Perspective: Building Resilient Supply Chain in a Post-Covid Era [PODCAST]

Written byExpeditors24 minute read

A mostly accurate transcript of this podcast is provided to assist comprehension and promote understanding. The transcript almost inevitably contains errors, mistakes, and (as our favorite 5-year-old nephew Kai might say, if we had a 5-year-old nephew named Kai) other boo-boos resulting from, e.g., words or phrases that are inaudible; the use of non-English-words; misspellings; transcription/speech-to-text service limitations; and/or other sources or kinds of inaccuracy. Thus, the transcript is not to be considered or relied upon as, an official record. Indeed, provided "as is," the transcript neither creates nor includes express, implied, and/or statutory warranties of any kind, and Expeditors International of Washington, Inc. and its subsidiaries ("Expeditors") disclaim all warranties. Expeditors retains all rights to the transcript; your use is personal, ethical, compliant, and non-commercial in nature only. Expeditors shall have no (and does not accept any) liability for transcript error(s), mistakes, or Kai boo-boos; lost profits or losses; or direct, indirect, incidental, consequential, special, exemplary, or punitive damages in connection with or related to any use of the transcript. Any opinion directly or indirectly expressed in the transcript does not necessarily reflect the views or position of Expeditors.

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Chris Parker: Hello, everyone, and welcome to The Expeditors Podcast, where we look at the logistics and freight forwarding industry through the lens of a global logistics provider. I'm your host, Chris Parker, and today's topic is Building Resilient Supply Chains In A Post-Pandemic Era. Joining me today is vice president of supply chain solutions at Expeditors and three-time podcast guest champion, Ian Mallison. Ian, welcome back for the third time. The latest and greatest, here you are.

Ian Mallison: Is that a record? Am I on top of the pops?

Chris Parker: You are, yeah. Your name is on the belt right now. It's on its way over to you. You can wave that around.

Ian Mallison: I'll get a little trophy on my desk. I'll be very proud of it.

Chris Parker: Well, Ian, what has been going on in your world of supply chain solutions? How have the last couple of months been or the last year been for you? It's been a while.

Ian Mallison: It has been a while, yeah. I always enjoy talking to you. It's a forever-changing picture, Chris. Last month, last year, only last month, somebody sadly put a ship into a bridge in a port. I would tell stories about parking ships in the Suez Canal, and we've had another example of that. And, of course, pirates in certain parts of the world take ships on different routes. There's always something. Always something going on. Panama Canal did not have enough water in it. That's just nature forcing the agenda. But of course, things around the world are constantly changing as well. So it makes my life and my career very interesting because there's always something to talk about, always disruptions, either known or unknown, to take into consideration. That's ultimately what we do when we talk to customers. We're always thinking about what we know and maybe what we don't know, as well as how we plan for these things.

Chris Parker: Going off of that, what would you say then excites you the most about your role and the work that you're doing?

Ian Mallison: Oh, it's fascinating to talk to different customers about their strategy. Of course, every customer, particularly if they're in different industries, so whether you're in the retail industry or the manufacturing industry, whatever industry or sector you're in, of course, everybody has their own way of working to a certain extent, automotive, healthcare, et cetera, et cetera. There are different subtleties and requirements for each one, and ultimately, they've all got to get products from one place to another, somehow, some way. But just having the variety of the challenges put on our plate that's what I probably enjoy the most. It's been a fascinating journey, and I love it. I love talking to customers about how the experience that I or we have gained over the many, many years of doing this can apply to their needs, either short-term or long-term. And, of course, customers are always happy to talk about it. They're always interested in trying to find solutions to known or unknown problems. They're never going to say, "Oh no, I've got one," or, "I don't need this." So, it's always a fascinating conversation.

Chris Parker: All right, excellent. Well, let's go ahead and get jumping into the questions that I have here for today. Good to go! I wanted to get an idea of where things have been since entering this post-pandemic era. I know that for companies in 2023, there was an excess of inventory, and now, in 2024, where are those companies finding themselves? What situations are they in right now?

