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2018

I interviewed Haytham Omar who discussed Supply Chain Decision Making and Artificial Intelligence.

 

 

 

 

 

 

Can you first provide a brief background of yourself?

 

Thank you. It's a pleasure to talk with you, Dustin. I'm Haytham Omar. I'm currently a lecturer of logistics and supply chain management in the American University in the Emirates, located in Dubai. I am interested in, of course, supply chain because I teach it. But now I am exploring also the field of data science and artificial intelligence, and I'm trying to bring those worlds together. And I have also a good background in procurement because I was working in a procurement department before, in the petro-chemical industry. So you can see I have a good background in logistics and supply chain overall. Not as senior as you'd expect, yet we all learn, and we grow up learning every day.

 

Supply chain decision making is the making of decisions whether it's replenishment decisions or assembly decisions or transportation decisions in the flow of your supply chain. And these decisions, we face them every day. So the traditional way of doing this kind of things was by planning, forecasting, spreadsheets, having brainstorming meetings with the managers, let's say. But now with the evolution of the Internet of Things and sensors being everywhere, used in our material flow especially in parcels, the packages, also in the warehouses... This has been lots more of data, big data, this has given us more data that we can get.

 

These insights now can help in making better decisions with regards to supply chain decisions — the decision I was talking about. The replenishment, the manufacturing, the production, warehouse space. All of those are supply chain decisions. So [inaudible 00:02:30] has a bigger impact to come with a relevance to better decision making in our supply chain.

 

How is it done effectively?

 

Now our business systems, I think, everybody all the companies. We have many types of ERP systems. We have the in-house systems. We have the customized ones. And we have the best-player system that you get a full ERP system to your company. And also, we have the cloud ERP systems. And I think this is growing exponentially now. All of the companies are putting data in the cloud or they share within the enterprise.

 

So this has been more opportunity to gain insights from data and [inaudible 00:03:35] in a single location but across the company as a whole. So by [inaudible 00:03:41] from this data and analyzing it, this will enable more effective decision making in the supply chain. And this is part of what I'm trying to do in my research and when I'm working with companies — trying to enable to use of machine learning, data intelligence and Internet of Things in supply chain decisions.

 

Do you have any final recommendations?

 

Well, my final recommendation is enabling the learning of big data and machine learning for supply chain employees in companies, because the normal way of doing things is for collaborating with the employees and having collaborative decision making. This is excellent. This is the best to do. I agree.

 

But now we have an added value. We have an extra opportunity to add artificial intelligence into the game. So my recommendation is to enable the employees that work in supply chain to have more awareness and technical expertise in artificial intelligence and big data. I think that this, in the long run, will have a more effective approach to our supply chain performance.

 

 

About Haytham Omar

 

 

 

 

 

 

Haytham Omar

 

Supply chain & Business Intelligence

 

LinkedIn Profile

I interviewed Christoph Szakowski who discussed Supply Chain and Logistics Decision-Making with Consultants.

 

 

 

 

 

 

Supply Chain and Logistics Decision-Making with Consultants

 

Introduction and experience

 

My name is Christoph Szakowski and I am Managing Partner for LogCon East.

 

After 10 years of management career with global logistics providers in Austria, Germany and Poland I started 2009 actually in Poland a logistics consultancy offering interim solutions in Business Development, Strategy Advising, Market Analysis, Management Seminars etc.. Later it the time 2014 – 2017 we integrated this activity into the fastest growing network of consultants and interim managers for Logistics industry in Central and Eastern Europe, based in Vienna.

 

LogCon East is a group of companies, owned my business partner Martin Eckerstorfer. We act with 20+ partners in several countries in Europe and in Asia, advising the industry in operations management, outsourcing processes,  M&A and partner search, executive search and leadership seminars. The strength which we deliver to the industry is also consisting in the access to exceptional experts.

 

On my own, I gained deep experience in several transformations and business development assignments in interim General Management and Leadership roles in several countries. Some years ago I specialized in the Transformation Process in Logistics in the Emerging Markets mainly where I am really passionate about to drive the change.

 

Why do logistics companies need consultants and interim managers?

 

The simple answer would be; “ because they strongly support” the decision-making process and implementation”

 

The logistics industry is currently undergoing a huge time of transformation because of innovation and technology on the one side and the driving forces of the competition, clients and expectations of several internal and external stakeholders on the other.

 

Changes are needed fast and reliably.  Development of new services, on new trade lanes, is it in the intermodal transportation, rail, land transportation, air freight is expected also fast to meet the needs of clients.  It goes without saying that it is expected together with highest quality and delivery conditions, competitive pricing and customer service. Result improvements are always an issue and ambitions of the owners of the companies and the top management, especially in the industry which is not operating on the highest levels of margin.

So, in short, you need quick deciders and leaders with broad knowledge of the industry with extremely high orientation on the outcome.

Interim managers can be here the game changers.

 

A really good interim is a master of adapting to a new project and client, working target-oriented, using his or her extensive experience which his tailors for any particular company.So he is the person paid to deliver, not to just contribute to something and be only a team member. This is the difference he makes.

So whereas the interim managers -  and we’ve seen it in our projects -  they are assigned for a short period, rarely longer than 12 months to execute, there is another advantage which can be brought to the industry by specialized consultants.

 

When we act as consultants, we address a need of 3 PL providers, freight forwarders, shipping or multimodal companies etc. which is basically :

A request for an objective review on current strategy, business plans, performance for example. Also sometimes -  that is the case for rather family-owned Transportation companies  - there is need of creating a Sales Strategy and provide a plan of suitable actions to go international or expand service to new Verticals Consultant might also be asked when there is a need for Problem-solving or a gap in expertise for a particular areas. For example, a major diversified very fast growing  holding has neglected a little bit   the areas of supply chain and carrier relations and they need an advisory for this area

 

Training and developing the staff and talent– we see this in particular for the areas of Negotiations, Creative Problem Solving,  Presentation and Collaborations skills in the logistics companies

 

So there is quite a large set of needs for consultants and interim managers. In many cases, there is a geographic specialization of the providers or other specializations.

We are having the integrated approach: “ know – act – deliver “  so we combine the advisory with interim activity in case this is the best option for the client.

 

Personal stories and recommendations

 

First of all, I believe there are 3 stages of maturity of a market which you need a consultant or interim manager to consider:

 

  1. In the "world champions”  market of logistics , Germany, Netherlands, Austria  Singapore, just to name a few, there is a high readiness for your consulting service The decision is done based on your executive and consultant career, based on your references and testimonials and on the assessment of the project and you as an expert . This is done

    on an occasion of a meeting etc.
  2. Then we have countries of already developed markets, but not with this level of acceptance for outside experts, I include here the CEE region, it is more a question of trust-building than your particular set of experience. I consider for example that in Poland the interim market is a niche market. I think mental readiness of local C-level is lower to accept external experts as a solution.   I mentioned before that we went in our activity globally to cover the needs of logistics companies with high-level service done by people with an outstanding international executive and consultant track record.  But also we would see needs in the local companies for this service.

 

One personal story will illustrate this:  once I was approached by a local General Manager of a logistics company to discuss his company’s situation. In the meeting he communicated that actually, business is running well, the staff is motivated and skills exceptionally and they have absolutely no need for improvement.

Some weeks later by coincidence, I met the representatives of the holding of this company abroad and they asked me for an advice and even an interim proposal as they considered their Polish subsidiary to be in a very bad situation with high fluctuation of people and no strategy in place.

