Navigating the Supply Chain Landscape
April 25, 2022
On this episode of ManuFacts and Perspectives, Travis Epp, Partner-in-Charge of EisnerAmper’s Manufacturing and Distribution Group, is joined by Hannah Testani, CEO of Intelligent Audit, the leader in multimodal freight audit and transportation spend analytics. The two discuss some of the major disruptions facing the supply-chain today, areas directly impacted by these challenges to keep in mind, and opportunities where companies can invest to evolve their supply-chain management practices.
I've been with Intelligent Audit now for 14 years. My role has evolved tremendously from when I started. I have worn almost every hat at our company, except for a true developer. So in terms of how I've adopted my expertise, I think it's from being in a lot of uncomfortable conversation which I was not an expert in, and being around a lot of trusted advisors and people who were just good. And I was able to learn from them, submerge myself into hard situations.
And from there, it was all a blossom of opportunity. In general, I think as professionals, we evolve by being in hard situations because that's when you're able to really think outside the box and get creative. And with supply chain, unfortunately, that's just the name of the game that we're all in. So we continue to grow as the leaders and I think get a lot more creative as more disruptions occur.
TE:Thank you, Hannah. And to get started, you mentioned challenges. COVID-19 has now been with us for just over two years. And as we look back at the last two years, what are some of the biggest issues and challenge that came to the forefront that businesses weren't really ready to deal with?
HT:Yeah. I mean, I get this question often. And I think you need to think about what COVID did to supply chain and where it changed volume. So many experts have said that when COVID started, for the first month or so, it was terrifying, right? No one knew what was going to happen, but that really, quickly changed, and consumer behaviors changed. So what that in turn did, is it moved up volumes that were expected to be hit in 2030, to 2020. So just think about for a second, what it means if you're still in 2020, but you are now shipping using 2030's volumes, which is significantly higher than 2020. So if you put that into perspective and now say, okay, well, what would I have done in those 10 years to prepare myself for 2030? That's what no one had the opportunity to do.
And I think that's where we have to start to dive into it if we want to be able to continue evolving and be ready for what's next. So to me, the biggest opportunity, if you haven't yet, is to truly invest into technology. I don't think that there's going to be less disruptions in the next 10 years than there were in the past 10. If anything, we've found between the trade war, COVID, and then everything else that happens in this world, is that supply chains used to be pretty easy-ish to manage, to control, to predict. And that's just not the case anymore. So in general, I think that shippers, or companies are starting to evolve and think more broadly and diversify their carrier mix, their supply chain, their manufacturing, where they're doing everything, where they're sourcing products, and putting on the creative hat. Which I also think, for the first time, they have the opportunity to truly innovate.
If you put yourself into the role of a supply chain leader, their job has never been needed as much as it is today. So I think that's an opportunity for them, because when you're needed, you are going to be able to get the most value for yourself. But they have to be able to prove their ability to move products and to do that efficiently at scale, et cetera. So to me, I think that supply chain leaders need to be able to really immerse with their CFOs, the finance team, and understand what didn't happen that should be done, in terms of investing and diversifying their mix. And I would say have real conversations about budgets, because it doesn't help anyone on the finance team to get a budget that a supply chain team knows is going to be blown through very quickly.
So have real conversations, invest properly, and be ready for continued disruptions because they are not going anywhere. And now as individual people, we have all been tackled and one way or another, we've experienced a supply chain issue. Whether it's inability to get a refrigerator delivered to you or shoes or medicine, whatever it is, we all understand it now. So there is a lens put on our industry, and with that, we all need to be able to deliver a lot more effectively than what we've been doing the past couple of years.
TE:I think when we've talked a little bit about this before, you've mentioned that there's a bunch of data and analytics that is available to the company that maybe isn't coming or bubbling up to the CFO. So there's maybe some information they're not aware of. Can you just expand and a little bit more on the business and intelligence and whether or not that information is getting to the right people?
HT:I think data is knowledge, and knowledge is power. I'm a huge believer of informational asymmetry, and whoever has more data than the other is able to make more informed decisions. And I always say, I think Kayak really evolved that to us as consumers in the airfare industry. When they introduced their website and made it so easy to use, you were now able to price shop and see everything side by side, apples-to-apples. That's what we're doing in the supply chain space as Intelligent Audit.
So in general, our approach is to empower our customers, who are generally shippers, with actionable intelligence to help them make more informed decisions. And be more proactive instead of being reactive. If you think about what that means, when you're able to understand the impact of any disruption in your supply chain, you are then able to react and make the most in form decisions. So whether it's understanding the financial impact of, now fuel increases. Or what the heck's going to happen with this war in Ukraine, and now that China is shutting down again because of COVID?
