Ep. 15: The Evolving Supply Chain with Greg Plemmons of OD & Dr. Thomas Goldsby of the University of Tennessee

Speaker A: M welcome to Cargo Shorts, brought to you by Old Dominion Freightline. I'm your host, Jonathan Betts. After facing historic disruptions during the pandemic, the domestic supply chain has changed in ways few of us could predict. It's rebuilt itself in new, more dynamic ways with a stronger version emerging of Just In Time Shipping. We call it just in time 2.0. This new model keeps the best parts of the old system while focusing on shorter, more resilient lines of transport with greater redundancy. Joining us to talk about this is Greg Plemons, executive vice president and chief operating officer at Old Dominion Freightline. Greg has more than 30 years experience in the transportation industry, much of it at od, where he led the sales division for many years. And we also have an expert on, um, all things logistics, Dr. Tom Goldsby. He's a professor of logistics and supply chain management and the co executive director at the Global Supply Chain Institute at the University of Tennessee, Knoxville. The university's supply chain management program, by the way, is consistently ranked among the best in the world. Tom, Greg, great to have you with us today.

Speaker B: Pleasure to be with you, Jonathan and Greg, delighted to, uh, undertake a, an enlightening conversation, I'm sure.

Speaker A: I think this will be very enlightening. It's an interesting topic here. So, um, Tom, let me start with you. And as we talk about this, Just In Time, Just in case, and now just in time 2.0. But let's back up a little bit to where we were in 2019. How did shippers previously balance Just In Time shipping with Just In Case shipping?

Speaker B: Good question. To get us started, Jonathan. And you're right, uh, you know, we think back to 2019 and the time period before pandemic. I refer to them as the innocent, innocent times. Right. It was, we were worried about things like trade wars and the tariffs that were ensuing, and certainly that was shifting our, uh, our supply chains a little bit, or at least making people think about it. However, uh, really, for the past three to four decades, our supply chains have increasingly stretched around the world. Of course, here in the US Market, I think, uh, those of us in this conversation, we're all right here in the old US of A. And so we continue to consume here, but those sources of supply were getting further and further away, and namely Asia and particularly China. And, um, I'm a big advocate of lean thinking. I was a big advocate of just in time 1.0. However, it just got stretched too far, too thin. And we relied on a lot of domestic inventory in order to meet the demanding customer service expectations here stateside, when our sources of supply were originating 10,000 miles away. And so, uh, while we did see a lot of inventory reduction thanks to lean thinking, uh, it was countered with the ever growing distance between so much of that source of supply.

Speaker A: Yeah, Greg, so weigh in on that. Do you think just in time, shipping was stretched too thin?

Speaker C: Yeah, I think as manufacturing moved further and further away, chasing, uh, less expensive labor, those supply chains really did become stretched. You know, from the time I began my career in the industry, just in time was the trend. That was the buzzword. That's what everybody was shooting for. And that was true really, for the most part, right up until Covid. And retailers and manufacturers were, um, looking to maintain as little inventory as possible. And that forced suppliers and carriers to be efficient and more nimble, if you will. But, um, the COVID really exposed some of, uh, the deficiencies in supply chains and, uh, swung the pendulum in the other way to more of adjusting case model, uh, for those years, in the months and years following Covid.

Speaker A: Yeah, Greg, let's talk more about that. I mean, the pandemic did put a big spotlight, I think, on some of the challenges we faced, exposed the vulnerabilities in the supply chain and in this just in time model. So we saw a period where it felt like a lot of companies were taking a more conservative approach with the just in case supply to avoid running out of stock. Do you think, do you feel like that is still the case, though?

Speaker C: I think as I said earlier, we saw the pendulum swing to more of a just in case model, with companies looking to mitigate some of the issues that, uh, they were faced with during COVID I think there's costs associated with that just in case model. And I think that as companies, as supply chains have normalized a bit more, I think companies have, are looking to save money again. And so the pendulum has kind of swung back the other way. But more and more, it's leading more and more companies to look at ways to accomplish what, uh, Thomas mentioned earlier, and that's using data and uh, redundancies to shore up their, uh, supply chains without having to carry, you know, excess inventory.

