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Dustin Burke is managing director and senior partner, Chicago, at Boston Consulting Group (BCG). He serves as global co-leader of BCG's Manufacturing & Supply Chain topic and global leader of the supply chain AI team, which leads the development of the firm's digital supply chain offering. He has also led the Infrastructure and Transportation practice in North America. Burke's expertise is in distribution and logistics, digital supply chain, and supply chain transformation.
David Maloney, Editorial Director, DC Velocity 00:01
How do CEOs feel about their supply chains? Tech investments continue to grow. And nearshoring is on the rise.
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 group editorial director at DC Velocity. Welcome.
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As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insights into the top stories of this week. But to begin today: we've made it through the first third of 2023, and it is time to take stock of where we are. Recently, Boston Consulting Group surveyed corporate CEOs to see how they are feeling about business conditions and the supply chains that support them. To find out more about their research, I spoke with Dustin Burke, a managing director and senior partner at BCG. He also leads their manufacturing and supply chain team. Here now is our conversation.
Welcome, Dustin. Thanks for joining us on Logistics Matters.
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 01:38
Thanks, David. Thanks for having me. Glad to be here.
David Maloney, Editorial Director, DC Velocity 01:41
Boston Consulting Group recently conducted research into how CEOs feel about the current business climate. Can you tell us why you undertook this research and who participated?
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 01:52
Yeah. I mean, we undertook this research because, you know, we're interested in sort of what it is that leaders are expecting and where they're focusing their efforts — not because they have a crystal ball, in terms of what will evolve in you know, the industries and parts of the world in which they operate, but because it tells us a lot about what they see as important and how they're looking to respond to any type of uncertainty. We had just under 100 people participating across various roles, all sort of C-suite level, and pretty globally diverse as well, across Asia, Europe, North America, pretty evenly split, but also representation from Latin America and Middle East, even sub-Saharan Africa. So it's pretty diverse, and also diverse with respect to industries: quite a few in consumer goods and in tech and in industrials. We had representation really across the spectrum of industries that comprise the economy.
David Maloney, Editorial Director, DC Velocity 02:49
Overall, how are these executives feeling about the current business outlook?
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 02:53
Of course, it does vary by industry, and it does vary by part of the world, but I think that we have some common themes. In general, most leaders have indicated that they see the environment as highly uncertain in terms of how they might respond in terms of the balance of focus on cost and focus on growth. Most of them, actually, however, are pretty optimistic about their company's own capabilities to respond to that level of uncertainty and have a pretty clear view of what their priorities might be. And if I just sort of focus on some of those risks and areas of uncertainty, perhaps, that seems to be common across those parts of the world and across those industries, inflation is number one for many of them. But then below that, it really does depend on where they're operating, whether it's an ongoing, very tight labor market in North America, or supply chain stresses in Asia, or an energy crisis in Europe. But in general, we see that most C-suite leaders are pretty optimistic about their performance, even though they see the external environment as relatively challenging.
David Maloney, Editorial Director, DC Velocity 04:05
You brought up the word "uncertainty," and it remains an underlying theme throughout the research. What's contributing to the risks and the uncertainty that the business community faces now?
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 04:14
It's a good question. Uncertainty is always going to be a huge part of the external environment. That's not new. But I think the specific circumstances right now are that we're returning, or at least changing, from a period of two to three years in which the global pandemic changed a lot of industries' dynamics, that changed the economics of a lot of these companies for a period of a couple of years, and now many of them are seeing that evolve further — either changing back to some of the circumstances that they experienced, pre-Covid, whether it's the balance of, say e-commerce shopping versus brick-and-mortar shopping, or changing to something else, you know, that exhibits some permanent behavior changes in consumers or some potentially permanent behaviors in terms of how global supply chains are evolving and geopolitical tension. So, there was a period of crisis for a couple of years. It seems like that crisis is ebbing, however, to what point still remains relatively uncertain. At the same time, this is happening against a macro-economic backdrop of high inflation across multiple countries, and in those countries, you have, as a result, rising interest rates, which in turn causes a lot of uncertainty about growth. And when we see lower growth, then we see depressed demand in different industries, and so I think companies are wondering, as we come out of this long pandemic, and as we face some macro-economic policy levers, both of which could depress growth for some of these companies, how should they best respond? And then there are some underlying factors that make those responses just challenging. It remains challenging to find the right talent, for example, in many economies, and at the same time, CEOs are focused on getting to sort of healthy levels of cost performance, which is a bit of a conundrum.