 

So the perception on the same company can change …. and more and more we see that also that the local market players in Poland, the Baltic, Czech Republic, for example, are interested and flexible to consider specialized top level consultants. As consultant you need to know this.

 

The third category and the third stage are the Emerging Logistics Markets, like China, Russia, Kazakhstan, Turkey, countries of South East Asia where there is very high potential for leadership, performance optimization and customer developments.

 

Also, Business  Strategy is an important topic to be covered there.  Logistics players need to have the knowledge how to deal with economics in transition, regulations and customs frame work, talent shortages or lack of its quality, and particular challenges on each country’s level for example Road Networks’ issues, connectivity to Ports, supply chain risks of different nature. So you need to be here strategic on the one side but also a real international people manager on the other to master the challenges.

 

My recommendation would be to logistics companies simply to be open to discussions with experts.

 

In this rapid time of changes and also shortages of qualified people, a temporary solution by specialists who very well know your industry might be of a real value to your company.  They are strongly supporting the Decision-Making process and its implementation.

 

So if there is any question or need for discussion I can be easily contacted on LinkedIn for example.

 

 

About Christoph Szakowski

 

 

 

 

 

 

Christoph Szakowski

 

CEO / COO / MD / VP /Logistics / General and Interim Manager in CEE, CIS, Asia, Emerging Markets

 

LinkedIn Profile

I interviewed Dianne Crampton who discussed Supply Chain Change Facilitation.

 

 

 

 

 

 

Today we're speaking with Dianne Crampton, and she is the founder of TIGERS Success Series. Diane, before we start this topic of supply chain change facilitation, can are provide a brief background of yourself?

 

Certainly, Dustin, and thank you for having me on your program.It's great to share content with your tribe. I've been in the business of work group development for nearly 30 years now, and it all started from a question. And that question was, what's necessary to build an ethical, quality-focused productive and successful group of people or maybe a group of companies, like in supply chain that come together to bring and drive products on to the market?

 

I studied all the group dynamic information I could find in business education and psychology. And out of that study came six principles that are measurable. They are readily seen and experienced in how employees treat one another, their customers, and the supply chain on a daily basis. And those six principles are trust, interdependence, genuineness, empathy, risk resolution, and success. And then after these six principles came together, then the project was to prove whether or not they could be individually measured within group behavior.

 

Two years later and after two independent studies that were conducted by rather large organizations, the results were conclusive. Not only could these six principles be measured individually within organizational behavior, they could also predict and prescribe treatments that would take an underperforming organization, or maybe even an adequate one, into the excellent category in a rather quick time framebecause these six principles are at the very core of cultural behavior. They influence how your company vision is manifested. They influence how the vision unfolds. They influence whether the organizational values actually have a living presence in an organization. It's sort of a universal, principle system.

 

I've been doing that ever since the proof came through, hung out my shingle, and have worked in merger work, worked in building organizations, have worked in change dynamics for organizations, going on almost 30 years now.

 

Can you talk about the steps that are involved in the process of change facilitation?

 

Peter Drucker and others that were very germane, I guess, in launching my career, said that change is a three to five-year process,and I agree with that up to a point, because many of our change situations had taken 18 months to resolve. So we were far shorter — under time and under budget — in that three to five-year category.

 

When you look at change, and a leader is anticipating change, there are a number of steps, some of which I think are ignored.

 

The first step is really assessing what the behavior dynamic is your organization. In other words, how do people treat one another, really, on an ongoing basis? Maybe it's not what the leaders see. Maybe these are little interactions between employees. I call that behavior your community of influence. This is how things are really done in a company. This is how the behavior really is in a company when nobody is looking.

 

Those behavior dynamics, if they're not lined up correctly... Let's say an organization has a very poor trust performance. Then there is some trust building that needs to happen before change is rolled out and executed.

 

The very first step is to make sure that the behavior dynamics in the organization can actually handle the change dynamic. Then from there, there is a planning process that's involved. I've seen leaders just dive right into the execution-planning phase without identifying the communication strategies, the internal marketing strategies, the time frame of rolling out those strategies, who they are going to pull into the change strategies. I think leaders often think, well since I'm the executive team, it is our role to execute change. And yes, it is. But it's also their role to engage the workforce and the informal and formal power structures within the organization to get behind that change, to actually look forward to the change, to understand it.

 

Then part of that communication strategy is also to pull in those individuals in a cross-functional type of team to work through how they're going to communicate this change in advance so that — I'm going to call it — safety nets are put into place for employees.Because change often threatens people, Dustin.And when you have executives, you have managers, who have become very good at performing tasks and services within an organization that's going to undergo change, giving up that sense of security for excelling at what they currently do. It's really difficult to go back to ground zero and learn something new, especially when you're department, your revenues, your financial streams, and everything are on the line.

 

In addition to the communication strategy that's built, there's also an enthusiasm building strategy that comes with that communication strategy. And part of the safety net also is to identify the types and norms of behavior and the norms of procedures and procedural norms that you want to lay down and put into place during that change process so they everybody is on an even playing field and you can corral all your organizational diversity into those group norm behaviors.

 

There's a couple of documents. There's a couple of procedures and rolling out conversations through your formal and informal power structures that create a feedback loop from employees back to the executive team in terms of what's needed to build that safety net; what type of communication is going to be expected; who is going to roll out that communication strategy; how are you going to reward little steps within that change process that people achieve; and what that all looks like.And that is all handled before you get to the execution-planning phase.

 

Then when you get to the execution-planning phase, you already have support teams in place for rolling out the steps of your change plan.

 

The faster you roll out change without a safety net, the more resistance you're going to experience. The faster you roll out the execution process with communication strategies and safety nets already put into place and expectations on behavior put into place, rewards and recognition for even the smallest little successes in that change process, change can be escalated considerably.

 

Each of those steps, of course, is broken down into subsub-stepsut I think that's probably too much minutiae for this conversation. I don't want your listeners to have their eyes roll back in their heads and think it's overwhelming because it's not. There is a strategic plan strategy. And if any of your listeners want to go to my profile on LinkedIn, that's at Dianne Crampton — Dianne spelled with two N's — on LinkedIn, there is an article that I posted on there on change where I list the steps. And they're welcome to go there and check it out. It's free. It will fill in all the little sub steps between their three major categories, which is communication strategies, your safety nets, and communicating that to employees, then developing the execution strategies and your execution plan.

 

Could you talk about the challenges that you face when doing the change facilitation?

 

I'd like to focus this on supply chain, Dustin, because if you look at all the different companies in a supply chain to drive a product on to the marketplace, hopefully with a deflation number on it...If everybody is really efficient in the supply chain and there's not a lot of waste, rework, and time lost, clearly deflation is a good thing because it keeps s price down and makes your product competitive on the marketplace. So when you look at all the different pieces and all the different companies and their corporate cultures that are involved in a supply chain, the group norm of behavior piece that I was talking about in the TIGERS six principles are really important to making sure that you can deflate the price of the end product, within a supply chain dynamic.

 

When you have, let's say, a company that is in maybe a more autocratic country, that has more autocratic management and leadership styles, where employees within that company may not be trained and developed to be collaborative with high-levels of exchange of information and information sharing within that company, perhaps they're not cross-functionally changed, trained, so that if a highly-trained employee gets sick one day, the whole production closes down because there's nobody who can step into that job while that employee is ill and out of the office...