Speaker A: So Tom, I mean, when we look at the pandemic and the incredible disruptions we saw in the supply chain, it felt like during that period of time, every single person in the country suddenly knew what a supply chain was. Do you feel like those disruptions changed the way that shippers view the just in time versus the just in case shipping models?

Speaker B: Certainly it did. And Uh, I know that we're recording via audio today. There's not a visual component, but if your listeners will just imagine this for a mom, you know, I describe our supply chains as really being designed for tolerances that were about yay tall. And imagine my hands only being separated by about 4 inches. Okay. And what I'm alluding to there is that things have gotten to be fairly predictable and reliable despite the long distances, uh, the extended nature of our supply chains. And we've grown pretty comfortable. And certainly when we saw both supply chain handicapping, where supply chain performance was very much challenged. But also, keep in mind, that was against surging demand in so many product categories. Right? So if we go back to summer 2020, when we were going through lockdowns and suddenly we had homework, home school, home play, home recreation, home entertainment, um, and we started buying up more of everything, and particularly durables. And so many of those durables were coming from overseas, and it just stretched our supply chains. Our supply chains broke, if you will, because they greatly exceeded those tolerances in terms of the demands on the system as well as our own capabilities, uh, to meet those needs. And so it has shaken us to our core, frankly, when it comes to how we look at supply chains, both in terms of the nature of the extended supply chains, our attitudes told toward holding inventory. But I do agree completely with Greg that there is a pendulum swinging. If we go back to 2021, 2022, I think companies, if you were to ask CEOs, they were desperate for inventory, and we saw the $20,000 container from Asia to US West coast, there was that level of desperation. You know, we're Talking more than 10x the price of shipping a container over that same body of water the same distance because of that desperation. If you've been listening to earnings calls, 2023 now into 2024, you get the CFO on the call, and they're saying, you know, that inventory is a, uh, cinder block in our earnings. And so, just as Greg has described it, right there was that desperation two, three years ago for that inventory. And now we're saying, uh, not so fast. And that's where I think this JIT 2, this kind of reformulated view that is more informed understanding that we're probably going to greatly exceed the tolerances, perhaps in demand, certainly in supply, for which our supply chains were able to accommodate. And so, um, I think we'll be talking about maybe how shifting some of that supply base closer to home is the big difference maker.

Speaker A: And I definitely want to talk about that in a couple of minutes. But first, you uh, know Greg, if we can burrow in a little bit more on the just in time 2.0 model, what are some of the biggest advantages you see in that over the original Just in Time system?

Speaker C: You know, what our customers are talking to us about is, you know, they're using modern algorithms and tools, uh, like predictive AI and machine learning even to deal with demand volatility, really trying to better predict demand. It's about combining that data with uh, strategic thinking to tighten supply and demand planning. Right. So just building, being better able to predict demand, uh, and then shoring up supply chains with redundancies to be sure that they're never faced again with the situation uh, that Tom described there where uh, it was just complete desperation just to get any inventory and willing to pay pretty much any price. I don't think companies ever want to face that again.

Speaker A: Yeah, and I don't think anyone, consumers want to face that again as well. So Tom, I'm going to ask the same question to you here. What do you think are the primary advantages but also what are some of the challenges when we talk about, about this new just in time 2.0 system?

Speaker B: Well, if we compare it with JIT 1.0, uh, like I said, there was that expectation that every day was going to be an okay day. There wasn't going to be dramatic change in demand or dramatic change in supply. And I think based upon the experience of the last four years, we're coming away much wiser. Uh, now even before pandemic, I would always tell my students and managers who uh, I had the good fortune of speaking to about lean principals, and I would remind them that inventory reduction was the reward for a high performing reliable process. And you would be unwise to take inventory out of a system if you did not have high performing reliable processes behind it. And sure enough, you know, the chair got pulled out from us in Pandemic. And like I said, it was in both directions, surge in demand and challenges to supply. And so I think we do come away a lot wiser, uh, and understanding the power of variation as I'm always teaching statistics inherently in supply chain management, I say, hey, the mean is mean. If you're thinking of the average, think of the average is mean, but uh, the variation is meaner. And we've got to be prepared to understand that variation. As Greg's talking about using these advanced tools, AI, ML, big data analytics, these techniques to better anticipate things. And really we've been limited to our own human experience up to this point, which for several decades was, looking back, fairly docile. Right. We hadn't had world wars, we hadn't even had major conflicts that affected our supply chains domestically. We hadn't had 100 ships, you know, waiting to come ashore off the US West Coast. We hadn't had a ship block the Suez Canal. I mean, all these different things, as well as all the natural disasters that we've been facing. And again, I just come back to, you know, we're older, we're wiser, but we're also employing these tools to say, hey, conventional wisdoms aren't going to get us through the next chapter perhaps of what we're going to be facing.