David Maloney, Editorial Director, DC Velocity 06:19
Did your research address when business executives feel that we will return to any sense of normalcy, possibly even pre-Covid levels?
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 06:28
It didn't directly address that. We did ask leaders to what extent they expected additional shocks in 2023, and I think it's pretty telling that about half did. However, the type of shocks they were most concerned about was pretty different. So, some cited ongoing inflation and the resulting rise in interest rates; others talked about geopolitical tension; and others still, though fewer, even talked about the potential for a resurgence of Covid. So, I don't think that we should assume most leaders have a crystal ball. I think what they do know is that there are multiple things that make their particular company performance uncertain. But we did not hear a clear consensus about what will happen this year, or when we'll return to a calmer environment.
David Maloney, Editorial Director, DC Velocity 07:19
And did those concerns vary as you went to different places around the globe?
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 07:24
They did vary. As I mentioned before, you know, I think one thing that is pretty consistent across at least Asia, Europe, North America, is the concern about inflation. After that, however, some of them really do depend on the part of the world in which we're talking about. You know, I think in North America specifically, it's interesting that the labor market was the number-two risk, after inflation, that most leaders cited. So, you have a situation in which companies are concerned about cost, and then at the same time, they still struggle, or they still have to pay quite a bit to get the right talent, so that makes solving that cost problem even harder. And then there were other comments about an uncertain economic outlook, which I think is closely tied to inflation. So really, the macro-economic risks are top of mind, particularly in North America. And then in terms of what companies still think they need to do, it's not just threats, but some of those things they know they need to really do differently going forward, it's digitization, the adoption of technologies, and now, increasingly, incorporating AI into their operations that companies know they need to focus on as they still navigate these economic uncertainties.
David Maloney, Editorial Director, DC Velocity 08:42
Makes sense. Supply chains, of course, have been a major focus over the past couple years in business, and of course that's our focus here with this podcast. And your research still shows that it's one of the issues that is top of mind with many executives. What did the research reveal about our supply chains and where they stand right now?
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 09:02
Yeah, thanks for asking, and it's my focus, too. You know, it's interesting, because when we looked across parts of the world in terms of the types of levers that leaders are looking to take to navigate uncertainty, and potentially also address their cost position, it was in Asia that we saw the highest percentage of leaders citing they plan to take a hard look at their supply chains for productivity and for navigating the environment of uncertainty. But in North America, it was actually a little bit lower. And if I dig a little bit into the data, we did see many respondents in North America talking about looking at suppliers for potential efficiencies, particularly when it comes to indirect sourcing, but we saw fewer talk about looking into their own operations, in terms of manufacturing and supply chain, for productivity. And if we read between the lines, there maybe a couple of reasons for that. I think one is that, you know, typically we still look to external suppliers and maybe org changes as faster levers to get cost out of an organization, versus it can take longer to look into your manufacturing and distribution networks, drive continuous improvement, rationalize excess capacity — that can take longer, sometimes, to pay off. And then I think the second one is, there's still a little bit of a Catch 22, which is that most of the cost opportunities that a CEO can see, whether it's in manufacturing or in supply chain, still involve people-related costs most of the time, and for the past few years, we've all been focusing on just making sure we can get enough people to run plants and DCs. So, are they willing to let go of some soon? Many are not.
David Maloney, Editorial Director, DC Velocity 10:47
You mentioned, of course, that the steps that CEOs can take to limit their supply chain exposure and risks can vary quite a bit, but are there some simple things, simple steps that people can do to mitigate some of that risk?
