortunately, if hackers are able to breach a firm’s sys- firm has an insignificant or non-mission critical volume of tems through its supply chain, the consequences can be spend. Examples might include a small regional janitorial large no matter which supplier was vulnerable. In other contractor, or IT subcontractors. words, a breach of a $6 million supplier presents as much As would be expected, A-level suppliers get the most risk as one 100 times larger. attention while minimal time and resources are dedicated to While firms must work to prevent these attacks, it is C-level suppliers. For example, one would expect Walmart’s unrealistic for supply managers to closely monitor every supply managers to spend significant time and resources small supplier—there has to be a better way. And there is. working with vendors such as Mattel or P&G. However, it

34 Supply Chain Management Review • July/August 2021 scmr.com would be atypical if they were to allocate similar resources the level of access to electronic data that a given supplier to a small regional supplier. Cyberattacks, however, are requires to fulfill its contract. The second is to build a cyber- changing that equation more than just a bit. A-B-C classification system that the team uses to protect the The expected return generated from investing time and company’s back-office network. The expected outcome of resources into a larger, more important supplier greatly both steps is to limit or even eliminate the potential risk of a outpaces the return one would expect to gain from mak- successful cyberattack on critical company IT systems and ing a similar investment in a smaller, less mission-critical information. Getting there requires some work, however. supplier. The difference in expected return on investment Let’s start with the team. In the past, supplier cyber- is exacerbated by the fact that firms tend to have exponen- security has been thought of as the domain of IT alone. tially more B-level or C-level vendors than they do A-level However, the permissions between firms, and the potential suppliers. For new product development, supplier cost vulnerabilities those connections make possible have com- savings and many of the other KPIs supply managers are plicated this process to the point where a cross-functional graded on, the focus on A-level suppliers makes sense. team is required to properly address the situation. Unfortunately, the opposite is true for cyberattacks. As The team should include representatives from procure- presented in the figure below, C-level suppliers tend to be ment/supply management, IT, compliance, and the internal the most vulnerable to cyberattacks, and supply managers end-user of the project or service being procured. Including ignore them at their own peril. the end-user is important as they can help to set the initial expectations for what the supplier will be providing to

FIGURE 1 the firm and what sort of digital permissions they will C-level suppliers and cyber risk need to meet these expectations. From there, IT can set these permissions and update them if requirements C-LEVEL SUPPLIERS change at some point in the future. The representative More suppliers, lower proportion of spend from compliance will ensure that the contractual stan- B-LEVEL SUPPLIERS Medium number of suppliers, dards the supplier is held to are in accord with both the medium proportion of spend industry and regional requirements for cybersecurity A-LEVEL SUPPLIERS CYBER RISK (such as GDPR in the European Union). Fewerr suppliers, higherr proportion This should all be done in conjunction with the of spend supply manager charged with managing the account of the supplier in question. The supply manager who is responsible for the supplier in question should take Source: Authors ownership of the overall process. This ensures that each supplier is granted appropriate permissions, and While the limited resources of smaller, C-level suppli- that the supplier evaluation process is reflective of the ers mean that they often account for the largest supply recommendations made by compliance. chain cyber-vulnerabilities, it is not feasible for supply When it comes to building an A-B-C classification system managers to closely monitor every supplier. Does that that will lead to improved cyberattack protection, think of mean companies are doomed to be continually at risk the company as a house. This approach is the equivalent of with no recourse except resource-intensive monitoring of limiting the rooms in the house that a contractor working on smaller suppliers? Fortunately, we believe the answer to the house is allowed to access. If a plumber is there to fix that question is no. By working with the internal end-user the kitchen sink, is there any reason to be wandering into of supplier products/services as well as the IT department, a bedroom? Why then should it be any different in limit- supply managers can establish a cyber-A-B-C classifica- ing the access that smaller, potentially vulnerable suppliers tion system that focuses on the level of information access have to sensitive areas such as point-of-sale (POS) systems depending on the importance or function of the supplier. or customer records? The simple answer is none. But many companies have not taken the steps to limit permissions, Build a cross-functional team and too many plumbers wind up in the bedroom. Getting started here requires a couple of key steps. The first At a company, it may make sense to allow larger vendors is to build a cross-functional team capable of determining to access the buying firm’s inventory for replenishment or

scmr.com Supply Chain Management Review • July/August 2021 35 Cybersecurity

R&D systems for product development purposes. In other Once it has been established that a vendor has a mission- words, an A company should have A-level access to the critical reason to access sensitive systems, they should also be buying company’s systems. However, B- and C- level sup- required to exhibit some minimum threshold of cybersecurity. pliers typically don’t require such broad access and should While some buying firms may prefer to develop their own be walled off from those areas for two reasons. One, they specific cybersecurity requirements, they can also rely on just don’t need such access to fulfill their contract. And many international and industry standards. Following is not a just as importantly, this limits to a degree the potential complete list, but it is one to consider as a starting point. of a cyberattack. ISO 27000, ISO 27001 and ISO 28000 are all widely To enforce these limitations, it is crucial for companies used and accepted international standards regarding cyber- to employ defense-in-depth and back-office segmenta- security. They include guidelines regarding the management tion. Defense-in-depth refers to the practice of building of financial information, intellectual property, employee data redundant firewalls into a system. This way, even if one and other potentially sensitive information. portion of the system is breached, others are still protected Among the ISO guidelines, ISO 28000 applies specifi- by additional layers of defense. Continuing the analogy of cally to supply chain cybersecurity, incorporating explicit the house, defense-in-depth is akin to placing locked doors guidelines regarding transportation and manufacturing. ISO between each room, each of which requires a different 28000 should be used to establish supplier guidelines for key. Defense-in-depth seems to have been one of the keys transportation and other logistics suppliers. to mitigating the impact of the previously-mentioned JBS Meanwhile, ISO 27000 and 27001 are international breach, as very few of their core critical systems were com- standards dictating the proper management of information promised—allowing them to resume operations faster than security and management. had been anticipated. These and other ISO guidelines are internationally recog- By taking time in the contracting process to grant the nized, and can be especially useful for companies with inter- proper permissions to each vendor, supply managers ensure national suppliers as they can be applied fairly broadly. It’s that suppliers only possess the keys they absolutely need. worth noting there are also country-level guidelines such as Even if smaller C-level suppliers are compromised, an the National Institute of Standards and Technology (NIST) attacker will not be able to steal every key necessary to infil- in the United States and the General Data Protection Regu- trate the buying firm’s most valuable systems. lation (GDPR) in the European Union. Finally, several industry-specific cybersecurity standards Who gets what permissions? also exist. Some of these key industry guidelines include: When deciding which permissions to grant to each vendor, the Advanced Notice of Proposed Rulemaking (ANPR) for U.S. supply manager and the cross-functional team should consider financial institutions, Defense Acquisition Regulations Sys- three key factors: mission criticality, cyber-compliance and con- tem (DFARS) for U.S. defense contracts, IASME for small- stant monitoring and updating of the scheme in place. to-medium enterprises in the UK, North American Electric Mission criticality determines which pieces of the back- Reliability Corporation (NERC) for U.S. energy firms and office system a supplier needs to access to so it can fulfill its Payment Card Industry (PCI) certification for point-of-sale contract mission. Quite simply, only vendors with clear rea- systems that will be accepting U.S. credit or debit cards. sons to access sensitive systems should have access to them. There’s also the issue of constant monitoring and updating For example, it is reasonable for a payment card supplier of the system that has been built. Cyber-criminals have time on to have access to the POS system that retains customer their side. They continuously develop new methods of penetrat- credit card information. But that’s not the case for all con- ing defenses. As their tactics continue to evolve, it is paramount tractors. As Target discovered when it was hacked in 2013, for companies to ensure that both their own defenses, as well as there was no reason for a regional HVAC supplier to have the defenses of their supply chain partners, are always cutting- access to the corporate POS system. More on that later. edge and ready for the latest attacks. In fact, that is exactly what If there is no need for suppliers to have access to vulnerable the Biden administration was talking about in early June. systems, their permissions should be strictly limited if not out- As mentioned earlier, the failure of Equifax’s vendor’s right denied. To continue the key analogy, they may be provided defense system was attributed to a two-month lag in properly with a key to the front door, but none of the specific rooms. updating and patching systems. Supply managers should use

36 Supply Chain Management Review • July/August 2021 scmr.com third-party auditors to test their cyber-defenses of A-level ven- of vendors that would merit this type of in-depth audit. dors with access to the buying firm’s back-office systems. This Supply managers should dedicate the majority of their testing might include so called red-team attacks, in which a time and resources earmarked for supply chain cybersecu- third-party auditor acts as an attacker and attempts to penetrate rity to vendors that have access to higher-value systems. By a vendor’s cybersecurity. This type of test provides crucial infor- employing defense-in-depth and back-office segmentation, mation regarding potential vendor vulnerabilities. However, supply managers can once again turn their focus toward they are also resource-intensive, and it is not realistic to pay for A-level suppliers—even when it comes to cybersecurity. red-team attacks to be launched against all suppliers. The value of the right defense

FIGURE 2 The hack of Target in 2013 was an excellent example of the Decision tree value of building a cyber-A-B-C classification scheme as well use of defense-in-depth, back-office segmentation. On-boarding of new supplier Target was compromised through their regional HVAC supplier Fazio, a small supplier of heating and air-condi- tioning services to Target stores in Ohio, West Virginia and Is it mission critical Pennsylvania. Fazio epitomized the classic C-level supplier. for them to access N The service it provided was not mission-critical for Target our back-of ce system? customers (few come to Target for the ventilation), and they did not account for a large volume of spend. Even so, Target Y allowed Fazio to have nearly unlimited access to its back- office system, including the POS system. Cyberattackers were able to penetrate Fazio’s meager Is their cyber security defenses (which included the free version of its anti-virus level suf ciently N high? software), steal login credentials to Target’s system and move unimpeded throughout Target’s back office. This compro-

Y mised the credit card information of 110 million customers, resulting in fines of approximately $162 million. However, there is evidence that Target could have Grant Deny access access avoided this had it followed the recommendations laid out Re-access here. Fazio also counted many other large firms, includ- request after passage of time ing Walmart, among its customers. At the time of the breach, Walmart utilized defense-in-depth segmentation Is their and required redundant logins to reach each segment of cyber security level N still suf ciently the back-office system. As a result, Fazio did not possess high? the credentials to reach into Walmart’s most vulnerable systems, and the potentially very damaging incursion came Y to nothing. The supplier breach that cost Target $162 mil-

Source: Authors lion cost Walmart $0. Walmart is proof that by following the steps presented here that firms can greatly reduce their This is why it is crucial to limit the access non-critical exposure to cyberattacks through the supply chain. B-level and C-level suppliers have to the most sensitive sys- Supply managers are dealing with a whole new world tems. While it is still important to monitor their defenses, of risks with supplier cybersecurity. There is no reason to it would not be realistic to carry out complex audits for make these more complicated by opening themselves up smaller, albeit more vulnerable, supply chain partners. By to attacks from loosely monitored C-level suppliers. By fol- shutting suppliers out of vulnerable back-office systems that lowing a well-considered scheme that puts every contractor they do not have legitimate business reasons to regularly in its respective place, every company’s cyber-house can be access, supply managers can significantly curb the number as safe as possible. jjj

scmr.com Supply Chain Management Review • July/August 2021 37 LEADERSHIP TEAMWORK CUSTOMER CYBERSECURITY WAREHOUSING

THE FUTURE OF WAREHOUSING The four cornerstones of competitive advantage

BY ARUN KOCHAR, SUMIT CHADHA AND ARPIT SHARMA

38 Supply Chain Management Review • July/August 2021 scmr.com nytime, anywhere fulfillment. Next-day, same- day and even same-hour delivery. Exploding A product variety and packaging choices. Hyper- localization. Personalization. Welcome to the age of omni- channel fulfillment, with its promise to serve every single consumer with what they want, when they want it—and how they want it. For retailers and manufacturers alike, the consumer’s ravenous appetite for speed and choice is making warehouses and distribution centers (DCs) much more central to the competitive equation. Yet most fulfillment operations were designed for a far less challenging era. This stark reality obliges chief executives and chief operating officers to actively envision the larger, more nuanced and more strategically vital role warehouses and DCs are playing in their future supply chain today—and will certainly play tomorrow. Fulfillment capabilities must now be counted among top strategic priorities for executive teams. Without question, those who ignore the future of warehousing risk repeated crises, challenges in meeting customer expectations, expensive work arounds and rushed retooling of this increasingly crucial link in the supply chain.

