Supply Chain Resilience

Details #

Karl Siebrecht and Ben Dean examine supply chain resilience, discussing its critical importance in mitigating risks and driving business value. They are joined by Geraint John, VP of Research at Zero100, who explains the shifting focus on resilience from the pre-COVID era to today, highlighting how enterprises can adopt both defensive and offensive strategies to adapt to disruptions and seize growth opportunities. He also emphasizes the role of technology, talent, and infrastructure in creating agile and resilient supply chains that go beyond risk management to support long-term success.

Key topics discussed:

• The evolution of supply chain resilience from a cost-center approach to a strategic priority, particularly during and after COVID-19.

• Definitions and strategies for resilience on defense (risk mitigation) versus resilience on offense (value creation and growth).

• The role of advanced technologies, such as AI, in enabling visibility, monitoring, and simulation to address disruptions proactively.

• Insights into ROI for supply chain resilience investments, emphasizing cost avoidance, sales enablement, and superior financial performance indicators.

• Follow Geraint John on LinkedIn

Logistics Leadership Podcast legal disclaimer

Episode Transcript #

[00:00:00] Announcer: Welcome to the Logistics Leadership Podcast brought to you by Flexe. Flexe provides Flexible Warehousing Infrastructure, helping enterprises optimize their supply chains with flexible solutions through North America's largest network of warehouse operators. Enjoy the show.

[00:00:24] It's the Logistics Leadership Podcast with Karl Siebrecht and Ben Dean.

[00:00:31] Karl: Welcome back everyone to the Logistics Leadership Podcast. I am your host Karl Siebrecht and I'm joined as always by my colleague Ben Dean. Ben, great to see you.

[00:00:41] Ben: Yeah, Karl. Really excited, as always, for today's episode, and we've got a special format today.

[00:00:47] Karl is going one on one with a very special guest, so let's hear about this guest.

[00:00:52] Karl: That's right. So Geraint John is a VP of Research at Zero100, which is a member based research and consultancy organization for supply chain executives and has a particular area of expertise, along with some of his colleagues, in supply chain resilience, which is what we're going to focus on in today's conversation.

[00:01:13] Ben: Well, I'm very excited to hear his perspective on that. Where I sit, supply chain resilience is a part of the day to day, but from your perspective, why was it so important to highlight this one to one conversation on this subject?

[00:01:26] Karl: Yes, supply chain resilience has been a huge topic in the industry, and has gone through this very dynamic phase.

[00:01:35] So there was the pre-COVID period where, generally speaking, supply chains were mostly and most often treated as a cost center. Then there was COVID where everybody had to figure out how to be more resilient, to all the uncertainty that came along with COVID. And then there's the post-COVID phase, where there's different attitudes kind of reverting to pre-COVID mindsets around resilience.

[00:01:59] And one way to sort of highlight this arc is through some research that again, Geraint and his colleagues have done, where they listen to earnings calls from public companies and the terms supply chain resilience was noted in 25 percent of calls pre-COVID. At the height of COVID, the mentions of supply chain resilience went up into the low 40 percent. And since COVID, more recently, that's back down to about a third of the calls. Again, significantly down from COVID, not terribly surprising, but still up from the pre-COVID days.

[00:02:37] So it's more in the mindset of enterprise company executives, but trailing off a little bit.

[00:02:43] Ben: Yeah. And that trailing off is why I think it's a great time for us to be talking about this because at the supply chain leader level there's some concern. Ernst & Young just performed a poll that showed that 78 percent of supply chain leaders

[00:02:56] believe their exec and C-suite are now treating supply chain as a cost center. And Ernst & Young is pointing to that as a risk that outdated models of supply chain thinking are coming back into the C-suite. So no better time than today to highlight this for our listeners and get us thinking about how to be resilient.

[00:03:17] Karl: That's exactly right. And that Ernst & Young data points, very consistent with that decline in supply chain resilience mentions that I mentioned earlier. And I just want to highlight one of the ways he frames it, which I think is very powerful, is talking about resilience on defense and resilience on offense.

[00:03:35] So with that, let's give it a listen. Geraint, welcome to the podcast.

Geraint: Thanks, Karl. It's great to be with you.

Karl: Yeah, it's good to see you again, and I'm excited to dig in. To start, if you wouldn't mind, tell us about yourself, and please give us an overview of your background.