Ian Mallison: Yes, you're right. Obviously, some of the things we've talked about previously, and there was a large surplus of inventory that was post-COVID, the bullwhip effect that COVID created, and everyone was consuming everything and anything. And, of course, the manufacturing was building up for that, and then, of course, it had all stopped. But the production still continued, the inventory still continued to flow, and the inventory levels were either very large to start with or all grew over the course of the year. Over the course of 2023, most companies stopped ordering things and started to consume the inventory levels that they had. That's a very generalized statement, Chris. Obviously, there were other industries that were still doing particularly well. Some retailers, for instance, have had amazing years and have burned through their inventory very quickly and are still doing extremely well. Certain technology companies as well have burned through that inventory very quickly and came to the other side of it and are continuing to do well.

So it very much depends on the type of product and category you're talking about. But as a generalized statement, most people in 2023 had enough inventory to be able to survive the demands against their business. Now, as we come into 2024, the marketplace is still somewhat depressed, and the economy is still somewhat depressed. We're seeing that from the volumes in all shipping companies, and freight forwarding companies are reporting against that. The volumes are down; production is down, cargo movement is down, and consumption is down. But from an inventory point of view then, so most companies are keeping a pretty small amount of inventory based upon the lessons from the past. They don't want to have a bloat in their inventory portfolio. But also, the demand for their inventory is pretty soft. So this year is probably more of a repositioning year, and they'll be ordering new orders for 2025 in the hope that things will pick up and they'll be in a much better position for the next year as the economy starts to grow again, hopefully across the world.

Chris Parker: What does a repositioning year mean to you? Is that a change in priorities, is that a change in models in supply chain? How do you see a repositioning?

Ian Mallison: From an inventory point of view, it's probably more of a let's just wait and see. Let's not do anything rash. Let's make sure we've got the right inventory levels in the right place to service the business that we need. Our business used to be X, and now it's Y, and I'm not quite sure what it's going to be in 2025, '26, so let's deal with the here and now and make sure then that our network is capable of dealing with the here and now. What will be interesting as we look further afield tends to be most of the work that we're looking at, which is, well, what are you going to be doing in six, 12 months' time?

Because most customers that we're dealing with are thinking, "All right, well we need to be starting ordering now for next year. What are our projections, what's our forecast going to look like, and how are we going to deal with those projections as far as a movement of freight and a movement of inventory." Plus, everything else that gets thrown into the mix. They may be buying a company; they may be launching new products. All of these things happen anyway, whether there's a soft demand from a consumer point of view or a very bullish one. There are always things that are going on in the network that force change. So those would be the things that we'd be focusing on at the moment.

Chris Parker: For companies looking at the now and who are really focused on this repositioning year, are they focused on cost reduction, or are they looking at ways to build more flexibility and resilience within their networks?

Ian Mallison: Both. No doubt. Everybody's trying to cut their cloth accordingly to make sure then that they are as efficient and effective as they possibly can given the circumstances. But they do need to be ready to expand and to flex, given the volume is relatively low at the moment, and really, hopefully, fingers crossed, there is only one way it's going to go, and that's up, from a demand perspective. So yes, they are making sure that what they've got now is the best that they can do, but they are thinking about what they need for the future as well.

Chris Parker: And what are those trends? Some that I think of are, I hear the words like nearshoring and friend shoring. What other trends do you see with those included that are taking hold or really grabbing the attention of companies as they're changing up their manufacturing?

Ian Mallison: I think we've spoken about it a couple of times over the other podcast, Chris. It started trade wars and things like that, and nearshoring started some time ago, which was a reaction to tariffs and trade restrictions. I think it's moved on now. I read an interesting statistic the other day that I think 64% of the world's governments are up for re-election this year. When you actually put that into the context of trade, that's going to have some effect. I know our colleagues in Onyx, for instance, are thinking about, "Okay, well, it could go this way, or it could go that way, depending on who's elected from a geopolitical perspective."

Our colleagues in Tradewin will also be thinking, "Okay, well, based upon which government gets into power, they may be changing the rules and regulations based upon tariffs and duties involved in those areas as well." And then you've got my side. So that may then drive customers to migrate their supply. That may move the needle to, okay, well, we now need to move. It's no longer conducive for us to source from this particular country because and I'm going to now start nearshoring or changing my sourcing strategy. And that's where we kick in, which is, okay, so where are you going to go, and how long is that going to take, and what are the lead times of transit times? How much inventory, how many sailings, how many aircraft, blah, blah, blah. 2025 is going to be a fascinating year. Again, it's going to be another fascinating year as far as the supply chain is concerned.