 

When you look at the training and the development of employees within that organization, you have that culture. Then you have another culture, a company that's completely different, that has different levels of training and employee development, and yet another and another and another, depending on how wide and deep your chain is.

 

The challenge is really to impart that the whole, I'd say, heart and soul of the supply chain is collaboration and not competition. When you have a highly autocratic business culture, employees are very dependent. They rely. They're not paid for what they think. As a result, they are very dependent people and maybe not as collaborative or even capable of collaboration as a company that is more team based, agile, LEAN, 6 Sigma, and when you go on and on and on in terms of the systems and the strategies that they deploy within that company.

 

I read one paper once, Dustin, that likened a supply chain to a big company with different departments. I would argue that if you have one department that feels like Hawaii —it's fun and it's sunny, and you get work done, and you still have time to go out and surf — that's great. Well, now that employee from that department goes into Siberia where the whole management structure is different. I call that culture split. I also that a toxic organization.

 

The challenge is to build collaboration within that supply chain. That is often done through training and development of the key drivers in the supply chain. An example would be GE. I had a great occasion to learn from one of the HR managers and training development folks internationally for GE. And that company's procedure is actually to bring in vendors, to train vendors, and to bring them into large organizational training and development types of meetings where they can get the key leaders of the chain together and actually build relationships and understanding about how each person is key, each company is key to be able to delivery up a deflated-priced product one the marketplace that's competitive and therefore ensures that that supply chain and their position within the supply chain stays strong and secure.

 

The challenge is not only do you have the training and the development of employees within each member of the supply chain, you also have that need to belong synergy and collaboration within the chain itself.

 

Can you talk about how you overcome the challenges?

 

I think the way you overcome the challenges is bringing the people together, and I think, again, when you're looking at a supply chain, there's lots of hands-on, interactive types of activities, and I'm not talking about touchy-feely stuff and team-building things. I'm talking about really nailing down group norms and procedures that work for the entire chain. In other words, what are the behaviors that we're going to have in our chain that are going to keep trust high so that if we do have a problem, if we do have a conflict that comes externally, there's a high level of understanding and less suspicion, less defensiveness in overcoming those problems. So it's determining what behaviors that chain wants to see and experience and expects working together that would keep trust high.

 

It's the same thing with interdependence. We have technologies now, Dustin, that are fantastic. Members of the supply chain can use a computer system almost like a project management system for communicating where they are in the process. Because we steps in the chain itself take a lot of time. Just getting a sample out that everybody agrees with can take a lot of time. And then ordering can take time, the whole manufacturing process can take a lot of time. So working through the interdependent pieces and the behaviors within that supply chain helps to overcome... I'm going to say those dependent type of organizations where employees cannot make a decision to solve a problem on the spot without executive overwrite when that executive is attending some high-level meeting in Switzerland. There's so many things that can happen within that chain.

 

Then how do people bring problems in the chain to the group for resolving? Some will be just individual business problems, but what happens if environmental conditions shift within a company? Think of all the flooding, for example, in Puerto Rico from the hurricane. They had a nice coffee business starting. Maybe they were supplying beans somewhere. These problems occur, and you have to have the group norms developed and the collaborations agreements there where people have met face-to-face and have built them together with real meaning and value to be able to deflate the price of that end product, because everything is so efficient and streamlined as much as possible.

 

I would say overcoming those challenges, training and development, organizationally and in the individual organizations so that if somebody is out, there is somebody who could step into their position, and there's not any lost time and waste of resources and this also collectively within the chain, to meet together, hammer out some agreements and really instill a value. If the product survives, the chain survives. And those good working relationships will keep... I'm going to call it, like the end user from switching vendors for a nickel price drop in a piece of the supply chain.

 

Thank you for sharing today on this topic.

 

 

About Dianne Crampton

 

 

 

 

 

 

Dianne Crampton

 

Founder and HR Tech designer at TIGERS Success Series, Inc.

 

LinkedIn Profile

I interviewed Tingting Yan who discussed Supply Chain Collaboration and Innovation.

 

 

 

 

 

 

It's nice to speak with you today Tingting. This is going to be an interesting topic on supply chain collaboration and innovation. My first question is can you provide us with a background of yourself?

 

It's my pleasure, Dustin, just to join this conversation. I graduated in 2011 with a PhD in supply chain management from Arizona State University. So starting at that time, I was working on my dissertation in the area of how does a manufacturer better work with a supplier in the new product development project. So my dissertation really goes very deep into the black box of supply chain collaboration. And then I actually found out a lot of interesting phenomena, and then we tried to [inaudible 00:00:50] the puzzles a little bit by then.

 

Particularly, we found this over communication problem because, at that time, people were still talking about this under-communication. So we need to communicate more. We need to share more information. But actually, my dissertation found out that, in fact, it's not under-communication that hurts innovation. In fact, it's over-communication. Or you communicate with the wrong party.

 

In 2011 after I graduated, I joined Wayne State as a tenure-track assistant professor, and I continue to work in this area to better understand how this collaboration works, because everyone understands collaboration is important, but then in the area of innovation, it's not that easy.

 

I continue to work in this area and continue to publish in major supply chain management academic journals and serve on different editorial boards as a reviewer. And I also teach in many of the supply chain management areas, the courses on both undergraduate level and MBA level. And I also advise some Ph.D. students. And also, I recently started to lead a study abroad in China group, to take our students to China for them to understand that, particularly when you're talking about collaborating in the global context, it's important for students to understand that people in different parts of the world behave differently. They have different value systems. So it was very interesting to just infuse my research in teaching and then help students to understand that supply chain collaboration is not an easy task.

 

Can you talk about what is supply chain innovation and collaboration?

 

Supply chain collaboration refers to any type of inter-organization or collaboration among firms in the supply chain. So this definition actually could really refer to so many types of supply chain collaboration. So a manufacturer, they could collaborate with its direct supplier on the project that focuses on cutting the purchasing costs, probably by removing some waste in the supply chain — maybe inventory waste, maybe the lead time.

 

Or, another firm, they could collaborate with just customers — some more downstream supply chain partner in introducing a new product to the market. So you can see that collaboration along the supply chain can happen among the firms that have a vertical buy-in supply in relationship. Or sometimes it could happen between firms on the same tier. Say two suppliers, they collaborate together for a customer. So you have a triad here. Sometimes the collaboration can even happen in a network, which means you have more than one tier. Two firms participate. A group of companies come together.

 

Also, the supply chain collaboration can vary based on the goals. What's their focus? You might collaborate for cutting lead time. You might collaborate for innovation.

 

My research area is more in this supply chain collaboration for innovation — so basically, how could companies in the supply chain — actually, more accurately speaking, in the supply network — could collaborate and then to innovate together.

 

Talk about the importance of collaboration and innovation in the supply chain.

 

In today's world — very competitive.And I think most of the companies — no matter whether you are big or small — more or less agree that no firm could innovate by itself. Many of the critical innovation resources actually lie outside a firm's boundary. And a firm more have heard the word "Open innovation." Firms need to open up its innovation process to external partners. And among so many other external resources, a firm supply chain composed primarily by the firm's direct and indirect material in the service supplier, they're usually this very rick source of innovative ideas and technology for the firm.