Arun Kochar is a partner in Kearney’s Strategic Operations Practice. Based in Chicago, he can be reached at [email protected]. Sumit Chadha is a principal in Kearney’s Strategic Operations Practice. Based in Chicago, he can be reached at sumit.chadha@ kearney.com. Arpit Sharma is a principal in Kearney’s Strategic Operations Practice. Based in New York, he can be reached at [email protected].

scmr.com Supply Chain Management Review • July/August 2021 39 The future of warehousing

We see the requisite shifts unfolding along two dimen- modular and scalable network solutions, while others sions in the distribution networks: 1) design and build may choose to partner with or leverage fulfillment pro- facilities with capabilities suited for more complex and viders. Another key is striking the right balance between diverse network roles such as store delivery, customer investing in response to immediate pressures (which are fulfillment and cross docking and 2) position fulfillment substantial) versus investing to get ahead of the curve, nodes much closer to demand centers with forward to build a future competitive edge. deployed inventory (see Figure 1). Imperatives: capability, resilience, efficiency FIGURE 1 Defining your best path for- Distribution network dimensions ward demands a comprehen- Current roles Evolving roles sive view that encompasses three interrelated impera- Customero Large regional Closer to demand ful llmentlm tives: capability, resilience ful llment centers ful lment centers and efficiency.

Larger upstream, In an increas- Storager multi-role Traditional mix Moving closer Capability. NETWORK (DC/stores DCs to hold centers and store to store ROLE ingly competitive market- delivery)v full assortment delivery hubs demand centers place that places a premium on offering consumers an Traditional Merging/sortation array of options, at warp Floww and de-consolation/ nodes closer to store cross-dock- consolidation points and DTC demand speed, warehouses and DCs must be prepared to meet a Out-of-market In-market complex array of new prod- regional node node PROXIMITY TO DEMAND uct-handling and delivery requirements. The Higher value- Packaging Returns added services customization warehouse of the future will processing (Store/DC ready) and personalization be capable of: • slotting one time to two Source: Kearney analysis times more SKUs; • omni/multi-channel under one roof; The implied investment is substantial, yet strategically • pick fragmentation (higher case and each picks relative imperative. The question is: How quickly should you pro- to pallet pick); ceed, in which dimension and on what scale? • higher order line complexity and pronounced peaks; and Tradeoffs between capex and opex are at the core of • higher in-DC value-added services. your decision. Aggressively investing capital now can sub- While retailers are at the forefront of adapting for these, stantially lower your ongoing operating costs and strategi- pressures are cascading upstream to manufacturers and cally position your company to differentiate its service to suppliers with higher-order complexity, higher service consumers. Successful companies will free themselves needs and stringent product-handling requirements. from philosophical constraints to find the optimal balance for capital allocation. For example, companies with exist- Resilience. Most leading companies now draw on an ing or growing scale will choose to invest themselves via intercontinental supply base, and these sourcing strategies

40 Supply Chain Management Review • July/August 2021 scmr.com have generally delivered the expected cost efficiencies. capability will carry their own price tag. While certain Unfortunately, this approach also brings increased expo- “at scale” omni-channel shippers are proceeding toward sure to disruptions, as has been vividly demonstrated by volume thresholds that allow better four-wall economics, the recent spate of trade wars and the COVID-19 pan- the challenge remains for the majority of the warehouse demic. These events revealed the underbelly of Lean, operations designed for traditional channel fulfillment. as companies were caught with a limited store of For these reasons and more, leaders must sustain an inventory, low latent capacities in network and few intensive focus on ensuring their fulfillment network viable alternatives. operates seamlessly, and at a competitive cost. Fulfillment operations can also be vulnerable to system The warehouse of the future will be built to: outages and cybersecurity, as well as high personnel turn- • apply automation to achieve scale faster, at lower over (often running at 50% or more), a consequence of thresholds; wage-driven poaching of warehousing/DC personnel. • systematically optimize pick efficiencies; Clear evidence of resilience and capability build is • deliver shorter payback while maintaining optionality to evident in how major grocers are responding to online change course; and demand surge, only further amplified by the pandemic. • provide modularity in builds, to allow stair stepping Kroger, Albertsons, Ahold, Meijer and Target (among capex versus putting it all up front. others) are rapidly exploring micro-fulfillment centers (MFCs) or adapting their brick-and-mortar store space, Foundations: technology, personnel, orchestration dedicating store back rooms and urban warehousing space and platform to online order fulfillment. Some also created new “dark To address these strategic imperatives, you will need stores” with no retail space for customers. Such expedien- to build four cornerstones of future competitive advan- cies appear to have been a harbinger of a larger and more tage: technology, personnel, orchestration and platform. permanent shift. Target has found that shipping from As these are highly interconnected, we advise senior nearby stores is 40% less expensive than shipping from leaders to address them concurrently, toward develop- remote DCs, while a majority of the stores in Walmart’s ing an integrated blueprint for best outcome and recent multi-billion-dollar Canada investment will have prioritized investment. dedicated MFCs in the backrooms. To become more resilient, the warehouse of the future Technology for the future. Technology is obviously must be built for: central to the future of warehousing—particularly the • multi-node connectivity and fulfillment flows; mechanization and automation of materials handling • real-time inventory visibility and traceability; equipment systems. Yet one still sees a lot of manual • multi-role flexible workforce; operations in warehouses. And companies are still • optimally selective materials handling automation; and working to clarify which “fit-for-purpose” portfolio of • intelligent latent capacity (shared or with point solutions will yield the most value for their busi- logistics partners). ness and customers. An ideal warehouse of the future will rarely have all innovative point solutions acti- Efficiency. The previous two imperatives will make it all vated, but rather a custom selection that fits the need the more challenging for supply chain networks to remain at each step—receiving, put-away, store, pick, pack, competitively cost efficient. Omni-channel is growing, sort and DC control. often with a three times to five times increase in cost to Broadly speaking, technology investments in ware- serve. Everyone is feeling the sting of direct-to-consumer houses and DCs will be driven foremost by their costs. And the innovations required to build resilience and potential to increase productivity, with the added goals

scmr.com Supply Chain Management Review • July/August 2021 41 The future of warehousing of ensuring business continuity and enhancing customer- and task ownership will start to weigh in heavily. centric capability (see Figure 2). A future-focused talent strategy for warehouses will address: • the capability imperative, by FIGURE 2 Evaluating select MHE solutions developing, motivating and focusing personnel on

Highg Conveyance meeting increasingly solutions aggressive delivery promise

Unit sort and fill rates; Robotic Storage loop systems • the resiliency imperative, pick solutions AGVs Case shuttles/ via personnel policies Retrieval cube AS/RS AMRs that balance costs with GTP considerations of business WAREHOUSE solutions Pallet COST/ AS/RS continuity (especially EFFORT Auto carton ADDRESSED solutions reducing turnover); and AR tools Palletizing • the efficiency imperative, solutions Auto bagging solutions through hiring, training and Vision wearables Auto load/ Pallet management processes unload movement Carton AGVs erectors intently focused on labor Drones Layer pick productivity and lowering automation Dimensioning Lowo equipment transition costs, nurtured by a culture of continuous Emerging Established ADOPTION improvement. In fact, the future of ware- Source: Kearney analysis housing will demand a deep retooling of talent strategy and its underlying structural A future-focused technology strategy for warehouses assumptions. The goal is to engender a more flexible work- will address: place (via customized schedules); develop an on-demand, • the capability imperative, by reducing receiving always available workforce (via increased use of gig staffing and outbound cycle times, and delivering dense storage and on-demand staffing platforms); and improve employee with capacity for higher assortment; retention and sense of purpose (via updated incentive • the resiliency imperative, by reducing exposure to structures and a balance of tangible and intangible perks). personnel shortages and high turnover; and • the efficiency imperative, via reduced cost to Orchestration for the future. Recognize that market win- serve and transportation utilization. ners will differentiate on digital and execution capabilities as physical asset capabilities start to achieve parity. The key is Personnel of the future. As technology applications to orchestrate your assets—whether owned or shared—to advance, you must fundamentally reassess what you optimize end-to-end fulfillment. While functional focus require from warehouse personnel—for instance, increas- lends itself to independently optimize four-walls opera- ingly skilled and adaptable associates who think like your tions, transportation and replenishment planning, supply customers. When pondering this challenge, we suggest chains will need to engender an “optimize for the whole” you recognize that many if not most of your current associ- intent, at times sacrificing siloed efficiencies. ates view their warehouse roles as transitionary, rather than A future-focused orchestration strategy for warehouses as a career path. No doubt wage and benefits will be a criti- will address: cal factor, but schedule flexibility, clearer sense of purpose • the capability imperative, by meeting higher promise and