[00:03:53] Geraint: So I've spent most of the past dozen or so years as a supply chain research analyst, covering sourcing and procurement from a functional

[00:04:00] perspective and then supply chain risk and resilience from a cross functional one. I guess I first became interested in supply chain risk after the natural disasters in Japan and Thailand in 2011. Began researching this area as an analyst with, firstly with SCM World back in 2012. Then after a few years with Gartner and then most recently with Zero100.

[00:04:25] So in between that I've spent almost a couple of years with the U.S.-based supply chain risk software vendor. So I got to see sort of product capabilities from a solution standpoint up close. And then sort of earlier in my career, I worked actually as a business journalist and spent a decade or so editing a couple of procurement magazines here in the UK.

[00:04:49] As well as after that, working for a consulting firm for a couple of years, again, in the procurement and sort of supply relationship management space. So yeah, sort of a varied background in terms of roles, but more than 20 years around supply chain.

[00:05:05] Karl: Fantastic. Thank you. So, well suited for this conversation.

[00:05:08] So, once again, as I mentioned up top, we're going to be talking about supply chain resilience. And just to provide some context, I'm sure all of our listeners are well aware of this and probably some of these experiences have been painful for many of you listening. But let's just sort of trace what the past few years have had for us by way of supply chain disruptions.

[00:05:30] We have, of course, had a global pandemic, a ground war in Europe. We've had shipping crises in the Red Sea, an expanding conflict in the Middle East. We have rising tensions, I think is a fair way to put it, between China and the U.S. I could keep going, I won't, but we've had a lot of disruptions. And so what's very, very clear is that supply chain resilience is on the radar of probably all CEOs and C-level executives, no matter which function you happen to run.

[00:06:00] But at the same time, enterprises have competing priorities, cutting costs, driving revenue growth, et cetera. And so the big question is, where does this priority of building supply chain resilience fit into those other priorities? So, we know that Zero100 have done some research on this topic, including you.

[00:06:21] So I'm excited to hear more about what you've learned. Can you give us a summary of the research on this topic as a way to kind of dig into the conversation here today.

[00:06:32] Geraint: Yeah. So maybe to kind of kick this off, Karl, I mean, you mentioned obviously competing priorities and the radar. So I think it is interesting to kind of start with what CEOs are focused on and business leaders are talking about.

[00:06:47] And then I can give you a sense of how we define kind of supply chain resilience, because I think, you know, that would also be helpful because it's, you know, different kinds of versions of that, and we have our own specific ones. So in terms of the kind of the priorities, so we, we actually conducted some data analysis recently, looked at about 4,000 company earnings calls by almost 200 large companies, and that was over a six year period.

[00:07:19] So really from kind of 2018 through to earlier this year, and we did that using our kind of proprietary data science model. What that found was that discussion of supply chain resilience issues, surprise, surprise, you know, pretty much doubles in the period 2020 to ‘22 compared to what it had been prior to COVID kind of spreading across the globe.

[00:07:46] And I say that's no surprise for obvious kind of reasons. We, you know, we haven't had a supply chain disruption on that kind of scale really ever before, I think

[00:07:55] Karl: We sensed the term supply chain was created, probably.

[00:07:58] Geraint: Absolutely. So, of course you had during that kind of two year window, we saw the percentage of CEOs talking about those issues to some meaningful extent going up

[00:08:10] to, you know, over 40%. As I say, almost kind of double what it had been prior to the pandemic. But of course you also had, you mentioned other events and when we had obviously the lockdowns in China, which went on and on, we had semiconductor shortages partly arising from that. We had Russia's war in Ukraine, I think you mentioned.

[00:08:29] So, you know, there was a kind of a big spike in sort of priority for risk and resilience. Over the last sort of couple of years, so really 2022, 2023 and 2024, we've seen a drop in that. Nevertheless, you know, we still see about a third of CEOs talking about these issues to, you know, to at least some reasonably significant degree.

[00:08:54] And again, it's because of the sort of events you mentioned. Red Sea crisis, you know, the war in the Middle East, U.S.-China geopolitical tensions, et cetera, et cetera. So, I think, you know, yes, it's kind of dropped off a bit as again, you might expect, but it's still quite a lot higher than it was back in sort of 2018, 2019.

