Navigating the Future of Supply Chain Management

Join CXOTalk episode 824 with Ted Stank from the Supply Chain Institute and Bill Simon, former CEO of Walmart U.S., on the strategic role of supply chain planning in business.

58:18

Feb 16, 2024
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Join CXOTalk episode 824 for a compelling look at the critical role of supply chain management in today's business landscape. We bring together Ted Stank from the Supply Chain Institute and Bill Simon, former CEO of Walmart U.S., to share their expertise in areas such as the strategic role of supply chains in business, balancing efficiency and resilience, and the impact of consumer behavior on supply chain planning.

Watch this masterclass on modern supply chain strategies!

Episode Highlights

The State of Today's Supply Chains

  • Flux and Chaos: Supply chains are in a state of constant change, driven by factors such as COVID-19, changing consumer behaviors, geopolitical tensions, technological advancements, and sustainability concerns. This creates an environment of volatility, uncertainty, complexity, and ambiguity (VUCA).
  • The Diabolical Consumer: Consumers have grown accustomed to instant gratification, expecting a vast assortment of products to be available at low cost and with rapid delivery times. This puts immense pressure on supply chains to be ever more efficient and responsive, even in the face of disruption.
  • Data, Disruption, and Demand: Data plays a critical role in understanding and managing demand. However, even sophisticated AI models can struggle to predict unforeseen events and the human reactions that amplify disruption. This mismatch between instantaneous demand and the slower pace of global supply chains leads to shortages and overstock.

Challenges and Considerations when Balancing Efficiency with Resilience

  • The Slim Inventory Dilemma: Lean inventories boost efficiency in stable environments but leave supply chains vulnerable to shocks. When unforeseen disruptions occur, inventory acts as a buffer, but comes at a cost.
  • Reliance on Data: Supply chains depend on historical data to guide forecasting and decision-making. When disruptions break these patterns, data-driven models can falter.
  • The Role of AI: Though AI has the potential to analyze vast amounts of data and uncover patterns, it still requires human guidance to interpret the meaning and implications of those patterns, particularly concerning unexpected events.
  • The Efficiency vs. Flexibility Tradeoff: Companies are constantly balancing the pursuit of cost-efficiency with the need for resilience and flexibility in their supply chains. In times of stability, the scales tip towards efficiency.

Technology, Manufacturing, and Data Collaboration

  • 3D Printing: While promising for certain product categories like custom parts, 3D printing isn't yet a scalable solution to entirely replace current manufacturing and inventory models, particularly for consumer goods.
  • Regionalizing Manufacturing: Moving manufacturing closer to the point of consumption could shorten lead times and reduce vulnerability to global disruptions. However, this transformation requires significant investment and structural shifts in global trade flows.
  • Data Collaboration: Technologies like Retail Link allow sharing of data across supply chain partners, improving efficiency. However, ensuring visibility throughout the entire supply chain, particularly with smaller suppliers, remains a challenge.
  • Cybersecurity Risks: Increased data sharing across supply chain networks introduces cybersecurity vulnerabilities that companies must actively mitigate.

The Disruptive Impact of Online Retail

  • Decentralized Warehousing: The rise of e-commerce has driven a need to place inventory closer to consumers, leading to a proliferation of smaller, more localized warehouses and driving up complexity.
  • Instant Demand Visibility: Younger generations primarily shop through their phones, providing retailers with real-time demand data.
  • The Cost of Each-to-Door Delivery: Online retailing creates consumer expectations that are fundamentally at odds with the cost structure of supply chains built around bulk shipments to stores. The profitability challenges of last-mile delivery remain a significant hurdle.

Observing the Rise of Amazon

  • Skepticism to Dominance: Early on, even as Amazon experienced explosive growth, its focus on scale over short-term profitability led many, including Walmart leadership, to question its long-term viability.
  • The Omnichannel Imperative: Internal debates at Walmart centered around whether to focus on its core strength in physical retail or play catch-up in the online space. Ultimately, the recognition of shifting consumer preferences drove significant investment into Walmart.com.
  • Profitability Trade-off: While Walmart's e-commerce business has grown significantly, it has done so at the expense of overall profitability as compared to the pre-e-commerce era.

Strategic Focus

  • Balancing act: Maintain efficiency while building in the flexibility to respond to changing market conditions.
  • Streamline and simplify: Reduce supply chain complexity by focusing on core product offerings.
  • Velocity is key: Prioritize high product turnover and efficient distribution as your competitive advantage.
  • Clarity of purpose: Clearly define your company's unique value proposition and deliver on it consistently.

Technology & Leadership

  • Tech-driven strategy: Prioritize technology initiatives with senior-level support for maximum impact.
  • Catalysts for change: Empower CIOs to positively influence company culture through well-integrated technology.
  • Data-driven decisions: Use real-time data and insights to proactively manage risk and address potential disruptions (including geopolitical factors).

Values and Vision

  • Building for the future: Design adaptable supply chains that draw on past lessons but are future-oriented.
  • Consumer-driven sustainability: Create sustainable initiatives backed by demonstrable benefits for the environment, society, and your business.
  • Ethical responsibility: Ensure transparency and accountability throughout your supply chain to maintain ethical sourcing practices.
  • Supply chains as strategic asset: Invest in supply chain excellence as a fundamental pillar of your long-term business strategy.
  • Resilience in a changing world: Prepare for ongoing disruptions and maintain resilient supply chains.

Key Takeaways

  • Supply chains are the backbone of your operations. Invest strategically in strong, resilient supply chains that align with your business goals. Consider total cost and adaptability alongside efficiency as you make decisions.
  • Understand and respond to consumer demands. Continuously analyze consumer behavior and market trends to optimize supply chain planning, inventory placement, and responsiveness. Adapt your operations to meet the evolving needs of online shoppers and changing expectations.
  • Build for resilience in a dynamic world. The balance between efficiency and flexibility is crucial. Embrace technology solutions and strategic leadership to proactively manage risks, ensuring supply chain resilience in the face of disruptions and a rapidly changing landscape.

Episode Participants

Ted Stank is the Harry J. and Vivienne R. Bruce Chair of Excellence in Business in the Department of Supply Chain Management. He is also the co-executive director of the Global Supply Chain Institute. He leads the Advanced Supply Chain Collaborative, a joint initiative between UT and leading Fortune 500 partner firms to better understand innovative applications in SCM. Stank assumed the Bruce Chair following six years in various administrative positions in the Haslam College of Business, including department head for marketing and logistics, associate dean for academic programs and associate dean of the Center for Executive Education.

