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Zachary S. Rogers is an assistant professor of operations and supply chain management at Colorado State University. His primary research interests include the financial impact of supply chain sustainability, emerging logistics technologies, supply chain cyber security and various other emerging purchasing and logistics issues. He is also a researcher and co-author of the monthly Logistics Managers’ Index (LMI) report. Dr. Rogers’ work has appeared in multiple academic journals, corporate white papers, trade publications, and conference proceedings. He is also a frequent speaker at both academic and practitioner-oriented conferences. Dr. Rogers earned his B.S. and M.B.A. degrees at the University of Nevada, Reno and his PhD in supply chain management from Arizona State University. Prior to returning to academia Dr. Rogers worked as a purchasing agent for a large hotel-resort and as an operations manager for Quidsi, a subsidiary of Amazon.
David Maloney, Editorial Director, DC Velocity 00:00
What will our supply chains look like in 2023? Will key product shortages continue in this new year? And new investments and acquisitions.
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 to the start of the fourth season of Logistics Matters.
Logistics Matters is sponsored by Beckhoff. Have the entire digital fufillment center at your fingertips with automation by Beckhoff. It's digital transformation done right. For more information, please visit Beckhoff.com/intralogistics.
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 begun another year. What's in store for our supply chains in 2023? One way of determining that is by looking at current trends and how they relate to historic patterns. To find out more. Here's Victoria with today's guest.
Victoria.
Victoria Kickham, Senior Editor, DC Velocity 01:17
Thank you, Dave. Our guest today is Zac Rogers, assistant professor of supply chain management at Colorado State University. Zac is here to talk with us about economic conditions in the logistics industry and what we may be able to expect this new year. Welcome, Zac.
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 01:33
Hi, thanks for having me. Happy New Year.
Victoria Kickham, Senior Editor, DC Velocity 01:36
Yeah, happy New Year to you as well. So, supply chains have experienced a lot of ups and downs the past couple of years. I wanted to start by asking you, you know, how would you sum up the industry conditions in 2022? What were some of the highlights?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 01:50
Well, the conditions in 2022 were a reaction to what happened in 2021. In 2021, we were faced with record shortages, crazy congestion, and so firms poured a lot of resources into building up their supply chain networks and getting as much capacity on the ground as possible, particularly for transportation. We also had big orders for inventories, and firms are over-ordering and ordering, you know a big bulk quantities, trying to catch up and beat all the congestion that happened in 2021. Well, at the beginning of 2022, all that inventory rolled in pretty much right as the economy slowed down. There was the increase in diesel prices that came out of the Russian invasion of Ukraine, and inflation started to go up like crazy. And so for a lot of 2022, we had sort of this weird mirror image of what we had in 2021. Where in 2021, we could not get inventory into the system, we could not get things in the ports or on the store shelves, in 2022, we had way too much inventory for most of the year. On the flip side, in 2021, we had no excess transportation capacity; spot-rate prices were really high; tender rejection indices were 25, 26%. And then in 2022, suddenly, we had all this transportation capacity built up, and nothing to do, because basically all the inventory had got here early. You know, the normal sort of holiday rush that happens in supply chain in September, October, November was already pretty much done by April of this year [2022]. And so, especially in the back half of the year, we had all of this idle transportation capacity just sitting there, and that really drove transportation prices down and deflated the balance sheets of a lot of companies that had been doing record numbers in 2021.
