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Don Hicks is the CEO and founder of Optilogic, which helps companies design supply chains. Hicks has a passion for software technology development and applying scientific and engineering methods to solve complex supply chain problems. He is best known for founding LLamasoft, a supply chain modeling, optimization, and analytics solution in 1998 that later sold for $1.5 billion. In 2015, while CEO of LLamasoft, Hicks led the acquisition of Barloworld’s Supply Chain Software Division and IBM’s LogicTools supply chain applications business unit.
In addition to his work in the supply chain technology market, Hicks founded a biotech software company called DNA Software. He later established Saganworks, an Ann Arbor-based tech firm that provides a 3D immersive experience used in museums, galleries, and a range of other industries.
Hicks graduated from the United States Military Academy at West Point and served as an officer in the US Army’s field artillery branch in Germany.
David Maloney, Editorial Director, DC Velocity 00:01
Is nearshoring the answer? Signs of optimism in freight markets. And there's progress on electrifying vehicles. 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.
Logistics Matters is sponsored by PERC, the Propane Education and Research Council. Propane is the safe, reliable energy for material handling. Propane-powered forklifts can improve air quality inside your facilities for a healthier, more productive workforce. See how propane can give your productivity a boost at propane.com/forklifts.
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: as manufacturing is declining in China, many companies are turning to Mexico and other Latin American countries to ensure a steady supply while shortening their supply chains. But will nearshoring actually resolve many of the problems that supply chains have faced in the past few years? To find out, here's Ben with today's guest.
Ben.
Ben Ames, Senior News Editor, DC Velocity 01:29
Thanks, Dave. Companies around the U.S. have seldom had to be more flexible than in recent years to keep their global supply chains running in the face of major disruptions. There's the pandemic, war in Ukraine, labor strikes at West Coast ports, tariffs and trade wars. An increasingly common reaction to some of these challenges has been to move their production, manufacturing, or procurement operations out of distant countries around the world and closer to American borders. It's often called nearshoring, and it sounds great on the surface, but our guest this week is here to talk about some of the challenges with nearshoring. He's Don Hicks, President and CEO of Optilogic. Welcome, Don.
Don Hicks, CEO, Optilogic 02:12
Thanks, Ben. Thanks for having me on the podcast.
Ben Ames, Senior News Editor, DC Velocity 02:16
Glad to have you. And to start us off, could you give our listeners a quick reminder of what Optilogic does and the company's place in this conversation?
Don Hicks, CEO, Optilogic 02:25
Sure thing. So, Optilogic is a fairly new company. We've been around for around four years, although much of the team has worked together over the last 20, and we're the world leading provider of a software platform that does supply chain design. And supply chain design is — think of it like a CAD program for modeling and designing and redesigning global supply chains. It's useful for anybody who's got a complex logistics network, but it's especially useful for complex supply chains that are global and that are massive and big in scale. So, it kind of, the people you're talking about and the companies you're talking about looking at reshoring, they need modeling and tools to be able to help them figure out how to do it, and that's what we provide: software and expertise. We're the design guys.
Ben Ames, Senior News Editor, DC Velocity 03:16
Got it. Sounds like a great match for this. So, speaking about, you know, massive and global networks, China has been what — people often call it the world's factory or the world's manufacturer, for last couple of decades. But in the last few years, we've seen a jump in the number of factories and assembly plants in Mexico and Canada. Is that what you've been seeing too?
Don Hicks, CEO, Optilogic 03:40
For sure, but I've been around long enough that I've seen some of this stuff before. I've been, prior to Optilogic, I founded and grew a company called Llamasoft that was the previous leader in supply chain design, and I remember in the late '90s, in the aftermath of NAFTA, companies, if you remember the great sucking-sound metaphor that all the factories were going to go to Mexico, and companies did start moving there. And as China then started to open up as an even lower-cost option in the early 2000s, you saw everyone was looking at offshoring as the strategy. So, now, you know, when we say "reshoring," we never know what the long term is going to be. One thing I can tell you is, it's unpredictable, and they say it's, forecasting is very difficult, especially when it's about the future. What I can forecast is continued change. So, this effort to reshore, it's basically the core dynamics and some of the assumptions that drove offshoring. These companies are now revisiting those. They think that some of their assumptions around the stability of global trade, around free trade and global barriers being dropped, some of those are actually being rolled back, and it's causing companies to rethink their actual structure and their design. That's a process that never ends. So, right now it's reshoring, or partial reshoring, and companies are grappling with this. We certainly see a massive demand and an opportunity as well, to take a look at the global supply chain and redesign it based on what we think is going to happen going forward.