42 Supply Chain Management Review • July/August 2021 scmr.com service levels on retail and FIGURE 3 consumer orders; Visibility and collaboration with logistics partners • the resiliency imperative, SUPPLY ORDER with rapid response via • Dynamic rule-based • One enterprise multi-node order alternative flows and inventory view WAREHOUSE SYSTEMS ful llment • Vendor collaboration visibility; and • Predictive order on supply visibility • the efficiency imperative, via demand forecasting optimized receiving, storage, picking and workforce productivity. LOGISTICS PARTNERS Specifically, we suggest • Real-time shipment WMS, WCS, WES tracking and capacity multi-channel • Dynamic order scenario planning to simulate sharing capability, waving and order/pick • In-transit, in-yard routing tradeoffs on service, cost and wave optimization visibility and capacity, as well as deeper inte- allocation gration, visibility and collaboration with logistics partners (see Source: Kearney analysis Figure 3). Your path forward There are many paths forward, each with its own pros Platform for the future. To deliver a broader range and cons. If top leadership teams engage in an objectively of capabilities, far more flexibly, companies can explore informed exploration of their options, they will likely find shared supply chain partnerships, thus enabling resource their way to success. Those who ignore the future of ware- sharing with non-competitive peers. Inherent challenges housing risk repeated crises, challenges in meeting customer remain in such setups, but the case for sharing platforms expectations, expensive work-arounds and rushed retooling offers a range of compelling opportunities to build scale of this increasingly crucial link in the supply chain. jjj rapidly and monetize asset capacity and capabilities

via a platform vision (see Figure 4). FIGURE 4 A future-focused platform strategy for ware- A platform vision across shippers houses will address: could unlock value • the capability imperative, with steps to access on-demand peak capacity and develop at-scale TECHNOLOGY PARTNERSHIP DTC capabilities; PLUG AND PLAY CONSTRUCTS • the resiliency imperative, by developing contingency options to share space during outages, build seasonal capacity pool and share Execution systems Legal and commercial that can integrate rapidly frameworks to allow workforces as the need arises; and and seamlessly “speak” potential partners to using modular interfaces rapidly enter into • the efficiency imperative, by designing plat and data protocols an agreement forms explicitly to achieve operational scale in ways that meet rising customer demands, with VISIBILITY AND lower cost to serve. WAYS OF WORKING Whatever the means, the end goal is to have platforms that can nimbly and cost-effectively adapt to new, more complex and ever-changing SOPs and operational constructs to drive trust, requirements in terms of order sizes, mixes visibility and consistent ways of working and schedules. Companies may also want to across entities monetize some current assets by offering fulfillment services. Source: Kearney analysis

scmr.com Supply Chain Management Review • July/August 2021 43 The OPERaTIONS ADvANTAGE

How platforming builds a more resilient supply chain

Caitlin O’Keefe is a partner in By Caitlin O’Keefe, Bharat Kapoor and Namrata Shah Kearney’s Strategic Operations practice. She is based in New York and can be reached at Caitlin. OKeefe@kearney. OVID-19 has exposed just how easily supply chains com. Bharat Kapoor can buckle under pressure. The fragility of globalized is a partner in C supply chains was on full display in the spring of 2020 Kearney’s Strategic as exasperated shoppers stared at empty shelves while manu- Operations facturers struggled to meet demand for everything from baking practice. He is flour to bicycles. Many of the worst pandemic supply chain based in San Francisco and can be reached at disruptions, including border closures, more potential points of failure through- bharat.kapoor@ plant shutdowns due to COVID out- out their networks. Given the lessons of kearney.com. breaks and ship backlogs at ports, have the pandemic, many companies are rec- Namrata Shah is eased in recent months. However, new ognizing that managing complexity starts a principal with pressures from inflation and commodity with design and they are turning to port- Kearney’s PERLab. shortages are heating up as demand for folio platforming as a key tool for sim- She is based in housing, electronics and consumables plifying their supply chains and building Boston and can grows across the United States. supply chain resilience. be reached at A supply chain is only as strong as Platforming is a design framework that namrata.shah@ its weakest link, so operating in a post- leverages a common set of design, engi- kearney.com. COVID world requires a comprehensive neering and operational parameters and approach to managing risk across the entire maximizes the use of modular or standard- network. Complexity is the Achilles heel ized components throughout the portfolio. of the supply chain and companies with Building off modular components accel- complex product portfolios inherently have erates innovation while enabling greater

44 Supply Chain Management Review • July/August 2021 scmr.com The OPERaTIONS ADvANTAGE

supply chain flexibility, particularly though cause—the product portfolio itself. postponement and late-stage customiza- SKU rationalization isa common tion. The goal is to enable variety where it approach for addressing portfolio com- matters (to the customer) while strategi- plexity by trimming slow-moving or mar- cally minimizing its impact on the back gin-dilutive SKUs. Unfortunately, this end (in the supply chain). A well-executed approach is frequently pursued ad hoc, platforming strategy reduces cost and risk which may leave the portfolio unbal- across the entire value chain. anced. Complexity is also like the Hydra. Chopping off the tail in one category may The cost of complexity cause it to regrow elsewhere. Finally, cut- In the pursuit of growth over the past ting out the dead wood often address- decade, companies have added new es only legacy, low-volume SKUs that products to their portfolios at record are sitting in warehouses as inventory. speeds, largely driven by strong consumer These SKUs are rarely the ones causing spending, increased consumer demand for operational challenges. personalization and an expanding number Component harmonization con- of channels for shopping. Simultaneously, solidates components that have similar many have also been slow to exit legacy specifications. However, these efforts are products, fearful of jeopardizing consumer inherently limited because once some- loyalty or losing shelf space to competitors. thing is designed in, it becomes difficult For some, this has created crippling to harmonize at later stages. complexity. For example, the line of fishing Supplier consolidation can be an effec- reels produced by a manufacturer of leisure tive sourcing strategy to improve econo- sporting goods ballooned to 10,000 retail mies of scale. However, this needs to be SKUs across hundreds of design platforms. executed carefully because over-consol- This company, like many others, heavily idation can trigger business continuity indexed on innovation to drive sales; how- risks that outweigh the benefits gained. ever, because nearly every reel was rede- Furthermore, even when done well, this signed from the ground up, each new SKU approach only fixes the symptoms of drove the rampant proliferation of materials complexity, not the cause. and components. This complexity required significant time to manage and added costs Platforming future-proofs throughout the supply chain. Furthermore, your portfolio portfolio management became increasingly Because traditional efforts to reduce cumbersome, which eventually slowed complexity fall short, a better approach down their new product development cycle. is needed. The goal should not be to eliminate complexity entirely, but Why other solutions are inadequate rather to find a way to support “smart Efforts to address complexity are often innovation” through design. Platforming superficial and may fail or only be partially allows companies to customize a wide successful because they focus on the range of items by drawing from a shared symptoms of the issue rather than the root set of thoughtfully crafted modules.

scmr.com Supply Chain Management Review • July/August 2021 45 The OPERaTIONS ADvANTAGE

Think of product design platform like Legos. The to leveraging COTS technology as part of modular blocks are standardized, but they can be platforming. This reduces upfront development configured billions of ways to create everything cost, reduces certification costs and often from a dinosaur to a life-size Bugatti. accelerates time-to-market. We worked with a personal care company that We advise engineering teams to avoid falling had thousands of caps and bottles in different into a “not invented here” mindset, which often sizes, shapes and materials, many of which were leads to spending unnecessary time reinventing off-the-shelf designs. By thoughtfully platforming commercially available technology. their packaging designs and adding digital print- • Build as you fly. A common ers to the end of the filling lines, they were able misunderstanding of the platforming approach to postpone customization of the bottles and drive is that it requires a substantial ground-up significant supply chain efficiencies, including development effort and has a very long payback. consolidating suppliers, lowering packaging costs However, when done with rigor and focus, and reducing inventory. results can be realized in months, not years. Platforming is also more than just a means to Companies should resist the urge to build support portfolio variety effectively—it’s a hedg- out the entire platform library before the launch ing strategy. Every company aspires to design a of new products. Instead, they should build customer-centric portfolio, but it’s largely impos- the platform elements needed for select prod- sible to predict the volumes of every variant and ucts, launch these products and then contin- the trends of tomorrow. By using interchangeable ue adding additional platform elements later. components with platforming, companies are Furthermore, platforming should not be lim- less likely to be locked into one design and can ited to new products. We frequently help com- instead easily reconfigure new products based on panies platform products that are out on the consumer needs. market during product refresh cycles.

The principles of platforming Strike a balance Some of the companies we work with initially Designing a balanced portfolio through believe they have platforms, but they may platforming is only half of the challenge. It’s not be fully realizing the leverage inherent in equally important to maintain discipline and true platforming. We’ve seen several enablers prevent the process from unwinding over time. that are critical to achieving true platforming Following are five key requirements to sustain success; they are as follows. the benefits of platforming. 1. Platforming mindset. The organization • Standardization. To scale platforms, must shift from a “pure product” mindset to companies need to adopt a design philosophy a platform mindset. This requires a change in that is centered on standardization. This need thinking from “we have to build...” to “how can means having standard physical and digital we use…?” This mindset starts at the most senior interfaces to enable interchangeability or executive level and should then be cascaded interoperability across products. This also means through the organization. having well-defined standards for components, 2. Governance. A cross-functional council for example, common materials, material grades, should oversee portfolio decisions and set colors, chipset architecture and ecosystems. parameters for the introduction of new products. Sometimes standardization increases costs at the The council monitors technology and component SKU level, but still yields significant benefits at proliferation, challenges the team to use existing the portfolio level. platform elements and follows a structured • Leverage commercial off-the-shelf approval process before adding new assets to (COTS) technology. There are advantages the platform library.

46 Supply Chain Management Review • July/August 2021 scmr.com The OPERaTIONS ADvANTAGE

3. Organizational adaptability. Platforming is elements or assets should be codified not just an engineering effort. It requires close in a library to facilitate reuse across the collaboration with sales, marketing and supply organization. Elements should include technical chain. The engineering team must pivot from being documentation, interface rules and even the product focused to being platform focused and they names and contact details for the module “owner.” should be keyed into business insights that will Platforming, like any other approach, involves influence design choices. This includes consumer trade-offs. A platform naturally limits choice insights from marketing, retail insights from sales because it predetermines certain variables such and supply market insights from procurement. as product components or dimensions. However, 4. Marketing buy-in. Leaders in platforming when the modules are thoughtfully designed, these have marketing teams that embrace platforming constraints can be effectively managed. A success- and leverage it to reinforce brand identity. ful platforming strategy strengthens choice for the Apple is a great example. They use common consumer while optimizing flexibility, costs and materials to create a clean, visual identity across risk for the company. The end result is a win for their portfolio. We recently worked with the the top line and the bottom line. jjj marketing team of a beauty company to platform their packaging, which included harmonizing components and moving to recycled materials **** across the portfolio. This both lowered costs and The authors would like to thank achieved sustainability goals. Alexander Bruns and Kushal Fernandes 5. Platform library. All available platform for their contributions to this article.

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AI is driving new skills in supply chain

Organizations should respond by offering employee learning opportunities.