Bill Simon was President and CEO of Walmart U.S. from 2010 to 2014. When he joined the company in 2006, he led the team that created and launched Walmart’s $4 prescription drug program. In 2007, Bill was named COO for Walmart U.S and held that position until he was appointed President and CEO. As CEO, Bill was responsible for over $280 Billion in revenue and1.2 million associates. Additionally, he has been a major driver in the resurgence of US manufacturing. He developed and led Walmart’s initiative to buy $250 billion in US manufactured products. A passionate supporter of veterans, Bill was instrumental in the company’s pledge to hire any returning veteran.

Michael Krigsman is an industry analyst and publisher of CXOTalk. For three decades, he has advised enterprise technology companies on market messaging and positioning strategy. He has written over 1,000 blogs on leadership and digital transformation and created almost 1,000 video interviews with the world’s top business leaders on these topics. His work has been referenced in the media over 1,000 times and in over 50 books. He has presented and moderated panels at numerous industry events around the world.

Transcript

Michael Krigsman: Welcome to episode 824 of CXOTalk. We're discussing supply chains with two world experts. Ted Stank is co-executive director of the Global Supply Chain Institute, and Bill Simon is the former CEO of Walmart USA. Ted, tell us about the Global Supply Chain Institute at the University of Tennessee. And tell us about your work.

Ted Stank: Global Supply Chain Institute is a unit of our Department of Supply Chain Management. It's really the part that deals with all of our industry outreach. We have about 80 partners, 80 industry partners. and we do everything from executive MBA programs with them, certification program. So a lot of education. I help, help running facilitate all those different outreach arms.

Michael Krigsman: Bill, you were a former CEO of Walmart US and have a long history and supply chains. And so tell us about that.

Bill Simon: Walmart really masquerades as a retailer, but they're a supply chain that has to sell stuff to flush out the end, the end of the, the end of the chain. And the reason that Walmart has the competitive advantage that it has is their ability to purchase and move product. And that is, the the secret sauce.

It's their skill, the cost it in the speed at which they're able to move products is really the secret to, to the leverage in the pricing that they're able to deliver.

Michael Krigsman: Ted, I think a great place to start is can you tell us about the state of supply chains today? There's there's so much going on and it affects every one of us.

Ted Stank: I would say one word that comes to mind is flux. We are in a state of flux. I think that most of this decade we're going to be figuring out what a new normal is going to look like, if that ever happens. And we're maybe, at best, midstream through that. Of course, Covid accelerated a lot of trends that were already happening, from digitalization and automation to demographic changes.

Something we need to talk about today is availability of labor in industrial markets. governments are changing. And compliance laws and sustainability geopolitically. I think we're having, a restructuring of what geopolitics looks like. And so, all that impact supply chains. I think we got kind of complacent thinking that the way things were structured for about 30 years, we could deal with little wrinkles.

But hey, this is the way things were always going to stay. And I think now all bets are off. Things have changed a lot.

Bill Simon: I think it's really interesting to to look over the last, say, 20 years, 30 years supply chains have been honed to like a razor's edge from an efficiency standpoint. If you think about it, that's what you know, Walmart. That's what we prided ourselves on. And then you get this external disruption from, you know, pesky consumers. Like during Covid.

I remember going on CNBC at the beginning of Covid when there was just talk about toilet paper shortages. Yeah. Like there's no going to be no toilet paper shortage. It's the most predictable product ever. Right. Like there's no seasonality to it. There's no time of year or occasion. That peak requires people to buy more toilet paper. Except people don't listen to that.

And they bought more toilet paper. And the supply chain had been honed as such a razor's edge from a just in time manufacturing to ship and everything like that. And when customers bought 2 or 3 times more than they were supposed to buy, the whole supply chain dried up. And you know what? That's one of the things that I think that we we've got to understand about, you know, rebuilding or building the supply chain in the future is how do you deal with, you know, the balance between efficiency and flexibility.

Ted Stank: When we're having shortages like we had during Covid, then everybody talks about. Yeah, resilience. Flexibility. That's what we have to focus on. We need to move our supply chains away from this total focus on cost. And then things normalize. And we start looking at income statements and balance sheets and reports to shareholders. And suddenly cost becomes king again.

And is it, you know, do we doom ourselves to this continual loop of, well, now we're going to get razor thin again and really efficient until the next major disruption comes along. And then we talk about resilience and flexibility. Again.

Bill Simon: I think you got to look at the end-to-end supply chain, and you can find space right in it in a lot of it for me is is in the manufacturing side. Ted is like, if I think we've got to get back to manufacturing closer to the point of consumption, when you when you've got, you know, you know, massive on the water times in your supply chain, you you literally have no flexibility.

Yeah. You have no ability to move product more quickly because of the, of the limitation. And we saw it in containers or in, you know, you know, when it was in containers, it was over the road. And then, you know, the ships were backed up in, you know, Long Beach and, and so if, if the product was made closer to the point of consumption and I don't just mean domestic U.S. manufacturing, I mean globally, right.

I think it's better for global supply chains. And by the way, global economies, it's if products are manufactured closer together where they're.

Ted Stank: Totally worth it. But wait a second, though, Bill, Covid was a 100 year thing. Nothing like that could happen again. And then you sit down and you read news about like, who thi rebels. I would love to be sitting with you in a bar right now to say, you know, Bill, two years ago, if I told you that that global supply chain was going to be disrupted by Houthi rebels, what would you probably say?

Have you been watching Star Wars? You know, and then on the other side of the world, we have a, you know, a forever drought in Panama disrupting the other major choke point in global supply chain. So, it's just here to stay. Disruptions are here.

Bill Simon: I think it's chaos, you know, driven by a whole lot of things, other geopolitical issues. But you're the emergence and consumer, you know, really solid middle class consumers in other parts of the world. You know, for for a long time it was us in Europe that was just sort of struggling. But now, you know, you have a really booming consumer in China and in other parts of Asia and in it even in some markets in Africa and in South America, where so there's demand all around the world, it's not just how do we feed the U.S. and Western Europe.