Ben Ames, Senior News Editor, DC Velocity 05:26
Makes a lot of sense. And by the way, I love getting a Ross Perot quote in there. So, this is not just theoretical, as you're saying. Companies are actually putting nearshoring and reshoring into action. They're putting their their money where their mouth is, but you know, I know that you say, deciding to nearshore, or reshore, won't solve all your supply chain issues overnight. Why is that?
Don Hicks, CEO, Optilogic 05:49
Well, designing means making a choice, and making a choice means making tradeoffs and a compromise. When companies chose, and explicitly chose, to offshore, and to locate and base a lot of their manufacturing in China, they knew that China was actually far away. They knew that they were going to have to rely on ocean transportation, and they knew that they were going to be basing their supplies in a country with enough — that was rapidly developing, but still an authoritarian regime. And so, you made the tradeoff. And so, there is no, it's not a silver bullet. The choice to come back and to move some or all of your capacity closer geographically — the reason you went to offshore was because things were cheaper, but they were also reliable enough that it was worth the grab. And now what we're seeing is, reshoring, those risks of keeping things out there don't outweigh, they're not outweighed by the cost advantages. And I want to submit that there's a model for making design choices that we talk about, and that is, a supply chain's design is a balancing act of the service that your network provides, the financial performance — what does it cost from capital and expense? — and then, what's the risk inherent in that network? Those three competing factors — service, financial performance, and risk — you've got to balance those, and what's going on with China is that the risk has gone up, and that cost advantage has actually been shrinking for quite a while. And in some cases, China, even before the pandemic, people have been looking and companies have been offshoring to Vietnam and Bangladesh and other places that have very low-cost cost advantages over China. So, there are, you know, when you move things over to reshore, you've got to model it on out and say, is it worth the change in those dimensions of service, financials, and risk, and you deal yourself a new hand when you change the situation and move to a different design. The last comment I'll make on this is, you're never really done. There's never a finish line, because design and redesign happens in the context of a changing world. So, as things shift, as climate change brings new dimensions, as potentially politically unstable elements continue to go, companies have to continue to redesign and change that balance of service, financials, and risk. And design and design expertise is the technology that lets these companies survive in the long term.
Ben Ames, Senior News Editor, DC Velocity 08:37
That makes a lot of sense. And it's complex equation here, I mean, that balancing those three variables, I imagine, depends on exactly which country you're talking about, and also decides on — depends on what your particular, your own company is trying to do. How do you begin to evaluate, you know, between the nearshoring or offshoring nation that you're looking at, and you know, the specific details or the profile of your company?
Don Hicks, CEO, Optilogic 09:03
Yeah, well, you're quite right to bring that up. That's — I'll make the China reference of The Three-Body Problem, the famous scifi movie that or series and books that have been out there: It's an unstable equilibrium, okay? It's a really difficult thing to trade those three off. What I'll tell you is, the first thing you have to do is measure it. If you don't measure it, you don't know what's there, and I will fault many organizations I've seen that when they were putting things out to China, they only looked at financial performance. okay? They said, "Well, service is what it's going to be. If it's cheaper, then we're going to do that, and I'm going to assume the risk away." And that has changed. The mentality of decision makers is risk is always there, and how do I incorporate this into my compromise decision? First, you measure it, and we made a strategic decision last year when we were launching our platform, we built a risk engine to try to quantify and put a score on each and every supply chain that gets evaluated, and we welded it on to our software. So, every time you model out a scenario or evaluate a choice, you get a risk rating on it. And there's nothing magical about those numbers, but it is trying to put risk on the conversation. Get it in there, so that it's in mind to try to make this balance. When you ignore it, you assume it away, and the last five years have been an illustration of the terrible dangers of just assuming risk away.
Ben Ames, Senior News Editor, DC Velocity 10:39
That's an understatement, for sure. This has been a great conversation. We have just a couple of minutes left, here, but can you share any sort of best practices if companies decide that they do want to go down this road?