By Marisa Brown, senior principal research lead, Supply Chain, APQC

ew and emerging technologies are changing the way supply Marisa Brown chains operate. The importance of technology on supply chains is senior N continues to increase with the many recent external changes principal affecting supply chains, such as the pandemic, supply shortages and secu- research lead, rity threats. Among the technological developments making an impact on supply chain supply chain is artificial intelligence (AI), which can help supply chains management, make more accurate predictions and thus make more informed decisions. APQC. She can be reached at AI has the potential to assist with all With many organizations seeing AI as inte- mbrown@ aspects of the supply chain, from the abil- gral in the future, businesses must consider apqc.org. ity to create self-adjusting supply chain how this technology will alter their staffing plans to enabling manufacturing opera- needs and the skills needed by their supply tions to self-optimize processes. In fact, in chain employees. After all, with better predic- research conducted by APQC, AI is among tions and recommendations will come the need the top six trends expected to make a for employees who can make smart decisions significant impact on supply chains by based on that information. 2023 (see Figure 1). APQC’s research examined the current level

FIGURE 1 Top trends anticipated to impact supply chains by 2023

Robotic process automation 13% 21% Sustainability/environment, social, 14% 18% corporate governance (ESG) factors

Blockchain 15% 17%

Digitalization of the supply chain 16% 15%

Global trade/tariff uncertainties 13% 17% Arti cial intelligence/ 13% 17% cognitive computing

Major impact Moderate impact

Source: APQC

48 Supply Chain Management Review • July/August 2021 scmr.com BENChMARKS

of AI adoption among organizations and how Currently 21% of organizations are still consid- the technology is changing the skills required of ering the adoption of AI, although this number employees. Smart companies are dedicating time seems poised to change given AI’s status as a and resources to getting their employees training top trend affecting supply chain. and development they need for reskilling. This Interestingly, these percentages do not change effort is essential to preventing skills shortages much when looking at the degree of adoption for as the supply chain field continues to evolve. specific segments of the supply chain. For logistics and warehousing, only about 39% of organiza- AI adoption tions have moved beyond the piloting stage of AI Although AI has the potential to make a technology. This indicates that organizations rec- profound impact on supply chains (and often ognize the wide-ranging applicability of this tech- does among organizations that have fully adopted nology for supply chain use, but it also means that its impact on employee skills is also wide-ranging.

FIGURE 2 Degree of AI adoption Impact on employees Many organizations believe that AI drives value Optimizing 9% through its impact on the number of employees needed for the supply chain. Of the organiza- Operating 12% tions surveyed by APQC, 46% consider a reduc- Implementing 17% tion in headcount to be a top driver for deploying

Piloting 15% AI. A similar amount, 44%, consider headcount redeployment to be a top driver. As AI takes on Evaluating 19% more tasks previously completed by employees,

Considering 21% organizations expect to be able to reduce the number of employees working in supply chain or Not considering 6% redirect their skills to other areas. However, as shown in Figure 3, organizations Source: APQC

FIGURE 3 the technology), its use is not yet 12-month change in supply chain widespread. For those using AI, it is still relatively new to their full-time equivalent employees (FTEs) everyday environment. APQC’s Change in SCM FTEs research indicates that only 13% of 25th percentile 3%

organizations using AI have been Median 6% doing so for more than two years. 75th percentile 9% A larger number have adopted the technology only recently—36% have FTEs added/hired due to AI had it in place for less than one year. 25th percentile 15% Further, about half have used AI for one year to two years. Median 28% Figure 2 shows the degree 75th percentile 45% to which supply chain organizations have adopted AI overall. FTEs eliminated/redeployed due to AI Almost half of organizations have 25th percentile 15% not yet piloted the technology. Median 25% Only 38% of organizations have 75th percentile 45% moved beyond the piloting stage. Source: APQC

scmr.com Supply Chain Management Review • July/August 2021 49 BENChMARKS

have not seen much churn in their supply chain Related to innovation and creativity is the ability employees. At the median, they have only seen a 6% to think strategically and solve complex problems. change in the number of full-time equivalent (FTE) AI can use data to predict any shifts necessary for supply chain employees over the last 12 months. manufacturing operations and planning. However, Perhaps even more interesting is the fact that, at the technology should support smart decision mak- the median, organizations are actually adding more ing and problem solving by employees. This is where FTEs as a result of AI than they are eliminating or the soft skills of employees become critically impor- redeploying. At the 25th and 75th percentiles, there is tant. Supply chain professionals must be able to no difference between the percentage of FTEs added look at evidence and make the best decision for the due to AI and the percentage of FTEs eliminated business, especially in situations in which there is or redeployed. no evident “right” answer. This is counterintuitive to the widespread expectation that the use of AI will eliminate the tasks undertaken by some supply chain employees and thereby eliminate the need FIGURE 4 for these employees altogether. Rather than Top six skills needed replacing employees, AI is changing the as a result of the implementation of AI

skills needed by supply chain professionals. Active listening 38%

New skills needed Communications (oral/written) 38%

APQC has investigated the shift in skills Creativity and innovation 38% needed among supply chain professionals. Technical skills in data science, 37% As a result of the adoption of AI, supply machine learning, and modelling

chain professionals are taking on tasks that Strategic thinking 37% require more social and deep work skills (or Analytical skills 37% those enabling workers to focus intensely with business acumen without distraction). AI and its resulting Complex problem solving 36% automation of tasks leaves the humans on staff to engage in work involving analysis Source: APQC and insight. Technology is no substitute for the relationship-building skills that support listening to stakeholders, communicating effectively Despite the overwhelming need for strategic and with business partners, innovating and thinking relationship-building skills, supply chains still need strategically about how to approach challenges. employees with more technical skill sets, such as in Figure 4 shows the top six skills organizations need data science and analysis. These skills are necessary to their supply chain employees to develop or enhance adopt, maintain and support AI within supply chain. as a result of the adoption of AI. Most of these are Other skills that more than one-third of research softer skills related to building relationships and participants want to see employees develop or solving complex problems. enhance as a result of the adoption of AI include: Communication and active listening are among complex problem solving, the ability to extract the most needed skills. Supply chain employees insights from new technology or systems, and agility must be able to discern the needs of their stakehold- and flexibility to adapt to change. ers and business partners, maintain positive relationships with partners and succinctly and clearly Invest in employee learning convey expectations to suppliers and other service As the skills needed by supply chain professionals providers. Creativity and innovation are among the working with AI continue to change, companies most important skills because of the shifting nature are investing in training and development to help of the modern supply chain. With supply chains their employees keep up. It is reassuring to see that forced to address previously unheard-of situations employees are not being left to fend for themselves and disruption, such as the global pandemic, profes- when it comes to honing the new skills and capabilities sionals must be able to identify novel solutions to needed. APQC sees that this support is true regardless keep the business running. of industry. At the median, organizations are investing

50 Supply Chain Management Review • July/August 2021 scmr.com BENChMARKS

in seven days of employee learning per employee Although AI does not deliver the reduction in to ease this transition. headcount some companies believed would come Organizations are also adjusting their learning with it, retraining prevents skills shortages and is budgets to ensure that their employees get the a smarter investment than trying to hire new indi- skills development they need. According to APQC’s viduals with the necessary skills. APQC encourages research, AI accounts for a 30% change in learning organizations to consider employee learning as part budgets at the median. of the business case for investing in AI.

Looking forward About APQC The impact of AI on the supply chain will only con- APQC helps organizations work smarter, faster tinue to increase in coming years. With 40% of orga- and with greater confidence. It is the world’s nizations currently considering or evaluating the use foremost authority in benchmarking, best prac- of AI for supply chain, there is a good chance that a tices, process and performance improvement, and company will be adopting it soon if it has not done knowledge management. APQC’s unique structure so already. The key to retaining employees who as a member-based nonprofit makes it a differenti- will thrive in future supply chain roles is to ensure ator in the marketplace. APQC partners with more that they have the right mix of skills to support this than 500 member organizations worldwide in all technology and leverage it strategically. industries. With more than 40 years of experience, Many organizations have already committed to APQC remains the world’s leader in transforming providing learning opportunities for supply chain organizations. Visit us at apqc.org and learn how professionals to develop or enhance critical skills. you can make best practices your practices. jjj

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scmr.com Supply Chain Management Review • July/August 2021 51 A SPECIAL SUPPLEMENT TO:

2021 Warehouse/DC Equipment Survey: Preparing for post-pandemic volumes In this year’s annual survey, the disruption of the past year certainly influenced some short-term trends, but respondents are optimistic going forward. Results reflect more than a bump in the road, however. Companies are deeply concerned about issues like labor availability, workload planning and tighter cycle times, prompting interest in technology and software solutions, better metrics and further automation.

BY ROBERTO MICHEL, EDITOR AT LARGE

ur “2021 Warehouse and Distribu- more orders ef ciently without adding investments than this time last year. This tion Center (DC) Equipment Sur- hard-to- nd labor, but many are coming year’s survey, conducted in January 2021, O vey” re ects the challenging times off a highly disruptive year of dealing is the rst annual equipment outlook that many DC operations face in early with COVID-19 challenges. survey that we’ve conducted since the 2021: They know they need to invest in For the short term at least, there’s pandemic spread globally—a reality that more equipment and technology to ful ll more hesitancy on moving forward with affected many industries negatively, but lead to demand spikes in others. Perhaps not surprisingly, one of the 2021 respondent demographics results of this timing is that the per- Peerless Research Group’s (PRG) (3%). The median annual revenue of centage of respondents saying they’re e-mail survey questionnaire was responding companies is $50 million, currently “holding off” on DC equip- sent to readers of sister magazines while the average is $189 million, ment and systems investments given Logistics Management and Modern compared with an average of $268 the state of the economy grew from Materials Handling in January 2021, million last year, and a median of yielding 129 qualified respondents. The $58 million. Qualified respondents— only 8% in early 2020 to 19% this year. respondents were from sites whose managers and personnel involved in The percentage of those saying they’re primary activity is corporate head- the purchase decision process for proceeding with investments also took a quarters (37%), manufacturing (29%), materials handling solutions—hold hit—dropping by 10%. warehouse/distribution (22%), and influence over an average of 111,250 However, the survey also shows opti- warehousing supporting manufacturing square feet of DC space. mism around a fairly rapid return to increased spending on materials handling