 

As someone who is based in the US auto city, Detroit, I have witnessed this transformation over the last couple of years in the auto industry from the mechanical to the electronic wonders. And actually, to look at any of the cars that are running on the road today, if we look under the hood of those cars, actually the auto show is now going on in Detroit right now. So if you go to the auto show and you look at those cars, many of those innovations are the result of close collaboration between auto manufacturers and their suppliers. And many of those innovative technologies are driven and sometimes led by supplier — not by the auto manufacturers.

 

The same pattern exists across most other industries. So cross industry. Firms could all benefit from innovation of analytical software suppliers by better understanding the data, the big data, related to their internal in the supply chain operation.

 

Just imagine the fact to most of the companies, they spend 60 to 70% of their total cost of goods sold in the supply chain. Just by that number, you can see how much the supplier could affect a company's innovation performance. So I would definitely say that supplier driven innovation, they are and they will become an even more important competitive advantage for any firm in the future.

 

Thanks. My last question is can you talk about how it's done effectively and where you've seen some good results?

 

That's a very good question. In fact, in the past couple of years, we have been doing some consulting projects for big companies. And what we've found is innovation is really a very unique and challenging performance dimension for a company to manage. It's not like cost. It's not like quality. It's not like time, which you can really put a number on easily, which you can qualify and then you can measure. Innovation is something that people know what it is once they see it, but then it's very hard for them to predict where it's going to happen and also to really put a dollar sign along with the dimension.

 

What we found out is no matter. It's good for big companies or small companies. They all struggle with measuring even their own innovation performance, let alone to assess a supplier's innovation performance and potential. So I would say that for those companies who are doing slightly better than others, they definitely need to understand three things.

 

First of all, they understand motivation. Think about it. Most of the time, those innovative suppliers, they are very powerful suppliers. Everybody wants to work with them, for Apple, for Google. People know they're very innovative, so they're very attractive, which makes them powerful. A big question for any company to think about is why would an innovative supplier be willing to help me innovate among so many other customers that this supplier works with?

 

A word that is very popular here in the auto industry is a customer of choice, which is what many auto manufacturers are now competing to be. They want to be the customer of choice for those innovative suppliers so that supplier is motivated to share its top secret with them and then to help them become more competitive. So the number one task is motivation. Are you the customer of choice, which really relates on the buyer-supplier relationship?

 

Secondly, we know that the suppliers are playing increasingly important roles in innovation. But many times, how do you know which supplier has bigger innovation value for my company? Because here there is a big difference between innovation performance versus innovation value.

 

When we talk about performance, it's more like, does this supplier have innovative technology?and then, Does it have a lot of patents? It invests a lot in R&D activities. But no matter how creative, how many new technologies the supplier has, if those technologies are not useful for my needs, then the supplier has little, very limited innovation value for me.

 

It's like when the girl goes shopping to buy a pair of shoes. The pair of shoes from the big brands, and it's really expensive, and it looks really good, but then the shoes don't fit. It's not comfortable to wear that pair of shoes. That means that the shoes, although it's very good by itself, has very limited value.

 

For buying companies, it's very important for them to have a good understanding and to know which supplier has bigger value for me. So you have to be able to assess the value of a supplier's innovation.

 

Finally, I would say it's one thing that's kind of related to the second point, is for the buying company to have a very effective structure. So for any suppliers who are willing to come to you, they're motivated to work with you, and you know the supplier has valuable innovation, it's important that the buying company has a very effective internal organizational structure, particularly related to the purchasing organization. It's important for the company to have the right structure so that the supplier's ideas, their technologies, can arrive at the right place within the organization. And this is particularly true for big organizations like General Motors, those big companies, where the supplier technology can just easily disappear because the organization is just too big. So if the idea, the technology arrives at the wrong place, basically the wrong person is assessing or is using that technology for the wrong product, for the wrong component, or integrated in the wrong process. Then ultimately, the buying company still cannot realize the value of supplier innovation.

 

That's what we see as very critical, a last step. You have to have a very eft internal structure to make sure the ideas, the technology, they arrive at the right place, assessed by the right person at the right time.

 

Thanks, Tingting, for sharing today.

 

You're very welcome.

 

 

 

About Tingting Yan

 

 

 

 

 

 

Tingting Yan

 

Associate Professor of Supply Chain Management at Wayne State University

 

LinkedIn Profile

I interviewed Christoph Szakowski who discussed Digitalisation and its influence on logistics companies.

 

 

 

 

 

 

1.    Introduction, Experience connected to Digitalization

 

I am Christoph Szakowski, Managing Partner, LogCon East.

 

I have experienced the digitalization topic from the perspective of a manager in blue chip logistics organizations and later as advisor to the industry for several years. We have been consulting the industry in the German-speaking world, Central and Eastern Europe and in some Asian markets with several change management, benchmark analysis and optimization projects where technology has become one of the core issues, besides of strategy, structure, people management.

 

I have been in the position to deal with this  question always as an important part of major turnaround or development projects for Third-Party Logistics, transportation firms, freight forwarders and different B2B organizations which have been supplying solutions for logistics providers

 

As we work very closely with logistics companies and they have different level of maturity in terms of digitalization and also they work in different market segments and geographies, I believe we have a very pragmatic view on this digitalization topic in this industry, which I am going a little bit to share with you today.

 

2.    How would you define Digitalization and what is its impact for logistics companies?

 

Well,  as we are always trying to capture a topic from the global perspective as this is a good start for the discussion with companies top management, I also will do it this time.

For me and for business owners and company leaders Digitalization in a very complex topic whereas in public it seems to be gaining incredible popularity but only in some very separate dimensions.

Digitalization means actually a continues change process with permanent impact on the logistics companies results.

 

This process refers still partly to something we have known and used in the industry for decades like starting from shipments processing and visibility, transportation management programs, EDI tools, technologies for warehouse and distribution center management, track trace programs and tools enabling higher tender efficiency and so on.  This process could be having  currently and the next years  a broader dimension because of the availability  of new technologies

 

The impacts in logistics companies can be summed up in the points

 

1. Impact on their value creation process by the means of technologies.

2. Impact on business strategies and business models including a redefinition of shipper, client, partner, competitor understanding.

That is something I would like to concentrate on a little bit more today

3. That is the impact on companies needs for talent and qualifications and possibly even on company’s culture.

 

So this view is an easy to handle way and a kind of instruction for any company to go further in dealing with digitalization.

 

What is the impact of digitalization on business models in the logistics and transportation industry?

 

A business model, answering the question practically without a long debate based on the business books and authorities, must give a clear answer to the following question?

 

“What is it which constitutes my – as logistics company – value proposal I can promise and deliver to customers and which is really compelling and give me a competitive advantage ?”

 

There and different systems to create this value proposals (just consider a freight forwarders with a complex range and modes of transportation and acting as intermediary between client and carrier versus an asset-heavy road carrier serving a specialized industry, apparently the value proposals are different).

 

What is the competitive advantage is the logistics industry?

 

Let us have a future-oriented view as we talk about which impact can have digitalization.

 

According to some researchers, done in Europe for the large logistics markets, it is the predicted for the period of next 3-5 years, the competitive advantage will be dependent on:  1. flexibility towards clients requirement .2 quality of your service 3. adaptability to changing market requirements 4. attractive pricing  5. direct client contact

 

So the main question is:  “which impact as a company you would like to have in those major drivers of competitive advantage?

 

“How can you  - intelligently, based on your decision and not following any hypes or catchy slogans or popular trends, how you can make the use of technologies to achieve your company’s  long terms targets ?”