Ted Stank: To put a bow around that? Then it's about chaos. I mean, I think that's the state of supply chains today, and I don't think that's going to change. I think that's the world we live in.

Michael Krigsman: So, when you describe this as being chaos, can you elaborate on what you mean by that? And at the same time, can you both weave in this psychological aspect of understanding consumers and the impact that consumer expectation chains have, and the assumptions that supply chain supply chain planners make when it comes to consumer psychology?

Ted Stank: We have a colleague of mine named Tom Goldsby talks about the diabolical consumer because over the last 30 years, Walmart's contributed to this greatly. We have become accustomed to going close by where we live, or maybe to our doors to get anything we want in a really short period of time for a pretty good price. And, you know, I was almost entertained in some of the conversations during Covid when we were getting enraged about not being able to get certain products for a couple of months.

And, you know, I'm a boomer. So, I remember the 60s and, you know, our parents would have if we had parachuted them down into Covid, they'd been like, well, what's different than the way we bought appliances or cars or anything in the 60s? We always had to wait for them, and now we're used to getting everything instantaneously with lots of assortment.

And I think that that consumer mentality drives all the decisions that we make in terms of how much inventory we carry, where do we need to go to source products? Bill was talking about needing to go to a more regional approach. We extended our supply chains around the globe in order to find those efficiencies and be able to give consumers what they want for a relatively low cost.

And we're dealing with the upshot of that, because if you ask any military person, we don't want to deal with global supply chains, right? We want to deal with something that's shorter, but that's what we've been dealing with. And when you have that, you make yourself totally susceptible to disruption. We call the chaos the cool term. Now it is a VUCA.

We live in a VUCA world, which is I'm going to I had to write it down because I can never remember. Volatile, uncertain, complex and ambiguous. It's actually it's actually a military term for planners.

Bill Simon: I work with a lot of companies now, and to watch the way that they struggled to understand demand, over the last say, you know, 36 months when there were shortages, they, they, you know, coming out the Covid, there was a big boom. And so all their product got, you know, eaten up and there were shortages. And so everybody said, well, life is great.

And they ordered massive amounts of product. And then, you know, you saw the reports from Walmart and Target a couple of years ago with, you know, with them missing their inventory targets by I forget what the number was at Walmart. It was like $2 billion. No, but $2 billion worth of inventory for years. I mean, like picture it in your brain.

Yeah. Because without some predictability on the demand side, you're just chasing product all over the place. And that adds so much more of the chaos and volatility that Ted was talking about, that the supply chain as the consumer reacting to external stimulus, you know, the political issues or pandemics or whatever it might be, even and that was and I think in that case, caused by some of the stimulus money, and then companies have to react, which puts pressure and chaos into the supply chain.

And on and on it goes. And then after that, there was a rebound effect as they liquidated the inventory. And then it's things slowed down again. And it's just now starting to reach some kind of, I won't say normal but a little bit more predictable demand cycle.

Ted Stank: Yeah. I mean, if you think of it all as this big system. Right. And the thing about what Bill was talking about is consumers can respond to stimuli like that. Right? I read it in the newspaper. I see it on TV. I'm going to go out and buy. Maybe I'm going to buy more toilet paper because I might be locked in my house for a few weeks.

But supply chains, particularly because we're working with global supply chains that have to ship for weeks on the water, are working with with weeks and months. And so you have this relatively slow system of supply trying to stay in tune with this instantaneous demand. And of course, there's going to be gaps and so what do we do?

We build $2 billion of inventory to try to predict what they're going to want. I'm on this soapbox lately about one of the best things we could do in business and in supply chain is improve planning. We have all kinds of new tools and data available, but we don't necessarily use them. And we still use old planning systems that look historically at at historical 

And we need to get more responsive to what's really happening.

Michael Krigsman: We have a question from Twitter, from Arsalan Khan, who asks, what is the importance of the data collection in supply chains? How can we make supply chains efficient by reducing the data, collecting not replicating data, and using AI?

Bill Simon: Walmart's the king of data, right? Like they have their their data collection is, I think, unparalleled. Like they get they there's 150 million Americans a week. They go into Walmart stores and they're buying habits are collected on everything from credit cards to cameras to the the point of sale system. And so there's a so much historical data which gives should give you the ability to predict, predict demand.

And for the most part, they're very, very good at it. And the the question mentions efficiency of supply chain. And the more efficient you get in a supply chain, as Ted and I were talking about, the more susceptible you are to changes in the data pattern. And so the more you rely on data, the the better and more efficient you are, but the more susceptible you are.

And I, I think AI is interesting. I don't know exactly what, what and where it can play in the predictability of the data, but, I'm pretty sure that an AI model wouldn't have foreseen Covid and the reaction to Covid that we took, because you might I might be able to foretell, a 100 year pandemic. I don't know, maybe they can, but I doubt that they could predict the reaction that a governor in a particular state would have had, you know, one state that shut down and another one that didn't and, oh, that affects the supply chains and the the flow of product to and so I think you got to understand that deal with the scientific data piece of it. But you also have to understand the human nature that goes with demand and, and, and the behaviors of people who are implementing the supply chain.

Michael Krigsman: Please subscribe to the CXOTalk newsletter, subscribe to our YouTube channel. Check out cxotalk.com. We have amazing shows coming up. Ted, would it be accurate to say that the combination of slim inventories and therefore the lack of resilience in the case of some type of shock, combined with this reliance on data, really is what sets us up for serious problems and disruptions anytime.

As Bill says, there's an interruption to the pattern of data. In other words, if things happen differently than we anticipate, the supply chains are screwed.

Ted Stank: I agree with that. There's an interesting dichotomy of inventory and information. and speed really, inventory. We hold inventory because we can't respond quickly because our supply chains are extended. So we all have inventory to kind of be that buffer between what's happening in the real world of demand and how long it takes us to resupply. If we could speed cycle times, we could be much more accurate and more responsive to demand until we get, you know, beam me up, Scotty.

We're probably not going to be able to get rid of inventory, but if we could get quicker supply chains, we could respond more quickly to demand and then lessened our our exposure to disruption and lessened our inventory that we have to carry and all those good things. But think about why we don't have quick supply chains. It's because we have outsourced all of our manufacturing to a country.

