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Dr. Yossi Sheffi is the director of the Massachusetts Institute of Technology's Center for Transportation and Logistics (MIT CTL). He is an expert in systems optimization, risk analysis and supply chain management. He is author of a text book and four award-winning management books. His latest book, The New Abnormal, came out in October 2020.
Under his leadership, MIT CTL has launched many educational, research, and industry/government outreach programs, including the MIT SCALE network, involving six academic centers round the world. In 2015, CTL launched the online Micromaster’s program, enrolling 328,000 students in 196 countries. Outside the institute, Dr. Sheffi has consulted with numerous organizations. He has also founded or co-founded five successful companies, all acquired by large enterprises. Dr. Sheffi has been recognized in numerous ways in academic and industry forums and won dozens of awards. He obtained his B.Sc. from the Technion in Israel in 1975, and Ph.D. from MIT in 1978. For more information visit: sheffi.mit.edu
David Maloney, Editorial Director, DC Velocity:
What's the new abnormal? The growing demand for warehouse automation and who will work in our facilities in the future?
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 DCV-TV. Five channels of streaming video are yours for the viewing on DCV-TV. Major improvements have recently been made to the DCV-TV platform to enhance the viewing experience, provide greater search capabilities, and to expand the capacity of the video library well beyond the 3,000-plus videos already in the archive. Be sure to check it all out at DCVTV.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: How has the pandemic shaped the supply chain, and what does the future hold for our industry? To answer those questions, we welcome Dr. Yossi Sheffi, a professor at the Massachusetts Institute of Technology. Dr. Sheffi is the director of the MIT Center for Transportation & Logistics, and a professor of engineering. He's also a well-known supply chain expert and has regularly been featured in DC Velocity, Supply Chain Quarterly, and at supply chain conferences. And he's the author of a textbook and four award-winning management books. His latest book is called The New (Ab)Normal, and he's here to share with us his observations and his expertise.
Hello, Dr. Sheffi, welcome. Thanks for joining us.
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Hi, David. Thanks for having me.
David Maloney, Editorial Director, DC Velocity:
Yossi, your new book takes a look at the Covid-19 pandemic, and its effects on the economy in general and supply chain in particular. What did you find in your investigations?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
I love these questions. You know, thousands of hours of research and writing and give you an answer in one sentence. So I found that good and better are happening. Of course, a lot of costs are up, demand is [variable?]. Some companies, demand is up, some, it just disappears the whole tourism industry. Airlines are in bad shape. But they talk about supply chain in particular.
So some of the good things, I would say, that came out of it—"good," in quotation marks, you can sum up with the question that everybody asked my wife, which is, "What is your husband doing?" And until January this year, she said "My husband is in supply chain," and people were looking at her like a deer in the headlight. Now everybody that knows, "Oh, I know, he's working on important things." So, the whole profession became a household name. The importance—and I'm talking to executives all the time—they're all being elevated, the importance being elevated. People understand, CEOs understand, that this is the stuff that connects supply and demand. This is what make the world works. So the first impact on the profession was elevating the profession. And this is something that will have profound consequences, I think, going forward
David Maloney, Editorial Director, DC Velocity:
Your book also focused on dealing with the whole disruption that a pandemic has caused. What do successful businesses do to manage their operations during these unexpected and very difficult times?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Okay, there are several things that businesses are doing.
They start an emergency management center, which is all the information comes to a set group of people who are the decision makers. They are—it used to be a room and now it's, of course, virtual. Communication—people are worried about how to communicate, how to communicate better, to all stakeholders, being it employees and shareholders and communities. Continuous communication.
Decision-making authority. It's exactly what [Bill] Belichick used to say: "Do your job!" Every—when there's a disruption, everybody's trying to help, and they're usually disrupting the operation. Just do your job! So, allocating decision making authorities and protocol to the right people.
Reviewing suppliers. You always have to make sure that suppliers are still there, and you have to make sure who is still working, Reviewing products and customers. You may not have enough parts or raw material to build all the product that you need to build. You may not [have] enough to serve all your customers. How do you—I suggest, in my book, a lot of framework, how to think about all these problems. Which supplier, which customer you should focus on.