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 11:03
Yeah, there are. I think, you know, we've talked about supply chain resilience, in terms of the ability to not only have some level of foreseeing what's happening, but to absorb shocks, and then to respond. And some of those things are newer capabilities for most companies in terms of having upstream visibility into your supplier base; in terms of having some scenario analysis and understanding how, if those scenarios were to unfold, they impact your operations; and having some level of sensing of the external environment. I would say too few companies, at least before Covid, really built those capabilities. More have now. The rest of what companies need to do, I think, are the things they've long done, but maybe in a different way: when you optimize your manufacturing network, taking into account how you might have duplicative capabilities, or flexible capacity across the network; when you're making procurement decisions, really taking a hard look at how much cost savings you would need to justify sole-sourcing; some of those things. Those are things that companies have always done, but different factors can help tip decisions one way or the other, and that's what companies still need to do when it comes to resilience.
David Maloney, Editorial Director, DC Velocity 12:24
Some very good insights, we've been talking to Dustin Burke. He's the managing eirector and senior partner at Boston Consulting Group. Dustin, thanks for joining us today on Logistics Matters.
Dustin Burke, Managing Director and Senior Partner, Boston Consulting Group 12:35
Thank you, David.
David Maloney, Editorial Director, DC Velocity 12:37
Now let's take a look at some of the other supply chain news from the week. Victoria, you wrote this week about how companies are dealing with a shortage of labor by increasing their investments in new technologies. Can you share some details with us?
Victoria Kickham, Senior Editor, DC Velocity 12:51
Absolutely, Dave, happy to. Yeah, so a recent report that we came across really reinforces that need for technology and automation in the supply chain, which is a trend we've been covering here at DC Velocity for many years, but seems to have really sped up these last couple of years. And a company called Ivanti Wavelink, which is the supply chain arm of IT software and technology firm Ivanti, released a report this week about supply chain trends for 2023, and at the top of the list is the need for technology and automation to address productivity issues that stem directly from labor challenges. The company polled more than 200 workers across the supply chain, and those include warehouse employees, drivers, customer-support specialists, and C-suite executives, and they found that the majority of them say their companies will invest in new technology to address productivity concerns over the next 12 months. Specifically, 85% of respondents said they'll invest in either new solutions or they'll build upon existing technology that they've implemented in the next year, with more than half saying they intend to increase automation specifically by up to 30%.
David Maloney, Editorial Director, DC Velocity 14:02
That's really interesting. Victori, did they say what specific technologies are most in demand?
Victoria Kickham, Senior Editor, DC Velocity 14:07
According to the report, a couple of things: tablets and handheld mobile computers with barcode scanners are the most-used tech tools right now in supply chain. But they said that wearable computers and automated picking tools are trending upwards, and that those are the technologies most companies are looking to invest in. So, definitely some specifics there. But there is a caveat to all this. The respondents to the survey were very clear that ease of use and dependability are central to accelerating adoption of any of these tools, both in the warehouse and on the road. Reliability is the biggest consideration when evaluating new technology; roughly 70% of the respondents said that. But other concerns were very close behind. Those include ease of deployment — that was about 67% saying that; ease of learning — that was 63%; and then adaptability, also 63%. And what they mean by that is, you know, a system that can quickly react to any needed changes that a company would have to make. So, these are all top considerations that companies are going to make when they're looking to invest in these technology solutions to help deal with the labor challenges that so many companies are faced with right now.
David Maloney, Editorial Director, DC Velocity 15:18
Right. And it looks like that labor shortage isn't gonna go away, so certainly this trend of investment in technologies is not going to go away, either.
Victoria Kickham, Senior Editor, DC Velocity 15:25
That's right.
David Maloney, Editorial Director, DC Velocity 15:27
Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 15:28
You're welcome.
David Maloney, Editorial Director, DC Velocity 15:30
And Ben, you wrote this week about how the nearshoring trend is leading to more investment by U.S. logistics firms in Mexico. Can you give us some details on that?
