March 9, 2022

Industrial Supply Chain Optimization

Industrial Supply Chain Optimization

This week on Augmented Podcast, we are in conversation with Yossi Sheffi (@YossiSheffi), Director, MIT Center for Transporation and Logistics (@MITSupplyChain) He joins us for episode 68 of Season Two of Augmented Podcast. The topic is: Industrial Supply Chain Optimization. Augmented reveals the stories behind the new era of industrial operations, where technology will restore the agility of frontline workers. Technology is changing rapidly. What’s next in the digital factory? Who is leading the change? What are the key skills to learn? How to stay up to date on manufacturing and industry 4.0? Augmented is a podcast for industrial leaders, process engineers, and shop floor operators, hosted by futurist Trond Arne Undheim (@trondau), presented by Tulip, the frontline operations platform.

My takeaway: is that optimizing production is about more than fixing individual elements along a chain. The supply chain is by now, more of a network, a system of interdependencies. Strikingly, technology is not even the most important part. It may never be. But innovation has its place, and augmenting every piece of the supply chain helps us see what we need to do is augment our understanding of the overall picture. Only then, can policymakers, startup founders, and supply chain professionals, together, enhance the enormously complex production and delivery of a multitude of goods and services along the industrial badge.

The Augmented podcast is created in association with Tulip, the connected frontline operations platform that connects the people, machines, devices, and the systems used in a production or logistics process in a physical location. Tulip is democratizing technology and empowering those closest to operations to solve problems. Tulip is also hiring. You can find Tulip at Tulip.co.

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See you next time. Augmented--industrial conversations that matter. 

Transcript

Trond Undheim: [00:00:00] Welcome to another episode of the Augmented Podcast. Augmented reveals the stories behind the new era of industrial operations, where technology will restore the agility of frontline workers. Technology is changing rapidly. What's next in the digital factory? Who is leading the change? What are the key skills to learn and how to stay up to date on manufacturing and industry 4.0? In episode 68 of the podcast, the topic is Industrial Supply Chain Optimization. Our guest Is Professor Yossi Sheffi, Ph.D. and director of MIT Center for Transportation and Logistics.

In this conversation, we talk about what the future of supply chain holds. We discuss the role of tech, especially robotics and automation, and we discuss the need to improve, but not get rid of, just-in-time production. We talk about the China Plus One approach to supply chain diversification, the use of scenario planning to prepare for long-term effects of Whack-A-Mole demand, and we discuss which corporations have done well doing supply chain disruption. And explore how supply chain startups move into solve supply chain challenges. Lastly, we discuss what the next decade and beyond might look like, and ponder the macro forces that impact the supply chain. 

Augmented is a podcast for industrial leaders, process engineers, and shopfloor operators. Hosted by Trond Arne Undheim, and presented by Tulip, the frontline operations platform. Augmented: industrial conversations that matter.

Trond Arne Undheim: [00:00:00] Professor Sheffi, welcome to the show.

Yossi Sheffi: Thank you very much for having me.

Trond Arne Undheim: Well, I am super excited. And also because you have allowed me to call you by your first name. So we're going to go by Yossi from now on in the interview. You have a staggering number of accomplishments in a field that nobody really knows, apart from the experts. As of this year, everybody has a feeling for supply chain.

Yossi Sheffi: Exactly. Everybody sees the result when it doesn't work or when they're broken. 

Trond Arne Undheim: It's a curious choice of field back when you chose to work on it, So we'll cover that. You have a bachelor's from Technion in Israel. I mean, this was back in the 70s, but then you made your way to MIT Ph.D. already back in 78. And you have been at MIT for a good while covering this topic.

You've made it to six books. I know you're working on another one. Obviously, you keep writing. Founder of five successful companies. You know, we can get into some of the stuff that you've been doing. [00:01:00] Now you're directing the MIT Center for Transportation and Logistics. You're part of this very successful online effort, the MicroMaster, rolling the staggering 160,000 students in almost 200 countries. Also opening, I guess--to cater for that demand. You've opened all these centers around the world because how could you teach that amount of people? How do you explain getting into this field, supply chain?

Yossi Sheffi: As most things in life, it was done randomly. I started my career studying, basically operations research with application to transportation.