[00:09:15] Karl: Right. So just to play this back to you to make sure I'm tracking. So in looking at earnings calls, many, many thousands of them, what you found is prior to COVID, about 20 percent of calls, give or take, mentioned something about supply chain risk, supply chain resilience. That popped up, about doubled during the COVID years to about 40%.

[00:09:36] After COVID has passed, that's kind of down, maybe to around 30%. Higher than pre-COVID, but lower than the height of COVID. Did I get that roughly right?

[00:09:45] Geraint: Yeah, exactly. So, you know, big spike, bit of a fall off, but, you know, the, I think the message is, you know, disruption is not going away, supply chain disruption is not going away.

[00:09:58] So, just kind of in different forms and therefore, you know, it's something that CEOs, boards, business leaders, still need to focus on, but of course, they've got many other issues that they talk about on these kind of earnings calls, you know, as well.

[00:10:13] Karl: That's right. It's a big job. You got lots of things to worry about, competing for time and investment.

[00:10:19] So, let's now move on to how you define resilience. You had mentioned that you have a definition. Share more about that with us, please.

[00:10:29] Geraint: Yeah, so I guess we really break it down into kind of two parts. So the first part is about really minimizing the impact of supply chain disruptions through proactive risk mitigation.

[00:10:41] So, that means, you know, obviously identifying vulnerabilities across your global network, preferably in advance, you know, where possible, of risks or disruptions actually starting to materialize. It also involves assessing and constantly monitoring a wide range of risks that could disrupt your network.

[00:11:02] So everything from kind of extreme weather, financial distress in your supply network through to geopolitical risk and things like cybersecurity. So that's, that's really the, you know, that's the first part. The second part of our definition is about using the additional strength that hopefully those capabilities bring as a platform to spare kind of value creation and growth.

[00:11:27] So in that sense that, you know, we define resilience as about both managing risk, but also taking advantage of opportunity. So the former, you know, we call resilience on defense. The latter is resilience on offense. Now, I would say that most companies, the vast majority of companies today, are still very much focused on improving their defenses and that's sort of muscles, if you like, that many companies really sort of had to learn for the first time during the pandemic.

[00:11:59] So that's kind of still very much the main focus, resilience on offense. So the upside, the opportunities for most companies is still largely aspirational at this point, but we certainly see evidence among our client base of, you know, a lot of interest in how that could evolve.

[00:12:16] Karl: Got it.

[00:12:16] It makes so much sense. So you've, when a company invests in infrastructure, software, capabilities, to be better prepared to respond more quickly in a more agile way to some uncertain negative event, you've put that investment in, now, how can you use that investment, that infrastructure to your advantage to drive more value creation on offense?

[00:12:44] It's great. It's a very clarifying way to understand this, in my view. So let's dig in on one area. So we talked again about how there are lots of competing priorities in the C-suite. One choice is to invest more in supply chain resilience. There are many, many other choices. So to invest in supply chain resilience, like every other investment, there needs to be effectively an ROI case.

[00:13:09] Do you have a sense of how executives think about or the most common ways they think about evaluating the ROI of investments in supply chain resilience? Is it about cost savings? Is it about revenue growth? Is it about mitigating downside revenue impact? What's driving the investment case behind supply chain resilience?

[00:13:36] Geraint: Yeah, so generally speaking, I would say that the business case for investing in supply chain resilience is, you know, it's less about cost savings and less about, you know, if you like kind of productivity based ROI that you might look for in, you know, with other investments or, you know, technology solutions, things like that.

[00:13:57] It's more about cost avoidance and sales enablement. So, you know, on the defensive side, you know, it's about protecting business value, minimizing costs that you might incur during disruptive events, you know, from additional logistics or sourcing or inventory costs, things like that. So that's on the kind of defensive side.

[00:14:20] And then on the upside, you know, the business benefits of resilience can include a variety of things. Greater agility as demand changes, you know, improved customer service and satisfaction levels, higher market share, and indeed superior sales, revenue and margins. And again, from a sort of an analysis perspective, we, you know, we took a look at this a little earlier in the year.

[00:14:45] When we specifically looked at the financial performance of 25 large companies that had invested, in this case, in their talent base. So in sort of dedicated supply chain, risk and resilience staff, this was over a 12 month period. Now those companies were from, you know, a number of different industry sectors.

