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Transcript
Thomas Goldsby of The University of Tennessee
David Maloney, Editorial Director, DC Velocity :
Why do we still have trouble finding enough personal protective equipment for essential workers? New numbers from the trucking industry. Has it turned the corner? And solutions promote social distancing in facilities.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Fortna. Fortna partners with the world's leading brands to transform their distribution operations to keep pace with digital disruption and growth objectives. Known worldwide as the distribution experts, Fortna designs and delivers intelligent solutions, powered by their proprietary software, to optimize fast, accurate, and cost-effective order fulfillment. For more information, visit Fortna.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week.
But to begin, I'd like to introduce this week's guest. Dr. Tom Goldsby is the co-faculty director for the Global Supply Chain Institute at the University of Tennessee's Haslam College of Business. And he also teaches in the Masters of Science in Supply Chain Management online program. And I might add that he was named as a DC Velocity Rainmaker, the class of 2019. Tom, you've been studying supply chains during the pandemic, and here we are almost six months in and our health supply chain still cannot get adequate supplies of personal protective equipment such as N-95 masks. Why are we still struggling with this problem?
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 1:44
Well, David, that's the question we're all asking, and frankly, we're all you know, quite perplexed by it. And like so many other things in supply chain management, it's more complicated than it might appear on the surface. And for one, I think, PPE covers a really wide array of items. You mentioned the N-95 mask, which is certainly an essential item. But for those, particularly in the healthcare profession, that need these protective measures on the front lines, we're concerned with face shields and goggles, garments of all kinds, including gowns and gloves, in some cases, aprons and shoe coverings. And then of course, there's also the concern for hand sanitizers and disinfectants and it seems like each one of those items or commodities has its own distinct challenges. But yes, succinctly, we deal with very complex supply chains that, in many cases, stretch around the world, and also just the mere fact that we just didn't anticipate needing this volume of supply across any of those items.
In supply chain, we often play the beer game at our universities. And that's the classic simulation game where we ask students to respond to a small change in demand, and we see the bullwhip effect ripple upstream in the supply chain. And that's, to a large extent, what's transpired in our supply chain for these PPEs. It's just that we're talking about, not, you know, a small 10 or 15% increase, we're talking about several times order of magnitude increases. When you think about each one of these items, they need to be used several times in the course of a day by a healthcare professional. It's not like a single mask will get through a day, they may need dozens of masks. And so the sheer demand has, has just [vitiated] our opportunity to supply that.
David Maloney, Editorial Director, DC Velocity : 3:48
Has a lot of this been just due to the fact that this is a worldwide pandemic, and so, all parts of the world are needing the same kind of product at the same time and, and that becomes a problem if they're only sourced in certain places?
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 4:01
That's true. I mean, we look to common sources of supply around the world. And, you know, there is something of a tradition now that, of looking after one's own national interest first, and so you can only, you know, expect China to be concerned about China's demand. When they're producing, they're going to look after their own national interests first, and then everyone else is going to follow. And then those with the purchasing power are going to probably come in next in order, which fortunately, the United States has pretty substantial purchasing power, but again, our need is perhaps somewhat greater than found around the world
David Maloney, Editorial Director, DC Velocity : 4:41
Where most of these products made?
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 4:44
Well, I mentioned China, and China continues to be a prominent source of supply for many of the items I iterated moments ago. We are developing some supply base. We've had, for instance, 3M, a very reliable provider of N-95 masks, perhaps the world's leading provider, and they have stepped up their capacity, set aside in the advent of crisis. But, you know, even they didn't anticipate just how massive the demand was going to be, how big the need was going to be. And so while, we do have some domestic suppliers, including some very innovative entrepreneurs that are out there that you know, are returning to once-dormant garment industry into providers of cloth face masks, and we've been seeing the 3D hobbyists who are creating face shields granted in small volume. we continue to rely on China, India, Vietnam, for a lot of our supplies. And I've heard that, for products like rubber gloves, we're looking to sources like Turkey.