 

And last but not least – “ is there anything in your business model which requires change”. Now of course, I am saying a change which does not necessary mean just putting into practice at high expenses any new technology, just to call yourself innovative.

 

So talking about impact of technology on your company’s business models can be also put as a question to company leaders what is their strategy to use technology for example to ensure a high effective direct client contact which we determined as one of the main drivers of competitiveness    For me it could start with simple things which are possible with easy technologies which have been available for years .

 

So just use the amount of information and date available in open sources know about your client, his company, his values. You can obtain this information easily a lot before any client interactions occur. Simply the amount of the information available in open sources is so good so a sales manager in a forwarding companies you can prepare a good sales process and later a valuable interaction with the customer.

 

There another important impact is that digitalization has enabled a creation of completely new business models and companies which start acting in the logistics markets like new digital freight interchanges and platforms,  network builders, big data players all of the – in the logistics total market or in an niche – trying to compete for the market share.  They have in common to be analytics-driven, focusing on the acting as interface somehow between shipper or a manufactory and the carrier and are full of entrepreneur spirit with strong efforts in their promotion.

 

For all players in the market the question will be to find their position and be able to distinguish between a partner, a supplier or a competitor. For this moment we see that the established players are implementing their digital strategy and they sometimes consider the new players as partners, sometimes as a question mark, not very often as a competitor.  Our observation is that in the industry, depending on the region, only 20 % up to 35 % of the players, have clearly answered for them this question and planned measures to cooperate with the new players, which called them “disrupters”  or compete.

 

I think what should be avoided is ignoring these new models of business and it is better to start considering them as a part of competitive landscape.

 

I was in a discussion recently about a vision for the logistics market. I said that I believe rather that the most important driver in the digitalization is the end customer and that is now and will stay forever a people-oriented business.

 

The decision who is going to take care of your global or regional cargo flows and the security of commodities in many cases of a tremendous values and the decision about who is going to optimize networks, delivery times and logistics budgets, will always be done by people. So forwarders are not so much to worry about to lose customers to disruptors as long as the forwarders invest enough in people management and customer relationship skills.

 

As to new business models in logistics, I believe scale matters and will still matter. So, yes they will be new forms of collaboration, alliances, joint ventures for 3 PL providers which have or should have a really customer-driven, operative, solutions-oriented DNA.

 

This DNA is of a stronger-value than any cost-optimizing platforms as long as they forwarders do they homework which was the homework already decades and years ago. So streamlining operations efficiency by using technology, facing the fact some jobs will become obsolete and concentrate on learning new skills coming for example from technology companies.

 

So that is what in short I would see as impact on the business models.

 

What are your recommendations for the logistics industry in view of digitalization?

 

Yes. I would like to call it a  “common sense – manifesto for logistics players” in reference or in contrary to that what is popular and called “agile manifesto” in the software development for example.

 

5 points there

 

“Do not be disruptive, be simply constructive with your value  proposal to customers.”

 

“Some people will keep tell you - you need to start digital transformation now. But keep in mind a bad strategy, wrong culture and non-value providing processes digitalized means a bad digital strategy, a wrong digital culture and non-value providing digital-process.”

 

“To be a learning organization has been always and will remain to be the key in the logistics business. You did not need a start-up company to tell you this “

“Everything flows, nothing stands still.  Does everybody in your company understand it?”

 

“Remember – logistics business is highly competitive. No matter your size, be adaptable, decisive and fast so you will come out as a winner of any revolution or transformation”

 

 

About Christoph Szakowski

 

 

 

 

 

 

Christoph Szakowski

 

CEO / COO / MD / VP /Logistics / General and Interim Manager in CEE, CIS, Asia, Emerging Markets

 

LinkedIn Profile

I interviewed Gautam Sukumar who discussed Demand Planning.

 

 

 

 

 

 

It's nice to speak to you today, Gautam, and looking forward today to hearing your views on demand planning. Before we start, can you provide a brief background of yourself?

 

Hey, Dustin. I work in the supply chain. I've been working as a supply chain consultant for the last five years. I've worked with now multiple industries and consumer package codes. Currently I'm working for a client. I've also worked for a life sciences client in the past. I've done my MBA in supply chain management and been in this field for the last five years.

 

Can you discuss a little bit about what is demand planning?

 

Put in laymen terms, demand planning is nothing but trying to understand what is the demand for the product. To understand the demand for a product, it's not going to be as simple as just look at past-month sales or past-year sales. You need to factor in multiple trend scenarios as well. For example, there could be a multiple external factors affecting the demand for your product. One is season. Two, if the company is running some kind of promotion, activity. Three, it's also the brand image and the competitive market.

 

So all these factors put together dictate the demand for the product at the end of the day. And the demand plan is something that dictates the production of your product so that this acts as the input for your sub planning.

 

So a lot of are dependent on your demand plan, and your demand plan, as I said earlier, it based on multiple factors.

 

Can you talk about the importance of demand planning?

 

Demand planning dictates multiple things for a company. For example, you need to have your demand plan in alignment with your financial plan. You can have a financial plan of, let's say, to make $20 million dollars in Q1, Q2, Q3. But if your demand plan does not match up to it, you're not going to be making those sufficient products. If you're not going to be making sufficient products, then you're going to end up with.

 

The other scenario could be where the financial plan is only to sell $20 million worth of product, but you're manufacturing $30 million worth of product. Then you're left with inventory of $10 million. So it's very important to have a demand plan that's in aligned with your financial and the sales plan. In that respect, a demand plan dictates the direction of the company.

 

Can you share with us how this is done effectively?

 

The most effective way to have your demand plan is when the companies have a very robust S&OP process implemented. So it's very important to have your sales and operations plan. That's when your is going to act as central to this S&OP plan and you can drive your S&OP process using the demand plan that you've come up with. So it's very important to have a very robust S&OP process which will bring in a lot of things into place. So S&OP, I think, is a very important aspect to get your demand plan in accordance so that you get alignment with your sales team, financial team, the operations team.That's the most effective way to have a very robust plan.

 

Do you have any final recommendations regarding demand planning?

 

In terms of recommendation, I would say try to understand what the product is behaving according to the situation. For example, we need to... market situation.We need to have a very... Sometimes it's just not about numbers. You need to be very involved with the product. For example, I've done demand planning for a nail polish company. So even though nail polish plan, I tried to be very involved with the plan so that I understand what's happening, how the market reacts to different things, and what is more widely accepted, versus some colors which are not accepted. So it's very important to be very closely associated with the plan and the product when you're doing demand planning.

 

About Gautam Sukumar

 

 

 

 

 

 

Gautam Sukumar

 

ERP & Supply Chain Professional

 

LinkedIn Profile

I interviewed Hal Good who discussed The Future of Cooperative Purchasing.

 

 

 

 

 

 

Today we're speaking with Hal Good, and we're going to discuss the future of cooperative purchasing. So, Hal, can you first provide a brief background of yourself?

 

Good morning, Dustin. Pleased to be talking with you. Yes, my background — I started in hospital procurement and actually hospital materials management and logistics. From there I moved into procurement with the City of Palm Springs, California, and then later at the county level and also participated in projects at the state level in the state of California. So my background started out in the private sector, but then I moved into the public sector. And most recently, I've been doing a lot of things in social media.

 

What is the future of cooperative purchasing?