Speaker A: Right. But as we talk about this transition now to just in time 2.0, what are some of the challenges, Tom, that businesses face? And you know, how can they overcome them?

Speaker B: Well, geopolitics seems to be very much at the forefront. And of course we're, we're hot in, in a political uh, season here with a presidential election and perhaps changes in our House and Senate. And so, you know, in the summer of 2024, uh, that's very much in the forefront. We've got hot spots brewing, certainly, uh, the war in Europe, uh, we've got China saber rattling anyway, uh, as it might relate to Taiwan and its independence and just a whole host of other parties that are kind of saying, hey, we're looking to jump in. And that's not to mention the Middle east and what's brewing there. So I think geopolitics is something that's very much on the forefront of, of senior leaders minds, um, and maybe a source of considerable uncertainty. And uncertainty is the name of the game. A, uh, term that um, I've been borrowing from our friends in the military and using it quite often is this notion of Vuca V U C A. We're talking about an environment that's highly volatile, uncertain, complex and ambiguous. And as I introduce that term to business leaders, they kind of nod their head and say, yeah, I can, I can recognize that that prophecy, Vuca, I'd

Speaker A: never heard of that before. That is an interesting point.

Speaker B: It is, and like I said, it's something that, uh, those in the military, they've been using that term for a number of years and I've just kind of adopted it because it seems pretty fitting of our times.

Speaker A: It really does. And Greg, this is something I know you've talked about before on this very podcast. So I want to get an idea of, you know, what you're seeing from customers. Can you share some examples of companies that are worried about the geopolitical situation and are perhaps moving manufacturing closer to the United States?

Speaker C: Absolutely. More and more customers are not only talking about it, which was going on for the last couple of years, but we're seeing it in action. Companies actually breaking ground on new facilities or expanded facilities in Mexico, for example. And more and more customers are talking to us about our cross border services and, uh, our facilities at every border, every border crossing point, uh, on our southern border, wondering how can those be used to improve efficiency and reduce their costs and, you know, help deliver superior service to, uh, their customers? So, yeah, it's happening. I think it's picking up steam. And I expect that trend to continue to accelerate, uh, you know, over the next several years, again, as a mitigation of potential problems like the ones they faced over the last few years, with the supply chain actually breaking down completely in a lot of cases.

Speaker A: Yeah. And so when we talk about all of these changes and these trends that are emerging here, Tom, what is standing out most to you? Is it the reduced overseas sourcing, precise inventory controls, perhaps a bigger focus on analytics? What stands out?

Speaker B: I would probably jump on Greg's response to that last question with regard to the near shoring phenomenon. Uh, I alluded earlier in our conversation to trade wars and tariffs that really started to take effect early in President Trump's administration, 2017, 2018, that led many companies to go, whoa, I don't know that we want to put all of our production eggs in that one basket. And companies started talking about China plus one and looking to offshore some of those, lift some of those commitments out of China and go to maybe one other locale, perhaps it was Vietnam, Indonesia, uh, Singapore, India, Bangladesh, what have you. And but increasingly, now that we're, you know, so much more seasoned from the pandemic experience, we're realizing, well, maybe Mexico is that nearshore solution rather than having our supply base 10,000 miles away. You know, it could be less than 1,000 miles away from the home market. And certainly we're seeing that in the trade data. Uh, Mexico surpassed China as the US Primary import partner. Now, granted, we're talking about very close numbers here. I think last year, uh, Mexico came in at 16% of U.S. imports. Ah. Compared to China's about 15%, Canada about 14%. But given that we have this renewed NAFTA U.S. mexico, Canada trade agreement in place that went into full effect in 2020, I think it only doubles down on companies wanting to have that supply base Closer at hand. Um, and it helps to alleviate a lot of that variability and uncertainty that we face with having to cross big oceans to uh, meet the customer demand.