Of course, what's also going on in the backdrop of this is, you know, some opportunistic profiteering that's going on, and that we've got a lot of untrustworthy, unreliable suppliers that are popping up, taking orders, but not necessarily delivering high-quality products. And so that's the larger backdrop. I think we're going to be learning for years to come of some of the scandalous activity taking place out there, unfortunately, folks looking to take advantage of the situation.
David Maloney, Editorial Director, DC Velocity : 6:29
If we could increase our manufacturing capability domestically, is there still a problem with being able to source the raw materials that are needed for this?
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 6:38
Well, certainly, that would be a problem. We source raw materials from around the world, even for fairly simple products, even food products. I think most people would be surprised at realizing how disparate the sources of food ingredients are. So, you know, as we look at anything that's at all complex in its composition, we're going to tend to rely on more disparate sources of supply.
Also, with regard to just simply scaling up those operations, I think we need to keep in mind that these are highly capital-intensive operations. You can't just snap your fingers. And, once you do build that capacity, you really hope that the demand continues, because you do have a pretty long tail in paying off the investments of the kind we're talking about.
David Maloney, Editorial Director, DC Velocity : 7:28
Is this a lack of government involvement in being able to help companies scale up that, by either giving them tax incentives, or some other way of being able to help offset that huge investment they need to make?
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 7:40
Well, that'd be one way to go about it. And then, you know, it is a question of whether or not we could continue to be globally competitive beyond the crisis. And you know, as I talk to strategic decision makers, there are decisions that you might take in the short term that may not make sense, frankly, in the long term.
And I know a lot of people have been picking on lean thinking, and, David, I gotta tell you, I'm a big advocate of lean thinking, and I think if you embrace the fact that lean thinking encourages us to devise robust processes, and not just simply to streamline our inventories down to the bare essentials, I think there's a lot of promise in lean thinking.
But with regard to the inventories, I don't know of a lot of companies that want to invest in the working capital it would take to, to meet the needs either, you know, beyond the crisis. I think, you know, we're all interested in having them supplies here now, but, you know, eventually we will get on the far side of this, hopefully sooner rather than later. The question is, do you want to be sitting on fixed assets or huge stockpiles of inventory when the need is not there? Someone perhaps needs to fund it, and it might be federal or state governments that need to step up.
David Maloney, Editorial Director, DC Velocity : 8:57
Are there any other alternatives, or other alternative source for finding these kinds of goods?
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 9:02
Well, I indicated that, you know, there are the opportunistic players out there. But I am taking part in the entrepreneurial activity of those who are genuinely interested in stepping up to meet the need of the time. Unfortunately, you know, when there is a crisis, there going to be probably just as many people looking to take advantage of it as there are to step up and help. You see the good and bad people in such times. But looking at the good, you know, it's been really great to see small startups.
And I understand the number of patents that have been issued this year far outpaces the patents we've seen in previous years. And so I interpret that to be certainly, you know, a lot of, a lot of big companies are innovating, but also I'm heartened to see small and medium-sized enterprise stepping up to meet the needs. So, they do need a hand, perhaps, in getting the momentum to scale up, but I'd like to think that there can be those opportunities.
David Maloney, Editorial Director, DC Velocity : 10:08
If we continue with our pandemic, six to 12 months or however long it's going to last, do you anticipate this problem getting any better? Or are things pretty much going to be the way they are now with the current supply available?
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 10:21
Well, just as we are experiencing the second peak of the first wave, technically, I think is where we are, and hopefully that peak is going to subside here any day now, you know, we were afforded a little bit of an opportunity to catch our breath in between the peaks. So if you looked at the March, April timeframe, we were peaking, and then things subsided a bit into May and June. And I hope that, you know, perhaps we can catch our breath and allow the supply to catch up to the demand. It means maybe stockpiling inventories in anticipation of the next peak, maybe the second wave that we've been told to anticipate. Maybe it's also building that capacity we need that can step up. But I also like to think that we are going to gain an agility such that we can accommodate peaks, or even downsize as needed on the far side of peaks, that allows us to flex and be competitive in meeting the current crisis, but also in ways that help us to meet ongoing market demands, whatever they might look like.
David Maloney, Editorial Director, DC Velocity : 11:34
Is there anything that supply chain companies can do to help alleviate some of the stress that we're finding right now and getting the proper PPE that we need?