 

I think one of the big resources that cooperative purchasing provides to, especially, people in the state and local agencies in the United States is the ability to tag on to a great contract where someone else has done a full request for proposal and has made an award and followed all the rules that are universally kind of acceptable to everyone.And they come up with a good contract. And then all of the other agencies whose rules allow them to participate in that contract can also sign on to that contract and utilize it. It's especially important, I think, for smaller agencies that are having a more and more difficult time having the resources to keep up to the changes in the digital environment or just playing their resources, to process all the requests for proposals or solicitations, they have to, where they can rely on a better staffed agency that has maybe specialists in those areas that can come up with a contract.And then they can utilize the contract without having to try to reinvent that expertise and maybe not do it as well because of the fact that they don't have the resources to do it.

 

So I think it's a great resource for public procurement overall to really benefit from other people's work and kind of share resources. So that word cooperative is applicable on many levels. But one of key components of it is sharing resources. So someone may have expertise in one area. They do a request or proposal in that. Another person has expertise in another, and they do a request or proposal in that. And then everybody benefits because everybody can use everybody’s resultant contracts.

 

Can you talk about the vendor community and how it is impacted?

 

I think the vendor community has to look at what is available in terms of the competition with the impact of cooperative contracts. And they need to either decide that there is an opportunity for them to get a contract with competition maybe on a national basis with their competitors to successfully compete in that marketplace. And if there isn't, then maybe they want to find more of a niche market. I kind of liken it to the big boxes that took over in grocery stores where you have huge players, and there's these that can compete successfully in that market. But then the ones that can't go into a niche market where maybe they run a deli or a specialty bakery or something like that. So I think it's an opportunity for vendors to look at themselves honestly and see what that sort of a market means for them in terms of their own destiny and planning.

 

What about sustainability? How is this related to sustainability?

 

I think that's one of the big resources because you have agencies that really are dedicated to come up with addressing the broader sustainability issues. And they come up with a contract that really works in that area. And then, again, everybody can tag on to it. Also, following up on the other statement I just made about vendors looking at where they can compete, that also creates a niche market, because maybe you're not the biggest, but maybe you address the sustainability issues, if you're a vendor, better than anyone else. And so it's an opportunity for those sorts of things to go forward in an environment where more and more we're looking at smart everything — smart cities, smart government, smart grids. Sustainability is a big issue. And if you can get something that works in that and share it will other people that have similar needs and similar goals, that's a huge benefit.

 

Thank you. Do you have any final recommendations?

 

I think that for anyone that's hearing this or reading the results of this that hasn't looked into opportunities for cooperative purchasing, it's well-worth their time to look at it, because I think it's going to be more and more important in the public procurement world, especially at the state and local level in the future.

 

Thanks for sharing today, Hal.

 

Thank you, Dustin. My pleasure.

 

 

About Hal Good

 

 

 

 

 

 

Hal Good

 

Procurement Advisor, Futurist and Influencer

 

LinkedIn Profile

I interviewed Rick Kovac who discussed Supply Chain Risk Management.

 

 

 

 

 

 

Can you first provide a brief background of yourself?

 

Dustin, I've worked across all those 50 restaurant brands — that includes the likes of McDonald's, Burger King, KFC, Pizza Hut, Taco Bell, Cheesecake Factory, PF Chang's, Pei Wei, Shake Shack, and many others. Those have been based in Asia, Australia, Middle East, US, and Europe.

 

In regards to supply chain, probably the largest supply chain that I've managed has been about a billion dollars in purchases, and we store some 30,000 SKUs from over a hundred countries and a total of about 3,000 suppliers. So a fairly large supply chain to try to manage. I've been quite fortunate to actually have lived in many countries overseas as well. So I've had about 30 years of not living in the States where I originally started. So that's a quick and simple background.

 

Can you talk about some of your experience with supply chain risk management?

 

Yes, I can, I think a lot of companies don't actually have a standard in place in regards to supply chain risk management. So some of the larger ones — the likes of McDonald's and Burger King — will have in place standards for risk management. So you'll have backup suppliers. You'll actually test those backup suppliers on a regular basis to ensure they can actually fill the void if your regular supplier is not able to supply. But many other businesses really kind of talk about risk management but don't have the standards in place. So I've worked for some companies that their risk management was to ask a supplier what would happen if they were unable to supply. And the supplier said, "Oh, we can shift it to another factory." And they would put the tick in the box that supply was covered in the event that the factory was unable to supply.Nobody ever tested the theory. Could the other factory supply? Did the other factory have the equipment? Did the other factory...they may not even have had forming molds.

 

I've had some instances where companies have done that, and they found out their backup supply was capable, but their backup supply took four, five, or six months to actually become capable because they didn't have the right piece of equipment or they didn't have some of the forming molds in place. And so those needed to be ordered and everything else.

 

I think risk management in a business needs to be important, but, more importantly, it needs to be positioned to be something that the business talks about on a regular basis and put some standards in place.

 

How it's done effectively?

 

I think, Dustin, probably one of the best examples of "effectively" is actually to kind of rank your suppliers, in a sense, A, B, and C. So most critical, obviously, falls in the A [inaudible 4:05] the kind of [inaudible 4:06] the supplier C.So somebody supplying plastic gloves to your business or garbage bags to your business may fall into that C category. Somebody supplying corrugated boxes may fall into the B category. But if you're somebody like McDonald's, for instance, or Burger King or KFC, somebody supplying your French fries may fall into that A category.

 

Once you've got them in the categories, then you go through and you talk about how you manage that risk. Within the A category, it may very well be I've got a backup supplier, and I need that backup supplier to actually produce product for me their times in a year. So that way, if your supplier falls over, not only is your backup supplier proving to you they have to right equipment, they're proving to you that they could actually provide the product at the standards that you want, and they're not trying to fill in a void and also learn how to make your product at the same time. So I think that's probably what you want to do for your A levels.

 

For your B levels, it may be just simply saying, if the corrugated supplier can't supply us, we've got a list of four or five others that we can go talk to and get them to provide that product.

 

In regards to a C, you'd probably just have a nice list of C suppliers to say, if my garbage bag supplier calls me up and says, "I can't supply," who's next on the list to call and get product from?

 

So I think something as simple as that will keep you covered. If you're a much larger, international business such as McDonald's, then you need to have some understanding that if the US is supplying product to the UK, for instance, not only does the US need to make that as a backup supply but also go through the process of shipping it to the UK so that you've got your shipping lines backed up, in a sense, as well.

 

Do you have any final recommendations regarding supply chain risk management?

 

Yeah, I do, Dustin. It's simple. It's you should plan and prepare because, unfortunately, a supplier not being able to supply you isn't something you can kind of work into your daily plan. And the business anticipates that you'll have continuous supply.

 

So a very good example is the business I'm working at the moment. They had a supplier that provided glass jars to them. And the supplier called up on a Friday and said, "We're actually going to shut down our factory for three months. So hopefully you have enough stock."

 

Nobody planned a backup. That supplier didn't send anybody a note a month before, two months before, or three months before. They called on the Friday to say, "We're closing today for the next three months while we do some refurbishment to the factory." So that left the business without any kind of backup supplier and everybody frantically on the phone saying, we've only got about a week's worth of stock of glass bottles, because glass bottles take up a lot of space in your warehouse. How do we try to hurry up and get some glass bottles so we can keep producing and not shut down ourselves for three months?