Speaker A: So Greg, when we talk about this near shoring here and companies not wanting to cross the big oceans, as Tom puts it, how have these shorter, more resilient lines of transport improved the robustness of the supply chain?

Speaker C: Well, you know, the shorter the chain, the fewer links. Right. And so fewer opportunities for failure. And uh, you know, there are issues still at the southern border that companies are working through. Uh, it's not an inexpensive transition, right, to move manufacturing operations from Asia back into uh, North America. But uh, uh, at the same time I think companies are weighing those costs against the uh, advantages of having a shorter supply chain. They're finding that, that the value proposition is there. And so it's really picking up steam from the customers that, uh, we deal with. And again, we're excited to have facilities all across our southern border there to help them work through those challenges.

Speaker A: Yeah, Tom, I want to talk about that, um, the risk and the costs that come with this changing, uh, of the supply chain and really the global order. In some ways there are extra risk, but more volatile labor cost. Geopolitical tensions still remain a concern. You have to spend this money to build new facilities, as Greg just mentioned. So talk a little bit, uh, more about that. How are companies weighing the cost here?

Speaker B: Something that I think we've come to appreciate now that we didn't fully appreciate when so many companies look to offshore. If you go back, particularly the 1990s, the early 2000s, particularly at uh, gain steamed when China joined the World Trade Organization early in the 2000s, is we have a much better grasp of total cost, landed cost, and also total, total cost of ownership. And what that means is that we're not just looking at that low labor cost and saying, well, you know, that dictates the China price. I guess in order to pursue that low cost country sourcing, we've got to follow everyone else to China. I think that we're much better informed now than we were three decades ago when, you know, everyone was kind of being driven to go there. I think, uh, again, I keep using the term, you know, we're wiser, we're more experienced, we've got better tools, and some of it is in the measurement of cost. And so I think we have our eyes open now. And uh, you know, as Greg alluded, I mean there are vagaries to long distances. I mean the longer the distance, the more that can go Wrong.

Speaker C: Right.

Speaker B: I mean, we're probably not going to encounter a typhoon, a cyclone, a, ah, hurricane if we try to transit from Mexico into the U.S. but all those things are possible when we're talking about shipping from Asia, uh, to the U.S. um, and so there's just so much more certainty there. And I think that that gets factored into the calculus of the strategic supply chain designs that we're making now. Uh, we've got a much better sense of what the operating expenses will be and also what the opportunity cost of any decision might be. And I sometimes make reference to a statistic. I can't recall the origins of it. I think it was a consulting organization back in the late 1990s. They asked companies that had offshore operations to Asia if they would do it all over again. And the resounding response was, well, we were kind of driven there, so we would probably do it, but we're not experiencing the benefits that we expected. And what that tells me is that they didn't really look before they leapt. They felt driven to do it. There was a lot of vigor to go over, set up those shops again. The cost difference in labor was much greater then than it is now. And, uh, as Greg alluded, you can get a lot of that benefit by being closer to home, neighboring country in Mexico, shorter distance. Uh, and you know, we tend to, you know, we're not talking about going to war, possibly with Mexico, last time I checked. So, um, you know, it's. There's also this notion of ally shoring, of wanting to work more closely with countries that align a little bit more politically, uh, with us. And to the extent that we have neighbors in Mexico and Canada that can afford very, uh, promising opportunities, you know, let's keep those on the table and, uh, look to expand them.

Speaker A: Right. But that offshore into Asia certainly proved very lucrative for many companies for many, many decades. Um, but I do like your point about how we're now a bit smarter and wiser. And I think a component to that is the technology that has improved radically over the last, even just 20 years here. So I want to talk a little bit more about that, Tom, the technology. When it comes to near shoring. I've heard These ideas about 3D printing and wondering if you've seen more companies considering the use of 3D printing domestically as a way to lessen their dependence on distant suppliers.

