Top Supply Chain Predictions

Details #

Karl Siebrecht and Ben Dean (Flexe Sr. Director of Network Strategy & Optimization) consider the future of logistics and reflect on past guests’ supply chain predictions. They examine trends from digitization to rising consumer expectations to the cyclical nature of the logistics industry.

Some of the topics explored:

• The cycle of supply and demand in logistics

• The benefits created by the digitization of supply chains

• Why supply chain leaders focus on customers, costs, and carbon

• The future of supply chain innovation, infrastructure and agility

Logistics Leadership Podcast legal disclaimer

Episode Transcript #

Various 0:00

I don't know for certain.

It comes with a lot of caveats.

I'm gonna be perfectly honest, I do not have a crystal ball.

Crystal ball.

If I had a crystal ball.

Crystal ball, crystal ball...

Karl Siebrecht 0:12

I'm Karl Siebrecht.

Ben Dean 0:13

And I'm Ben Dean. This is the Logistics Leadership Podcast.

Karl Siebrecht 0:26

Welcome back everyone to the Logistics Leadership Podcast. It's great to be with you again. Ben Dean, as always, great to see you as well.

Ben Dean 0:35

Very excited to be speaking to our listeners again. Thanks, Karl.

Karl Siebrecht 0:38

As you know, Ben, we wanted to dedicate an episode to just focus on the future of logistics. And so this episode will include thoughts from a number of our guests throughout our previous episodes. And specifically, we wanted to summarize their predictions on the future of logistics.

Ben Dean 0:58

Yeah Karl, I thought it was really funny that when we asked that, like clockwork, each of them threw a disclaimer on before they could say anything. Something along the lines of the crystal ball. But we pressed hard and when they did open up, there were some really interesting thoughts there. What I thought was also interesting was that they came into some key themes over and over across episodes.

Karl Siebrecht 1:18

That's right. So let's jump in and hear from a couple of our guests on the first theme that emerged which was around the evolution of technology platforms and the better connectedness across both the technology systems and the functions within logistics. So we'll hear first from Dilip Bhattacharjee, who is a partner at McKinsey. Let's give a listen.

Dilip Bhattacharjee 1:40

I expect to see more formalization, if you will, of all the core functionalities. In some ways, our industry is getting more concentrated. In 2017, we had published research and we had measured the for hire truckload, which is a $400 billion space. The top five were only 5% of the business, right? And then now they're at 6.5%. It doesn't seem like a lot to go from five to six and a half. But in a $400 billion industry, that's a very big pond that we are in. It is moving towards, you know, scale benefits are beginning to happen. I would expect to see similar concentration movement in the sort of digital player space over the next few years.

Ben Dean 2:24

Great clip there, Karl. I think, very interestingly, on a completely different episode, we were speaking with Lior Ron, CEO of Uber Freight, and he had very similar things to say about what the future looks like for connectivity and platformization. Let's hear what he had to say.

Lior Ron 2:39

I think that sort of first epoch of connectivity and digitization will be in place. So every asset, every truck driver, every facility is connected through a visibility layer for an app, for an Uber Freight-like platform, for a Flexe-like platform. Again, there's many great providers in this market, but everything is connected. So that connectivity layer is in place. Again, I measure that in my universe, like how many truck drivers are connected? Right now we have every other truck driver connected in the U.S. to our system. In three years, that will probably be 75-80%. So I think we'll have that connective tissue. Second, I think it'll be much easier talking about that journey of trust and sharing and outsourcing. I think that will be the norm versus the exception. Where if you're not doing that, you are disadvantaged. If you're not sharing facilities and transportation thoughtfully, you're disadvantaged. If you're not tapping into a larger network than just your own in a strategic way, you're disadvantaged. I think the other thing that will, once connectivity is in place, I think the level of insights and potential opportunities coming out of that will be immensely larger, obviously accelerated by large language models and artificial intelligence. I think whether it's technology or sort of less fancy buzzwords like AI but more sort of streamlined data insights, just the next level of insights and takeaways from what we do with that data will be prevalent.