What is it, 8000 miles away? 10,000 miles away? yeah. You know, so. And then so that adds time to our supply chains. The fact that we have to get things here, mainly by ocean carrier, adds things to supply chains. We have disruptions that happen at sea. And so we had these long times. I am less negative about the potential of AI to help us with some of this than Bill might be.

I have two children who are data scientists to, kids that are data scientists, and they tell me all the time, all AI is is a super powerful regression tool that can capture massive amounts of data, look through it in real time, almost, and find patterns. But then to Bill's point, we have to tell it what those patterns mean.

And that sometimes can be a real challenge. The other point to our listeners question about data is just like everything else in the world, AI or any other type of powerful analytical tool we use is only as smart as the data we give it in almost every single IT supply chain IT project that I've worked on, has been limited.

First of all, by getting good data and being able to marry data from across the supply chain. Walmart, I will say, is one company that is able to do that because of the the channel power that they have, and they have really good connectivity with suppliers. But even for Walmart, they deal with, I don't know, hundreds of thousands of vendors that can't all give you the data that you need to have that visibility and transparency.

Bill Simon: We're really good at managing disruptions in the supply chain. We can predict.

Ted Stank: That we expect right.

Bill Simon: Now, like we every year there's a massive winter snowstorm. and, you know, Walmart's distribution system is able to shut down one route and reestablish another route. And, you know, when hurricane hits, you know, a city or New Orleans like Katrina, did you know that supply chain and those stores are out. But the system can flex and adjust with secondary routes to, to provide to provide product.

It's when, you know, like we've had in the last two years, three years since 2020, these global issues that, you know, Covid shut down the world. There was no alternative supply chain, right, for that because everybody was shut down. And, you know, as that sort of happens with with demand, global demand, not just regional demand, like where we had in the 60s and 70s, it becomes harder to to to Regier.

And I think we're going to be constantly dealing with this. And Ted, you mentioned it earlier, this efficiency and cost effectiveness versus versus flexibility. And, and companies will make their decisions based on what they determined to be the most profitable at a particular time. And at the time, it made sense to build 2 billion in inventory, didn't turn out to be the right decision.

And so now they pulled it out again and I think that's just going to be, you know, driven by the companies and their shareholders, demands.

Ted Stank: Yeah, 100%, you know, from the time frame from around 2015, for the next few years, I sat in on several companies, risk management, scenario planning. And one of the things that was always in a high likelihood of occurring was a regional pandemic. And we'd had that several times in this millennia, right? That, you know, that the bird flu in China and swine flu and stuff like that, but none of none of us said a global pandemic that was going to shut the whole world down.

It was all regional. And if you have it regionally, then you can shift around, right?

Bill Simon: The pandemic is it occurred, you know, if you go back to the 1918 flu, the world didn't shut down because we didn't have the, you know, the same leaders and the same ability to understand what was happening across the world. The markets. And it just sort of made its way around the world. And, there were alternate supply chains in that case.

But this one, the leaders that were in place made the decisions that they made all across the world and literally closed. Yeah. Well, that's tough for an a, an AI model or any model to forecast.

Ted Stank: Maybe we're victims of our own real time information. In that case,

Michael Krigsman: We have, another question from Twitter, from Chris Peterson, who wants to know what about using, technology such as 3D printing and other on, say, manufacturing technologies to bring that manufacturing closer to the point of consumption.

Ted Stank: In certain product lines in certain industries, 3D printing is going to, is going to really revolutionize our concept of planning and inventory management, because that truly is the beam me up, Scotty. technology, right? We don't have to have anything here right now. I can come in as a customer and say, I want this, and you can make it for me in real time.

We've seen it with music and books. Right. When's the last time you went into a bookstore? And Amazon started as a, first of all, as, digital bookstore? Bookstore, and then as a digital music provider? I still struggle that that in my lifetime, or maybe even younger people's lifetime than me, that we're going to see that for a mass merchant, like a Walmart that carries so many products.

I mean, the investment in 3D printing would have to be so massive to be able to meet it. But I do think in certain product lines that it's a very viable technology. They're using it in manufacturing for internal engine parts right now. I know that in aircraft, some structural not outside structural, but interior to the, you know, the passenger cabin structural components, they're using 3D printing.

Bill Simon: Not the 737 doors, though. Right.

Ted Stank: I hope that the bolts on the 737 doors anyway.

Bill Simon: Yeah. No, we you know, we started messing around with 3D printing at Walmart 15 years ago. Like, you know, when they when all they could do is make a chess piece. And it took like 24 hours. Right. And I think that in certain product categories to your point to people are going to have little 3D printers at their home.

Yeah. You know, you're going to buy the CADCAM drawing or the digital version of a coffee cup instead of going and buying the coffee cup. But I think in organic materials like food and other products, I think we're a long, long, long way from that. But I think it's going to be a piece of it. I don't know that it'll completely take it over.

Michael Krigsman: Can we go back to this issue of the data? Can you talk about collaborate in among supply chain partners and the role of data serving as the the glue to raise the visibility of supply chains? globally, Walmart's.

Bill Simon: You know, retail system. allows provides access to key suppliers to their database. So, you know, their system is what's called retail link. And you, you know, the vendors are suppliers like Procter and Gamble would go in there and into retail link and keep track of their product and order it in order to ship to Walmart, because it was in everybody's best interest not to have excess inventory in the system, to have the supply chain be as efficient as possible.

You know, the manufacturer of Procter in this case didn't want to have wanted to have their plants running. You know, as efficiently as possible. you know, they could plan the, the truck routes and the product arrival, the distribution center and then the, you know, Walmart's ability to sort it. And so the sharing of data, all the way end to end, has been going on since, gosh, since the, the 80s.

And the the more you do that, the more efficient things are, but the less flexibility you have on everything because everybody runs their supply chains all the way to the to the lowest cost option. And that doesn't provide flexibility. So there's no excess manufacturing capacity in Proctor's supply chain for surges that are not predicted because they've combed everything through, because they're trying to make as much money as they can, as is the, you know, the over the road carriers and so is so is the retailer.

And so it is that same double-edged sword that we're talking about. You can you can share data. And that's the way to become the most efficient way that you can. But the more you share data, the more likely that you're going to have no less flexibility in the system.

Ted Stank: I'm going to add a couple of other challenges to it, and it is all about data, right? It's about visibility and transparency. And companies have been spending lots of money on information control towers that cross you know, across different entities in the supply chain. But the challenge is so Walmart and Procter and Gamble can exchange data. But what about Proctor and Gamble's suppliers, somewhere in the hinterlands of central China.