[00:15:04] Consumer packaged goods, food and beverage, industrial manufacturing, tech companies, pharmaceuticals, automotive, and so on. Quite a broad range. And what we found was that those 25 companies, you know, compared to the other 200 plus companies in our database, these 25 companies had significantly more revenue growth over this

[00:15:26] period that we analyzed six times. In fact, the kind of companies that hadn't invested in dedicated roles, they had less margin erosion. Actually, the figures were negative for both groups, if you like, but the decline was very much smaller for those 25 companies. And then finally, you know, they have much smaller deviation in their earnings

[00:15:51] per share, delivery compared to market expectations. So those are just kind of a few financial metrics. Now, obviously, we can't say that, you know, that better financial performance was solely because they invested in supply chain resilience and the talent to support that. But the analysis does at least suggest a relationship as sort of a correlation.

[00:16:12] Karl: Sure does. That's pretty powerful. So, an improvement in revenue, very significant delta in revenue growth, margin, and then earnings. Do I understand that sort of predictability or variance from expectation was the third, was the third one?

[00:16:31] Geraint: Yeah, so really on earnings per share forecasts, you know, there were, the companies were hitting those more in line with market expectations than not.

[00:16:39] Karl: Right. So to your point, you know, no way to sort of prove causality here, but even if it's bidirectional, in other words, you know, these investments do potentially contribute to better performance. And then companies that have better performance are more likely to make these investments. Unclear which it is, probably maybe a blend of both, but either way, it's a pretty compelling data point for executives who are maybe considering these investments, but haven't been able to make the case yet.

[00:17:10] Geraint: Yeah, I would just say, just to add, you know, a caveat there, these, the business case, the kind of the, you know, when you should invest and when you shouldn't and where you should invest and where you shouldn't, you know, these are pretty challenging things to kind of get right. And certainly from our customer base, we still see a lot of challenges there in terms of, you know, making that case and justifying, you know, the additional costs that are required in some cases.

[00:17:37] So, that's, you know, it's not an easy one to solve, but as you say, there is evidence that it does pay off.

[00:17:44] Karl: Yeah, right. So let's take a tack here and kind of double click into the types of investments that are required or that may be helpful to build resilience in the supply chain. One way to sort of characterize or categorize these investments is, there are digital investments.

[00:18:03] So, software tools that can drive better supply chain resilience. And then there's physical infrastructure. What we've seen amongst our enterprise customers is it's a combination of these investments that are required to truly build resilience. And we'll get to this a little bit later, but both enabling better defense and offense.

[00:18:28] Let's first explore the digital side of this. What were some of the key takeaways in your latest research about the advanced technologies that can help drive this?

[00:18:40] Geraint: Yeah. So I think, again, the message here is that, you know, advanced technologies, you know, such as artificial intelligence, do have a vital enabling role to play, whether we're talking about, you know, the kind of core foundational, defensive, proactive, risk mitigation side, or whether we're talking more about the upside opportunities around, you know, resilience on offense as we've defined it.

[00:19:06] So I think having a strong data foundation is clearly the building block. You know, we hear this from all of our customers, you know, most of the time, you know, that again, that's a very challenging thing to get right. We see, you know, certainly major companies, leading companies, putting a lot of effort into getting data in an accessible place, you know, in a way that's kind of gonna be usable.

[00:19:32] So that's a really important foundation. That then in turn hopefully feeds the kind of tools and platforms that allow supply chains to really kind of improve visibility across their global networks. Whether that's in terms of, you know, their suppliers, their factories, their warehouses, the ports that they operate out of, or indeed their kind of shipments of raw materials and goods, you know, around between different points in that network. For example, you know, are certain shipments being delayed?

[00:20:04] If so, by how much? You know, if you can look into that, hen really you can, you'd look at what are the options for rerouting or in terms of, you know, on the supplier side, you know, if you're having upstream issues, there are risk events, disruptions, you know, what kind of changes do you need to make?