And think about finance. Of course, we are going to recession and the cash is king, but be very careful about extending terms of payment to the suppliers, because you're putting them [at] risk.
Companies have been reducing SKUs. I know General Mills, for example, reduced the numbers of the Progresso soup variety from 90 varieties to 50 varieties. And this is done in order to assure supply at the beginning. Now it's done in in order to cut costs, because if you have less variations, you don't have so many changeovers in manufacturing.
And then the good companies are, as they say, never let a good crisis go to waste. They are planning for recovery. So they're actually strategically looking at all the customers, even all the employees, all the business lines—what works, what doesn't work, what will be working in the future.
Finally, something that is really unique, in some sense, to this crisis, is that a lot of companies are accelerating significantly the adoption of advanced tech. Whether it's connectivity or visibility or, you know, going to the cloud, all kinds of optimization tools, companies are adopting it at a much higher rate than before. These are some of the things that people do as they manage what's going on right now.
David Maloney, Editorial Director, DC Velocity:
Yeah, that acceleration we have seen all over the supply chain—people who had projects that they were looking at doing several years down the road, but now realizing that they need to do that immediately. Can you give some good examples of what kinds of technologies those folks are looking into?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Oh, we can talk about it a lot. Some some simple one is Domino['s Pizza], for example. Domino['s] had started developing, just before the pandemic, an app that allow[s] for in-car delivery. People, instead of waiting in a drive-through line, they set up an appointment, and people come and put the pizza in your truck. Now they expanded it to hundreds of locations. And in Q2 2020, which is my last figures, Domino['s] says we're up 16%, while Pizza Hut, Wendy's, California Pizza Kitchen are all out of business. So it's a dramatic change, a lot of it because of the use of—a similar technology, by the way, is used by Chipotle. Instead of drive-through, they now have the appointment, which not only allowed them to work well through the pandemic, it allowed him to open a lot of new places, because many zoning laws, or many zoning regime don't allow for drive-through window because they don't like the lines. Now they don't have lines, they just have this appointment. But it's simple. I can go on and on about the company's sophisticated optimization, tying it to visibility and being able to optimize in real time and avoid a lot of expedited freight. For example, a lot of the automotive—I know GM and Ford—have been using software like this. So we can go many, many examples on that count.
David Maloney, Editorial Director, DC Velocity:
We've also seen a great deal of increase in the desire for companies to move towards more automation within their facilities, whether that's robotics or other kinds of automation. What have you seen through the pandemic, and has that seemed to be accelerated as well?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Big time. Absolutely. Warehouse automation is accelerating rapidly, and I should say, it's sometimes hard to decipher, because at the same time companies like Amazon or Walmart.com are hiring a lot of people because of the huge increase in in e-commerce. It's not only them, it's Target and Lowe's and JD.com and Alibaba. Everybody is increasing e-commerce. At the same time, they are building—a lot of the new warehouse [they're] building or built for automation. So, we still have a lot of people working in warehouses, because of the huge increase, and it's very hard in the short term to completely automate a warehouse. But we see drones taking up inventory within warehouse[s]. A lot of the existing automation compan[ies] are into new warehouse[s].
And of course, we all read about the transportation automation, being autonomous trucks, autonomous last-mile delivery. Many companies are developing this. We even talked about, there's a company now that they['re] just getting FDA—FAA approval to deliver human parts between hospitals very quickly. And this is like a, it's not the small package of Amazon. It's 150-pound packages, and the drones are small airplanes, really. So people are moving all over the place in adding automation.
David Maloney, Editorial Director, DC Velocity:
Do you think that kind of technology—the drones, autonomous vehicles, and that sort of thing, which we saw out on the horizon—do you think that's going to come a lot quicker now, as a result of the pandemic?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
I think yes. Because what we see, in addition, something that is interesting, we see the FDA, which is one agency, moving very, very fast, you know, with the, with the vaccine, with all kinds of pharmaceutical, they are moving fast, we see the FAA moving fast. You see what's happening with Boeing, they're now about to approve the 737 again. So we see federal agencies are also moving fast, not only with Operation Warp Speed, but in general. So, one can only hope in this market. It's very hard to make statement[s] about large bureaucracies like the federal government, but it seems that this is moving and the United States will stay behind. In part, it's the success of automation.