And that's another lesson we learned in Covid is that we could we could harden our relationships with our tier one suppliers, but ultimately they were buying stuff from somebody, somewhere that was shut down. And we don't have really good visibility. Those tend to be smaller companies without sophisticated data capabilities. And unless we're able to really get to the source, then at some point we are still going to have challenges, particularly in the transportation realm, a lot of the companies that we're using, small trucking companies, for example, don't have that sophistication.

And then the other challenge I'll bring up about data, which I think is increasingly important, is the more that we link across the supply chain with data, the more we subject ourselves to bad actors. And so cybersecurity becomes really, really important as we try to link up across all these different entities in the supply chain that are probably global players and may not have the same data security that that some bigger companies have.

Bill Simon: We've had more data than we know what known what to do with for a number of years. You know, we used to call it there was always these I can't tell you how many meetings I sat in where the topic was big data, like what? You know, that was the buzzword for a while. And now we're now we're into AI and nobody really knows knew what to do with big data AI.

We all talked about it and knew we should be doing something with it. Yeah, and now it's AI. And I don't know that anybody's really sure what it is or what it can do. but we're talking about it and that's and that's kind of I think the progression that we're going in, there's way more data than our, our simple minds have the ability to deal with.

Ted Stank: In finding that information, finding the nuggets in that data is, is, is really the key. But Bill, I do have to give you credit. I mean, one of the cool things that Walmart has done in, in perishables, for example, is use blockchain. And that's a we could spend another couple of hours, Michael, talking about whether that's good or bad or not.

But in perishables, Walmart has set up a network with some of their all the way out to their farmers so that they can identify sources of breakouts of, of botulism or whatever the problem was with romaine lettuce and I think the first time it happened to Walmart, it took them a matter of weeks to find out where the source was.

And after they set up their network with blockchain enabled information, they were able to identify the farm that caused the problem, I think within minutes, which is really impressive.

Bill Simon: Yeah, the system is incredible. You know, I guess if you get sued enough, you can do anything.

Michael Krigsman: What about the shift to online retailing? How has that changed supply chain?

Ted Stank: For one thing, it's made us push inventory a lot. You know, back back when I started in there, I've been doing this for 34 years. Back when I started, the name of the game in warehousing and distribution was centralizing because if we centralized, we could cover a lot more demand areas with a lot less inventory. today we've gone exactly reverse, largely because of online, online buying and e-commerce that we've had to push inventory closer and closer to customers so that we can get it to them in the time frame a customer expects to get it delivered to their house. So that has caused a lot more uncertainty, a lot more chance for disruption, etc. because we've added all these different inventory holding points. The good thing it's done is, I mean, you talk to if I go out and talk to my undergraduate classes and I ask them where they buy from, they all hold this up right?

And Bill and I might still order from our laptops or maybe even telephone or maybe even get a car and go by. But, you know, gen next gen wise, not Gen X, but Gen Z they order from their phones. And what that makes is real time demand data instantaneously available.

Bill Simon: I think it's been really interesting to watch as as I had a front row seat to the emergence of Amazon and we would say they don't make any money. No, I mean, this can't last. You know, they were, you know, a billion in sales. And you know, we look at they look at them, they grew at 70%.

And we looked at it again and they go, well now they're 5 billion in sales. But they don't make any money. And now they're I don't know, like I don't even know $700 billion. They still don't make any money at retail and they're still growing. And they've fundamentally changed the dynamic in and and it's all about a distribution model.

And you know, we've built in this country a distribution system that's based on the retail network, the interstate highways and the rail systems that we have, designed to bring, you know, pallets in cases to retail outlets. And now the customer's demanding each is to their door. And that's not what the whole system's set up for. and it's it.

And if you really think about it, it's not possible to send a box of Cheerios to somebody's house as efficiently as it would be to send a tractor trailer loaded Cheerios to a retail outlet. Yeah. And so you've got to have to redesign the whole system and the whole, you know, consumer demand model is driving it now, the consumers demanding Cheerios at their house from Amazon at the same price that they can get it at the Supercenter a mile away.

And that expectation is that's being created by the delivery, in in some cases, this is just never going to be able to be achieved in a box of Cheerios. There might be $0.70 where at the margin or, you know, even if you're buying it, it scale. Right. And so how do you get $0.70 a margin and to take a box of Cheerios and put it in another box and drop those little styrofoam popcorn things in it, and then have a person drive it to my house, never mind walk to your door.

Like the math? Just never adds up.

Michael Krigsman: Bill, I have to ask, what was it like being CEO of Walmart US and observing Amazon as you were describing?

Bill Simon: It's fascinating. We have a million internal debates about it, right? You know, the even today, even after the pandemic, the the percentage of retail done, online in the U.S. is mid-teens, 14%, 15%. That means there's 85% that still done physical retail. One school of thought was, let's just get a bigger share of the 85%, because we're good at that.

It's it's kind of where we play. The the other argument was, well, the trend and young people to Ted's point are moving digital. If we don't go into that business, you know, how are we going to compete 40 years from now? Or never mind that, ten years from now. And so that's that was the internal debate as you sat there and watched it and, you know, kind of watched it play out.

And Walmart's done a good job. many companies have. But Walmart particularly has done a good job trying to deliver both. Walmart.com has kind of emerged as a pretty solid competitor to Amazon, you know, but if you really look at it, to be quite honest with you, in the year I left when, e-commerce was a much smaller percentage of Walmart's business, they made Walmart made $29 billion in operating income.

And the more they invest in e-commerce, the less money they can. Today, they make about $23 billion. so they they've never, never come close to that number. The more they invest in it, the profitability dynamic is completely different.

Ted Stank: Bill, I remember you saying to me one time in one of our jobs that we did together was, you know, if you found out that you were losing money on a particular product, the best thing you could do is introduce them to your competitor. Yeah, let them lose money. Yeah. I think.

Bill Simon: Yeah. Exactly.

Right. I mean, obviously that has scale issues. You were kidding about that. But.

Well, I think the question is, do you want to go out of business fast or do you want to go out of business. Yeah, yeah. And so, you know, you go out of business fast by letting the competitor have the business, or you can go out of business slowly by by being competitive and trying to manage that.