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 11:43
Well, I think bringing the expertise forward is essential. And, you know, just speaking of the logistic service industry, you know, we're blessed to have a lot of innovative thinkers and can-do attitude out there that can help to step up to meet the need.
You know, I would hope that, you know, federal and state authorities, as well as, right down to things like the local food bank, can leverage the capabilities we have.
And as a representative of the university population, we academics have a lot to offer as well. So, you know, the United States is, I think, at the forefront of logistics and supply chain knowledge. And I would hope that we can leverage that—frankly, an advantage that we have—to the benefit of the people.
David Maloney, Editorial Director, DC Velocity : 12:34
Great. Well, hopefully, the numbers will subside, and we'll be able to catch up with the supply and the needs that are there. Everybody just needs to start wearing their mask.
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 12:44
Amen. David,
David Maloney, Editorial Director, DC Velocity : 12:45
Thank you very much for your time, Dr. Tom.
Thomas Goldsby, Global Supply Chain Institute, University of Tennessee : 12:47
Good. Thank you very much. Appreciate it.
David Maloney, Editorial Director, DC Velocity : 12:50
Now let's turn to some of the other supply chain news from the week. Ben, you reported this week on some positive numbers for the trucking industry. Has it begun to turn the corner?
Ben Ames, Senior News Editor, DC Velocity : 13:00
It's a great question Dave. A lot of companies are looking for that to happen, because it's been a really tough couple of months during the pandemic shutdowns.
But in the past couple weeks, couple months, we've seen various regions around the U.S. begin to reopen their economies. And in reaction to that, shippers and manufacturers, retailers are rushing to rebuild inventory that had shrunk quite small when we were all staying home and nobody was going out anymore. So that meant that freight demand came roaring back in June, in the words of FTR Transportation Intelligence, which is an industry analysis group, that followed really steep contractions in March and April. And at the same time, trucking capacity, which is the number of drivers and vehicles on the road, have not increased at the same pace. So freight rates have climbed up very quickly just from supply and demand. In FTR's measurements—they have a gauge of the trucking economy that they call their Trucking Conditions Index, which is based on the things that we've been talking about: volumes and rates and capacity—and that reached a level of 11.35 in June, which was its highest level in a decade.
We also saw similar numbers from a different firm, which is called DAT Freight & Analytics, and they found that instead of—what we usually see is a typical slowdown during the hot summer months, when the trucking industry typically moves less freight than they do when we get into the really busy winter peak—shippers in 2020, instead, are using the spot market to resolve those imbalances in the freight networks that we were talking about earlier, as they hurry to restock inventories and fill their warehouses. And DAT has its own kind of index, which also jumped up in June.
David Maloney, Editorial Director, DC Velocity : 14:48
Do they give any forecasts on whether those trends will continue in those future months, especially as we head towards fall and the holiday shopping season?
Ben Ames, Senior News Editor, DC Velocity : 14:55
Well, neither of the groups thinks that it can sustain in future months, at least at the pace of the quick rebound that we just saw in July.
FTR thinks that that rebound will slow down as warehouses fill up again with inventory, and as carriers add extra capacity to meet the growing demand. And likewise, DAT said that the market could move in fits and starts, because different states are opening at different rates, and they're being hit by second waves of the coronavirus at different times. So there's real inconsistency for freight demand in the markets.
And finally, both firms agreed that keeping those freight demand numbers high really comes back to depending on Congress, and whether Washington D.C. can agree on a second round of federal stimulus funds. Basically, the two analyst firms are worried that the first stimulus bill basically subsidized the economic rebound that we're seeing now, so the nation's economy, including the trucking sector, won't really be self sustaining until a coronavirus vaccine becomes available
David Maloney, Editorial Director, DC Velocity : 15:59
Well, we'll continue to track those trucking numbers each month, and hopefully we'll have some more positive news to share in the future. Thanks, Ben.
Victoria, you reported this week on some social distancing solutions for use in warehouses. Can you explain what they are?
Victoria Kickham, Senior Editor, DC Velocity : 16:14
Sure, sure, happy to Dave.