And in my early work, I work on transportation systems. My first book dealt with urban transportation planning, but looking at it from a network analysis, how the network should be designed and should be operated, I got frustrated several years into it because I always suggested to governments in various cities, how to improve the flows, [00:02:00] how to improve traffic light, how to improve rotation and little to nothing of this was actually implemented as an engineer by training.

I was frustrated so I started applying basic mathematics, you know, the same network optimization techniques and so forth, to trucking companies and trucking operators. And lo and behold, people adopted it and it was very satisfying. That's when I started to build companies that build software and build new processes. And from dealing with trucking and rail mainly, I moved to the people who are responsible for this, and this is the shippers there: the retailers, the manufacturers who distribute, whose demand for the goods sets up how the transportation companies have had to operate. I started thinking about procurement and where the goods and the parts are coming from. So I started looking along to what we call now, supply chain, at the time, as you mentioned before, the name was not [00:03:00] quite rolling off the tongue of too many people. But you think about, how did people breathe before oxygen was discovered? 

In the same way, things were moving before we turn supply chain into supply chains. Things were still happening.

Trond Arne Undheim: This term supply chain. So Keith Oliver coined it, I guess, famously now. He called it 'supply chain' or 'supply chain management.' This was back in 1982. And there is also a distinction between logistics and supply chain, which maybe you can explain.

But as far as I understand it, logistics is more of the actual moving of goods or the storage. And the supply chain is the entire sourcing process. However, 'chain' is a very strange metaphor because it implies that it is literally a chain of events. Is that still a metaphor that you would use if you were coining it in the field today?

The field has more problems than chasing the metaphors but...

Yossi Sheffi: Let's start with the definition, talking about logistic versus supply chain. In our [00:04:00] definition, the way we look at the supply chain includes logistics and includes manufacturing. It's everything that happens; if we talk about a hard product to the consumer's home, back to recycling, or whatever is done with everything that happens along with this for a minute chain. So you have to move, you have to store, you have to have an effect. You have to source your process and deliver and worry about how to get it back. So it's a whole set of activities. You asked if the chain is the right metaphor?

Of course, it's not a chain. Chain is just a stylistic concept because it's a web, even if you're talking about a specific manufacturer. They have thousands, sometimes tens of thousands of suppliers. Those suppliers, their suppliers, and those suppliers, with their suppliers, and so forth... It's a huge web that expands backward.

And by the way, if you look at the distribution, it expands forward, because, from that supplier, it will go [00:05:00] either to warehouses, to retailers or directly to homes. Then there's not only one original equipment manufacturer. There are many! Of course, it's a web, but to explain what's going on, the metaphor is very useful.

For example, if you try to explain now what is going on at the United States port--it's easy to explain. The container starts from inland China and moves to the port and gets on the ship. The ship goes to LA and then starts waiting. Then the container is offloaded to go on a truck or to wait.

Maybe to go on a train. There's a whole set of activities and it's easy to understand if it's described as a chain. When you start doing real analysis, of course, you look at the network.

Trond Arne Undheim: So I guess the same thing happened with transportation, or some people say, we know transportation is also implying that you're taking something from one place to another.

Whereas, mobility, implies this back and forth [00:06:00] movement, and zooming around, not necessarily, back and forth. But you're just moving around as much as you're moving from one place to another?

Yossi Sheffi: Yeah. We usually use the term mobility when you're applying it to people and transportation. We use freight transportation when it applies to cargo.

So everybody has their own term.

Trond Arne Undheim: So beyond these terminology issues, what are the trends or the real important things in terms of optimizing supply chains that you think people should keep in mind? I've just come off reading one of your books, The New Abnormal, where you address these things. In this book, the immediate topic is in the middle, or post-COVID, which started to change during that process.

But more so, I think you're discussing issues that were always around. Having to do with a kind of resilience and flexibility. What are the most important things, over the last few years, that people who are trying to optimize their own supply chain, what are they focused on, and what should they be focused on?

Yossi Sheffi: That's a big question.

And I wrote three [00:07:00] books about it. All my books, in some sense, aside from the first one which is a book for Ph.D. students at MIT, all my business books are dealing with several aspects of the same issue. How do you make the supply chain better? When we use the term optimizing we usually mean aided by tech or something, just getting it better.

And the question is what are the challenges, and what is the environment like. If you look at the basic book, you know, Inventory Management 101, It starts with how uncertain is demand. Demand is usually what we thought about: always the answer that is mostly in demand. The production was mostly local, 40, 50, 60 years ago before the globalization movements started really taking hold.