Chris Parker: Then these conversations with people like you in supply chain solutions, they're going to happen regardless across the industry, across manufacturers, across customers. Do you tend to find that people are in a good position to start these conversations? What are the challenges that they have? How conducive are those conversations right from the get-go?

Ian Mallison: You're right, Chris. It's pretty much built into their strategy now, whereas perhaps before, and again, a very popular topic that we've touched upon, is that a company would put their supply into one basket. They would source their products from one in order to be able to get a better price, for instance, as opposed to diversifying their supply. Their demand is still the same, but they then may look at two or three suppliers rather than one. And just the economics would suggest, okay, well, you may not get a good price or as good of a price when you spread it across three as opposed to giving one company all your business.

It's really a risk mitigation policy because of tariffs or because of natural occurrences, whatever it may be. I think most companies now have accepted post-COVID and the lessons that were learned through that era that they have to diversify their supply base. They can't afford and can't risk to have just one supply. From a US perspective, a lot of companies will look at sourcing out of Asia, of course. China is still by far and away the largest manufacturer of products. But the China plus one policies. So perhaps keep 80% of your supply out of China but 20% somewhere else, but diversify that 20% to perhaps Europe or other Asian countries or even into Mexico or Canada, things like that. So yeah, they'll definitely have a plus one or even a plus two strategies built into their planning for the next few years.

Chris Parker: Now that companies are building this into their strategy then, are there any challenges that slow down the process of diversification?

Ian Mallison: Well, it's not easy because everybody's trying to do the same thing. First and foremost. For companies that are buying products from OEMs, that are buying a product from a separate manufacturing entity, well then I guess you can pick and choose to a certain extent. You can go here; you can go here, you can go here, as long as that supplier is providing you with the right quantity and quality and ticks all of the boxes. But if you're vertically integrated and, in effect, build your own products, well, that's not so easy to move. You will have to set up a new factory somewhere else. And that, of course, takes time, effort, and money. And so, really, you're thinking, "Okay, well, I really do need to be planning for this in the next 2, 3, 5 years." So it's really a longer term strategy in order to be able to open new facilities in your own own vertical integration policy.

Chris Parker: What would you say are the important components to have at the ready in order to build those long-term strategies?

Ian Mallison: That's a great question. I think it just takes a lot of planning from a forecasting point of view, understanding where your industry is heading and what the demands are going to be from your customer base. Of course, there's a huge amount of input from the sales organization and the strategy organization of any organization to say where they're heading and why. And then from a supply chain perspective, they are then effectively reacting to that demand that's being positioned. "Okay, I understand what our business is going to be delivering or proposes to deliver in the future. I now need to create the right infrastructure to be able to deliver against that demand." And that's from a manufacturing point of view, a sourcing point of view, and a delivery point of view. And then all the bits in the middle about, well, warehouses and transportation, and everything else all fit into place. Ultimately, the two book ends are: where are my customers, how much am I going to sell to them, and where am I going to manufacture and get those products from? And then the rest in the middle, all that can fit into place.

Chris Parker: And I imagine with that good, strong historical data, it can help with that forecasting. Have you seen that as a challenge for companies?

Ian Mallison: Absolutely. And remains the same, Chris. Again, we keep ticking the same subjects we talked about.

Chris Parker: And nothing's changing. Nothing's changing.

Ian Mallison: No, it's not. And yet, all of the hype around AI and all the excitement around technology hasn't diminished. And yet data is still a huge challenge, for most organizations. Just this morning, I was on a call with a client, and they said again, "Our data's terrible." I said, "Well, it might not be as bad as you think because I've seen some pretty terrible data." So it's a challenge because still a lot of companies have got multiple versions of SAP or using different software packages, and so of course each piece of data is in different places. So to bring all of that together to create the jigsaw puzzle and paint the picture that you want is still a challenge today. This is why we created our digital twin, which allows different data to come in from all systems of record regardless of who owns it, and then we can paint that picture for the customer, which has proved very successful. Customers are very excited, for the first time ever, to actually have data in one place and cleansed and visible, and they can actually use it for meaningful decision-making.