All of these issues that happen, the next question you get from the management team is, how does that affect me? How does that affect my ability to execute our goals? How is it affecting our ability to recognize revenue? Because if there's no revenue, then it's going to be very hard to continue to be a business that is out there. So in general, I think that there's so much knowledge that comes with data, and I could go through tons of examples of how you're able to optimize when you're able to very clearly visualize opportunities. And without data and understanding how to do that, you're just hoping that you're in Excel and you stumble into an opportunity. But you have to be a lot more prescriptive and work with a provider like us, who is not just cleansing data, but also showing you how to use it to then make transformative decisions.
TE:One of the areas you touched on, the conflict with Russia and Ukraine, I'm wondering if companies can utilize lessons learned from COVID and supply chain to the current environment. In particular, some of the top exports from Russian and Ukraine are wheat, oil, and wood. Are companies better able to ... or are you seeing them use what they've learned from the past to try and get ahead of this? Because we've had those discussions where this could really cause problems for the whole food supply. So I see it's a little bit of a different animal.
HT:Yeah. I think that, really before COVID, the trade war is what caused a lot of our customers to realize that they cannot just manufacture in China. It might have been cheapest, it might have worked before, but it no longer worked. So we saw a pretty big Exodus for our customers to try to diversify. So if they were primarily sole sourced in China, they would try and go to Latin America or Vietnam. Or somewhere else that gave them the ability to say, what do I do if I can no longer use China? What other option can I call on?
So I think that mentality is going to continue to evolve everywhere in the supply chain. So you need to be able to understand the impact when there is a huge disruption, like the war in Ukraine, and how it's going to affect your company. Because if you are sole sourced and you can no longer export from Ukraine or from Russia, because of all the rules that have been put in effect there, then what? And you have to have an answer to that if you're going to be a viable business.
So diversification has definitely proved to be not just successful, and from a cost perspective, but important to be a sustainable company. So we are definitely seeing a continued shift and just saying, what's my opportunity to change. What is my disaster recovery plan? How do I contingency plan? And then what makes sense to me as a company?
TE:In regards to reshoring, you talked about medical supplies being apparent where it's produced when the pandemic happened. Now with maybe the food being an issue ... potentially, and hopefully not. Have you really seen a desire for companies where they do want to really invest in reshoring? Or is there still more of the focus on, let's look at the quarterly results, and we are best suited to date by bringing a lot of goods in from international? Do you really see companies are really interested in and being aggressively pursuing reshoring?
HT:Yeah. I think it depends on the industry that they're in, but 100%. You think about medical companies, we deal with a lot of medical companies that were pretty paramount to being able to combat COVID. And what we are seeing from them, really driven by the US government, is they need to be able to manufacture in the US. Because you know what's sad, pathetic, whatever you want to call it? When COVID happened and we were trying to get PPE here into the US, we couldn't because it was all manufactured in Wuhan. There were just no way to get it into the US. So that was a learning experience. And I think in general, as humans, we get better when we have these kinds of experiences and that's what we're seeing across the board. So I think that the way to make sure that it happens is to get incentives from the government.
I'm not a government expert to figure out how that should look and what the terms of that should be, but incentives are, of course, important. So I think as you see that happen, you see that come to the US, it makes sense. I would warn that if I was manufacturing and I was coming to the US, I don't see this being a huge job creator because there's a lot of opportunity to invest in robotics to do a lot of this with complete automation. So it will create some jobs, but it's not going to be a one-to-one. If it's a thousand people in China, I wouldn't expect it to be 1,000 people in the US. I would expect it to be significantly less, because most locations that are being created today are a lot more autonomous than they used to be.
And then the problem with that is, it's hard to find somebody who could implement an autonomous, whatever it is now, because there's such a delay in it. So whether it's warehouse fulfillment, any kind of equipment in the actual locations, there's a bit of backlog to be able to train people and use them. So I expect that to happen in the US, just a question of timing. And then the second piece is, it's really hard to find facilities and locations to manufacture. I mean, it's almost impossible in many of the big states where you'd want to be, because you want to be close to your customer to find a location.
So yes, in the middle of America, I'm sure you could do it and it would be cheap and it'd be available. But then you'd need to pay for a lot of costs to get it to your customers. So the name of the game is being close to your end consumer to avoid hefty shipping fees. So it's a balancing act. I think ultimately you need to be able to figure out what's important to you as a company. What do you stand for? What are your values? What are you going to do? And what do your incentives look like to do that in the US?
TE:Hannah, we've been taking a global perspective so far. I want narrow down a little bit on a couple specific questions. And one of the areas that's been a sore point in the US supply chain is the inefficiency of our ports. And while we're all aware of the headlines that describe the delays, inefficiencies of getting products both into the ports, as well as out of the ports, there's less awareness to the consumer of the related additional costs, which include demurrage, detention, and port charges.