 

And that's a classic example of not preparing and not preparing for an A-level supplier. And it's important that you make sure you prepare for your A-level suppliers. Your Bs and Cs, you got a little more flexibility. But your A's, if your business is filling glass bottles with a product, and you have no glass bottles, then, obviously, you can't do much business.

 

Thanks for sharing today, Richard.

 

Since you're like being a Boy Scout, if you were ever in the Boy Scouts, you always need to be prepared and plan ahead and make sure those critical products, you've got some kind of viable backup in the event that that supplier has some issues.

 

 

About Rick Kovac

 

 

 

 

 

 

Rick Kovac

 

Senior Executive - Global Experience in Operations, Supply Chain, Procurement and Distribution

 

LinkedIn Profile

I interviewed Howard Mann who discussed Supply Chain Process in Healthcare.

 

 

 

 

 

 

Today we're speaking with Howard Mann. We are going to discuss supply chain process in healthcare. Howard, it's great to speak with you today. Can you first provide a brief background of yourself?

 

Certainly, Dustin. My name is Howard Mann, and I'm a vice president of supply chain with a company here in the United States that works in the healthcare arena. I've worked with the supply chain and information technology in healthcare for the past 35 years. I've worked in hospitals, integrated delivery networks, which are multiple hospitals. I've worked with very small hospitals, and I've worked with non-acute care providers, which is something I'm doing now. So I have a fairly broad experience and past experience, and I spent six years working with hospital information technology groups. So that gives me a little bit stronger technology perspective with supply chain.

 

Can you talk a little bit about what is supply chain process in healthcare? What's involved?

 

Healthcare in the United States is regulated by the fact that hospitals are seen as a community provider, and therefore, under our laws, they're governed by what's called Safe Harbors. On the supply chain side, we're not allowed to collaborate with other independent hospitals to set or fix pricing with supplies, products, services, things like that.So, on the supply chain side, from a purchasing perspective, it makes contract negotiations somewhat of a challenge.

 

Hospitals, over the years, were allowed, under legal laws called Safe Harbors, to work with or collaborate with an independent group purchasing organizations in which there are between 12 and 14 in the United States. There's been consolidation across those. And those organizations contract, and then we can participate with them and utilize their contracts. So that does put an extra layer between us and our supplier partners and our distributor partners to try to help us continue the flow of particular products but also equipment and services.

 

So that, along with consolidations across hospitals across the United States, when market consolidation brings more opportunity to contract, and then we also do not want to bypass or challenge our non-taxable status, not for profits, or our ability to negotiate the for-profits. So there is a lot of that has to be done of the supply chain side that isn't typically the same as the manufacturing or for retail markets.

 

Supply chain on the hospital side tends to focus on some fundamental things that are taken for granted on the retailer or the manufacturing side. It makes for a little bit different challenge, although all of the other aspects are exactly the same as manufacturing and/or retails. We do acquisitions, distribution of products. We warehouse. We have [inaudible 3:45] freight. We have to deal with invoicing and billing. They are the same things, some of the same functions of retail manufacturing. So there's commonality, and there's disparity.

 

Can you talk about how it's done effectively?

 

Well, the effectiveness is the continued ability to contract nationally. In addition, one of the things that we try to pursue in healthcare, basically, our mission is to provide excellent healthcare to all of our patients and provide a good working place for our clinicians and physicians. When you have an environment like that, it is a little bit different than manufacturing where you're projecting towards a market for sales and then you're making sure that parts and pieces are assembled in order to create a product or a service that will sell.

 

So those are our prospective healthcare systems. They're driven by analyzing their market and managing to their stock prices and that kind of organization.

 

Healthcare is providing a general, assumed level of care for their communities. We have to basically be prepared at all times in order to be able to provide that service. That makes the forecast a little more challenging. In healthcare, there are continual efforts to try to accomplish that, and that makes the supply chain have to be a little more reactive as being prospective on the manufacturing and retails side. So those are challenges that we face.

 

Do you have any success stories or examples you could share?

 

There is constant improvement across the healthcare supply chain. There is the fact that initially supply chain was focused on purchasing. It was the acquisition phase of the cycle of materials that healthcare needed. And that has dramatically changed over the years, particularly through legislation where we have things that are driving us, like safety for our patients, is now creating a federal mandate to create a unique device identifier for all the products that are used in taking care of our patients. And that's going to give us information that will help us move closer to the ability to forecast what needs to be bought. There are tremendous efforts going on now throughout healthcare to continually move us towards a more technologically savvy supply chain. And a lot of the people that are coming into healthcare supply chain, there are a number of them that came from industry, from manufacturing, from retail, that are bringing tactics and aspects of retail and manufacturing into healthcare supply chain, where they're trying to move that forward.

 

We're also working much more closely with our customers within our system, not only our patients but also our physicians and practitioners, in how to make quality-based decisions around the supplies, devices, equipment, and services that are purchased or acquired, which helps us negotiate more effectively.

 

So there are many, many exciting things going on in the healthcare arena today that is going to move us to where we need to be in the supply chain.

 

Thanks, Howard, for sharing today on this topic of supply chain process in healthcare.

 

 

About Howard Mann

 

 

 

 

 

 

Howard Mann

 

Vice President, Supply Chain Management at Cardiovascular Care Group

 

LinkedIn Profile

I interviewed Ashok Muttin who discussed Healthcare Supply Chain and Amazon.

 

 

 

 

 

Can you first provide a background of this topic about Amazon entry into the healthcare supply chain and why is this relevant?

 

Thank you, Dustin. It's good to speak to you. I think the entry of Amazon is very relevant because of multiple reasons. The healthcare supply chain has been complicated and complex for a variety of reasons — either because of the multiple players that are in there, such as a GPOs, and manufacturers, the distributors, and then the providers are, for any number of those reasons, healthcare supply chain has been unnecessarily complicated. With Amazon coming in with the firepower and their ability to attract multiple suppliers all over the world and their ability to drive measureable cost savings and to bring in a sense of transparency to the whole supply chain is very, very relevant in more ways than one.

 

Obviously, it remains to be seen that the efforts that Amazon is making and the tremendous investment that they are making is going to bear fruit because supply chain, while it's complicated, it's also necessary that Amazon goes through this whole process in a very simplified way and brings a sense of transparency.Otherwise, Amazon will continue to face the same challenges that other folks in the past have faced. So it's going to be an interesting next 18 to 24 months to watch.

 

Can you talk about how this impacts the players in the supply chain?

 

That's a very interesting question, Dustin. If you really look at all of the players that we have today, we have the manufacturers — global as well as national and regional manufacturers. Then we have distributors. Obviously the there large ones being the Cardinal, the Owens & Minor, and Medline.And then there are literally hundreds of smaller local distributors that are working in the supply chain. Then there are the providers along with the group purchasing organizations.

 

Who each one of the players in this supply chain obviously are going to be impacted in multiple ways. I think the biggest impact is going to be on the group purchasing organizations because, as we have seen over the last couple of months or almost a year or a year and half, the significance of the GPOs continues to decrease and their value continues to be questioned.

 

So if they continue to be simply a contracting organization and not do anything else, then I think they are the ones that are going to be impacted the biggest. So there is an argument that is going out there that Amazon could possibly partner with the group purchasing organizations, and I, unfortunately, haven't been able to come up with one single reason to say that Amazon would partner with them. It's almost like saying would Amazon partner with someone like a Borders, which was, as both of us knew, was a leading book chain, or a Blockbuster for that matter. Would Amazon do that? Probably not.