The problems usually were demand. It was hard to plan, what's going on? So the question is how much inventory to keep. [00:08:00] There are some formulas, relatively, simple formulas, to explain how much inventory, and where to keep it and so forth. Now, when you start talking about globalization and companies not being vertically integrated, which means, they started the movement off focusing on core competencies.

Companies just do what they do best; this was the mantra 20, 30 years ago. And to do this, companies started to move many of their operations to suppliers. And companies actually sometimes span off suppliers, and in fact, encourage suppliers to deal with competitors so the suppliers will be able to get to scale and be able to invest in innovation and everybody will be better off. But at the same time, they were pressing the suppliers to cut costs all the time, which is much easier when it's not your people and somebody owned outside.

So with this pressure, suppliers started looking for the lowest cost countries. [00:09:00] They started moving to China. China, of course, opened in 1978, the World Trade Organization, and started investing and started acquiring western technology in many ways, some more straightforward than others, but they became just better.

So now the problem was moving goods all over the world. In my first book, I was looking at one of the old chips, and this was 1995. Looking at one of the early Intel chips crossing the Pacific six times from the time that the chip started until it got inserted into a computer. Because every time it moved to a different plant that was specialized in the best: an in-depth certain level of the operation, a certain stage of building the chip and same thing. There's a famous book, The Travels of a T-Shirt in the Global Economy-not mine, but a very good book that talks about the movement from the time that cotton is grown in Texas until it is [00:10:00] sold in a store in Texas. But meanwhile, it goes to China.

It goes to South America, it goes through the entire process of putting together a t-shirt. And of course, a much more complicated product, like high-tech products, computers, Vionic, airplanes, whatever, a lot of movements. So then the optimization became about understanding what is happening in the supply chain, the emphasis on what we call, transparency and visibility. To understand, okay, what is happening to the suppliers?

You can predict any disruption or any problem that will happen to you before it actually happens. Then in the last few years, during the Trump administration, even before, a lot of tensions started taking place--mainly between China and the U.S. But It affected all the Western countries.

The Trump administration started to have all the trade restrictions, which meant that one has to take this into [00:11:00] account, and maybe it became more and more expensive to make something in China. There were political tensions, many other forces like global warming. There's a lot of pressure on companies to start reducing their carbon emissions.

Lots of effort in order to make sure that we don't have cybersecurity attacks. There was a famous one just last year in the United States. We saw that a cyber attack can actually influence the physical economy when the colonial pipeline was shot for a few days, creating panic-buying of fuel.

So all of these things are creating pressures and the issue with optimization, is that it's not one way to run in. To be effective, you need to be very dynamic, in terms of adjusting your network, your processes, to the current pressure, to the coming pressure in the near future. If there's now [00:12:00] increasing tension between China and the U.S. tariffs may go up, we'll see.

What's happening in China may put new restrictions on our rare earth minerals. Okay. One needs to adjust for this. Of course, we just said the mother of all disruption in the COVID-19--something that was very hard to prepare for. But some companies did better than others. 

Trond Arne Undheim: Let's talk about some of the implications of COVID for a moment.

So one thing that you cover in your book was that the passenger airline traffic slow-down actually also slowed down freight. And that was not really known to me. I didn't quite realize that dynamic. Why is that exactly?

Yossi Sheffi: Because a little more than half of the cargo that flies, goes into the belly of passenger airlines.

Trond Arne Undheim: So I think that they're waiting for me to take off, but they're actually waiting for their very high valuable cargo?

Yossi Sheffi: You bet, and if you see behind the wing, looking down on the runway, you will [00:13:00] see that they are loading not only suitcases but cargo in the belly. This cargo is, it's not small, it's over 50% of the air cargo in the world.

And there's just not enough capacity, in terms of a cargo plane. By the way, I don't know if you saw the announcement, Airbus is now building new cargo planes based on the latest airplane on the A950. They're just building cargo planes. They just announced in the Dubai air show. They sold several of them.

This is an area Boeing used to dominate. So now other companies are getting into cargo because they realized that with all the disruptions that happened, even though it's much more expensive to fly, and furthermore, it means much more carbon. It is still fast. We saw it in Glasgow, I want to say that with regard to global warming, and fighting global warming, when everything's said and done, there's a lot more said than done.