By the way, the largest market for automation for robotics in the world is China. China has by now 37, 38% of all the world robots. So, and they are, it's increasing. So, even just the competition, with China will get the the United States agenc[ies], I think, to open their eyes and start releasing, and start experimenting with all kinds of automation, all kinds of vehicles, all kinds of drones, all kinds of last-mile delivery robots, whatever.
David Maloney, Editorial Director, DC Velocity:
They'll certainly be fun to watch. In your book, you did talk about how business has been coping with it. You gave a couple of examples. Are there particular stories that struck you as—seemed to sort of encapsulate what companies were facing? And what were some of the successes that people saw through this pandemic?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Yes, but we saw how big companies are adjusting, but I also have some examples for small companies, for you know, family companies that—give you one example: It's a local companies that we found out personally, because somebody recommended, it's basically [a] husband-and-wife company, they have 20 trucks, and they used to serve institutions—so universities and restaurants, basically, and industrial parks. On—in March 2020, the business went down 96%. So the only thing that stays are prisons, because they used to serve prisons as well. And they are right here outside Boston. So they pivoted on a dime, to start serving consumers at home.
Now, you're talking about people who never had a website, never took orders online. So, we kind of followed them, and [they began] with the just that—it was like a PDF that they sent you an email when you want—when they wanted you to know what they're selling. And then it became a website, and you had to call them when you saw something on their website. And then it has pictures on the website. And then you could click on the website and get the order. Then they had tracking and tracing. All of this moved in about three weeks. They moved from nothing—maybe four weeks—they moved [from] nothing [to] being able to serve consumers. And so to me, this is an example. Now small companies, of course, can move on a dime, and this is an example. But many of the competitors failed. And they moved very quickly. So it was interesting to see.
David Maloney, Editorial Director, DC Velocity:
So what are some of the characteristics of companies that are going to be able to make it, and what kind of companies are going to fail, as this is something that's going to be with us for quite some time yet?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Definitely, definitely. The companies—well, look. Think about the people who will fail. It's the weak, the old, people with previous conditions, comorbidity. These are the people who end up dying, or very, very sick. The same thing with companies: the weak, the people who already didn't do well before. The people who were—example: U.S. department store revenues in, from 1999, I think was $30 billion. By the end of 2019, it was like $11 billion. So they lost, you know two-thirds of their revenue. And from December to March 2020, they went down to $8 billion, because J. Crew, Neiman Marcus, Lord & Taylor, JC Penney, Pier One all went out of business. So, it's the companies who are weak before, in general, you know, we only quote, you know, Darwin, it's not the weak, it's not the fast who survive, it's the people who can adapt. And it's true. But in order to be able to adapt, you need some financial muscle, some reserves of money, and talent. And the companies that were in trouble before, didn't have it. So it's, it's in general, companies who had the talent were in good shape, reasonably good shape, and could pivot to new business lines, new ways of doing business.
David Maloney, Editorial Director, DC Velocity:
So what is our new abnormal? And what are some of the major lessons that we've learned from our supply chains during these pandemic times?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Okay, so the new—when we talk about the new abnormal, people are talking about a recovery where it's to be, you know, a V, a U an L, a W. No. None of the above.
The recovery is going to be like a game of Whac-A-Mole. If you ever play Whac-A-Mole, you know stuff pops up, and you have to hit it quickly and randomly during the, on the play board. Think about the globe as your play board, and random flareups of the pandemic, and then the local government shuts it down, so all your suppliers there are shut down, the demand is changing again, It happens, it will happen in around the world at random times in random regions. That's what we are facing, which is very difficult for supply chain managers.
This is—this, by the way, the media is talking about the end of China, the end of just-in-time—all of this is not, it's not just not gonna happen. But—because moving back to the United States or to Europe goes against resilience. In order to be resilient in a world like this, you need to be global, actually. Because you cannot rely on having all your demand and supply in one area, even this area being the United States or somewhere in Europe, because it can close with no warning. So you need to be spread all over the world, you need to have suppliers in more than one [place], you need to have factories in more than one place.