 

So in the same way, it's very difficult to think that Amazon would actually partner with a GPO, and I would think that the GPOs would be in the square, in the center of the crosshairs of Amazon, and they probably are going to be the ones that have the biggest impact.

 

The second one, I think, are the distributors. There are a lot of small and mid-sized distributors today that don't have a tremendous amount of scale or the sophisticated operations like someone like an Amazon can bring. My sense is that a lot of those small distributors are going to be impacted in significant ways, and I expect some kind of a consolidation to happen in that area.

 

Now, it remains to be seen whether the big three or the big four, as we call them when we include the McKesson in that group of the big four, whether they will go ahead and acquire smaller distributors to build muscle or some of these smaller distributors will go out of business. That's an area that is very interesting and remains to be seen. As far as the manufacturers are concerned, I don't really foresee myself thinking that Amazon is going to go ahead and acquire someone like a Medtronic or a Johnson & Johnson, Smith & Nephew, Stryker, or any one of these guys.Manufacturers who have very clear advantages, who have invested tremendously in research and development, and they have a significant product pipeline... I don't really see anything happening to the manufacturers except the fact that because now Amazon is going to come in, muscle their way in, obviously they are going to start with something very simple — things like the consumables, which they had already started in some small way. I see a huge expansion of that happening. And then that expansion leading to servicing the non-acute care would be a cakewalk for Amazon. That is still a significant supply chain business in the healthcare area.

 

So manufacturers, I think, are very well placed, as long as they are the ones who are truly developing products, who are investing in research and development. I don't really see any impact on them, at least in the near to medium terms.

 

I think another constituent that I think is going to be affected issome of the healthcare management consulting companies that have been there. So if you really look at the five or six of these big consulting companies, unfortunately, every one of these consulting companies has never really invested in any core technologies or core analytics or any one of those enabling things for the providers. They continue to recycle the same consulting work that they do. Obviously, every year they come up with a new name for that consulting or some sexy variant of the previous one.But really, they haven't really come up with anything new for the providers.

 

And once Amazon comes into the picture and they bring in a tremendous amount of transparency, at that point in time, I think the CFOs and some of the heads of supply chain who are hiring these consulting companies are probably going to ask themselves the question, "Do we really need these guys?" If Amazon is doing all of those things that a consulting company is supposed to do in terms of analytics, in terms of driving down the cost, in terms of providing the transparency, in terms of showing the visibility into the supply chain, then that, I think, is interesting to see how it will affect the so-called healthcare management consulting companies.

 

So if I were to really look at it, you have the GPOs. They are probably going to have the highest impact as far as we can read the situation.

 

Second one, I think all of the smaller and the medium-sized distributors, they will have a significant impact. Manufacturers really don't see an impact happening, and then, obviously, the management consulting companies are, I think, going to be significantly impacted. That's how we read the situation. We have been following this very thoroughly in the last five months, and Amazon, obviously, has created multiple pilot programs based upon publicly available information. And they seem to be in a very good position. And also, as you are very well aware, Amazon has hired some of the best and the brightest from the group purchasing organizations.

 

What that means is those guys are going to bring a tremendous amount of knowledge, a tremendous amount of insight, into the inner workings of the group purchasing organization. And by leveraging that knowledge base, leveraging that insight, I have a feeling that Amazon will attack the GPOs very directly.

 

Is there any more you can say about some of the things the affected parties should be looking at?

 

We have always talked about this very openly, and I have personally expressed my opinion multiple times. GPOs did have a huge opportunity to reinvent themselves. I still think the window of opportunity is not closed entirely, but they really have to think about literally re-engineering themselves, transforming themselves into more of a technology company, more of a platform company, more of an enabler than they are today. As we all know, the majority of the expertise that the GPOs bring to the table is all in the contract management area. Having said that, if Amazon were to come in and bring in a new paradigm, a new business model, I don't know how valuable is that, just the contract management capabilities. But if leveraging all of the data that the GPOs have, leveraging all of the insights that they have about the buying patterns, the demand curves, the highs and the lows, leveraging all of the relationships that we have with the providers, GPOs could probably reinvent themselves. I still think that every day that they don't do it, the time is clicking. But if they were to really think outside the box... If they do some kind of constructive destruction within their own organizations and are willing to let go of this 4% commissions that they easily get, then I think they have an opportunity to put of a viable competition to someone like Amazon.

 

What that also means is the GPOs would have to partner with a technology provider, maybe someone like and create what we call or what we've been evangelizing as a private marketplace. And that private marketplace could put up significant competition to Amazon because, while Amazon is very capable, has significant amounts of dollars to invest, an almost unending supply of capital, but Amazon still needs to learn the complexities of the last mile of the supply chain which is integrating with the provider systems, working around the recalls and the replacements, physician preference items — these are all the areas that GPOs have a tremendous amount of expertise and insight. They could leverage all of that, package that into a platform. And if they were to take that platform to the market and be bold enough to say that we will not anymore depend on the 4% commissions; we will go ahead and create a new paradigm, then that's a good opportunity of the GPOs.

 

Now, as far as the distributors are concerned, it's tough to compete with someone like Amazon when they come in with all their guns blazing. They have such sophisticated infrastructure, they could easily bundle their Amazon Prime subscription to serve all of those non-acute care facilities whether they are owned by an or they are independent entities out there. Amazon is going to come in heavy and high.

 

So the only way that the distributors could do is to probably band themselves together and create some of these coalitions and gain in strength in terms of both their ability to get mass and their ability to reinvent some of their operations. Because if Amazon comes in and brings in the drone technology and turns the distribution upside down by bringing in just-in-time systems, then it’s really going to be a tough battle for the smaller distributors.

 

The big guys, I guess they will survive because they have already very strong existing relationships with the providers, and the provides have been locked into multi-year agreements with the distributors. So they still have a 10- to 12-month window to react to be able to put in a viable competition for Amazon.

 

Can you discuss some of the challenges that these other parties will face?

 

It's going to be significant challenges, Dustin. As you can see, Amazon always goes after those industries where there is a significant inefficiency in the system, where the few are profiting at the cost of others, where the margins tend to be high, where there is complicated, multi-tiered contracts, pricing and sales strategies. And then there is a whole lot of confusion. And if you look at the healthcare industry and the healthcare supply chain, all of those factors are there. So if Amazon were to look at one industry that is huge, that is a viable entry for Amazon... So each of the constituents, each one of the affected parties would have to look inside themselves. And every one of them would have to — to use the old, clichéd word —“think outside the box” and be able to evaluate their core strengths and weaknesses and be able to design some kind of mechanism to put up a viable fight with Amazon.

 

It is very obvious that each one of the constituents, leaving apart the manufacturers, will become more of a technology company than they are today. It's not about how many trucks do you own, how many distribution centers do you own, how many drivers do you own, and how they are located. Amazon is better at doing all of those things. So each one of the affected parties would have to think about an entirely different business model that would leverage their core strengths, their knowledge of the providers, their knowledge of the physician-preference items. Then they can probably create new models that can become viable competitors to Amazon.

 

Thanks, Ashok, for sharing today.

 

Thank you very much, Dustin.

 

About Ashok Muttin

 

 

 

 

 

 

Ashok Muttin

 

Purpose Driven Entrepreneur Reinventing Healthcare Supply Chain

 

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