What advice would you give to companies to try and manage these costs? Maybe to address unexpected large invoices resulting from system inefficiencies that are really not their fault?
HT:We've definitely all become aware of inefficiencies at the port because of pictures that can be produced when you see all these ships trying to dock. I think with every mode, the name of the game is to pass the cost onto the customer. I think that's what we're seeing across the board. Consumers might not realize that, I would imagine they don't. But it's in there, regardless of the mode. Shipping costs are up significantly. Companies are not going to take that cost. I mean, they can't, they don't have enough margin to be able to take 20% increases across the board. So it is fully being passed on to us as consumers. I think that we need to be mindful of that. It might say free shipping costs. Actually, I can bet you it will say free shipping costs. But it is not free shipping cost.
So the good thing is, as consumers, we're going to be ready to pay for it. The better thing for companies is when the shipping costs do go down, they won't have to decrease their costs. So they'll be able to take advantage of the additional costs. But in general, ports are just as bad as us, as shippers ... I shouldn't put us in that bucket. But as people listening to this. They have the same inefficiencies that you have. They have not invested in technology.
There are some ports that are tremendously efficient. You dock, and then it's fully automated to be able to extract all those containers, get them into your locations, get carriers to come pick them up, move them out. But then there is a lot that are just really inefficient. So I think if you think about where the government can incentivize ports, is give them a technology rebate. Have them invest in technology. And not just them, but also tracking carriers to be able to invest, on their end, to have less humans touching shipments and moving them in and out. Investing in automation.
And the last thing I'll say is, autonomous vehicles. What many don't realize is, the technology is fully there to deploy this. But we won't get it anytime soon because we need lobbyists to go to every single state by state and get approval to be able to go driverless through their states. So it's a long process, and there's a lot of companies and a lot of governing bodies that don't want that to happen, so it's not going to be fixed quickly. But I would say now more than ever, there's an invested interest in getting that cleaned up. So I'm excited about the opportunity there.
TE:Also Hannah, related a little bit is companies have changed how they've been managing their inventory. Any comments that you'd like to make based on what you've seen your customers do over the last year or two regarding the inventory management system?
HT:I think inventory management, warehouse management, transportation management, shipping management are all under invested. So I think that you have to understand your inventory. You have to understand where it is and where your customers are. The biggest inefficiency that we see when we look at customers' data, is they will ship cross-country all the time. And they had facilities closer to the customer, but they couldn't achieve that because the inventory wasn't there. So it is hard to get this right, because you don't want to manufacture too much, you don't want to manufacture too little. But ultimately I think you need to be able to create metrics of what you think success is for you as a company.
And not just because of limitations that you have today. But if you were able to invest, if you were able to do it right or from scratch, what is success? And then from there, just get closer to it, just chip away at it. Because if you don't plan on getting better, then you will get worse. And if you give yourself a high bar, it will be painful to get it. But second you achieve it, you'll never look back. And you'll be so thankful that you started because it's important. It's a differentiator for you if you're able to invest. So again, invest in technology to be able to help streamline what's, I'm sure, inefficient today in your process.
TE:Hannah, as we wrap up, just wanted to know if you had any closing comments, and maybe if you were looking at your crystal ball, when's the supply chain going to get back to normal?
HT:Depends on what you consider normal. I think the biggest issue that's facing our customers today as shippers is it's a carrier market. The pricing control is completely in the carrier's hands. So they can charge you whatever they want. They can deliver the shipments whenever they want. And no one can keep them accountable because there is no one else to move your shipments. I think that will shift by mid to late 2023. It's not happening this year. And now that China's shutting down again, maybe it'll happen in 2023. But I wouldn't say, and I wouldn't hope that things are going to get back to normal and that's what's going to make my life easy.
I would challenge you, and I would instead say, expect it to never get better. And be ready to adapt with whatever comes at you that is disruptive and complicated. And if you can be in that situation where you're going to get more and more bombs thrown at you, but you're able to maneuver them and you're able to do that creatively, then first of all, that's job security to you. And second of all, that gets you into a great position where you actually have leverage. And then when it does shift to a shipper market, you'll be able to win.
The last thing I'll say is, it's all about a partnership between a carrier and a shipper. You want to build long partnerships where you care about your carriers, carriers care about you. Carriers know that this is not going to last forever. And they want to have long partnerships with companies that respect them, that treat them well, that give them good business. So treat them like you'd want to be treated, and I think that you will fare out much better than what you're faring out if you do the opposite. And that's it. Thank you for having me, Travis. I always appreciate to talk to you and your team.
TE:Hannah, thank you. As always, you present a lot of great information and you're very informative. And thank you to listening for this episode of ManuFacts & Perspectives, an EisnerAmper's podcast series. Visit eisneramper.com for more information on this and a host of topics. And join us for our next EisnerAmper podcast.
Transcribed by Rev.com