[00:20:23] How do you need to kind of source differently? So that's the kind of visibility pace and then, of course, you know, well organized data and that real time visibility also power analytics for proactive risk identification and assessment. So this is really about having systems that can kind of analyze potential vulnerabilities or weaknesses and identify risks that need to be addressed on a continuous basis, not on a, you know, a one time periodic kind of basis, that's, in today's world,

[00:20:54] that's, you know, that to us that has kind of limited value, it's quickly outdated. And then a third area would be really sort of monitoring, which speaks to that, will be monitoring disruption around the globe. So anything from sort of port strikes to cyber attacks to factory fires to suppliers in financial distress, company leadership changes, you know, all of these different things can cause your supply chain to break down or be interrupted in some way.

[00:21:21] So, advanced technologies, you know, whether it's that data foundation, the visibility, the analytics, or the monitoring, really kind of, essential enablers for supply chain resilience of whatever variety you're practicing.

[00:21:38] Karl: So to recap, digital tools can be very helpful or are requirements to have better visibility analytics around what's going on in your flows and risk or disruption monitoring.

[00:21:55] And of course this digital capability again as we see in, across our customers, and I'm sure, much more broadly than that, this digital infrastructure has to be connected to physical infrastructure. So that once you understand you've got visibility into what's going on, you've done analytics, you've assessed a risk.

[00:22:14] And as you mentioned, as an example, there's a blockage in a port or somewhere in your flow. You've got to find ways to reroute that. Of course, that's the physical infrastructure, that is required to reroute. And the better your physical infrastructure is built, to be flexible, to be agile, the more successful you can be in responding to these digital signals that you're hearing from these new tools that you're investing.

[00:22:40] And of course, that's the business we're in, you know, flexible warehousing infrastructure is what we do. We're not going to spend much time on that today, but just important to understand. And I think, you know, takeaway from what we're hearing here is that it's both the digital side and the physical side together that are required

[00:22:57] to really build a resilient supply chain and largely what we've talked about here has been the defensive side, you know, having visibility analytics, disruption monitoring to be ready to respond. Let's flip now to the offense side. You teed this up earlier with us, with the definition, but how can

[00:23:20] a more resilient supply chain be used as a platform now on offense for value creation and growth opportunities?

[00:23:30] Geraint: Yeah, so I think, resilience on offense goes beyond exactly what you just described, beyond that kind of solid supply chain risk management foundation, and indeed sort of proactive risk mitigation, as important as that is.

[00:23:46] So we see it as a, you know, as a much broader scope. It really kind of starts with product design and development, you know, what you might call design for resilience. So you really, you're really trying to ensure that, you know, raw materials and components, for example, aren't that you're going to use in your products

[00:24:05] and your next iteration of your products are not going to be sort of unduly constrained. And then to your point about kind of the physical infrastructure, and you know, the structural aspects, you know, then looks at really, you know, how do operating models and your sort of global footprint need to be configured in order to provide, you know, ensure that you've got kind of alternate options and that you're therefore able to sort of drive agility when there's a kind of a disruptive episode.

[00:24:39] We also see resilience on offense incorporating things like sustainability and regenerative strategies across the product lifecycle. So that's both in terms of, you know, reusing materials and components. Some of those may be in short supply, but it's also about, you know, assuring customers that your supply chains and your company that they're dealing with, are, you know, responsible, responsive and resilient.

[00:25:06] So we think those kind of dimensions are really important and they go much beyond how we would traditionally think about risk management. Maybe it's useful to kind of give an example to illustrate that. So I like the example of lithium ion batteries. Clearly they're used in an increasing array of products, not just kind of gadgets and sort of high tech consumer devices, but also cars, industrial equipment, you know, aircraft, all sorts of things.

[00:25:37] So, we take that, the supply chain for those batteries, and we look at what the, kind of the needs are from a kind of a resilience standpoint in its broadest sense. You know, first I look, you know, at the design phase. So we see a lot of work going on to try to improve the product formula for batteries, you know, whether that's for kind of improved range duration,

[00:26:02] charging speed, safety, you know, a lot of, we've, you know, we see a lot of stories these days about things like e-bikes or e-scooters kind of bursting into flames, burning down buildings. So safety is an important dimension. So that's kind of really on the design side. Then, you know, when you get to the sourcing phase, really, it's about diversifying the sources of key metals, other components, you know, where demand is high across different industry sectors, for example, but actually the suppliers in some cases are extremely limited, you know, right back to kind of mines in the case of metals and minerals.