Ted Stank: I'll tell you, one of the things I've thought that Walmart has done brilliantly is buy online pickup in store. I really enjoy that experience. it's streamlined, fast, easy, especially for big product, bigger products. It's, I think that's been one of the real big, ahas that Walmart's had in the last ten years is we can play in e-commerce without having to deliver to your door, make you still pay for the last mile, but make it really easy on you because there's Walmart's everywhere, right?

Bill Simon: I think in retail going forward, the winners are going to be the people who are able to deliver the best of both of those worlds. The digital world, in the physical world, physical world has you know, its roots in immediacy and sensory. Right. Like I want it now and like now and I and I want to touch it or feel the material or smell the fruit and make sure it's smells right.

And then, you know, there's nothing, nothing like the search capability digitally. Like if you can pick up your phone and find, you know, Elmer's glue in 15 seconds. But, I mean, I spent ten years in super centers, and if you told me to go find the Elmer's glue, yeah, I wouldn't really know where to look. It might be in crafts, it might be in stationery, might be at the checkout on the front end somewhere.

I don't know, it's probably in 3 or 4 different places, but it'd be it'd be hard to find it. It'd take 15 minutes. And so you can figure out how to deliver the best of both of those things. I think you win.

Michael Krigsman: How should businesses then approach managing these competing goals of trying to simplify their supply chains, reduce the cost, but at the same time be extremely efficient and fast?

Ted Stank: I think you hit on a really key word by calling that simplification. I know that consumer is key and customers are key, but I can't tell you how many analyzes I've done with companies, particularly consumer goods companies that have just an absurd number of different stock keeping units in any given particular product line. And you look at the sales of those and you know, well, this product sold once last year to a consumer in Texas.

So, we need to be fully stocked at all 4800 Walmart stores with safety stock of that product. And again, I keep I keep harkening back to Covid. We it was such a learning laboratory in so many ways. The companies that did really well, I've worked with some companies that are 120 year old companies and had their best financial years in their history in 2021, in 2022.

And one of the reasons was because the supply chain had the strength during this crisis to be able to say, no, we're not going to make all these hundreds of products that nobody's buying. We're going to stick to the volume products that everybody's buying, and we have good margin. Not and I'm not saying get rid of all kinds of, you know, innovation in products, but I think that I'm going to say something really bad here, Bill, so attack me on it.

I think that we have gone to an absurd level of marketing and consumer focus, and that marketing drives the bus and so many of these decisions, and that unless and until marketers get responsibility for end to end total costs and inventory, they're going to keep saying, let's just keep rolling out products like crazy. By the way, I started my career in marketing and sales.

I can say this, until we get some discipline there, we're going to continue to create these super complex systems that the supply chain we're going to lose money at.

Bill Simon: Yeah, I agree, Ted, 100%. You know, one of the reasons that many companies are more profitable today than they were, prior to the pandemic isn't because they're greedy corporations, it's because they limited their SKUs. I saw that in restaurants that I work with and limited their menus and changed the menus and stop, stop promoting the level that they were promoting at, you know, reduced SKUs in stores because the key to profitability is velocity, and velocity is simplicity.

And so if you want to know what works at Walmart, you don't. If you're a supplier and you bring a product in and it doesn't hit a turn rate that that that is accretive to the business, you're out. You know, the whole key to Walmart is you build a footprint. And this is any supply chain. You build a footprint and then you force as much velocity through that footprint as you possibly can, because every extra case you move through your system is averaged rock.

It comes at its marginal cost. It's not total cost because it's just already in place. If you can move velocity, nobody somebody who's somebody who's got to build a supply chain can't ever compete with somebody who already has one. And so if you could just increase your turns by making it more efficient, you'll, you'll, you'll be successful. And by the way, I think that's what also gives you supply chain flexibility.

Because you don't have you don't have as many, you know, you know diet cherry whatever. Yeah. You know Cokes in the system. You just got coke and and you probably get 80, 90% of your business or you probably end up with 100% of your business anyway. because nobody would know that there was ever a cherry.

Ted Stank: Diet my wife will sometimes send me to, a mass merchant, retailer to find hair care products. And I get to that aisle and the number of choices, obviously, you can tell it. I don't often shop in the hair care aisle. And when I do it just blows me away. It's like, how could you possibly have all these different options and choices?

And it's just crazy.

Michael Krigsman: But Bill, aren't you then fighting the psychology of consumer demand and consumer expectations because consumers want to go in and see a hundred redundant products on the shelves for whatever psychological basis there exists for that. But that's what people want. And it appears.

Bill Simon: I think as a business, you gotta know what you want to be, what you're famous for, and then and then deliver it it. You know, there are businesses that thrive on variety. there are businesses who are famous for premium, like Tiffany's, you know, or Nordstrom's is it is a retailer. and then there's businesses that are driven by price like Walmart and prices scale.

And so you can have, you know, Walmart has a broad assortment. There's, you know, 300,000 SKUs in a supercenter. but did they have everything they built? if I bring you everything, I can't bring it to you at the cost that I. That I'm famous for it. And, you know, we've tried to, you know, manipulate that many times at Walmart, you know, adding SKUs, when you get a short term lift, but you don't get the throughput and the that you that you need in order to be profitable, or, you know, to, to be accretive, you're profitable and we try to reduce SKUs to the point where, you know, you just give them, you know, the 8020 rule. And that doesn't really work either. But you got to know what you're famous for and you got to be able to deliver it. And there are businesses that can thrive. based on variety. And I would always tell people, yeah, if you want to, if you want to be a hardware store in the same plaza as Walmart selling hammers, you're going to lose because Walmart got 20 hammers and they're all the lowest price hammer you're ever going to come up with.

But if you want to compete with Walmart and show people how to build, a fence or, you know, a shed or do the woodworking or replace their plumbing, you're going to you're going to really thrive. And then maybe you can sell a hammer, or two at a price and be famous for service. That's not Walmart's game.

Some businesses can thrive on delivering service. And I think that's really what it is. What do you want to be famous for and what does the customer expect from.

Michael Krigsman: Arsalan Khan comes back and he says as more and more aspects of business move towards tech to technology, do you think that executives need to be tech savvy, or is it just the CIO's job, and can a CIO really change supply chain or have an impact on company culture?