52 S C M R • J /A scmr.com A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW equipment and systems. Another top How is the present state of the economy impacting nding of this year’s survey was the your spending on materials handling equipment increased interest in spending on technologies services and solutions? information technology (IT) systems and software, including labor manage- We are taking a "wait and see" approach, and 34% making only those purchases and investments 29% ment system (LMS) software. that are critical to sustaining our ongoing business 37% In answers to multiple questions, respondents expressed concerns about 2019 15% labor availability and issues such as We are holding off on investing 8% 2020 workload planning. Respondents are 19% 2021 also placing a strong emphasis on doing more over the next two years to auto- 32% mate the gathering of data needed for We are proceeding with our investments 38% metrics such as throughput, inventory 28% accuracy and order ful llment costs. 19% In short, this latest survey re ects a The economy is having little or no impact on our materials handling spending 25% highly challenging past year with some 16% lingering near-term uncertainty. How- ever, the ndings also show that DC Source: Peerless Research Group (PRG) operators realize that without continued investment in DC systems and equip- with St. Onge, concurs that compa- Additionally, this year, 28% said ment over the next year or two, keeping nies with DC operations are consid- they’re proceeding with investments, up with ful llment expectations, while ering ways to automate, as well as which is 10% lower than last year. Those also coping with ongoing labor scarcity, ways to make people more productive taking a “wait and see” approach also will be next to impossible. via investments in areas like better climbed to 37% from 29% last year, and metrics, and other types of IT and those saying the current economy is Don’t get caught short software spending. having “little or no impact” shrunk from According to Norm Saenz, managing “The thing about investing in infor- 25% last year to 16% this year. director and partner with St. Onge, a mation technology is that it’s not neces- In terms of how spending on supply chain engineering and consult- sarily tied to a major automation project materials handling in 2020 compared ing company and our research partner, or materials handling equipment tech- with 2019, 35% said their spending companies don’t want to be caught nology,” says Derewecki. “It’s possible decreased, compared to only 11% on the back foot again with outdated to get some signi cant improvements on this question last year (2019 systems and labor-intensive methods. in existing operations without imple- compared with 2018). While there Companies feel the pressure around menting a high level of automation, and were 23% who said their spending e-commerce ful llment, and know spending a huge amount of capital.” increased during 2020, that compares that steps need to be taken—even if to 43% the previous year. they aren’t a mega-DC. Optimism going forward These ndings indicate that pan- “Everyone feels the challenges Every year, the survey asks how demic-challenged 2020 did likely act around labor availability, and the the present state of the economy to curb some DC spending trends— pressure to be more competitive is affecting spending on materials and also likely contributed to some with the Amazons of the world,” says handling equipment and related tech- lingering caution. However, the 2021 Saenz. “I think they also realize that nologies. This being the first “post survey also showed optimism around technologies are getting better and pandemic” equipment survey, it’s not increased spending on DC equipment more affordable, and many of these surprising to see some significant and systems going forward. investments will help them be more changes on spending trends. When asked how present year productive with fewer people.” This year, 19% said they’re “holding off” spending will compare to the previous Donald Derewecki, a senior consultant on investing, up from only 8% last year. year, 41% foresee increased spending,

scmr.com S C M R • J /A 53 A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW

How did your company’s spending How do you expect your company’s on materials handling solutions spending on materials handling in 2020 compare with 2019? solutions in 2021 to compare with 2020? And, by what percentage? And, by what percentage?

42% 43% 23% 37% 36% 41%

42%

54% 57% Increased 46% 46% 53%

Stayed about 35% the same

Decreased 12% 11% 9% 7% 6% 2017-2018 2018-2019 2019-2020 2018-2019 2019-2020 2020-2021 2019–2020 2019–2020 2020–2021 2020–2021 increase decrease increase decrease*

Average % 30% 39% Average % 22% 49%

Median % 20% 30% Median % 15% 50%

* 2021 results are based on a small number of cases; data are unstable and any projections based on this information may be unreliable. Figures should be used with caution.

Source: Peerless Research Group (PRG) up from 36% on this question last year. contributed to an average pre-approved investments is consistent with what Additionally, when asked how budget of $369,000. we see among our clients,” says spending will change in the next two Average anticipated spending over Derewecki. “Investment in technology years to three years, the respondents the next 12 months is $306,990, down and software can help you with issues were fairly bullish. This year, 53% said from $355,175 last year. Median like maximizing productivity, and in they expect an increase over the next anticipated spending over the next establishing good data and metrics.” two years to three years, up from 48% 12 months is $85,552, down from Saenz and Derewecki add that on this question last year, and equal $97,905 last year. among their clients, the mood is to 2019’s answer as to their long-term When asked about areas of invest- quite optimistic, with many moving spending outlook. ment over the next 12 months across forward with projects, and most Every year brings a new respondent broad categories such as new equip- every client assessing how automa- pool, so findings around respondent ment, IT and software, maintenance, tion and software can help them budgets for materials handling solutions staffing, and third-party logistics (3PL) cope with pressures around rapid fluctuate. This year, 20% have pre-ap- services, the categories on the upswing order fulfillment without having to proved annual budgets of $1 million or were IT, cited by 52% this year, com- bump up staffing levels. “Among our more, and another 20% had budgets pared to 43% last year. Additionally, clients, everyone at least wants to of between $250,000 to $999,999. 53% foresee the need to add staff this consider the automation that is out However, a combined 46% this year year, up from 40% last year. there,” says Saenz. “They’re itching have budgets of $99,999 or less, which “Prioritizing information technology to see what makes sense for them.”

54 Supply Chain Management Review • July/August 2021 scmr.com

A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW

What percent of your overall spending IT as a priority during the next 12 months will be on… Interest in increased investment in software and IT solutions is seen in 2019 40% 31% 29% multiple results from this year’s survey. When asked what percentage of overall 2020 48% 31% 21% spending will be on either materials handling equipment, information sys- 2021 41% 36% 23% tems (IS), or “other,” over the next 12 months, 41% is for equipment, 36% on Materials handling equipment Information systems Other IS, and 23% on other. Last year, this breakdown was 48% on equipment, Source: Peerless Research Group (PRG) 31% on IS, and 21% on other. When asked to break down which IS Thinking about any new purchases, subcategories they will be spending on in which of the following areas were any the rst during the next 12 months, categories deployment of a new solution, or a substantial change on the upswing this year include bar in processes or historical practices? coding and data capture (up 9% from 2020); warehouse control system (up 2019 2020 2021 51% 10%); LMS (up by 9%); and voice-di-

39% rected work solutions (up by 6%). Ware- 36% 35% 37% 31% house management system (WMS) and 27% 29% 24% warehouse execution system (WES) 16% software also increased slightly. 15% 13% In terms of interest in various types Information Outside services Systems equipment None of materials handling equipment over technology systems, (3PLs) (i.e. automated retrieval, the next 12 months, several categories applications and/or lift trucks, bins/totes, solutions conveyors, etc.) declined slightly from last year’s findings

Source: Peerless Research Group (PRG) or held steady, but a few saw growth compared to last year. Those on the upswing include rack and shelving (up Does your company currently use, or are you considering 10% versus last year); dock equipment automatic guided vehicles and/or robotics technologies (up 6%); order picking and fulfillment for materials handling applications? systems (up 3%); mezzanines (up 7%);

2019 11% 18% 71% and totes, bins and containers (up 8%). While the survey didn’t ask why these AGVs 2020 6% 14% 80% were on the upswing, some facilities

2021 6% 14% 80% may be shifting to narrow aisle layouts to create greater storage density or accommodate extra space for social dis- 2019 17% 16% 67% tancing in value-added services areas, Robotics 2020 9% 19% 72% which bodes well for interest in racks and shelving. The surge in e-commerce 2021 7% 20% 73% fulfillment work in DCs can also be seen as increasing the need for mezza- Current Do not currently use but will consider/ No plans issues plan to evaluate during the next 24 months at present time nines, as well as totes and bins. The survey also asked about which Source: Peerless Research Group (PRG) new purchases or substantial changes to

56 Supply Chain Management Review • July/August 2021 scmr.com A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW existing systems fell into one of three In total, over the next 12 months, approximately how much broad areas of investment: IT; use of do you expect to spend on materials handling equipment 3PLs; and various “system equipment” and information systems solutions? such as automated retrieval, lift truck 27% and conveyors. The big gainer here was IT, going from a 36% response last 17% 18% year, to 51% this year. 14% 9% While there was a slight decline 7% 8% for 3PL engagements under this ques- 1% tion, a separate question asking about $2.5 million $1 million- $250,000- $100,000- $50,000- $25,000- Less than investment areas over the next 12 or more 2.49 million $999,999 $499,999 $249,999 $99,999 $49,999 $25,000 months, found a 5% rise in those indi- 2019 2020 2021 cating they will use outside services (3PLs) over the coming year. Average anticipated spending $400,000 $355,175 $306,990 “Part of that forward-looking interest Median anticipated spending in using 3PLs may be tied to the rec- $82,435 $97,905 $85,552 ognition by many companies that they In which areas will you be investing over the next 12 months? need to find a way to bring distribution closer to customers,” says Derewecki. 61% New equipment/Equipment upgrades 58% “Using 3PLs allows you to accomplish 52% that virtually immediately.” Another finding in the survey that 46% Information technology hardware/software 43% ties into the healthy interest in IT and 52% software is the strong level of respondent interest in having automated 37% Maintenance services 42% processes for gathering and using met- 27% rics. This question asked if they use a manual process for certain metrics, an 53% Staf ng/labor 40% automated one, or are they currently 53% not monitoring the metric area, as well 29% as what they anticipate that process to Enterprise applications 20% be in two years. (ERP, CRM, WMS, WCS, etc.) 23% For example, today, daily throughput 2019 is monitored via automated methods 18% 2020 Outside services (3PLs) 13% by 44%, but 69% want gathering of this 2021 18% metric to be automated in two years. Likewise, order fulfillment costs are 12% Outsourcing/3PL services automated by 35% now, but in two 13% 16% years, 58% want this metric automated. Source: Peerless Research Group (PRG) Robots level out Current use and anticipated interest in including tighter controls on outside vis- robotics for materials handling applica- robotics held fairly steady, which could itors as a health precaution. tions—1% higher than those answering be considered a victory for the category Current reported use of robotics that way last year. Use of automated given the smaller size of many compa- was at 7% this year, down 2% from guided vehicles (AGVs) held steady, nies in the response base, as well as the last year’s response, though 20% this with 6% currently using and 14% con- unusual pandemic conditions of 2020 year are considering or evaluating sidering/evaluating, which are the same

scmr.com Supply Chain Management Review • July/August 2021 57 A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW

growth uses include storage, for which How important are each of these issues today? 47% are using or considering AGVs, Two years from now, how important do you compared to 33% last year, and bin expect these issues to be? picking, which rose from 11% last year % rated very important to 32% this year. 86% Safety Apart from the survey, the use of 81% robotics by many larger DC operators 77% Company growth 73% and 3PLs is growing and even becoming more mainstream. For this respondent 77% Labor availability 75% mix, interest in robotics and AGVs is at

71% least holding steady. What’s more, it may Cost containment 68% be that the market is entering a stage 57% Training in which robotics and AGVs are no lon- 61% ger novelties, but rather another set of 52% Cycle times options to be used in combination with 59% fixed automation—or with each other. 48% Throughput 55% “Some of these applications for robotics, like palletizing, have been 38% Capital availability 48% around for a long-time, and AGVs have

35% also been around a very long time, so Ergonomics 36% in that sense, robotics and AGVs are 32% Hours of service nothing new, but there is a trend toward 42% wanting greater flexibility in automated 26% Facility consolidation transport,” explains Derewecki. “There 30% Current issues is definitely strong interest in the market 24% Multi-channel ful llment 23% In 2 years in both of these categories as a way of automating various workflows. Some of Having a presence 24% in global markets 25% our clients are also combining AMRs and AGVs with other technologies to Environmentally sustainable 23% 37% create highly automated material flows.”