Ben Dean 4:24

I want to throw out my own prediction here and one I personally have seen throughout being on both sides of the shipper and 3PL relationships, that lack of connectedness of those relationships between them and the freight forwarders is where, I guess, most of the waste in supply chain lives. There's so much opportunity here to get all these different parties, literally links in the supply chain, to talk to one another and blockchain was an idea that was going to make that more efficient. We still have yet to see that. So that's part of my prediction, that this is going to be the biggest change that we've had in supply chain in maybe a generation, but it might be half a generation away still. Getting that connectedness across these parties involves so much coordination that I can't imagine that's on, you know, Lior said three year time horizon. It might be a bit more than that. But what do you think?

Karl Siebrecht 5:18

Yeah, I would agree with that. It reminds me of something one of our customers said to me, just the way they framed it. They describe their infrastructure as a jungle, a jungle of systems, and a jungle of different parties and players, the orchestration across, which is what's needed to find that waste and eliminate that waste, it's just very, very hard to do. I think it's kind of obvious to most people who have worked in this industry for more than half a minute, that that is a big challenge and a big opportunity. It just turns out, it's really, really hard to get at it. And I think the promise of digitization and some of the early returns on the emerging platforms that both Lior and Dilip referred to seems like it's working, but it's going to take time because the complexity, the density of the jungle, is very, very real.

Ben Dean 6:11

Yeah, gotta break out the machete. All right, what was the next thing you noticed?

Karl Siebrecht 6:15

The second big theme that emerged for me was the need for a stronger consumer orientation as the driver of logistics strategies and investments. Historically, logistics has been viewed as and treated as a back-end system. So we're more of a cost center to support the operations of the company. And this is starting to change, migrating from more of a cost center to a revenue driver and one of the ways to actually realize the benefits of that is to build the capabilities around what consumers need.

Ben Dean 6:53

I'm glad you brought that one up because I saw a lot of that, as well. In one of my interviews, I spoke with Chris Halkyard. He's the Founder of La Bella Stella and has been Chief Supply Chain or COO at a number of retailers. His perspective on that was clearly that the consumer is going to be leading out the changes in supply chain. Let's take a listen to him again.

Chris Halkyard 7:13

For the next several years, it is going to be speed to customer. It's going to be what the customer wants, it's going to be a personalization of the webstore, the likes of which nobody's ever seen before. A lot more interaction, you know, text messages for shipping confirmation, same day delivery is going to get very big. But I also think it's going to be a little ways away. An example of that is autonomous vehicles, right? Autonomous trucks, definitely going to happen, definitely going to happen in the next 10 years. We need a transportation solution tomorrow. So we've got a gap that is unsolved for right there. So I think in two to three years, four years, we're going to have major major problems in getting product around this country. And I think supply chain professionals need to be talking about this more with people in the political arena. And certainly making sure that their senior management team and their boards are aware that this is a big problem. And I think the last one is artificial intelligence. If companies out there haven't already dived into this, they're already behind the eight ball. They're going to have a very tough time catching up if they don't start having meetings with these teams because new AI companies are coming up left and right. And they all have something to offer.

Ben Dean 8:26

The consumer driving changes in supply chain was a very consistent theme. And very similarly, in that vein, you spoke with Jason Trusley, who's now Chief Strategy Officer at Land O’Lakes. So let's see what he thought about where the consumer is going to take us.