Yeah, material handling companies of all kinds of responding to the need for, as you say, social distancing in warehouses and distribution centers. And they're doing that in a variety of ways. We've reported on you know, sort of a vast, you know, wide range of things that people are doing. And this week, I spoke to battery technology company EnerSys about the growing demand they're seeing for batteries that power AGVs. That stands for "automated guided vehicles," and these are automated vehicles that can move heavy loads throughout a facility without an operator on board. So the company says its AGV-focused business has been growing at a really good clip since about 2014, largely in response to increased demand for warehouse automation, which is a trend we've been watching for quite some time. But much like we've seen in other industry trends, the Covid-19 pandemic has really accelerated that demand. So, companies like EnerSys are saying that they're seeing strong orders for AGV-related projects, especially in the last three to four months, and that they continue to add resources, really people expertise, to, to meet that demand.
David Maloney, Editorial Director, DC Velocity : 17:17
AGVs—automated guided vehicles—and similar equipment clearly reduce the amount of labor and human interaction within the workplace. How else do AGVs help, and what is it about the battery technology that makes a difference?
Victoria Kickham, Senior Editor, DC Velocity : 17:30
Well, yeah, that's exactly right about reducing human interaction. And companies are looking to find ways to deal with two issues, really: hard-to-find labor, as many employees remain cautious about returning to work, and as we say, the need to social distance those workers that remain in the facility. So companies say that AGVs help address both those issues, for, you know, obvious reasons.
But, as for the batteries, EnerSys explained to me, you know, AGV projects, they say require a real solutions approach, meaning that battery makers are often involved with the equipment producers and the end users from the beginning, because they need to choose the right power solution that best fits the application, you know, depending on a variety of factors in the warehouse or DC.
On top of that, newer battery techno— newer battery technologies, excuse me—are making a difference as well. Thin-plate pure-lead varieties and lithium-ion chemistries really help further reduce human interaction, because they are very low maintenance, some say zero maintenance. They don't require frequent change-outs, watering, or lengthy recharging like traditional lead-acid batteries do. So all of this means less human interaction, less chance of transmitting the coronavirus. So it's a win on many fronts.
David Maloney, Editorial Director, DC Velocity : 18:43
Have we seen other kinds of solutions as well?
Victoria Kickham, Senior Editor, DC Velocity : 18:46
Yeah, we've seen a wide variety. I think Ben has reported on, you know, robotics used to disinfect areas and things like that. Another solution we heard about this week, or in recent weeks, I should say, is from a systems integrator, Vargo Solutions. They introduced a social distancing feature into their continuous order fulfillment execution system, and it's aimed at reducing the number of pickers that are in a pick aisle at the same time. And the interesting thing is that the system's algorithms can be programmed to create a process so that, like I said, only one person is in an aisle at a time, and it keeps them at a minimum of eight feet apart.
The interesting thing about this, they say, is that a lot of times when you try to distance pickers in a warehouse, in particular, you slow down the process. But what they've done here is incorporated into the order flow so that the picker that's aisle by him- or herself is picking more orders. So there's one picker in an aisle and the system will send multiple picks to that employee to maximize their time. So this is a solution that's geared toward large-volume warehouses, but again, it's another example of what material handling companies are doing to to address this issue.
David Maloney, Editorial Director, DC Velocity : 19:57
We've seen a couple of solutions, too, that have, sense proximity sensors, whether it be with a scanner or a wristband or something like that, that also alerts workers when they're getting closer to each other, within six feet. So hopefully these solutions will further enhance the safety for those essential workers in our warehouses and distribution centers. Thank you.
Victoria Kickham, Senior Editor, DC Velocity : 20:18
That is the goal. Yes, you're welcome.
David Maloney, Editorial Director, DC Velocity : 20:19
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out. Thanks, Ben and Victoria for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity : 20:29
Thanks, Dave. Always fun.
Victoria Kickham, Senior Editor, DC Velocity : 20:31
Yes, you're welcome. Thanks for having us.
David Maloney, Editorial Director, DC Velocity : 20:33
And again, our thanks to Dr. Tom Goldsby of the University of Tennessee for being with us today. We encourage your feedback on the supply chain PPE topic and our other stories. You can email us at podcast@dcvelocity com.
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