Trading partner collaboration 22% When it comes to mobile tech- 27% nologies, there weren’t any big shifts Smaller, more frequent orders 19% compared to last year’s findings, with 28% 53% either using or having plans for Outsourcing (3PL) 14% 18% mobile solutions, down 2% from last year. This year, 38% said they’re pro- Source: Peerless Research Group (PRG) viding more employees with mobile solutions, up from 31% last year. percentages as in 2020. and “order fulfillment, picker to part,” We also ask about current use and The survey also asked about appli- as well as palletizing. All three come 12-month plans for specific types of cations for robotics that respondents in at 38%. The palletizing role, how- mobile devices and bar code scanning are using or considering. In fact, these ever, has remained fairly steady in and printing equipment. Bar code scan- are becoming a bit more diverse, recent years, whereas use and interest ners, for example, are utilized by 55% though picking remains a top use case. in using robotics for picking has grown today, and 40% have plans to deploy For 2021, pick and place was the top more in recent years. scanners during the next 12 months. use case for robotics (54%) followed The survey also asked about AGV Similarly, voice-directed technology is by “order fulfillment, part to picker” use and applications. This year, higher used by 28%, and 22% have voice system

58 Supply Chain Management Review • July/August 2021 scmr.com Connect With Us

DDon’t miss this opportunity to reconnect in-person! f th ﬁ t v See you in Atlanta! t Visit cscmpedge.org for registration details. d A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW

What method does your organization use to gauge or evaluate productivity in each of the following areas? In two years, how do you anticipate you will be gauging or evaluating productivity in each of the following?

48% 71% 41% 75% 35% 58% 35% 54% 40% 66% 44% 69% 22% 55%

52%

50% 50% Automated 57% 49% 40% process 48% 38% 24% 30% Manually 29% measure 21% 26% 24% 26% 21% Not gauging 16% 16% 16% 12% 9% 11% 10% 3% 3% 2% 2% 5% Now In 2 Now In 2 Now In 2 Now In 2 Now In 2 Now In 2 Now In 2 years years years years years years years Inventory Inventory Order Order Picking Daily Activity-based levels accuracy ful llment cycle times accuracy throughput costing costs Source: Peerless Research Group (PRG)

plans during the next 12 months. from last year’s 54%. Thirty-five percent by 5%, but doubling to 10% in two Generally, rugged bar code scan- use a combination of internal staff and years. “Buy-online, pick up in store,” ning equipment and other devices some outsourcing, up 3% from last year, or BOPIS, is also expected to grow in can run adequately for years in a DC and 11% completely outsource it, down two years, but only by 2%. before needing replacement. As Saenz from 18% last year. The pandemic con- The survey also asked if e-commerce sees it, it’s an area which is often ditions may explain part of that decline activity will or is already prompting overlooked and not invested in often in full outsourcing of maintenance. change in where distribution and enough, given the importance of data manufacturing activities take place. capture processes to feeding ware- E-comm effects This year, 47% said e-commerce is house management and execution The survey asked about the most com- prompting more distribution functions functions, as well as other areas such mon method of fulfilling online orders in manufacturing, up slightly from 46% as labor performance metrics. today, and which method respondents last year. The steeper change was in “It’s an area that needs more atten- believe will be most common in two terms of more manufacturing in DCs, tion, because you can’t do much years. The most common practice today which 47% said is happening or has without good data and information to is “buy online, ship to customer from a happened, up 11% from last year’s 36%. inform your facility design and daily DC,” used by 44% today, and expected When asked “where does your pack- operations,” says Saenz. to be used by 47% in two years. aging and fulfillment occur,” the most Another equipment concern the sur- Other methods expected to be more common type of location is a warehouse, vey looks at annually is what role staff, commonly used in two years include used by 47% of respondents this year, vendors or other parties play in main- “buy online, ship to customer from down from 49% last year. The second taining automated materials handling store,” now used by 5%, but growing most common place is a manufacturing systems. This year, 53% said they use to 8% in two years, and “buy online, ship location, cited by 40% this year, up from internal staff for maintenance, down 1% to customer from supplier,” now utilized 32% last year. Additionally, 19% said

60 Supply Chain Management Review • July/August 2021 scmr.com A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW packaging and fulfillment take place fulfillment. At least respondents see the reliance on labor. Not only are such at a “fulfillment center,” compared to storm clouds looming, notes Saenz. investments needed for operational 20% last year, while 30% said these “I think people realize that there effectiveness, notes Derewecki, a com- processes take place in a DC, up from will be more economic rebound going pany’s ability to excel at on-time, accu- 17% last year. Finally, only 2% said forward, and that volumes will go up, rate order fulfillment is essential to cus- these processes occur in retail stores, but challenges like labor availability and tomer perceptions of quality and trust. down from 9% last year. e-commerce pressures will persist and Automating more can help ensure Pressures associated with e-com- could become even more problematic if reliable, fast order fulfillment, but so merce fulfillment, such as labor avail- another major disruption occurs,” says can smaller investments in software ability and tighter cycle times, are Saenz. “That’s why people are looking at or applications that deliver insights reflected in the survey. When asked how to use more automation, and have to managers on key metrics such as about the most important issues affect- better supply chain visibility and better on-time shipping, or “dock-to-stock” ing DCs today as well as two years metrics. They don’t want to be caught cycle times. In fact, while only 25% from now, traditional concerns such as in the same situation again, with over automate the gathering of dock-to- safety, growth, and cost containment reliance on manual processes. Most stock cycle time data today, in two still head up the list. But in terms of operations managers I know want to years, 55% want to handle this metric what rates as “very important” two automate more so that they can handle in an automated way. years from now, some other issues are more volume with fewer people.” “One of the factors that’s going to growing more rapidly. motivate more companies to improve For example, “cycle time” pressures Future-proofing on both their information systems, and are rated as important by 52% today, This annual survey also asks about their equipment and automation, is the but seen as very important by 59% two supply chain risk, and oddly, only 39% perceived quality of their product or years from now. Likewise, “smaller, said they have a plan for identifying service level,” says Derewecki. “If some- more frequent orders” gets a 9% bump and reducing risks, which is down one is happy with a service or product up in importance two years from now, from 52% last year. When those with a you provide, that person might not tell while “throughput” is up 7%, “capital program were asked “for which areas,” anyone, but the moment a customer availability” jumps by 10%, and “envi- one growing concern in 2021 was is unhappy, everyone is going to hear ronmental sustainability” gains 14%. “in-house production or operations,” about it. No one in business can ignore A separate question asks respon- up to 76% this year from 60% last quality, so in addition to needing more dents to rate the importance of various year. Other risk areas that gained in automation to contain costs and deal DC practices like continuous improve- response level include supplier risks with labor scarcity, the other big driver is ment, labor productivity measure- (up 5%) and data breaches (up 9%). ensuring high quality.” ment, and workload planning, today as The survey’s finding on capacity Saenz agrees that it’s clear the market well as two years out. Here too there levels in DCs and manufacturing sites is looking at using more automation are areas seen as growing sharply in stayed relatively steady. However, for and software, or for some operations, importance, such as workload plan- stand-alone DCs, a combined 31% of more basic improvements in areas like ning, rated as “highly important” by respondents said that their current new racking and conveyor. Not only 53% today, but by 66% of respondents capacity level was at 81% or higher, do operations managers want to avoid two years out. Likewise, labor man- indicating that these operations are in being stuck with over-reliance on management sees a 7% rise, concerns a space crunch and need to find ways ual processes when the next major dis- over same-day shipping grows by 7%, to add more capacity. ruption occurs, he explains, “even with- reverse logistics gains 7% in two years, Overall, the survey points to an out another big disruption, they know and outsourcing to 3PLs grows 12%. industry coming out of a highly disrup- they can be more effective with more Many of these areas seen as growing tive era, but it also one that’s well aware technology and automation.” jjj in importance in two years involve labor, of the need to layer in further automa- and being able to flex the distribution tion to keep up with the unrelenting Roberto Michel is an editor at large for operation to keep up with the pace of growth of e-commerce and lessen the Supply Chain Management Review

scmr.com Supply Chain Management Review • July/August 2021 61 A SPECIAL SUPPLEMENT TO:

3PLs take to a rapid clip The global pandemic has presented unprecedented challenges. Yet, third-party logistics operators have demonstrated resiliency and strength.

BY KAREN E. THUERMER, EDITOR AT LARGE

rmstrong & Associates (A&A) reports reopenings,” reports Evan Armstrong, A that the third-party logistics (3PL) A&A president. providers industry will realize an estimated While revenue rankings changed little $246 billion in gross revenues in 2021, up for the top U.S. 3PLs in 2020 compared 6.3% compared to $231.5 billion in 2020. to 2019, J.B. Hunt did move from a No. The 2020 revenues were up 8.8% over 2019. 4 position to No. 5 and was replaced by “Most of that growth in 2020 came Expeditors, which moved up from No. 5 from international and domestic trans- to No. 4. DHL Supply Chain & Global portation management, which responded Forwarding and Kuehne + Nagel retained to COVID-related demands for PPE and the top two positions for in A&A’s 2020 to restock inventories upon economic Top 50 Global 3PLs. DB Schenker moved

62 Supply Chain Management Review • July/August 2021 scmr.com A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW

U.S. 3PL market (Gross revenue/turnover, U.S. $ billions)

246.0 231.5 213.5 212.8 184.3 166.8 from a No. 4 ranking in 2019 to No. 3, 157.8 161.2 147.0 and Nippon Express slipped from No. 135.5 142.0 127.5 3 in 2019 to No. 4. (See charts.) 3PLs fared better overall in 2020 than in 2019, which registered the industry’s first decline since 2009, but A&A reports that segment 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 E growth was uneven. “Total 3PL segment net revenues Source: Armstrong & Associates [gross revenues less purchased transportation] grew 2.1% to $93.5 billion, most notably consolidation, e-com- 2021 indicates the appetite for 3PL reflecting gross margin compression merce, and digitalization as well as the M&A sector is as healthy as ever. due to a volatile carrier sourcing mar- need to be resilient and responsive. “We’ve seen big moves from Kuehne ket and transportation management Following is a look at each. + Nagel (K+N), SF Express and most re- 3PLs spending more to secure hard- cently DSV Panalpina with its acquisition to-find carrier capacity,” Armstrong Consolidation of Agility’s Global Integrated Logistics says. “The overall gross margin for all While the pandemic made for limited operations,” Bailey says. “Each added segments declined from 44% to 41%.” merger and acquisition activity, Nick scale and established or deepened geo- Numerous factors continue to Bailey, head of research for Transport graphic coverage and service offerings.” have an impact on the 3PL industry, Intelligence Ltd., observes that early Bailey attributes this to changes in

scmr.com Supply Chain Management Review • July/August 2021 63 A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW

Armstrong & Associates Top 50 U.S. 3PLs (as of April 9, 2021) 2020 Gross Logistics Revenue 2020 Rank Third-party Logistics Provider (3PL) (USD Millions)* 1 C.H. Robinson 15,490 2 XPO Logistics 12,107 3 UPS Supply Chain Solutions 11,048 4 Expeditors 10,116 5 J.B. Hunt (JBI, DCS & ICS) 9,198 6 Kuehne + Nagel (Americas) 6,789 7 DHL Supply Chain (North America) 4,415 8 Coyote Logistics 4,280 9 Transportation Insight 4,270 10 Total Quality Logistics 4,138 11 Burris Logistics 4,100 12 DSV Panalpina (Americas) 4,020 13 Ryder Supply Chain Solutions 3,774 14 Hub Group 3,646 15 Transplace 3,400 16 Penske Logistics 3,200 17 Schneider Logistics & Dedicated 2,814 18 NFI 2,631 19 DB Schenker (North America) 2,627 20 GEODIS (North America) 2,543 21 Echo Global Logistics 2,512 22 Ingram Micro Commerce & Lifecycle Services 2,300 23 Landstar 2,196 24 FedEx Logistics 2,100 24 MODE Transportation 2,100 25 CEVA Logistics (Americas) 2,000 26 Americold 1,983 27 GlobalTranz Enterprises 1,651 28 Worldwide Express/Unishippers 1,650 29 Lineage Logistics 1,645 30 BDP International 1,552 31 Werner Enterprises Dedicated & Logistics 1,527 32 Knight-Swift Transportation 1,430 33 TransGroup Global Logistics 1,300 33 Maersk Logistics (Americas) 1,300 34 Ruan 1,223 35 AIT Worldwide Logistics 1,220 36 syncreon 1,203 37 Radial 1,200 38 Universal Logistics Holdings 1,190 39 Nolan Transportation Group 1,172 40 Kerry Logistics (Americas) 1,115 41 Capstone Logistics 1,040 42 Odyssey Logistics & Technology 1,018 43 Uber Freight 1,011 44 APL Logistics (Americas) 1,010 45 Ascent Global Logistics 974 46 Crane Worldwide Logistics 916 47 OIA Global 876 48 Pilot Freight Services 874 *Revenues are company reported or Armstrong & Associates, Inc. estimates and have been converted to US$ using the average annual exchange rate in order to make non-currency related growth comparisons. Copyright © 2020 Armstrong & Associates, Inc.

64 Supply Chain Management Review • July/August 2021 scmr.com at gopenske.com. more Learn how we It’s deliverconfidence. your profits. and efficiently. toyour keep promises and you so All market quickly can products to perishable getting why It’s we’re line. your bottom dedicated they damage also your reputation, hurt Delays only not

global trade patterns, including China’s impact on global supply chains, Growth by U.S. 3PL market segment digitalization, the rapid development of technologies that increase the 2020 2020 2020 vs. 2019 1995-2020 Gross revenue Net revenue Net revenue Net revenue strategic value of supply chain oper- (U.S. $ billions) (U.S. $ billions) (YoY growth rate) CAGR ations to shippers, and the fallout of the COVID-19 pandemic. “3PLs are Value-added warehousing 47.2 35.7 -1.1% 10.2% looking to M&A to increase compe- and distribution tence and market share,” he says. International Affecting these factors are sky- transportation 58.7 24.6 11.4% 10.8% high freight rates, which are expected management to remain throughout most of 2021, Dedicated and available capital to fund deals. contract 20.7 20.0 0.3% 7.3% carriage Bailey suggests that as 3PLs looks to add geographic coverage and com- Domestic plementary services, shippers may transportation 83.0 13.2 -1.8% 10.5% management find a shifting landscape of services and potentially increased price com- TOTAL 209.3 93.5 2.1% 9.6% petition as 3PLs compete for share on key trade lanes. “Large 3PLs will also look to M&As to kickstart their digital forwarding 3PL segment net revenues offer,” Bailey adds. Case in point: (U.S. $ millions) Bollore’s acquisition of Ovrsea. $40,000 Mid-sized 3PLs may not be able to $35,000 compete on scale or provide the tech- $30,000 nology shippers’ demand, he warns. $25,000 E-commerce $20,000 McKinsey & Co. hit the nail on the $15,000 head when it said e-commerce moved $10,000 10 years ahead in just 90 days. Ac- $5,000 cording to the consulting firm, e-com- $0 merce jumped 15% to 35% during the 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 U.S. lockdown in Q1 2020. E-com- E merce continues to be the fastest growing domestic 3PL segment, with Value-added warehousing and distribution (VAWD) - asset based a compound annual growth rate of International transportation management (ITM) - non-asset based 28% since 2017, states A&A. Dedicated contract carriage (DCC) - asset based Cathy Morrow Roberson, pres- Domestic transportation management (DTM) - non-asset based ident of consulting firm Logistics Trends and Insight, emphasizes: “Today, everything coming into a Source: Armstrong & Associates warehouse needs to be processed

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Armstrong & Associates Top 50 Global 3PLs (as of April 19, 2021) 2020 Gross Logistics Revenue 2020 Rank Third-party Logistics Provider (3PL) (USD Millions)* 1 DHL Supply Chain & Global Forwarding 28,453 2 Kuehne + Nagel 25,787 3 DB Schenker 20,761 4 Nippon Express 19,347 5 DSV Panalpina 18,269 6 C.H. Robinson 15,490 7 XPO Logistics 12,107 8 Sinotrans 11,959 9 UPS Supply Chain Solutions 11,048 10 Expeditors 10,116 11 J.B. Hunt (JBI, DCS & ICS) 9,198 12 GEODIS 9,135 13 CEVA Logistics 7,400 14 Toll Group 7,260 15 CJ Logistics 7,174 16 Maersk Logistics 6,963 17 Kerry Logistics 6,867 18 DACHSER 6,591 19 Hitachi Transport System 6,346 20 GEFCO 5,365 21 Bolloré Logistics 5,265 22 Kintetsu World Express 5,003 23 Coyote Logistics 4,280 24 Transportation Insight 4,270 25 Yusen Logistics 4,248 26 Total Quality Logistics 4,138 27 Burris Logistics 4,100 28 Agility 4,018 29 Ryder Supply Chain Solutions 3,774 30 Hub Group 3,646 31 Transplace 3,400 32 SAIC Anji Logistics** 3,202 33 Penske Logistics 3,200 34 Schneider Logistics & Dedicated 2,814 35 Hellmann Worldwide Logistics 2,740 36 NFI 2,631 37 Echo Global Logistics 2,512 38 Sankyu 2,491 39 Imperial Logistics 2,334 40 Ingram Micro Commerce & Lifecycle Services 2,300 41 Apex Logistics International 2,274 42 Landstar 2,196 43 Mainfreight 2,155 44 FedEx Logistics 2,100 44 MODE Transportation 2,100 45 Groupe CAT 1,990 46 Americold 1,983 47 ID Logistics Group 1,930 48 Fiege Logistik 1,925 49 GlobalTranz Enterprises 1,651

*Revenues are company reported or Armstrong & Associates, Inc. estimates and have been converted to US$ using the average annual exchange rate in order to make non-currency related growth comparisons. **In-house logistics operations were capped at 50% for fairness. Copyright © 2021 Armstrong & Associates, Inc.

scmr.com Supply Chain Management Review • July/August 2021 67 A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW

and fulfilled fast.” She attributes this to logistics and value-added service that an ongoing headwind for VAWD 3PLs, the “Amazon effect” whereby consum- helps reduce labor requirements.” A&A maintains, is the “Amazon effect.” ers now expect same-day rather than Such a shift, Thomson notes, “3PLs are continuing to see in- two-day deliveries. “3PLs providers are has also created new customers for creased competition from Fulfillment jumping into this. It’s no longer a space legacy big box consumer packaged by Amazon (FBA), which controls 60% for UPS or Fedex,” she says. “3PLs need goods (CPG) 3PLs. “They now have of the U.S. e-commerce 3PL market,” to link every part of the supply chain.” to learn, along with their customers, says Armstrong. The result has been Just as shipments must move how to fulfill package-size shipments dramatic on warehouse worker wages fast, so must 3PLs in order to adjust and deliver them efficiently,” he says. and lease rates in key distribution loca- their business models if they want to “Consequently, 3PLs are seeing an tions. These factors are consequently compete. Roberson notes that some increase in service level agreements driving significant interest from 3PLs to 3PLs, such as SEKO, are building and and smaller order profiles.” evaluate the benefits of automation and partnering with startup tech compa- A&A observes how value-added how it can eliminate mundane tasks and nies that offer Cloud technology to warehousing and distribution (VAWD) physical job requirements. This includes help not only fulfill orders quickly, 3PLs continue to benefit from growth autonomous robotic solutions. but create last-mile options around in retail e-commerce business. “Many “With some autonomous robots cost- urban areas. “It’s an investment that VAWD 3PLs are supporting retail ing less than $500 per month to oper- has become a requirement,” she says. brands’ strategies to manage their own ate, the cost/benefit and positive return 3PLs are particularly re-engineering order fulfillment channels and avoid be- on investment are increasing 3PLs’ processes and evaluating automation to ing captive to large e-retailer platforms interest in warehouse robots to support increase productivity. “They are procur- such as Amazon,” Armstrong says. activities such as picking, put away, and ing software, such as distributive order Operationally, the growth in e-com- cycle counting,” Armstrong says. management, that allows them to offer merce has also meant an expansion in services outside their four walls,” reports multi-client warehousing/fulfillment Digitalization Bob Thomson, senior director, enVista. operations, many of which have foot- The last decade has seen an explosion of “They also continue to focus on reverse prints under 100,000 square feet. But data created around logistics operations as