Don Hicks, CEO, Optilogic 10:51
Oh, yeah, for sure. You know, the best practice number one, this isn't — you ARE designing and redesigning your supply chain, whether you know it or not. Otherwise, you're just waiting around to get culled, to get Darwined out of existence. Design needs to be thought of as a discipline, as a field of study and a capability that your company adopts. Most of the time and most of the effort that these companies, these these big, incredibly important companies, most of their resources are spent managing and running the supply chain, as as it should be. But you can't plan yourself out of a bad supply chain or the wrong supply chain. Design itself is a new basis of competition. Companies that evolve the capability to dynamically design and redesign themselves over the long term will continue to evade and evolve and outstrip natural selection, which is going to kill your competitors off. This is not nice-to-have, it is must-have. If you're not developing design as a capability, you're food.
Ben Ames, Senior News Editor, DC Velocity 12:03
Excellent concept to end on. I've really enjoyed our talk here and appreciate your coming on to help bring us all up to speed now.
Don Hicks, CEO, Optilogic 12:10
What a pleasure. Thanks for having me, Ben.
Ben Ames, Senior News Editor, DC Velocity 12:13
Our guest this week has been Don Hicks, the president and CEO of Optilogic. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 12:20
Thank you, Don and Ben. Now let's take a look at some of the other supply chain news from the week. Victoria, you wrote this week that freight brokers are seeing some light at the end of the tunnel and there's some new data to back up that better conditions may be returning. What can you tell us?
Victoria Kickham, Senior Editor, DC Velocity 12:37
Yeah, that's right, Dave. So, despite ongoing weakness in trucking and transportation, freight brokers are relatively optimistic about business conditions in the months ahead, and that's according to a survey from freight marketplace Truckstop and Bloomberg Intelligence, and that was released this past Wednesday. The semiannual freight broker survey showed that more than 60% of freight forwarders, third-party logistics services providers, broker agents, and others expect demand for their services to grow over the next six months. This comes in the face of weaker demand, falling rates, and increased competition that we've seen recently, but it's based on sentiment that a market turnaround may be in sight. The survey polled nearly 200 industry professionals about conditions in the first half of 2023, as well as their six-month outlook, and most reported weaker conditions through the first half of the year. Nearly half of the respondents said their business volume fell in the first half compared to the same period a year ago, with an average decline of about 2%. Roughly 35% said volume grew in the first half of the year, however. That was due mainly to newer businesses gaining share and to customer-specific opportunities. Overall, the respondents also pointed to declining spot-market rates, with many noting that they think those rates may be near bottom. Thus, they're feeling that a market turnaround may be in sight.
David Maloney, Editorial Director, DC Velocity 13:59
Well, let's hope so. And, Victoria, we've been hearing for months now that the industry may return to more typical growth patterns. Is this just more evidence of that?
Victoria Kickham, Senior Editor, DC Velocity 14:09
That's right, we have, and the short answer is "maybe." The freight broker news came on the heels of a positive report earlier in the week from the Logistics Managers' Index, or LMI, and that's an industry benchmark that we report on regularly here at Logistics Matters. The LMI measures industry sentiment among logistics managers nationwide. This week, researchers said the August LMI registered 51.2, and that's up nearly six points compared to the July reading, and it marked the first time in three months that business conditions have expanded across the industry. The LMI dipped below the 50-point mark indicating growth in May, and it remained there in June and July, and actually July marked an all-time low reading of 45.4. Essentially, all this means that industry conditions slowed sharply during that time, those three months, but expanded in August. But to answer your question, Dave, the LMI researchers said it's unclear whether or not August's expansion was a one-off deviation from those recent market declines, or if it marks a pivot back toward the more typical industry growth rates you mentioned. But they said there are glimmers of hope, and to quote the report, the researchers said, you know, "When taken together with other anecdotal evidence and metrics, ...it seems that a move back toward continued expansion is," as they said, "quite possible." Only time will tell, of course, but these two reports signal that there is a bit of optimism out there, so that's good news.
David Maloney, Editorial Director, DC Velocity 15:34
Yeah, let's hope. I mean, it would be nice to end the year on a bit of an upswing after a difficult first three quarters so far in 2023, so hopefully, we do end strong this year. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 15:46
You're welcome.
David Maloney, Editorial Director, DC Velocity 15:47
And Ben, we have been reporting on the shift the industry will be making away from diesel engines to electric-powered vehicles eventually. That'll probably come over the next decade or so, but such a change requires a lot more batteries than are currently being produced and available to the market. You wrote this week on some progress on that front. Can you share some more details?