Chris Parker: That leads me to what I want to ask was if collection of good data takes what I'm assuming is a lot of effort, a lot of time, a lot of investment, what are companies able to do with what they have now. Are tools like digital twins able to take whatever data is available and develop solutions out of them?

Ian Mallison: Yeah, so you can use the tool for multiple purposes. In our space, we use it for analytics. We bring in shipment data that's happened already. We're not trying to solve the where's my cargo, problem. There are far better and more advanced systems that can answer that question, particularly if you bring in IOT and bring in smart labels and things like that. That's very much the way that the world is moving in as far as understanding a more real-time understanding of where their product is. From our side, say we're using it as an analytics tool. We're bringing in historical information, which allows us to understand, well, how your supply chain behaved historically, up till yesterday, for instance, if that's the cutoff. We're looking backwards in order to inform us about how we should then set the parameters going forward.

So if everything worked perfectly in the last 3, 4, 6 months, well, then don't touch it. And as long as the business behaves the same way and the supply and demand are the same, then leave it as is because it's working beautifully. Don't play with it. However, I've never seen a supply chain that's done that before, so there's always something that can be improved, always something that may not be working in the most efficient or effective way, and therefore, that's something then that based upon the lessons of the past, you can fix for the future. And that might be just asking somebody to do something that they were supposed to be doing, but they're not, so business rules. Or implement change in your supply chain to improve the circumstances. Whichever one it is, you can then put that in place for the future, and hopefully, then, those things that you put in place will then deliver, and you'll constantly improve your supply chain going forward and monitor those changes.

That's what we use our tool for. We assess the performance of the supply chain, and then if we need to look at any changes going forward, there can be a lot of low-hanging fruit in there, so you can tweak some of those changes pretty easily. But if you have to redesign your supply chain because truly not working very efficiently or you know something's coming down the track, such as a new company being merged or a new product or a new supplier or whatever it may be, then you can plan for that through simulation and understand, okay, well what's that going to mean? What will that look like? And then, once you understand what it's going to look like, you can execute against that plan and put that infrastructure in place for the future.

Chris Parker: Sounds like an excellent way to take advantage of a repositioning year.

Ian Mallison: It absolutely is. Say it's been fascinating. Although a lot of customers are still very operationally biased at the moment. They're still trying to figure out what's happening today. There are always operational challenges every day. Every supply chain director, shipping manager, or whoever you're talking to has always got day-to-day challenges. I'm sure you've had things that happened today, Chris, just like me, that you weren't thinking about or planning for. It happens. That's life. So, to put that aside and say, "Do you know what? Let's make a plan for 6, 12, 18, 24 months," can be a challenge sometimes because the firefighting that happens in an operational environment takes precedence. Of course, it does. You've got to think about today sometimes. So that's the only challenge to my work, which is I'd love to talk to more and more customers about next year, but they're too busy thinking about this year. Which I get it. I completely understand.

Chris Parker: When it comes to digital twin technology, since we last spoke, I think it was thinking about a year ago or so when I last had you on here; how has that landscape changed? Who are the primary players with digital twins?

Ian Mallison: I think most people know the term digital twin now, whereas before, perhaps it was still relatively new. And so, in most of the discussions that we have with our customers now, we don't really have to explain what it is anymore, although we do have to explain our particular flavor of that type of technology. However, as a concept of building a digital image of a real situation, there are so many examples of that now, and so many people are using it, such as virtual reality goggles and everything else. I think there's just so much awareness now of this artificial world. But the same challenges still exist today as they always did, which is does a customer invests in the software and the platform to do it themselves, which involves quite a heavy lift from an IT perspective, a big data storage facilities, create your own data lake. And as I was talking about those different systems of record, those different elements of data, all need to be brought into that one place.