Victoria Kickham, Senior Editor, DC Velocity 04:00
It's certainly been, as you say, ups-and-downs roller coaster. You base your outlooks on experience and observations, of course, but also on the monthly Logistics Managers' Index report. or LMI. and I know that's, you know, what you use for a lot of your, your assessments here. Can you tell us a little bit about that report and what it showed? Maybe even just the most recent one, the December, which just came out this week?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 04:23
Absolutely. So, in December, so — and again, just to remind your listeners, the way to interpret the LMI report is that any number above 50 means growth; [the] further above 50 the more robust to growth. Anything below 50 means contraction, and the further below 50, the more sharp the rate of contraction is. So, in December, our LMI came in, the overall number, at 54.6, which is actually up slightly from November; it's up about a point from November. And that's a fairly moderate rate of growth. You know, 54.6 means growth, but not crazy growth, and really, we see that growth fueled by a few specific metrics, in terms of logistics. So, transportation, as I mentioned, pretty dead in the water in December, which is unusual for December. You know, normally December is, everything is go-go-go and very robust. And I'll just, I'll give you an example: Last year in December — so December of 2021 — our transportation prices index. And transportation price is a great way to gauge the health of the transportation industry because unlike, say, warehousing or something else, transportation prices change every single day, especially when capacity is crunched and folks are turning to the spot market. So, in 2021, December, our transportation prices number was 87.6, which is not that far off from where it was in December 2020; it was 85.1. Both of those are very strong rates of growth, and that's the kind of growth we would expect to see in December, as folks are ramped up for the holiday season. In December of 2022, it was 36.9. So, a full 50 points lower than what we saw just the year before. So, and 36.9, by the way, I should mention, is the sharpest rate of contraction, the lowest number we've had for the transportation prices metric in the six and a half years we've been doing the LMI. And so, we saw a really, really sharp decline in transportation prices, which is not normally what you would expect. And it was really driven, I think interestingly, really driven by a slowdown sort of upstream in the supply chain. Like, if you look at sort of the the sister metric [to] transportation prices, transportation utilization, which is, "Okay, of the available capacity, how much of this are we using," transportation was really being utilized downstream by retailers. And specifically, you know, last-mile delivery — "Oh, you ordered Christmas presents on December 18, we're going to try to rush it" —or in my case, maybe December 22, or 23. We're trying to rush it to where it needs to go. And we're utilizing a lot of trucking for last-mile delivery. Well, transportation utilization downstream was a 56. So, that's growth. So basically what that means is, we were using more transportation in December for sort of last-mile delivery stuff than we did in November. When you look upstream, though, that number was a 42.9. So, transportation actually went down for — an upstream would be things like manufacturers, wholesalers, distributors — they actually were using less transportation in December, and the way it breaks, it's our sort of weighted index, we put them together with the upstream and the downstream, that led our transportation utilization number to come in at a 48 for December, and so we actually used less transportation in December than we did in November, which is pretty much unheard of. If you look back the two years previous, we'd been in the mid-60s for December, and now we're in the 40s. So, we actually saw transportation utilization contract. So, that's kind of the downside, the transportation side. When you look at inventories and warehousing, inventories, you know, inventory costs stayed at 73, and that's because warehousing prices stayed at 72. You know, even though we've done a really good job at running inventories down, we still have all this really expensive real estate that's still fairly full of inventory. Now I will say, if you look at the inventory metrics — that's specifically for inventory levels — over time, we hit our all-time high this year, or 2022, in February. Inventory levels were at 80.2. We've never been in the 80s before or since. Crazy growth. And essentially what that was was, all of those, you know, hundreds of ships that were backed up at the Port of L.A. finally got to the United States and the inventory got put on the shelves, and then had nowhere to go. Well, it's really been a story, all year, of how do we run our inventory levels down, and in December inventories came in at a 57.3, which is actually a really good number for December. In December, you would expect to have some inventory growth, but also, you know, a lot of inventory's going out the door, and as we saw, consumer spending was actually up in December for holiday shopping. You know, I saw MasterCard said it was up by 7.6% from last year, and I think that sort of went in the face of what some people were expecting because, you know, "Oh, there's inflation is the economy's slowing down," and to that, Americans responded, "Well, we'll put it on our credit cards." You know, and we're not going to not give each other presents for the holidays. And so that's sort of what happened, and it allowed firms to really run their inventory levels down, and it has reduced costs for inventories. It has reduced the cost of warehousing. What we're seeing now, though, is, okay, we've run our inventories down. Well, warehousing is different from transportation. Transportation, okay, I pay for it today and then if I don't need it tomorrow, okay, I won't hire a truck. Warehousing doesn't work like that. Warehousing, you have sort of long term leases, maybe a year, maybe three years. And so even if these warehouses are emptying out, if inventory levels are going down as they are in some sectors, the prices are still high, because there's so many companies that signed contracts when the market was really, really hot. And that's why you see, now, warehousing, construction is finally starting to really slow down, and I think in 2023, all of these really high-price warehousing contracts that were being signed will sort of slow down. And in some ways, I think it's kind of going to be like what happened to the housing market last year, where all these high prices that maybe made sense a year ago no longer do. And I think that's what we'll see in warehousing going into 2023.