[00:26:40] So that's a kind of a second element. The third element would be really around reducing the geographic concentration of manufacturing and processing sites. And to sort of simplify that at the moment, in geopolitical terms, it's about, you know, not all of those being in China. China has a huge dominance of many different aspects of those particular supply chains at different levels right now.

[00:27:06] And then sort of finally, you know, and I think we haven't in a way confronted this as a society or as governments yet is really the recycling and the reuse of all those batteries, you know, when they reach the end of their life, you know, where, you know, we're asked to kind of recycle our mobile phones, but what about all these massive car and vehicle batteries, you know, we need to, we need to get that right for both environmental, but also kind of ethical reasons.

[00:27:34] So I think that, you know, that's a very different kind of landscape, if you like, on which to think about resilience and sort of from a structural and design dimension.

[00:27:47] Karl: So when a company thinks about making an investment in resilience on the risk mitigation front, hey, I want to diversify my raw materials or my suppliers for lithium ion battery,

[00:27:59] as an example, my ROI case to start with is risk reduction or avoidance of cost or avoidance of revenue decrease. But at the same time, that same investment could also be justified or get a benefit from a more environmentally favorable result. Hey, I'm going to diversify my supply base by adding a recycled component to my procurement list.

[00:28:30] And so I get the return on my investment is both defensive and now on offense because I'm getting some environmental benefit that may result in higher customer satisfaction, et cetera, more of a growth oriented or value creation oriented justification. And it can be both.

[00:28:48] Geraint: Yeah, that's exactly right.

[00:28:49] It's a mixture of the two and we, you know, from a kind of an enablers standpoint, as I say, lots of companies are challenged to try and look at things in that broader way and make the kind of the business case for it. So I think, you know, mindset changes, you know, it sounds simple, but you know, that is actually quite important in this context.

[00:29:13] And I think, you know, from a particular standpoint of, you know, this isn't just about having a good set of insurance policies or having an insurance policy kind of approach to risk, you know, that's, I think that typically how executives think about, you know, the business case and the, you know, making these kind of investments we've talked about.

[00:29:37] But, it goes beyond that. It's a, as you rightly say, it's about investing in supply chain so you can actually take advantage of business opportunities as they arise during disruptive times. But also, you know, for things that resonate with your customer base or your potential customer base. So, that kind of mindset change is obviously critical.

[00:29:59] But you also need, you know, you also need sort of the talent and the skills, and I touched on that earlier in terms of those 25 companies. You want people who have got a good blend of, you know, their subject matter experts have domain skills, but they also have a good mix of digital and business skills.

[00:30:17] And then, of course, you've got, you know, the technology element as well, and particularly now, you know, how you can sort of harness advanced technologies like AI to really kind of, to really help you to move forward here.

[00:30:31] Karl: Right, right. So, staying on the resilience on the offense topic here for a minute.

[00:30:37] Can you speak at all to simulation capabilities within some of these digital tools? Have you learned anything about that in research or even more broadly, just in your research more generally in the space?

[00:30:53] Geraint: Yeah. So I think we're, you know, we're just really beginning to scratch the surface of what AI can do here.

[00:31:00] But certainly harnessing it, as I've said, is a characteristic of leading companies and indeed of resilience on offense as a concept. So, I described, you know, some of the technology capabilities a moment ago in terms of visibility analytics and monitoring, but I think you're absolutely right.

[00:31:21] Simulation is also a really important enabler. It's important both in terms of being able to get ahead of potential disruptions rather than just responding to them, but also potentially being able to assess where you need to target investments to improve resilience, you know, where that's really kind of critical and where it's, where it's not because, you know, the resources here, financial resources are clearly limited and finite, so you have to make choices, you have to place bets if you like around your network in terms of where you strengthen them and where you leave things as they are.

[00:32:01] So, I think, we certainly see leading companies using things like digital twins, advanced planning systems, decision intelligence tools, to help sort of inform their decision making in this space. There is a lot of fragmentation in terms of how the different technologies and platforms operate and the sort of, what they actually do.

[00:32:23] But certainly going forward in the future, we expect those tech tools and those platforms to become, you know, much more cross functional and much better integrated. And I think, you know, that's going to be important for running really sort of smart simulations and running sort of models that can help us to navigate our way through this complexity.