Ted Stank: I think senior executives need to know what they don't know. And you can't know everything. I mean, the scope of business just grows on a daily basis of what you need to know and have expertise. And and you can't know it all. So you have to know what you don't know and then have trusted people in place that tell you what you need to know to make good decisions.

I do think CIOs can impact culture. I think increasingly technology is is expanded across all areas of the business. And, it can't be a stand alone. It needs to be integrated with the business. I think most decisions need to be business decisions. And then the information group needs to execute on those decisions and not drive the decisions.

Seen too many bad decisions driven by it because this is the best platform and then nobody knows how to use it or it's not the right use. So that's my quick answer on that.

Bill Simon: I think technology is becoming a given, you know, used to be a thing and now it's just, you know, part of your daily life. And, does the CIA know? Yeah, I see it. CEO needs to be tech savvy. but yeah, but he or she also needs to be, a really good leader, a great strategist, a good operator if you have a huge operation.

I overall, you know, probably more than anything, a great selector and developer of talent. Yeah. You know, which one of those is more important? You know, I probably would say tech would, you know, be secondary to some of those other ones, provided that you've got support in your organization for it and that as a leader, you're, you're, you're acknowledging it's its role in your business.

Michael Krigsman: We have another question from Twitter. This is from West Andrews. And this is a more difficult question, I think. And he says, as a former military planner and now a data analytics transformation enabler, he says given the uncertainty associated with geo geopolitical situations, the Houthis in the Red sea, Covid and so on, where and how do you see business integrating data and geopolitics into their structures?

Ted Stank: One of the things that I've been critical of business about pre-COVID was risk management. risk management tended to be a thing we, we pulled am talking about in operations, not necessarily, you know, in, in finance or, you know, those kind of areas, insurance. but we pull together a group of experts once or twice a year, and we put together a really good report of the things that are potentially going to disrupt us and the likelihood and impact they would have.

And we'd given to people like Bill and make a presentation at an executive, committee meeting, and it'd be really pretty. And then we'd put it up on the shelf and go operate the way we've always operated, and then just react as things happened. And I think that companies are taking risk management much more seriously, making it a dynamic process owned by a sea level leader.

And when that happens, analytics, advanced analytics and natural language type things like looking at Facebook and Twitter feeds to see what people are saying and using that to try to capture real time trends is, is, I think, where we're going to try to understand, IBM as a really good risk management package and supply chain that has natural language capability.

And it's able to say, hey, you know, we have a distribution center in this valley in California, and we're monitoring Facebook and social media feeds, and we're saying we're hearing things like my family farm this valley for four generations, and we've never seen rain like this. Well, if we hear that enough, might we tell our client who runs that distribution center, you're going to have flooding and you better prepared to, you know, to flow product to, to, different areas than that particular distribution center.

So, I think that there is a marriage there between, the geopolitics that's a domestic example. But we could use that to globally as well. And the data capture capabilities.

Bill Simon: I think we're too slow to react sometimes. you know, recently we've seen, in the last few years, some a little bit of an exodus from China from as a manufacturing bases into other parts in Asia and in Central America, particularly. and I think, you know, that's probably good. That's not good for China, but it's probably good to I don't know, I don't mean that I'm not making a political statement.

I'm just talking about from a diversification of, of location from a supply chain perspective. But I do believe it's really important for businesses and business leaders not to take a side in these very contentious geopolitical issues, you know, that are going on like we got to serve as a, as a, as a business, whatever customer wants to buy from us, you know, within reason and build a business that can be resilient regardless of what's happening in the world.

And, you know, I always I always say, if you have a business that requires a particular party to be in power, in order to be successful, you're going to be you're going to you're going to stink 50% of the time. You got to build a business that can, you know, operate effectively regardless of what's happening, happening around the world or politically in your own, in your own country.

Ted Stank: And definitely geopolitically from a risk management standpoint, we are seeing what Bill said. most companies are talking about a China. Plus, we do so much with China, we're not going to completely get out of it, but a China plus. So where else besides, in addition to China, we're seeing, massive foreign direct investment in India, Malaysia, Vietnam, eastern Europe.

Mexico has become a big winner. As you know, the touch back on Bill's early point about more regional regionalization of supply chains as well. So we are reacting to some of the geopolitical things happening in the world. Interestingly, a lot of that foreign direct investment is coming from Chinese companies. So like, okay, you're not going to buy from us in China, but maybe you'll buy from us in our Indian operation or our Mexican operation.

Michael Krigsman: Elizabeth Shaw says how can supply chains create value? And what does that value look like? And Arsalan Khan says, if you were to magically create a new supply chain, what would you like to create in terms of people, processes and even new technology? So they're both talking about the fundamental value drivers of supply chains.

Ted Stank: If you go back to the early 1800s, the, the original economists in Europe talked about how an organization creates value. And there's four ways. One is to figure out what the needs are out there that potential customers or segments of customers have. What does it take to fulfill that need, and what are they willing to exchange for it?

So that's a marketing and sales job, right. And then the other value providers are then creating that form and putting it where and when a customer wants it. That's all supply chain. So, a supply chain that creates value. If you don't have a supply chain you can't you can't deliver on the exchange you've created and you'll be out of business pretty quickly.

So, supply chain creates value fundamentally. Now how does it create additional value? I think companies are getting really sophisticated about how they can use additional service. you know, Bill talked about the the hardware store in the plaza with Walmart, right. Well, can we do service type things? Home Depot delivered or realized a long time ago that, you know, delivery and setting up your washing machine and your dryer and things like that have a great value so we can be innovative about how we use supply chains to create value to Arsalan's question man.

Arsalan, you know, I think we you need to get here at a University of Tennessee, and we'll spend a couple of years together as a student. We can try to figure that out. But how to build a whole new supply chain? I think companies that have a green field have an advantage, because they can look at all the things we've talked about and, and, and try to use the best knowledge that we have today.

But most companies don't have that advantage. We have suppliers in certain locations. We got to put things on trucks or trains or boats or airplanes, and we got to work with vendors all over the world. And it's ultimately what does our customer drive us to do?

Michael Krigsman: How does the increasing emphasis on sustainability affect supply chains?

Bill Simon: It's customer driven. And you know, we at Walmart, we we try we've been involved in sustainability for a long time and have had huge successes and huge failures. The successes are related to things that matter to the consumer, and the failures are related to things that we kind of engineer. And it goes to the how do you redesign a supply chain?