Victoria Kickham, Senior Editor, DC Velocity 11:13
So overall, this seems to be pointing toward a moderating of conditions across the industry, and maybe a return maybe to more typical or normal growth cycles? Would you kind of agree with that? Or how do you see that shaping up this year?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 11:29
Well, as normal as the logistics industry can ever be, yeah, sure. I mean, you know, we're not, we're not making paper towels over here. There's, you know, there's a lot of volatility, but yeah. So, when we look at our future predictions, we always ask our respondents "Next 12 months, where do we see this going?" All of our numbers, other than warehousing prices — so, warehousing prices, next 12 months, they predict a 70. And again, that's because warehousing prices lag, because of long-term contracts. But other than that, all of our numbers are in the 40s, 50s, and 60s, all of which are normal rates of change. You know, inventory levels coming in at 54 over the next year, that's the normal amount of inventory coming in. Warehousing capacity being at a 60, that's normal. Transportation prices, 48, so that's still some decline, but a much milder decline than, you know, the 36.9 that we saw this year. And it would be great, I think, for supply chains to get back to normal. You know, for the last two and a half years, all of our future predictions have either had numbers like way up in the 90s or 80s, or way down in the 30s and 40s, and it's just this wild oscillation swinging back and forth, and it really made planning a supply chain next to impossible, because there's so many uncertainties. It's like solving for an equation with four variables, or four unknowns. Now we're getting back to the normal supply chain, which is, you know, like two unknowns. And it's still a difficult math problem, but one that's at least now possible to do, and our respondents really do seem optimistic that 2023 — you know, 2021 was really the reaction to Covid; 2022 was really the overreaction to that reaction; and now 2023 will hopefully be a return to normal.
Victoria Kickham, Senior Editor, DC Velocity 13:22
Well, let's hope the respondents are correct about that. Zac, as always, thank you so much for being with us. We really appreciate your insight.
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 13:32
Thanks so much for having me.
Victoria Kickham, Senior Editor, DC Velocity 13:34
We have been talking with Zac Rogers of Colorado State University. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 13:40
Thank you, Zac and Victoria. Now let's take a look at some of the other supply chain news from the week. Ben, we've just been talking about some of the predictions for our supply chains in 2023, and some of our successes or struggles may depend on that lingering shortage of semiconductors we've written so much about. And again, you wrote on that topic this week. Can you share more with us?
Ben Ames, Senior News Editor, DC Velocity 14:03
Yeah, I'd be glad to. And this really, you know, follows up on a lot of the stuff that Zac, our guest here, was talking about: that business conditions are pretty wild right now. But we had a chance to dig into some of the details about specific parts that are really giving some businesses the fits. You know, one of the most significant variables — that Zac was just talking about, solving for more variables — in recent months has been a growing shortage of semiconductors — computer chips, that is. In the logistics world, that's significant, because chips are a necessary part of so many basic tools of the trade, from handheld laser scanner guns to 18-wheeler trucks. So, the other day, we saw the latest proof that companies are pretty worried about the semiconductor supply chain as they forecast their business moves for 2023. This comes from a survey of manufacturing industry professionals and also conducted by Hubs, which is a Netherlands-based online platform for custom part manufacturing. So, the survey defined five supply chain risks that companies are watching out for in 2023, and the number one on that list was semiconductor shortages. That's led by specifically their concerns about escalating tensions between China and Taiwan. If that happens, you know, God forbid, there's military conflict, that could destabilize the region and of course have consequences for global supply chains, since Taiwan is one of the world's leading producers of those chips. And Hubs pointed out that any disruption there could impede the production of everything from smartphones and computers to vehicles, electronic appliances. And for context, the rest of those top five risks for 2023, after the semiconductors included things like port congestion; uncertainty in demand having to do with inflation; Covid surges, of course, particularly in China now; and potential new carbon-emission regulations. So, that's the sort of comparison basis for what companies are keeping their eyes on.
David Maloney, Editorial Director, DC Velocity 16:15
Well, Ben, all of those trends could make for some tough conditions for businesses. Did the survey find any steps that companies are taking to cope with those challenges?
Ben Ames, Senior News Editor, DC Velocity 16:24
Well, there's no silver-bullet solution for the chip shortage — well, for any of them, but we're talking about chips here today. It takes a lot of money to build new chip factories, and then it takes a lot of time to ramp up production. Congress is helping. In August, they passed the CHIPS Act. It's a $280 billion bill that provides subsidies for chip makers building new foundries in the U.S. So, obviously, that could help. But researchers at Hubs Group, they also said that part of the solution will have to involve companies just building more resilient supply chains. They said that part of the troubles resulted from, there's a general corporate trend we're all familiar with to pursue sort of short-term profit over long-term stability. Particularly Hubs pointed at the profit incentives for the lean manufacturing models, or just-in-time production. And that works, it reduces costs and boosts efficiency, but it leaves you vulnerable. And we've seen that when, you know, really unpredictable events come up, whether there are various global crises, the pandemic, the war in Ukraine, this kind of thing. So, you know, that resiliency that companies need could come from steps like local sourcing, geographical diversification, more agile internal processes, better supply chain monitoring. You know, it's all pretty wise words, but none of those things happen overnight. So, like I said, no silver bullets here. Looks like this issue might be with us for a while.