Jason Trusley 8:41

I think the number one change has to be moving away from efficiency. How many boxes can you fit in a box is not a consumer value proposition. And that's fundamentally what we do, right? We stuff little boxes inside bigger boxes, inside bigger boxes inside of trucks. And then we move those things around and we hope that we get it right. I think a deeper understanding and connection to the consumer problem to be solved and the work to be done at a hyper regionalized level. You know, for 15 years, I've worked on the question, how do you get the right size run into San Diego versus into Chicago, because the body types are quite different in those two places. So you don't need as many extra larges in San Diego as you do in Chicago. That said, we still haven't really cracked that code effectively. There's still the need to interfere in the supply chain in order to make that work, which is just another touch. But I think what the consumer is demanding and asking for is a more effective experience. Efficiency is not something that those consumers are willing to pay for. And so there is going to be this compromise that happens inside of the C-suite around who wins that battle and how do we make a cost efficient but more effective supply chain? I've got to guess that a lot of that is going to come down to, how do you leverage asset light infrastructure much more effectively? And how do you take more people out of the equation in order to move products with fewer touches? And the consumer, again, like they're not going to pay for that. But they will experience it through availability, they will experience it through much more positive brand experience. If our objective is to create advocacy for our brand loyalty - call it loyalty but I don't think about that as programmatic loyalty, I think, I want this brand to be part of my life - advocacy is the objective and we can all work toward creating a brand that people want to be part of. I think that's where the future is, that's where we're going to start moving is much more focused on the sentiment. And it's that softer and it's harder to measure what the supply chain's impact on sentiment is versus the marketing versus brand versus product. But that's what the consumer is willing to pay for and that's what they're going to be continuing to focus on.

Karl Siebrecht 11:06

Yeah, that's another great one. Maybe just to cap it off, I love this quote from Michael Bender, who has a long career at Walmart, Victoria's Secret, a number of other consumer focused companies. Here's Michael.

Michael Bender 11:20

Every company will get a lot smarter, obviously, with the level of information and the depth at which you're able to explore buying behavior and buying patterns on behalf of the customer. If you want to win, I think that's almost sort of a table stakes, making a choice around that.

Karl Siebrecht 11:36

Okay, so building on some of the comments that the three of these folks had around consumers, but it was also built on the importance of data to drive better consumer experiences, we'll shift gears into a different theme here, which was, frankly, one of the themes of the episodes around sustainability, specifically in the logistics industry. Jen Grimaudo is the Senior Director of Sustainability at Iron Mountain. I think she articulates this challenge and opportunities super well.

Jen Grimaudo 12:09

What I really hope we see is more consistent, reliable ways of organizations reporting on their impact. Right now it's a lot of voluntary reporting, which means I'm trying to look at my supply chain and understand the impacts of my supply chain. That data is hard to get because there's not a required, necessarily consistent framework for people to use. So you get data that's not assured, for example, or you get data that doesn't cover the full scope of operations. So I think what we're going to see is a stronger push towards more consistent data that will allow us to make better decisions about how we do business.

Ben Dean 12:52

Yeah, clearly with new spaces, like how we measure sustainability, carbon footprint, it's another case for, you have to have the data and going back to our connectedness piece, you have to be talking about that in the same way as the folks across the street from you for us to be able to get to anywhere like progress with it.

Karl Siebrecht 13:11

That's right. And you know, to build on the jungle point, there are a lot of systems out there and a lot of them don't yet have the capability to measure these new data elements that inform whether it's the carbon profile or otherwise, measuring the sustainability and the environmental impact of your logistics infrastructure and logistics capabilities.

Ben Dean 13:31

One thing that's just come up over and over here and we talked about that with the crystal ball, is there's general uncertainty with where this is going. So on that theme of general uncertainty in warehousing, Melinda McLaughlin, she's a Senior VP, Global Head of Research over at Prologis, had some really interesting thoughts. She's talking here just about the state of the warehouse market and what we do or don't know going forward, but I think that'll apply more broadly, as you see here. Let's take a listen.