We don't. The customer demand does. And then we respond to the customer's demand. It may give you an example. You know, we tried those, curlicue light bulb things. I forget the what what what do they call those?

Ted Stank: I have some in my in my shelf.

Bill Simon: That was get a I was going to save the world. Save the planet. And they didn't last long as they were supposed to. They cost $8 a bulb. And I put out this really eerie looking light. Right. So, they didn't they didn't stick. Nobody bottom. But when we got together with Procter and Gamble and some of the suppliers and we took water out of the, the, bottle of, laundry detergent and sort of shrunk it down.

It was a bit about a re-education of the consumer. It was a little bit about convincing the supplier it's okay to have a smaller facing, shelf space because, if it'll really matter, the consumer bought it. It saved us money in our supply chain. and it was effective for the supplier, and everybody wins. And I think sustainability as well as the redesign question win.

It's a win for the supplier, a win for the, you know, supply chain and a win for the consumer. It sticks. And so I think you got to look for sustainability solutions that really add value to the customer as well as as well as everybody involved in the product and those and the other ones that are done, you know, because somebody thought it was a good idea often, don't often don't stick.

Ted Stank: You know, we talk about something called the triple bottom line. And it's got to be good for the businesses economy, the economics and finances and then good for the environment and then good for society. And if you can get all those to align, it's a great thing. supply chain happens to own most of an organization's operations. So if we can be more efficient in transportation by filling trucks up better and routing them more, in, in more optimal fashion, if we can cut waste from manufacturing, cut waste from packaging, those are all really good things that save a company's bottom line and increase margin.

Also have really great impact on sustainability, issues. And so we see some really innovative things happening. My favorite one, this is a, a European brewing company. I didn't know this. It takes about four units of water to make a unit of beer. Because of all the cleaning and everything you have to do, and their sustainability effort was on making it only take a unit and a half of water to make a unit of beer.

And that has, you know, they got all that less waste water that has a sustainability effect on the environment.

Michael Krigsman: How are we doing with ethical sourcing?

Ted Stank: That's another one of those things where I said it. You have to know not only what's happening with your immediate supplier, because usually if if Walmart's buying from Procter and Gamble, Procter and Gamble has great ethical sourcing things in place and they're probably doing all the right things. But as you get up from from Procter and Gamble supplier to their supplier to their supplier, you know, how far up do we need to get that transparency to find out we're really unethical?

Ted Stank: Things are happening. And I think that's where companies get in trouble. You know, it's it's that the extended supply chain further out.

Bill Simon: Yeah I agree Ted, I think increasingly in a world where there's, cell phone cameras everywhere and, immediacy of information and data, it's it's becoming easier, not easy to keep track of what's going on with your suppliers and their subcontractors. And it's also becoming more and more difficult for, you know, outrageous things to keep happening. and yet somehow they still keep happening.

So, I don't think that task is ever, is ever over. Yeah, I think it's driven by a tone at the top more than anything else. And if you know all the way through the system, you ask the questions and you try to put the best, you know, the best, you can do on to the table.

The organization typically responds to that. And, you know, even then it doesn't always work. And you have, issues that you have to deal with. It's also really important. I think, in what you do in a failure as much as you is how you try to avoid failure. So if you have the systems in place and the process is in place and yet still failures will happen, what do you do about it?

And, you know, for me, those are all important aspects.

Ted Stank: You know, government regulations are driving us towards that as well, especially in the EU. They're they're they're creating regulations that cause companies, even big companies that are customer facing, to move up their supply chain to try to justify their sourcing of, of different suppliers. And we'll probably see that here.

Bill Simon: There's even unethical ethical traders. Right. So, you know, fair trade coffee. That's not really fair trade coffee spam. You know, how do you deal with that.

Ted Stank: Right.

Michael Krigsman: As we finish up very quickly, let me ask each of you for your concluding thoughts or advice to business people when it comes to wisdom for business people, when it comes to thinking about supply chains. Ted, you want to go first.

Ted Stank: Supply chain management is the deliverer of your end value. Everything else in the organization is there to either support creation of value or create the order. Right. Get customers to come in. Then, unless you have a good supply chain, you're not going to be able to deliver on that value you've promised. So we need to understand that and make it a strategic part of the organization to have it be something that is closely intertwined with the company's strategy and understanding of who we are and what we do.

The other thing I would say is that we need to be smarter about total cost, and not drive the supply chain to just total unit cost efficiency, because that causes us to make some, some really bad decisions that end up biting us. we've talked about a lot of examples of that, and we live in an increasingly we use the word early chaotic world, and our supply chains need to be able to be resilient to deal with that increasing chaos.

That's that's here to stay. We didn't talk about labor. We live in a world where we have shrinking labor force, and it's going to be with us forever. It's not short term. So how do we develop the talent to do these kinds of things? That's a big issue as well.

Bill Simon: The front end of your business in retail, if you have about state or a division or a group of stores that aren't doing well, you can survive it. you can figure out how to make it up, make up for it somewhere else. But a vibration in your supply chain affects 100% of your business. And if your supply chain is 5% less efficient than it needs to be, that translates to a substantial impact at your top line and your bottom line.

And so at every business, as Ted said, the core or the spine of your business is, is your supply chain. And, you know, leaders, business leaders who don't understand that or don't focus on that are doomed, to suffer the consequences of it. as I said when I opened, I think Walmart's benefit and doesn't come from its purchasing power scale.

It does a little bit. It comes from its ability to efficiently and effectively distribute product in a, in a, in a incredibly efficient manager manner at a high velocity. And that's where that's where they make they make their living. And so I would encourage people to focus on that. and, and, and as a deliverable, look for improvements in the supply chain.

Michael Krigsman: And with that, I want to say a huge thank you to Ted Stank:  and Bill Simon: . Gentlemen, thank you both for sharing your expertise and wisdom with us today. I really, really do appreciate you both.

Bill Simon: Happy to do it.

Ted Stank: Yeah. Thanks, Mike. Always fun.

Michael Krigsman: Everybody. Thank you for watching. We will see you again next time. Before you go, please subscribe to the CXOTalk newsletter. Subscribe to our YouTube channel, check out cxotalk.com. We have amazing shows coming up. Have a great day everybody!

Published Date: Feb 16, 2024

Author: Michael Krigsman

Episode ID: 824