Ben Ames, Senior News Editor, DC Velocity 16:09
Yeah, I'd be glad to, and your point is exactly right. You know, the adoption of electric vehicles — both passenger cars, but also logistics applications that we cover, from forklifts and yard trucks to the big tractor-trailers — it varies considerably geographically across the country, and it depends on some things like sales rebates, but also the infrastructure, charging infrastructure and that supply of batteries, for sure. It's becoming a big deal, even more so, lately. You know, some of these supply chain disruptions that we see in many different areas is also true about batteries and the raw materials, the specialized ores that go into them. To get around those type of hurdles, this week, we heard about a plan by three major truck and engine manufacturers to build their own battery factory right here in the U.S. So, this involves a large investment, however you figure it, between two and $3 billion, with a B, and it's funded by three partners: Cummins — they make those big diesel engines; Daimler, the truck OEM; and Paccar — they're the ones who make Kenworth and Peterbilt truck brands, among others. So, those three will each own 30% of a new joint venture that they're forming. The final 10% will be EVE Energy, E-V-E. It's a publicly traded Chinese firm that will serve as the technology partner, because they know how to make battery cells already. So, the partners say that this move will meet existing demand for electric commercial vehicles and industrial applications while also creating U.S. manufacturing jobs in the clean-tech sector.
David Maloney, Editorial Director, DC Velocity 18:02
Ben, that is a large investment, and it sounds like a smart way to solve some of the supply chain challenges that we've been facing with the EV batteries. Do they say how many batteries they'll actually be able to make at the new factory?
Ben Ames, Senior News Editor, DC Velocity 18:14
Well, here's where it got a little less clear. This plan's in the early stages, to be fair. You'll notice that I didn't mention any indication yet of the location of the factory, although they did say that they would make a certain battery chemistry that's lithium-iron-phosphate, LFP batteries — those don't require certain of those raw ores that can be hard to obtain, like nickel or cobalt. But they did share a detail about production and output, that they said it would be a 21-gigawatt-hour factory. To be totally honest, I had to go do a little research and figure out how big that is. In transportation terms. gigawatts are like horsepower, in the sense that they measure the maximum output at any given slice of time, and gigawatt hours indicates how long a device like a motor can sustain that top effort. So, as one yardstick, the biggest battery that's now available in one of Daimler's own electric trucks, their their 2022 Freightliner eCascadia model, it runs at about 440 kilowatt hours — kilowatt, obviously, a millionth of a gigawatt. So, at such a rate, the proposed factory's annual output could offer a single battery charge to about 47,000 of those trucks. That's a pretty big number. Of course, it's a year's output. I also did a little more math. If you took an electric truck that ran for, when we look at average tractor-trailer distances, they run about 45,000 miles per year, whether it's a diesel engine or an electric engine. So, if you took an electric truck that ran for those 45,000 miles, and it had to recharge about every 230 miles — that's been the case for this spec of Daimler's truck — the new factory could keep a fleet of 250 trucks running for a year. So, that's the comparison that made the most sense to me in the end. However you slice it, you know, it's a pretty darn big factory. A lot of details yet to come, so we'll be keeping an eye on how they get that firmed up.
David Maloney, Editorial Director, DC Velocity 20:30
Right. But 250 trucks running for a year from one factory, there are a whole lot more trucks on the road than that, and while it sounds like it's good, we're going to need a lot more of those kinds of factories before we actually do away with internal-combustion engines, the way it looks to me, so... but a good first step.
Ben Ames, Senior News Editor, DC Velocity 20:48
Absolutely. I think a good first step is a great way to describe it.
David Maloney, Editorial Director, DC Velocity 20:53
Thank you, Ben.
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories, and check out the podcast Notes section for some direct links on the topics that we discussed today.
We'd also like to thank Don Hicks of Optilogic 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.
Speaking of subscribing, check out our sister podcast series Supply Chain in the Fast Lane. It's coproduced by the Council of Supply Chain Management Professionals and Supply Chain Quarterly. Check out Supply Chain in the Fast Lane wherever you get your podcasts.
And a reminder that Logistics Matters is sponsored by PERC, the Propane Education and Research Council. Propane is the safe, reliable energy for material handling. Propane-powered forklifts can improve air quality inside your facilities for a healthier, more productive workforce. See how propane can give your productivity a boost at propane.com/forklifts.
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:
- Survey: Freight brokers unfazed by industry challenges
- Truck manufacturers to build joint battery factory to ensure U.S. supply
- Visit Supply Chain Quarterly
- Listen to CSCMP and Supply Chain Quarterly's Supply Chain in the Fast Lane podcast
- Listen to Supply Chain Quarterly's Top 10 Supply Chain Threats podcast
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