So this is how I think—of course, this is only one aspect of what the world is going to look like in the next year—call it [a] year, for sure, maybe a little more, depending on the efficacy of the vaccines that [are] coming on. We just, we just don't know if these vaccines are going to be like the flu, which are only 60, 70% effective, or are going to be 90 to 100%—nothing's gonna be 100%—but, whether it will be high 90s. Because we have—a lot of vaccines are based on new technology, which were never tried before. So we just don't know. But meanwhile, clearly for the next year, at least, if not more, it will be a Whac-A-Mole recovery. And we see, by the way, we see [a] Europe flareup popping again. We see an Asia flareup popping. And of course the United States. They say, what, 40 states now are in the red zone? It's an issue
David Maloney, Editorial Director, DC Velocity:
To close out, you talk in your book that there may be a new Roaring '20s. What do you see for the future and for the next opportunities that are out there for supply chain managers?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Yeah, first of all, as I said, supply chain management is becoming the new finance or the new marketing: a sexy profession that people are going to come to. By the way, we see applications for [our] supply chain management program go through the roof, and other schools also see it. So it's—people are—you know, the word is out, so to speak.
When I talk about the Roaring '20s, I think, after every big, you know, we had we had the Roaring '20s after the after World War I, we had the Roaring '20s. We had a huge, after World War II, we had some of the best growth in the United States ever, you know, in the '50s. This is almost like a war. This is something that affects the entire world. And out of this, I think people will come with a new sense of work, wanting to grow, realizing that the world is a lot more vulnerable than they thought, so they'll be less compliant. I hope so. This was more aspirational, I should say than effectual.
David Maloney, Editorial Director, DC Velocity:
Let's hope you're right with that. If someone wanted to get your book, Yossi, where can they find it?
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
At this point the book is available only on Amazon in an e-version. Starting about mid-next week, it will be available also on Amazon only, but in a paperback version. We have an agreement with Amazon that until November 1, because they give us a lot of marketing clout, and they market it on, there on the site, so—put it in all kinds of programs—so the first 30 days, it's available only on Amazon. But starting November 1, it will be available on Barnes and Noble, on Google, on Apple, on every other platform. So—but right now, go to Amazon. If you like the book, write a good review. If you don't like the book, eh, don't write anything.
David Maloney, Editorial Director, DC Velocity:
Again, the book is called The New (Ab)Normal. Thank you, Dr. Yossi Sheffi, for being with us today. We appreciate your time.
Dr. Yossi Sheffi, Director, MIT Center for Transportation & Logistics:
Thank you very much, David.
David Maloney, Editorial Director, DC Velocity:
Now, let's take a look at some of the other supply chain news from the week. Victoria, you reported on the new research that shows that the warehouse automation market is set for long-term gains? Can you tell us more?
Victoria Kickham, Senior Editor, DC Velocity:
Sure, absolutely. And this is very much in line with what Professor Sheffi was saying about, you know, acceleration, the acceleration of advanced technologies and automation that we're seeing. So, I came across a study this week from a market research firm that underscores an issue we've been hearing a lot about these last few months. And again, it is that growing demand for warehouse automation technology, especially in light of the pandemic. So, accelerated e-commerce activity and demand for social distancing in the warehouse is driving the trend. And the study predicts that the market for warehouse automation equipment and software will be about 6% higher than pre-pandemic levels by 2023.
It also found that the greatest demand for warehouse automation is coming from consumer goods and grocery industry industries, excuse me, with grocery leading the way as more retailers seek to implement micro fulfillment centers across their networks. So this, again, is just something we've been seeing, we've been covering, you know, since the pandemic broke out, pretty much, in the spring. And the study was interesting in that it kind of reinforced a lot of the projects that we're seeing and talk that we're seeing across the industry.
David Maloney, Editorial Director, DC Velocity:
So it looks like, in that study, the demand will grow in the longer term. But what about this year? Did it address any increase in market activity for the rest of 2020?
Victoria Kickham, Senior Editor, DC Velocity:
Yeah, the research show[s] that the gains are expected to follow sort of, maybe a revenue dip for automation providers in 2020, mainly because some projects are being delayed into 2021 for different reasons. But as you say, demand is, going forward will be strong.
Another interesting finding that I thought was interesting was on the software side of the equation, and the researchers found that software revenues are under threat as online retailers increasingly bring warehouse execution and management software in house. They pointed to a couple of examples—Amazon and Chinese retailers Alibaba and JD.com—and said that others may follow suit. So the point they were making was that there's really a need for flexibility and customization when it comes to the software side of things.