David Maloney, Editorial Director, DC Velocity 17:59
Right. And no easy fixes, but obviously some necessary ones. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 18:05
Glad to.
David Maloney, Editorial Director, DC Velocity 18:07
And Victoria, as we begin 2023, it might be another year filled with some facility expansions and acquisitions. Could you tell us what some of the companies in the material handling space are up to?
Victoria Kickham, Senior Editor, DC Velocity 18:19
Absolutely, Dave, yeah, happy to. So, as you say, we're just a few days into the new year and we've already seen some interesting announcements in material handling, particularly as it relates to automation. On Wednesday, automated material handling solutions provider Trew said it will build a technology center at its headquarters in southwest Ohio. Company leaders there said the project is designed to fuel innovation and that it will create at least 75 engineering jobs in the region. Trew is repurposing 50,000 square feet of space at its Cincinnati-area headquarters for the center, which is expected to open in mid-2023 — so, you know, halfway through this year, a company spokesperson told me this week. A bit of background on Trew: the company provides automated material handling solutions both to systems integrators and end users, so it designs and implements systems that include hardware and software that essentially make warehouses and distribution centers run more efficiently. The tech center we're talking about here will be a place for research and development, as I said, but also it will be a demonstration testing and training facility. Trew worked with state and local agencies to get this project off the ground, and they'll receive up to, I think, it's like $4 million in assistance, thanks to an R&D grant from Ohio's private economic development corporation called JobsOhio.
David Maloney, Editorial Director, DC Velocity 19:42
Victoria, was there other material handling news this week?
Victoria Kickham, Senior Editor, DC Velocity 19:45
Absolutely, yeah. So, there are a couple of them. Another Ohio-based company, material handling systems integrator Hy-Tek Intralogistics, said this week it acquired Connecticut-based Winchester Industrial Controls, which designs, engineers, and integrates control systems and software, also for warehouse automation applications. So, this acquisition expands high tech service offering and capabilities, obviously, and commenting on the deal, Hy-Tek's CEO Sam Grooms pointed to the addition of Winchester's experienced team of professionals as a major boon to the company, because that will help Hy-Tek's ability to work on concurrent large-scale projects. There's an awful lot going on in this area. Hy-Tek Intralogistics is a rollup of several industry companies: Hy-Tek Material Handling, WorldSource, BP Controls, Fascor, LCS, Johnson Stevens Consulting, AHS, and now Winchester Controls, and it serves clients in a bunch of different end markets, including e-commerce companies, third-party logistics services providers, and parcel companies. I also wanted to mention that, you know, warehouse automation has been a hot topic across the industry these past few years, especially as companies look for ways to address the need to process higher volumes through their facilities with fewer people, and that stems from increasing e-commerce activity, of course, and the tight labor market. This morning, we saw that the Labor Department released the latest unemployment numbers, which showed that unemployment had actually edged down to three and a half percent in December, from 3.7% in November. So I expect we may see more of these types of announcements this year, as both, you know, tech companies and material handling solutions providers, you know, really reach out to kind of address these needs.
David Maloney, Editorial Director, DC Velocity 21:27
Yep. Thanks, Victoria. We'll continue to track it as the year unfolds. Thank you.
Victoria Kickham, Senior Editor, DC Velocity 21:31
You're welcome.
David Maloney, Editorial Director, DC Velocity 21:33
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories, and also check out the podcast Notes section for some direct links on the topics that we discussed today.
And our thanks to Zac Rogers of Colorado State University 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 each Friday.
And speaking of subscribing, check out our sister podcast series Supply Chain in the Fast Lane. Subscribe to it wherever you get your podcasts.
And a reminder that Logistics Matters is sponsored by Beckoff. Have the entire digital fulfillment center at your fingertips with automation by Beckhoff. It's digital transformation done right. For more information, please visit Beckhoff.com/intralogistics.
We'll be back again next week for another edition of Logistics Matters, when we will look at what it takes to manage all of these nasty holiday returns we've been seeing. Be sure to join us. Until then, have a great week.
Articles and resources mentioned in this episode:
- Colorado State University supply chain management program
- Survey shows that the top supply chain risk of 2023 is the semiconductor shortage
- Industry groups praise Senate passage of the CHIPS Act
- Trew to open tech center at Southwest Ohio headquarters
- Hy-Tek Intralogistics acquires Winchester Industrial Controls
- Visit Supply Chain Quarterly
- Listen to CSCMP and Supply Chain Quarterly’s Supply Chain in the Fast Lane podcast
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