[00:32:45] Karl: Right. Yeah. I think about simulations and what you'd said sort of triggered this, as well. Simulations can be against disruptions that might happen. What if this happened in the Red Sea? What if this happened with U.S.-China tariffs? You know, your model, you're simulating these potential disruptions.

[00:33:05] That's one way to use a simulation. The other, and that's sort of, generally think of that as on defense. And then on offense, it's, what if I forward deployed my fastest moving SKUs to drive faster eComm fulfillment or to replenish retail stores faster so that I didn't stock out as much, and running those scenarios on the same simulation software, right?

[00:33:30] This is an example of making an investment that is both a creative on defense and on offense, running simulations for value creation, running simulations for new growth opportunities. You know, you'd mentioned just a second ago about making bets. You know, you've got to sort of choose your spots and make some bets.

[00:33:51] Again, I'll go back to the comment earlier about marrying the physical infrastructure with the digital infrastructure. You can run simulations to your heart's content, but absent the ability to be agile in the real physical world, it's kind of like a science experiment. So that's where physical infrastructure that can be more agile comes in.

[00:34:11] So if you, if again, you were running a scenario that said, hey, what if I were to forward deploy my fastest moving SKUs closer to the West Coast? I've done a model and I think maybe I can increase sales. I can save shipping costs. What if I could actually try that? And that's a bet. If I could make a bet that's a smaller bet, more constrained way, that can really drive competitiveness against a marketplace that isn't that far ahead yet.

[00:34:38] Geraint: Yeah, that's interesting, Karl. Are there any customer examples that you can share?

[00:34:43] Karl: Just quickly, maybe generically, I would say the thing we see probably more than anything else is forward deploying inventory, right? So going from a more centralized strategy, whether it's on the eComm fulfillment side or the retail replenishment to a more atomized or distributed model. And what happens, of course, everybody listening probably is pretty familiar with this,

[00:35:06] if you want to forward deploy inventory, there's a lot of inventory modeling that goes into this, right? Which SKUs, in what quantities, and you run a lot of analytics about it. But underneath the analytics, there's a lot of assumptions. And so to be able to actually take some bite sized bets and open a forward deployed node in Reno, as an example, and test it, move, you know, these 15,000 SKUs out there and actually see if the results in the physical world against your key metrics map to what you modeled

[00:35:40] in your simulation. Yes, no. And if so, double down, go build five of them, seven of them, 10 of them. If not, shut it down and try something else. Go down your list of what's the next most compelling simulation and try that. Or on the retail store side, hey, if I'm replenishing my store once a week, because that's what I can do, given my current retail DC network structure, and I add in some forward deployed replenishment nodes, I can replenish two or three times a week.

[00:36:11] Is that going to move the needle on revenue per store? And if so, against which SKUs, obviously the faster moving SKUs, but which ones? This will vary by season, by region, et cetera, et cetera. So your ability to make bets in the physical world that map back to the simulations that you now have a much deeper, you know, much more robust capability to actually build the scenarios is really compelling.

[00:36:36] And this all leads back to kind of where we started, to the degree that you can find ways to leverage these investments for value creation and growth, you're building a stronger ROI case than what otherwise would be a case just built around risk aversion.

[00:36:56] Geraint: That's a great perspective, Karl. The more that you can not only sort of run those kind of simulations, but then also, you know, feed the lessons compared to what actually happens or actually proves to be a good bet,

[00:37:10] back into the system to make it smarter. That's really, to me, the kind of the power of, you know, machine learning and AI, is that it learns by experience and gets better as you go along. So, you know, if forward deploying inventory for certain SKUs didn't pay off in a particular case, then

[00:37:31] hopefully the system is going to learn from that and do things differently next time and make some adjustments. So to me that's a kind of exciting and powerful way of working this through.

[00:37:42] Karl: Couldn't agree more with that. Well, Geraint, this has been super fun talking with you. Thank you very much for joining us. Really appreciate it.

[00:37:50] Geraint: Yeah, it's been a pleasure. Thanks, Karl.

[00:37:55] Ben: Karl, before jumping into that convo, you mentioned the defense versus offense approach to resilience. And I, for one, had always played resilience as a defensive game. So it was great, especially using the lithium ion example, of him to talk about how to use resilience as an offensive strategy. Plus, it brings us out of that supply chain as cost-center like mindset. That investment there is just a cost.