Melinda McLaughlin 14:02

There are a few things I've seen in my time studying this industry. One is pricing just response, right? If there's enough demand in an area, pricing needs to respond to make development or redevelopment appropriate. So a couple of examples are those multi story warehouses in places like Seattle and New York and LA. So those are places where land is very dear. There's a lot of supply chain activity. And there's a real benefit to being close in, avoiding the congestion, getting close to the end consumer, those high income households. So one option is pricing response. And with, you know, a big lag because these projects take a very long time to get entitled and navigate those regulatory hurdles. There might be some additional, more functional supply that comes online, but it'll be small, because again, this is an incredibly difficult operation. You need a long timeline, you need good relationships with the local community and regulators. And I think that's been another facet of the environment that's been so interesting to watch. And it's really the resurgence and proliferation of anti warehouse regulatory sentiment. There is starting to be this broader movement that's going to make it more and more difficult to bring product online. So at the end of the day, I don't know, actually, where this supply is going to come from, because there's a ton of demand for not just more space, but more sophisticated space, space that can incorporate technology, space that can help companies meet their net zero goals, space that can adapt to, you know, if transportation changes with the electrification of fleets. Those types of products today are completely under supplied. And I don't know that the world will adapt enough to really make it fully balanced in the future.

Karl Siebrecht 15:58

You know, as we sit here at the beginning of 2024, and look back over the last 18 months, you know, the industry has gone through a pretty sharp phase of its cycle, right, starting with freight forwarding and freight coming in from overseas during COVID. And the ripples that have happened as the broader economy has slowed down and there's just broader macroeconomic uncertainty has rippled through all sectors of, frankly, the economy, but also all sectors of the logistics space. So, you know, it's not surprising at all that we have so many healthy mentions of uncertainty. And the fact that crystal balls are difficult, because just in the last several quarters, things have changed in ways that many people, frankly, didn't predict.

Ben Dean 16:53

That's one I will take to the bank is that we will have things coming up here in the next five years that we didn't predict. One surprising thing that, you know, hasn't been on the front of mind, and hasn't been disrupted in the last year is the labor side of things. It hasn't been in the front of every conversation as it usually is for logisticians.

Karl Siebrecht 17:13

Yeah, that's exactly right, Ben. I had a great conversation with Matt Davis, who's the VP of Research at Zero100. He has some really compelling things to say in a lot of areas, but I particularly liked his comments around the labor market and how the labor market will be impacted by the digitization of supply chains.

Matt Davis 17:36

If I'm able to put my feet in the shoes of the real doers, like the people I admire the most who are moving the trucks around and everything else, it's really difficult to potentially see a world in which the job that you do today, you know, has like 90% automated. So the job of the future is relying on the technology to do all of the analysis for you, to do some of the business logic. And so it'd be coming up with these really prescriptive solutions and then relies on your human creativity to sit on top of that. And I think part of unleashing that for the way forward, I think is first to talk about it and to make the path for those who are in those roles easier to see what it looks like 10 years from now. That's what I'm told, like, can we paint the picture of what this role looks like? And then help those who it makes sense to to cross that bridge and to say, yeah, your data analysis skills and the things you do with Excel has been great to get you to where we are today. But in the future, what we need you to be doing is to look at Google Trends analysis and connect with this weather pattern to come back with these creative solutions. And for me, that just makes supply chain even cooler. So I think it will only continue to be the best profession to work in.

Ben Dean 18:48

Yeah, that was truly unexpected when I heard it. I mean, namely, I think he said supply chain is going to be cooler than it already is as a job. And I don't think anyone was telling me my job was that cool when I started in this industry. So I think that's an amazing quote for us to end on because with all this uncertainty, with all these trends that may or may not happen in the next five to 10 years, it is truly a cool time to be here and be a part of those changes.

Karl Siebrecht 19:19

It's part and parcel to the category, migrating from being thought of as a cost center, to a revenue generator, to an actual strategic capability that's driving differentiation for corporations. You know, winners and losers are emerging more often than ever based on their supply chain capabilities. And that makes the job pretty exciting.