68 Supply Chain Management Review • July/August 2021 scmr.com A SPECIAL SUPPLEMENT TO SUPPLY CHAIN MANAGEMENT REVIEW

sensor technology and Internet connectiv- Armstrong. “This process automates “The additional benefit we see ity have both become increasingly cheap traditional spot-market freight broker- now is spreading the demand to help and ubiquitous. As a result, 3PLs are set age sales functions and is increasing with capacity issues as well as having to undergo a shift in the short- and shipper’s use of more spot versus an additional node if the one DC medium-term that promotes greater use contract pricing.” goes down due to the pandemic,” and sharing of data captured and created. Armstrong notes how increasingly Thomson says. “Those 3PLs that can most effec- important it is for shippers to build 3PLs are also having to offer new tively expand the core of their value APIs with their top transportation delivery service types. Particularly proposition to include the capturing, management 3PLs to reduce tendering attractive for 3PLs that also operate contextualization and sharing of logistics friction and more efficiently secure warehouses is the ability to offer final- and supply chain information will be spot-market truckload capacity. “Getter mile capacity. “They’re also responding best placed to navigate the opportunities closer to 3PLs via technology is one to freight capacity more proactively to digitalization offers,” says Bailey. way to better manage your supply chain utilize spot markets,” Thomson says. Already, services available through and keep enough carrier capacity avail- Going forward industry experts the industry has seen a huge boost able to meet demand,” he says. expect more M&A activity within thanks to digitization. “The speed at In addition, sales automation for the 3PL industry. Digitalization and which digitalized services and business spot-market truckload automation is automation will only increase as the models are becoming standard in the happening in conjunction with the auto- industry becomes more competitive. industry is changing the relationship be- mation of carrier sales functions within Sourcing will become even more criti- tween 3PLs and shippers,” Bailey adds. freight brokers using intelligent capacity cal as manufacturers work to replenish “3PLs are increasingly being pushed to management systems to digitally match the low inventories that resulted during provide information alongside the physi- shippers’ loads to carriers based on the pandemic. China is expected to be cal movement of goods which empowers historical and real-time carrier capacity a factor impacting 3PLs as shippers shippers to make decisions that improve data analyzed via machine learning/ and manufacturers increasingly con- their own business processes.” artificial intelligence algorithms. sider locations in which goods can be Armstrong points out how the “This digital freight matching sourced and produced. ongoing digitalization of transaction- [DFM] capability has become a “As China’s role in global value al truckload domestic transportation competitive differentiator within the chains evolves and stages of man- management (DTM)/freight brokerage DTM segment, as DTM 3PLs look to ufacturing spread regionally, and continues at a rapid pace, as more increase the number of shipments they perhaps globally, 3PLs and shippers large shippers have built integrations manage per person per day,” Armstrong will potentially face a number of to 3PL’s transportation management says. “Ultimately, this automation will complex challenges around the timing systems (TMS) for API truckload put further pressure on freight bro- and sequencing of production stages spot-market rate quoting and automat- kerage gross margins, while it should that rely more heavily on coordinated ed load tendering and booking. improve overall profitability.” supply chain movements over larger In turn, most of the top freight bro- geographies,” comments Bailey. kers are strategically looking at ways to Takeaways Roberson recalls: “A few years ago digitalize operations while adding value Given the rapid changes occurring within Fred Smith, CEO of FedEx said on through improved carrier management, the 3PL industry, providers are increas- an earnings call, ‘gone are the days and customer and carrier experiences. ingly called upon to address such topics of traditional peak season. Expect a “About 20 3PLs have built TMS as network analysis, inventory optimi- continuous peak throughout the year. interfaces that provide these shippers zation, and packing design. In addition, It will be like waves.’” jjj instant rate quotes and the ability to they can provide network solutions to complete load tendering and book- warehousing to cover most of the domes- Karen E. Thuermer is an editor at large for ing through the system APIs,” says tic market within two-day delivery. Supply Chain Management Review

scmr.com Supply Chain Management Review • July/August 2021 69 ADVERTISEMENT EXECUTIVE INSIGHTS

Are you preparing your workforce to be ready for what’s next?

Q&A with Alan Dunn, Lead, Global Supply Chain Education, Caltech

Q: How do you see the state of opportunity for leaders and teams is to the workforce as we emerge be curious. from the tremendous shock of the pandemic? Q. What do you mean curious? A: The word disarray comes to mind. A: Given the myriad challenges, it’s Supply chains weren’t just paused. natural to feel overwhelmed. Curiosity The pandemic affected people. Lives helps keep you grounded by stripping were turned upside down, and I away the complexity. The art of believe we were given a glimpse into inquiry has greatly served scientists what is truly important. We have to and leaders alike. That requires take care of others. Organizations understanding context and some must take care of their employees savvy. For a given idea or plan, what and partners. Supply chains of has to be true? Will different personal all domains—local, global—are perspectives or data change things? stretched, assets are out of place and Leaders need to build their curiosity the orchestration is still primarily muscles. Everyone does, actually. run by operators working from home and in the field. The overall effect of Q. Can you tell me more? that strain is the inability to execute business cycles. The talent crisis has A: We work with the companies that with clarity, capacity, resilience, been exacerbated to an extent, and are on the frontier of technology and responsibility and effective decision- we have four other forces at work to engineering. They have complex, global making. Personal impact makes all be ready for. In the short term, it’s the supply chains and incredibly diverse that harder. economic restart and reallocation of talent. Through personal coaching, resources, such as positioning assets workshops and tailored learning Q: What are the most and people or reshoring to mitigate experiences, we help their teams significant opportunities risk. On the mid-term horizon, learn the art of inquiry and curiosity, for leaders? autonomous systems and analytics applying practical skills in real-world A: Before the pandemic, I would adoption is a critical thread to focus projects, and prepare them to be have told you to prepare for a on out of digitalization because it adaptive for new challenges to come. talent shortfall in supply chains. requires re-thinking transportation, When we cascade that throughout We were at the precipice of losing networks and customer interactions. an organization, there is nothing their rich institutional knowledge from a How organizations must be designed talent can’t achieve. Think of it as generation of operators who knew and run will be profound. The central building better innovators.

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Get back in the swing of regulatory compliance

Q&A with Scott C. Dunsmore, CIT, Vice President of Training & Business Development, Lion Technology

Q. As facilities return to Q: Is online training here to full strength, what should stay? Will facilities return to regulatory compliance in-person training now that professionals do to ensure businesses are re-opening? a smooth transition back to A: I expect to see a mix of both. normal operations? Online training provided flexibility A: Make sure your compliance for employees to complete training knowledge and procedures are remotely, something that was crucial all up to date with the latest over this last year. Some found that regulations. It may have felt like the they prefer the convenience and world stood still for the past year, ease of learning online. Others are but regulatory activity continued excited to get back in the classroom throughout the public health crisis. to learn in-person. Set aside some time for training to get yourself up to speed or Q: How does Lion help meet just refresh your expertise. If you demand for these different ship hazardous materials, the styles of training? transportation regulations for your A: Our instructors and subject matter shipments may have changed. The A: It depends on the facility and each experts worked non-stop this past year ORM-D designation for hazmat employee’s responsibilities. If you ship to keep our training and reference consumer commodities officially hazardous materials, US DOT requires materials up to date with changing phased-out of ground transportation training for all “hazmat employees.” If regulations and agency guidance. Lion as of January 1 and new editions of your site generates hazardous waste, delivers training in person and online international air shipping standards US EPA requires training for personnel in multiple formats—so there are are in effect for 2021. Your state under its RCRA program. options to fit any schedule, experience may have adopted new hazardous There are OSHA concerns to level or learning style. waste regulations. consider—Hazard Communication We are re-launching our in-person Before you settle into old habits, training for employees who work around workshops this summer, so professionals make sure you know how recent hazardous chemicals, HAZWOPER who prefer classroom learning and regulatory changes will affect what for emergency responders and cleanup networking with their peers can join you do. personnel—the list goes on. us live when our instructors hit the We’re all human. We forget things road. In-person or online, what’s most Q: What kind of training that we don’t deal with every day. A important is that the training you rely should managers consider refresher to re-familiarize returning on is up to date and effectively prepares for new hires or employees employees with their compliance you protect employees and keep your returning to work? responsibilities may be wise. site in compliance.

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“Why can’t I get wood pallets, and who can help?”

Q&A with Gary Sharon, Executive Vice President, Litco International, Inc.

Q: Why are we having ever get back to like it was? I doubt a difficult time finding it! More importantly, we know that new and used wooden it probably won’t be until sometime shipping pallets? in 2022 before the pallet pipeline is A: It simply comes down to supply full again. and demand. Here are two reasons why. First, many sawmills had scaled Q: What can I do now to protect back production during COVID- myself from running out of 19. Now that business has started pallets in the future? to rebound, it’s not possible for A: Now is the time to take a hard them to meet the rapid increase in look at alternatives to traditional demand. Especially with a shortage wood shipping pallets that are not of willing workers. Second, due to as dependent on hardwood and a shortage of lumber, prices have softwood boards. They may work in increased sharply. As a result, some your application. For example, our pallet makers can’t get, or afford, Engineered Molded Wood™ pallets pallet lumber. They are forced to represent an alternative to get products either reduce or stop production. safely to market. Litco’s pallets are This has created a “perfect storm” certified sustainable, available and which is causing many pallet buyers and willing to buy anything that priced less than new solid-wood, and to scramble for supply. might work for their applications. most other pallet alternatives. They They are now looking at alternatives are also tested per ASTM D-1185 Q: Is this affecting to traditional new and used wooden procedures to be as strong as solid- lead times? pallets that they would not have wood slat and nailed pallets. They are A: Yes. Pallet production lead-times seriously considered in the past. also stiffer, and have a higher impact have stretched from two weeks to resistance to lead-edge damage. four weeks in most cases, and as Q: How long will the Because they use wood chips, they high as seven weeks in some regions. shortage last? are not as subject to the drastic Pallet makers are also reluctant A: That’s hard to predict. As of this market swings as new, and recycled to take on new customers while writing, softwood lumber prices are solid-wood pallets. As a “processed struggling to service their existing beginning to retract from their peak, wood” product, they meet the customers. The outcome is that but still remain high. Hardwood prices IPPC-ISPM 15 standards for many pallet users are desperate, continue on an upward trend. Will it export shipping.

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What’s next on the logistics horizon?

Q&A with Bob Shellman, President and CEO, Odyssey Logistics & Technology

Q: What’s next on the at a distinct disadvantage. Utilizing logistics horizon? sophisticated BI tools, companies can A: As the world shows signs of turning develop digital models to assess and the corner from the global pandemic, compare trade-offs of potential changes we are only beginning to realize the to a supply chain network. This process long-term ramifications of the past empowers an organization going through year. There are several key areas where a network optimization to quickly shippers can focus their time and separate opportunities for measurable resources to limit disruption. improvement from activities that result in no real gains—or even losses. The Q: How can an organization visualization tools make it easy to select break through supply the scenarios, view possible strategies chain gridlock? and calculate outcomes. A: While there is no overnight fix for the myriad supply chain and Q: Do sustainability initiatives transportation issues that have affect profitability? surfaced in 2021, transportation A: Sustainability in the transportation providers and other entities are industry is not a new topic. Shippers, taking steps to help minimize diversity to your supply chain and 3PLS, carriers and others in the the negative impacts on their working with a logistics partner that market have been talking about own organizations and for their delivers the flexibility to ship import reduced carbon footprints, electric customers. As carriers work to cargo directly to your customers, and alternative fuel vehicles and other attract more drivers, other groups or cross dock, consolidate, or sustainability topics for decades. At are working to address other supply de-consolidate it into a wide range of Odyssey, we’ve always believed that the chain issues like seaport congestion services and locations. right strategies can increase economic and a lack of ocean shipping value for shippers and carriers, while containers for imports and exports. Q: How can data visualization simultaneously allowing everyone With ongoing congestion at larger improve performance? involved in the supply chain to become ports, inbound freight delays are A: When global supply chains better stewards of our planet. We’re the norm and costs are spiraling. In were disrupted, the shippers best helping customers build more efficient turn, intermodal yards have never positioned to weather the storm supply chains, control costs and build been more congested and over- were those who had actionable, reputations as responsible shippers the- road (OTR) trucking capacity visible data. Organizations with data who are willing to track and report is constrained. It’s important to add siloed in disparate locations were their sustainability progress.

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