Speaker B: Certainly 3D printing or additive manufacturing is a complete game changer. Right. And to the extent that we can develop those capabilities to produce on the spot, whatever we might need, it Changes the game entirely. You know, in fact, I'm thinking about myself as a supply chain professor and it's like I might need to transition to becoming an engineering professor uh, if that happens. Because what we'll be concerned about is the sourcing of raw materials and maybe the production of alloys that we can run through a 3D printing machine as those capabilities continue to march forward and advance. But it changes the fundamentals of supply chain management. We don't need to be sourcing in long distance locations. We just need to be concerned about that source of supply, the raw material ingredients that will be fed into that, that 3D printing. And so this notion of going from major, uh, low cost country sources that are massive in scale in order to produce everything that we might need, maybe stateside and around the world suddenly becomes, well, what's the cost of the machine and where can we source those materials? And that's the great equalizer that could. You know, it's not a form of evolution, that's revolution when uh, those capabilities come about. And it's really exciting to see it taking shape. Like I said, going beyond the basic kind of plastic extrusion materials that are being used now to advanced metals, uh, and alloys that uh, we're seeing in things like automotive and aerospace that are complete game changers.

Speaker A: It does feel like we're really on the cusp of a revolution here. I mean we've already seen so many changes just in the past few years when it comes to technology. So Greg, I want to talk more about technology with you here, um, particularly around data analytics. You brought this up earlier. And so how are you seeing retailers and manufacturers using data analytics technology to predict demand more accurately?

Speaker C: Yeah, our customers are investing in those technologies. I think it's early on with some of these technologies, particularly uh, AI, that's an ever evolving space. But more and more they're using that data and even hiring data analysts to help them predict customer behavior, how are customers, when are they likely to buy, how are their buying decisions influenced and so forth. And so I think that's a trend that we're going to see continue to uh, pick up steam. And we're seeing customers better able to plan their shipping patterns in a lot of cases, which allows their uh, suppliers or their carriers to have more time to react. Other shippers tell us they're just unable to adjust on their end. And so they have to rely on quality carriers and quality suppliers, maybe even pay them a bit more to access that reliability and that predictability, uh, in the supply chain. But you know, in technology, uh, there's a real world example, something that we're dealing with here at Old Dominion with, uh, some of the customer giveaways and other things that we utilize here to do business. Vendors now are able to, rather than maintain a supply of inventory. Let's just say our customers love ball caps, right? Let's just use ball caps as an example. And our drivers do, and our employees love to represent the OD brand and so forth. And so, you know, for years we had to maintain a, uh, certain supply of ball caps or we had vendors that, that would maintain that supply and we draw it down. Now there are vendors out there that are able to produce those ball caps on demand by order, even down to a single hat customization, where the thread that they use to sew on a logo, uh, can change color. They're able to adjust the color, uh, kind of on the fly during the process rather than having to retool and reload their machines. And so that sort of technology, that's just one small example, but that sort of technology is really changing the landscape, I think, for, uh, our customers and really their supply chains in reaction to it.

Speaker A: Yeah, I love that ball cap example, Greg. And so, Tom, I wonder what examples you have here of examples of precise inventory management being implemented in today's supply chain.

Speaker B: I love that example too. And frankly, as Greg was describing it, I was kind of customizing a cap. I could come up volunteer orange with some fun graphic of my family or something on it. But, um, I think that what we're seeing is an empowerment among shippers and service providers around these new capabilities. And I think most companies would kind of describe themselves. And frankly, in the course of this conversation, my description of shippers has been largely that they are victims of demand and that volatility. Well, we don't know what makes that customer tick, that consumer. And, um, you know, they may be driven to something and, you know, go out and, you know, throw elbows to get it, and then suddenly that demand falls off and it goes cold. Uh, however, I think that rather than being victims of demand, companies are realizing, hey, through the power of, of these analytics and dare I say, social media as well, maybe we can become instigators of demand. Maybe we can incite demand, shape that demand, and in that way we can be much more dynamic to the marketplace. So rather than just kind of sit back and, you know, hope that the market finds us, we can direct the market to us. And that's incredibly powerful. M. You know, and Dell was forever an example of what we call dynamic pricing, where if they ran low on a certain processor, they would jack up the price in order to temper that demand. If on the other hand they had a whole lot of 20 inch monitors, they would lower the price and drive demand in that direction. So they were really manipulating the customer to say, hey, buy what we have on hand. And I think a lot of companies have kind of learned from that and again through the use of analytics and then also more effective ways to reach that, that consumer directly and influence the consumer. Um, we're finding that we don't need to just again rely on decisions that were maybe made three months ago and hope that they're basically right by virtue of shortening the supply chain and being more responsive to actual demand when it presents itself. As Greg alluded, that's, that's a game changer in itself.