Ben Ames, Senior News Editor, DC Velocity 15:39
Yeah, I'm glad do. During the pandemic, we all saw how a lot of brands and retailers had to cope with the delivery delays and the shortages of goods that that we all experienced. A lot of those companies had just-in-time supply chains, and turns out that that doesn't work so well, when, all of a sudden, of course, you get border closures or travel bans or these kinds of things. So, a lot of those same companies, in the aftermath and the recovery, have been looking for ways to build more reliable connections to their factories and to their suppliers in general. So, this week, we saw some evidence of that specifically, that the answer for a growing number of them appears to be Mexico. For decades, of course, retailers have been importing their goods from factories in Asia, particularly in China, largely going to the U.S. west coast. But, of course, it's a much shorter trip to our neighbor on the southern border. So, one example that we saw was Redwood Logistics. They're a 3PL in Chicago, and they said that they had expanded their operations into new offices in Monterrey, Mexico. That's building on some five years of history of doing business in that country, but they're expanding what they're doing into a larger operation. And it's not just speculative. In other words, they said that they're doing it, really, because their customers are going there. So a Redwood executive named Jordan Dewart, who's the president of Redwood Mexico, that division, said that Mexico has evolved from being an exporter of basic goods to being a manufacturing hub for the most complex and technologically advanced consumer goods, and so they're seeing investments across a lot of different verticals. And Dewart said that as shippers of all kinds make the move south of the border, it's vital that we grow to match their efforts.
David Maloney, Editorial Director, DC Velocity 17:30
Ben, that's a wide variety of goods and sectors that you just talked about. Are there specific types of goods that retailers are looking to source in Mexico?
Ben Ames, Senior News Editor, DC Velocity 17:40
Not really, from what I've seen so far. Basically where shippers go, 3PLs will follow. Redwood had been talking about automotive, appliances, consumer goods, as we said, pharmaceutical, but in a broader sense, we saw the pattern play out more recently in the, of course, there was a huge, $30 billion merger between Canadian Pacific and Kansas City Southern — we're talking about railroads here — and they said that they had done that move largely to create what they call the only single-line railway that connects Canada, the U.S., and Mexico. So, obviously, they're betting big on that kind of developing North American trade. But we also saw another U.S. 3PL this week make a similar kind of move. That was Florida-based BlueGrace Logistics. So, BlueGrace had established a Mexico office that, it will start operations in late 2023, and to your question, BlueGrace said that it's positioning itself to become a transportation-services gateway for, they mentioned electronics, appliances, and automotive industries, as well as consumer packaged goods. And again, BlueGrace sounded a similar note to Redwood. They said it was just aligning itself with its shippers' needs. So, the BlueGrace CEO, Bobby Harris, said, "Our customers are becoming less reliant on overseas suppliers. And this next phase in BlueGrace's growth will help to clear the path of least resistance getting their products to market." So, again, it seems like both the transporters and the 3PLs are following what shippers are doing in order to try to remove some of those high hurdles that were revealed during a pandemic.
David Maloney, Editorial Director, DC Velocity 19:26
Right, and of course those shortened supply chain should also make a difference for their customers, I would think, as well.
Ben Ames, Senior News Editor, DC Velocity 19:32
I think we'll probably see that, but we'll be covering it, so...
David Maloney, Editorial Director, DC Velocity 19:36
thank you, Ben.
Ben Ames, Senior News Editor, DC Velocity 19:37
Glad to.
David Maloney, Editorial Director, DC Velocity 19:39
We encourage our listeners to go to DCVelocity.com for more on these and other supply chain stories, and check out the podcast Notes section for direct links on the topics that we discussed today.
And again, our thanks to Dustin Burke of Boston Consulting Group for being our guest. We welcome your comments on this topic and our other stories. You can email us at podcast@dcvelocity.com.
We also encourage you to subscribe to Logistics Matters at your favorite podcast platform. Our new episodes are uploaded on Fridays.
Speaking of subscribing, check out our sister podcast series Supply Chain in the Fast Lane, coproduced for the Council of Supply Chain Management Professionals and Supply Chain Quarterly. Subscribe wherever you get your podcasts.
And a reminder that Logistics Matters is sponsored by Hyster. With strength, durability, and their continual focus on safety, Hyster is powering your possibilities. For more information, visit hyster.com. That's H-Y-S-T-E-R dot com.
We'll be back again next week with another edition of Logistics Matters. Be sure to join us. Until then, have a great week.
Articles and resources mentioned in this episode:
- Boston Consulting Group
- Tech investments grow as labor problems persist
- Redwood Logistics expands Mexico footprint as nearshoring trend gains steam
- Visit Supply Chain Quarterly
- Listen to CSCMP and Supply Chain Quarterly's Supply Chain in the Fast Lane podcast
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