Ben Dean 19:41

And to win you have to make a prediction, right or wrong, right? You can't just wait to see what happens. I think some companies in the last year with the interest rate environment have been more in that space. And it's interesting when you look down the resumes, which are amazing, and the people we talked to over the course of this season, I mean, because they come from industry heavyweights, maybe they're in a position where they don't want to make big bets, or they don't want to make bets that are outside of the common sense. Whereas there's organizations out there that are more willing to take that huge risk. You know, Ohi is one I talked to you in that very much startup space and they are making the big bets, like, sub two hour delivery. They're right on that, they're in a great position. If they're wrong, it's a big bet to miss on.

Karl Siebrecht 20:28

So Ben, before we wrap up here, I have to ask you, what are your predictions for the future?

Ben Dean 20:33

You know, sitting here, like you said, we've been shocked a couple of different ways in last couple of years and like what's going to happen with that. I think the biggest one, I'm going to pull from other people here, but the concept of efficiency versus effectiveness in the supply chain is a key change for supply chain leadership that I think we're all incorporating after the last couple of years. It used to be that your job was to pinch pennies, that your job was to do what was done yesterday and do it more cheaply and efficiently. And whether it's digitization, whether it's business resilience, whether it's putting the customer first, an effective supply chain isn't necessarily efficient. There are going to be redundant features to keep your goods in stock and react to the next change in demand from consumer sentiment. So if anything looks different come 2029, I think it's going to look like supply chains are going to be a little less efficient cost per unit but consumer sentiment and their belief in supply chains and their ability to get them their goods where they want them is going to be much higher. Your turn, putting you on the spot, what do you see in the next five years out of your crystal ball?

Karl Siebrecht 21:48

Okay, I figured you'd probably ask that. My prediction is that a few years down the road, you'll be able to draw a through line from the winners that are emerging back to their intention and capabilities around test and learn. So they're baking in the ability on an ongoing execution basis to test and learn what works in their supply chains. You know, it's very common these days for consumer focused companies, or even the front end functions of companies, so call it the marketing function, you know, test and learn is just part of the job. If you're going to build a website, or build a shopping flow, or a consumer experience, it's just part of the job. You have hypotheses, you test a bunch of them and the winners emerge and you spend more money, you double down on the winners. That whole approach is really, really rare on the back end of the business in supply chains and logistics networks, and we're starting to see more and more companies lean into that and I predict that those will be the winners. Because, you know, even some of the most experienced and capable leaders in the industry, they can't predict the future. I mean, let's kind of admit it, nobody can. So if you can't predict the future, what can you do? You know, test, learn and iterate so that you're really quick to react and respond to the things that work best. That's my prediction.

Ben Dean 23:23

I think it's great. I think, fortunately, due to the cloud and due to the internet, now our predictions are there four or five years from now, and folks can call us out on being amazingly right on this.

Karl Siebrecht 23:35

Exactly. We're setting ourselves up. So we'll see how it goes. So thanks, everyone, once again for joining us here on the Logistics Leadership Podcast. I hope that you saw some value in the various predictions that we've summarized here for you. Ben, I also thank you for the conversation here on the podcast.

Ben Dean 23:56

Thank you, Karl. Quick teaser for our listeners out there. We're going to have a season one wrap up episode coming next. So stay tuned for that. And let's keep the conversation going.

Narrator 24:07

You've been listening to the Logistics Leadership Podcast presented by Flexe. If you'd like to learn more about the podcast or join the Logistics Leadership community, check out this episode's show notes and visit flexe.com/logistics-leadership-podcast. Keep the conversation going: Email us at leadershippodcast@flexe.com. The Logistics Leadership Podcast features original music by Dyaphonic. The show's producers are Robert Haskitt and Adam Kapel. Here's a quick pro tip: Instead of chasing down the next episode, why not just follow the show and have it appear in your feed automatically. Thanks for joining us!