[00:38:20] And, you know, when he was talking about that impact, I went back and did some research and there's a lot of literature today showing the impact of stockouts, the impact of not having the right delivery speed to bottom line earnings for the enterprise as a whole. So I think that needs to be highlighted here.

[00:38:38] Karl: I couldn't agree more. You know, when you just think about the investments that you might make with a defensive mindset to be more agile, to be more flexible, so that you're better prepared for the unexpected, you know, war in the Middle East or natural disaster, those investments can also be leveraged on offense.

[00:38:57] So just think about if you've made investments in inventory, as an example, to be better prepared, or investments in technology or physical infrastructure to be more agile. You can use those same investments to do things like, hey, let's experiment with a new channel or a new offering for customers.

[00:39:17] How can I serve customers better, and that flexible, agile infrastructure can be used to test and try new things. Those are fundamentally investments in offense. Like, can I treat my customers better than my competitor and help grow revenue? And again, just to repeat, fundamentally, these are the same investments that pay dividends on both sides.

[00:39:38] Ben: Yeah, and you're talking in detail about two parts of that trinity in the process and technology space, but Geraint actually spoke specifically to people investments and that study he did across 25 companies that built roles for resilience. That's right. He hired to that. And, you know, this all sounds great anecdotally, but when he came back with numbers that said these outperformed across multiple sectors on revenue growth, margin erosion, earnings per share versus guidance, all of these companies overperformed.

[00:40:08] That is a stop the clock, listen to that moment, I think, in the conversation.

[00:40:12] Karl: That's exactly right. You know, kind of let's look at the scoreboard and the scoreboard looks pretty good. But, you know, I think fundamentally, you know, if you go back to, again, the last data point from Zero100 was about a third of the earnings calls mentioned supply chain resilience.

[00:40:26] If you unpack that, you know, there are some companies who are on the leading edge of this and they're probably kicking some butt. And so, you know, will that one-third go back up to 40 percent, go to 50 percent? Will this be more commonly adopted? I don't know. But, you know, it's those kinds of business results that are going to actually drive the bus here in terms of that mindset across a broader population of companies.

[00:40:52] Ben: And eventually everyone will follow those leaders. And, you know, we've talked about technology a lot here. I think you mentioned that the actual surveys of earnings calls were done through AI and we always run into that collision of the technology speed and the slowness of the physical infrastructure within supply chains.

[00:41:11] So one of the things that I really wanted to pull out of that conversation with Geraint was that AI and machine learning learn through experience, is what he said. So the ability to test things in the real world actually made those resilience, whatever you want to call it, simulations run better.

[00:41:33] You can run simulations all day. I think you've said that, but you have to test it in the real world, and especially when you could take those tests back into that algorithm, I think you're going to get outsized outcomes.

[00:41:43] Karl: That's exactly right. And once again, you know, as the digital tools become more and more capable of running more and more advanced simulations, that physical infrastructure has to keep up.

[00:41:54] Right. And that physical infrastructure, built with additional agility again, to use that word again, pays dividends in allowing you to test in the real world, different ideas, different hypotheses about how to serve customers better and then measure, am I getting the outcome that I need?

[00:42:13] Am I getting a payback on that investment?

[00:42:16] Ben: Absolutely, Karl. It's a great point. And I think really ties the whole conversation around resilience together.

[00:42:22] Karl: Well, thanks, Ben. Yeah, I think we can declare victory on this episode. Super energizing conversation with you and with Geraint. And as always, I hope that our listeners have learned something.

[00:42:34] I look forward to keeping this conversation going.

[00:42:38] Announcer: You've been listening to the Logistics Leadership Podcast presented by Flexe. The opinions of the guests aren't necessarily the views of their company. If you'd like to learn more about the podcast or join the Logistics Leadership community, check out this episode's show notes and visit flexe.com/logisticsleadershippodcast. Keep the conversation going. Email us at leadershippodcast@flexe.com. The Logistics Leadership Podcast features original music by Dyaphonic. The show is produced by Robert Haskitt with Jeff Sullivan, Ben Dean, and Karl Siebrecht. Thanks for joining us.