Harmonized, joined together, cleansed, and then presented in a meaningful way. So customers can absolutely do it themselves, and I've spoken to many who have done that, have created their own analytics suite and digital twin, and also use it for planning purposes. So they really are leaning into that forward-looking planning and scenario testing with some pretty sophisticated tools to be able to try to dictate or understand exactly where their business is going to head given certain criteria. But it takes time. That make or buy decision. If I make it myself and build my own digital twin and data lake platform, well, it takes time. It takes time, effort, people, and money, of course. As opposed to an outsourced organization such as us, plug and play. Ours exists. We've got many, many customers on our platform. We can demonstrate that it exists. You can use it tomorrow if you want. With a pinch of salt, it does take a little bit of time to set it up.

But it's available to use pretty quickly as opposed to trying to build your own environment and plug that in. The same challenges around people exist as well. Staff come and go. It's very difficult to retain the right type of people and skills to be able to build or run this kind of tool, whereas we have our own dedicated team that is available to scale and support customers. And actually, that's an interesting dynamic. We've found that more and more in that customers are using us to supplement what they do as opposed to be a direct replacement or a complete package for them. It's more like a hybrid role. Hybrid mole, whatever that may be. A hybrid role where they have some sort of analytics capacity, but that's probably more around their internal mechanisms around manufacturing, production, and things like that. And from a logistics point of view and a transport point of view, they're utilizing us like a subcontractor to bring that specialty and those analytics into play.

Chris Parker: Fascinating. Okay, so in the context of our discussion, we're talking more about the analytics of your supply chain, but even when it comes to the way a company operates itself, digital twins are a valuable tool.

Ian Mallison: Oh, for sure. Digital twins are used in the aircraft industry, in many industries, and in manufacturing because they're monitoring machines, looking at the engine in an aircraft, and they're more real-time. They've got sensors that are monitoring the performance of that environment. And then, when something goes wrong, they immediately trigger an alert or an alarm to tell you something. You're driving along in your car, and the dashboard and a little yellow light will apply on your dashboard. That's a digital twin monitoring the real situation. And if you're really sophisticated, such as, I don't know, a John Deere tractor, then not only will you have a light that appears on the dashboard of the tractor, but John Deere corporate will also get a light on their control tower, which will tell them that that tractor has got a problem and they'll be alerted to that situation. So you say this technology and digital twins are uniformly used in many, many industries.

Chris Parker: Going back to this notion of a quiet time or repositioning period for companies, it sounds like companies are likely to avoid risky investments because things are on fire; they're operationally focused. So new technologies are not a priority, but it's more about maybe cost control or something like that. This might be a little bit heavy, but what role does innovation play then in supply chain management during these periods of repositioning? Does it take a back seat, or is there still stuff that's fermenting in the background?

Ian Mallison: They have to continue to think ahead. It goes back to those points I was making earlier about the world is going to change in 2025, guaranteed. And new governments, new tariffs, and new situations will need to be taken into consideration. Woe betide a company that doesn't think about this now because they are making sourcing and business decisions for the next 6, 12, 18 months, at a minimum. So if you haven't taken these things into consideration, it'll be a huge curve ball because you'd made a plan, and something dramatically has changed, and then you're going to be right at the back of the line.

Because if you are then scrambling to make changes, given that, I don't know, let's say a fresh piece of legislation just came in and you weren't prepared for it, hadn't thought about it, that could be a major disruption to your supply chain. And everyone else who thought about this six or 12 months ago may not have done anything about it, but they had a plan, and then when it happened, they could react. They'd already talked to a supplier about Plan B or even Plan C, and so they were prepared to switch things. As opposed to somebody going, "Oh no, what am I going to do now?" And then start to try and make an effect. So no, life's challenges, of course, the daily challenges are always a problem, but you always need to be thinking ahead, as we all do in life.

Chris Parker: And just a good reminder to come up for air every once in a while, sounds like.

Ian Mallison: Yes.

Chris Parker: Stay aware. Stay aware. Maintain situational awareness.

Ian Mallison: Maintain it. The day-to-day stuff is, of course, important.

Chris Parker: Of course.

Ian Mallison: It takes priority. But you also need, if not you, then somebody to be thinking about the future too.