Speaker A: I mean it is a game changer. The expectation now I think is that everyone has to be a lot more nimble. So Greg, with that in mind, we talk about these titties trends towards customization, smaller shipments, higher quantities. How critical is it to find the right partner to help manage that?

Speaker C: I think it's absolutely critical. And our customers, we have those conversations with our customers constantly. I think we're still in um, the relatively early stages of this conversion to JIT 2.0. Companies are still working through their predictive models and strategic sourcing and supply chain adjustments and so forth, still working to find that equilibrium. What is the right amount of inventory and where should that inventory live. But I think we'll continue to see the trend grow toward data driven decisions. And the sharing of good data in both directions is, is key between uh, vendors, suppliers and their customers. And certainly we love sharing that data in both directions. We collect a lot of data here at Old Dominion and are happy to share that with our customers to help them run their business. So I think in general the demands of customers today will the uh, sooner they expect to be able to get their goods or access their goods, that trend is going to create smaller, more frequent shipments, which I think bodes well for the ltl, uh, freight industry, to be frank.

Speaker A: Without question. So Tom, as you look towards the future and as we watch the supply chain continue to evolve, what role do you think two point just in time 2.0 will play in that future?

Speaker B: We've described how supply chains are experiencing some evolution, redesign, you know, maybe, maybe more near shoring, perhaps even reshoring down the road, particularly as those technological advancements kind of level the playing field, you know, Last time I checked, you know, 3D printer costs about the same here in the US as it does in China or anywhere else in the world. And I think that's going to help to level the playing field. So we're really excited about those technologies and keeping an eye on how they can, you know, maybe, you know, incite that revolution rather than the evolution I described. And also, JIT 2.0 is very dependent on supply chain capabilities and having predictable, reliable logistics services. And then I unpeel the onion just another layer. And that seems to come down to people and more and more often, you know, as we talk about these new advents out there. And absolutely, we should be getting excited about them. We should be keeping an eye and participating in that advancement. However, I keep coming back to people, and logistics is a people business. It's all about instilling trust. And to the extent that a service provider can say, hey, you know, they're going to be some wild times ahead, we know we've seen some wild times together and we're going to be there to see it through that, I think that's going to be the real difference maker. Uh, it always has been and it will continue to be the difference maker, the people that, uh, make the dream happen.

Speaker A: Indeed, we cannot lose sight of the fact, yes, it matters. The people matter most. And finding the right partner matters as well. Greg, Tom, thank you so much for your time. Great conversation.

Speaker B: Thank you, Jonathan. And, uh, Greg, really appreciate the opportunity to have this conversation with you and the folks at Old Dominion.

Speaker C: Same here. Thanks for having us.

Speaker A: Well, as we've been discussing, the supply chain continues to evolve. For decades, companies remain relied on a just in time model. Now, lessons learned from the past are, uh, leading retailers and manufacturers to embrace a just in time 2.0 model to manage inventory and operate at their most efficient. If you enjoyed this episode, be sure to check out our full Cargo Shorts podcast series. You can find us on Spotify, Apple podcast, Amazon Music, SoundCloud, and YouTube Music. You can now leave us a comment on Spotify too. If you enjoy this episode, please rate, review, share with your colleagues or drop us an email@marketingdfl.com visit the OD Outlook section of the Old Dominion Freightline website at odfl.com where you can find additional information on this topic. Thanks for listening.

Speaker B: Sa.