David Maloney, Editorial Director, DC Velocity:
Well, hopefully we'll see that growth sooner rather than later. Thank you, Victoria.
Victoria Kickham, Senior Editor, DC Velocity:
Thank you.
David Maloney, Editorial Director, DC Velocity:
And Ben, you reported on the Roadmap 3.0 panel that was part of the MHI virtual conference held this week. What did this latest iteration of the Roadmap report tell us?
Ben Ames, Senior News Editor, DC Velocity:
That's right, Dave, I did. And this one also has some echoes of what Professor Sheffi was talking about, what Victoria was talking about, as well, around warehouse automation, but it was looking a little bit farther down the road. This is the third version of the Roadmap that MHI, the industry society in material handling logistics, has made. And it was focusing on what they call the Transformation Age. So, the report said that by 2030, a decade from now, robotics and augmented reality—or AR—will be in mainstream use for warehousing, manufacturing, and distribution centers.
One of the main reasons for that will be better leveraging of cloud platforms, according to one of the panelists, who was Melonee Wise—she's the CEO of the autonomous mobile robot company Fetch Robotics. So, Wise advised the crowd who were listening to get ready for that time by saying "Don't be afraid of the cloud." What she meant by that was that one of the biggest limits in robotics right now is finding enough computation power for executing the algorithms, handling the data. And the way to handle that is to scale up, and you can find plenty of room for that in the cloud.
David Maloney, Editorial Director, DC Velocity:
Did the panelists have any advice for ways that companies can prepare for those changes?
Ben Ames, Senior News Editor, DC Velocity:
They did. It's one thing to predict what's coming, it's another to have a plan to actually handle it. So, they said that companies throughout the supply chain really need to find ways to hire the next generation of workers, because they have grown up around these new technologies, and they'll be completely comfortable using them in everyday life and applying them to logistics problems. So they pointed out that a lot of companies right now are focused on the transition from the baby boomer generation to the millennial generation. That gets a lot of ink. But actually, millennials, a lot of them are already in their 30s today.
So those companies need to look at the rising generations that will soon replace them, known as Generation Z, and then Generation Alpha. Although the eldest generations of Generation Alpha are barely 10 years old today, if you think about it, they'll be entering the workforce in just a decade themselves. So that workforce of the future will be more diverse, more dispersed, in terms of remote working, and more highly skilled than their predecessors. And that was, according to another of the people on the panel, who's Brett Wood, the CEO of Toyota Material Handling.
And Wood talked about some ways that material handling firms can adjust their hiring strategies to recruit and retain those new generations of workers. For example, they have to emphasize the company's sustainability policies, and also make a point of being what he called "good corporate citizens," through steps like offering employees paid time off if they want to volunteer at local charities. So it's going to be interesting to see, over the coming decade, if companies will take some of those points of advice as they really try to reshape themselves to handle those new technologies.
David Maloney, Editorial Director, DC Velocity:
Well, as always, workers are the most important asset that we have, so it's critical to create that good environment for them to work in. Thank you, Ben.
Ben Ames, Senior News Editor, DC Velocity:
For sure.
David Maloney, Editorial Director, DC Velocity:
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out. Thank you, Ben and Victoria, for sharing highlights of the news his week.
Ben Ames, Senior News Editor, DC Velocity:
Thank you, Dave.
Victoria Kickham, Senior Editor, DC Velocity:
Yeah, my pleasure.
David Maloney, Editorial Director, DC Velocity:
And again, our thanks to Dr. Yossi Sheffi at MIT for being with us today. We encourage your feedback on this topic and our other stories. You can email us at podcast@dcvelocity com.
We also have a special free offer for our listeners: You can get a complimentary copy of this year's State of the Retail Supply Chain report. This annual review of retail supply chains is the result of research collaboration between Auburn University's Center for Supply Chain Innovation, the Retail Industry Leaders Association—better known as RILA, and DC Velocity. This ninth installment o the study covers highly relevant topics that impact success or failure in the hyperspeed omnichannel retail environment. So download your free copy today by going to DCVelocity.com/retail.
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