Chris Parker: So then today's supply chain landscape presents a lot of what-if scenarios, you hear a lot of what-if scenarios, and we see a lot of those what-if scenarios take form, they actually happen. What kind of words of wisdom could you leave with companies to help them prepare for these uncertainties and make better data-driven decisions?

Ian Mallison: Well, the first was good luck because you're not quite sure exactly what is going to happen tomorrow. But joking aside, trying to be a little bit more serious, there are things that you know of. Your current business. How resilient is your current business? That would be the first topic of conversation. If you assume that your business is not going to change in the next 6, 12, or 18 months, which it will, we'll come onto that. If you assume that it's pretty static, then how resilient is your supply chain today? Is it working well, and if not, how can you improve it? So that would be the first point to look at. The second point, then, of course, is the, okay, well, what does the future look like?

There are known things in the future. You may know that you're launching a new product, you've got a new customer in your business, and that's huge, and therefore, it's going to be more volume, more products to a certain part of the world. So there'll be certain things within any supply chain, within any company's supply chain, that's going to move the needle that you may know is coming over the horizon. You'll need to plan for it. What would that look like? But of course, there are other things that are going to come over the horizon that you don't know about, which you can't plan for. But if you go back to that, well, hat is your supply chain resilient? Can it flex and move and expand and contract based upon the punches that it takes, then you should be in a pretty good place.

The third element I got to mention is the environment, is the environmental agenda is still very much in its infancy. People have been talking about it for a long time. More rules and, regulations, and legislation are now being brought in, mainly around reporting and visibility and understanding Scope One, scope Two, scope Three. So, it's definitely starting to become more of an agenda topic. Still haven't found customers making meaningful decisions from a supply chain point of view in order to be able to truly move the needle on carbon footprint. Lots of discussions around perhaps alternative fuels and shortening the supply chain that are nearshoring that we were talking about earlier. Of course, that has a carbon benefit because you're not moving products so far and consuming carbon.

That tends to be where the majority of the conversations come into play. Because it is, people are still trying to figure that out. Some bold targets are being set by a lot of CEOs around the world. Carbon neutral by 2045 or 2055. But I think most companies are still trying to figure out, well, if they're here today, how do they get to carbon zero in 20, 30 years' time. And they're still trying to figure that out, but it's still very early days. And most governments are still trying to figure out, well, how they should legislate for it and, more importantly, how they should enforce these targets that are being suggested and put down. So yeah, it's a very interesting topic. There is still no clear answer to it, but it is definitely part of the dialogue.

Chris Parker: Another thing that comes to mind is AI. What changes can that bring? What thoughts do you have about that?

Ian Mallison: It's a huge topic, I think. What is the definition of AI? And we could probably fill up another podcast just talking about that, although I'm probably not the right person to ask that question. But machine learning and technology, of course, are developing at a rapid rate and always have. So, AI is definitely going to play a part as we go forward in the industry. But I think people are still trying to figure that out. There's still a lot of unknowns. A lot of cybersecurity issues around those as well, and data privacy issues that all need to be built into that thinking as well. Still very early days in that space. COVID taught everybody a lesson, which is to be ready to change quickly. And because the supply chain is not constant, it is inconsistent; it's moving, and things happen. Ports get blocked, and ships break down in certain places. Aircraft have challenges, ports have challenges, and infrastructure always has challenges. And who knows what the news tomorrow will bring as far as a disruption around the world, a natural disruption or a man-made one. Who knows what the challenges will bring?

Chris Parker: And what's really important is what you can control.

Ian Mallison: Yes. That's right.

Chris Parker: What can you control? Yeah, absolutely. Well, Ian, it's always a pleasure to have you and to learn a little bit more about what you do and what you're thinking about when it comes to topics like this. So I really appreciate the time.

Ian Mallison: Pleasure, Chris. Yeah, it's always a pleasure. I look forward to number four.

Chris Parker: Thanks for listening to today's episode. If you've got questions or want to learn more about today's topic, check out the show notes for more information. And before you go, make sure you're subscribed to whatever podcast app you're using so you won't miss the next episode. To learn more about Expeditors, you can find us on LinkedIn, Facebook, Instagram, and X, or simply visit us at expeditors.com. Take care, and I'll see you next time.