Trond Arne Undheim: Well then partly, because the [00:14:00] perception, I guess, in the system among most factors, is that the system has to go on. And even people who are avid environmentalists, when they don't get their Christmas gifts, they might get upset. So, yeah. 

Yossi Sheffi: Walmart will fly them as long as they get the business.

Trond Arne Undheim: Yeah. So let's move to some of the best practices or sometimes lack thereof, logistics providers, service providers, or these sort, of third-party logistics players. Why are they not fully digitized? Because I've understood that well, each level of this supply chain is very complicated, and they have different levels of digitization.

And you said technology is obviously one solution that people come up with to improve and further, make efficiencies happen, but why is it that different parts of the supply chain didn't digitize at the same rate? Were the investment's not worth it for some parts of the supply chain?

Yossi Sheffi: First of all, let's enlarge your question. Business, in general, is not totally [00:15:00] supply chain. Universities are not totally digitized. Supermarkets are not totally digitized. Let's first of all, admit that society is not digitized. And it's not ready to be. It's not clear that it will be. Let me give you some examples specifically about the supply chain, you know, with the pandemic when Zoom and everything else, started to be a thing, I mean, whoever heard about Zoom before the pandemic?

But we started to have more and more video calls. And people thought, okay, Air travel, especially business travel will never come back. It's not true, because when you have a supplier in China--people still have suppliers in China and Vietnam and Malaysia, and South America, where to close the deal to make a deal, to keep the deal going, it's not enough to do a video call. You need to fly out there and negotiate the deal, and then have dinner with the other party, and talk about your kids, or grandkids, or spouses, and what you like to drink, and whatever, [00:16:00] create the relationship and create trust.

It's very hard to create trust online. Trust is great at this stage, at least, by people talking to each other. So there's a lot more that is done in terms of face-to-face. But coming back to why it is specifically hard to digitize the supply chain: here, let me give you another example, how many apps are there to show that you are vaccinated?

There's no worldwide app. There's no standard. In many of these cases, there are so many factors. But to be involved in supply chain networks, you need the standard.

Trond Arne Undheim: I wanted to get to one standard because I guess, it's the paradigm example, for you and others, right? What's known as the ISO TC 104, the freight container standard, I guess 1961.

That was a game-changer, because the story, I guess, is complicated, but at some point, there was an alignment between the Europeans and the U.S. for this container standard. And it [00:17:00] was painful because they didn't all have the same standard, but the moment they did what happened?

Yossi Sheffi: The moment they did, the world changed because of the ability to fill a container in Hamburg and get it on a truck or on a rail. Getting it to the ship, the ship was built for certain sizes, either 20 foot or 40-foot containers.

And it's amazing for me, that the containers are not measured in the metrics which most of the world is using except for the influence of the U.S. It doesn't matter. It's a 20-foot container, a 40-foot container. So the ships are built this way, the trucks are built this way, the rails are built this way and you can move the whole thing from the supplier in the outskirts of Hamburg to somebody in Kansas city without opening the container.

It moves from one mode of transportation to another. So the cost of, instead of loading and unloading, loading and unloading, at each stage of, you can move the entire containers and the cost became less than one 10th of what it was before.

Trond Arne Undheim: [00:18:00] So Yossi, my question from that is: that was 1961. Why don't we have any other great examples, maybe you do, of innovations and standardizations in the supply chain area since 1960, 1961?

That's a long time ago. I was certainly not born. Maybe you were born. But it is a while back. And are there any potential game-changers like that left in the arsenal? What would be the container standard of 2022?

Yossi Sheffi: Let's not forget the success standards. Number one is the internet.

You can still send me an email and I can send you an email, the system works. You know, we can talk on a video and the system works. There are many successful standards in the technology area. And so it's natural to think that since the containers, there were no invisible costs. It's particularly useful for people in the supply chain because they work all over the world.

Trond Arne Undheim: Yeah, I guess I was thinking more about physical standards that would simplify a supply chain.

Yossi Sheffi: [00:19:00] I understand, but you know, a lot of the expense and effort today, involves information exchange. This was a huge problem in 1960. It's not a problem today. Information exchange became very, very fluid and fast.

It's interesting, for example, that we don't have a single air container. The igloos that fly are based on the airplane. So we have a bigger airplane and then another bigger one and so forth because we don't have a standard size airplane; we don't have a standard size igloo or an air container. But what would we need now that we have all of this?

I tell you, the problem is standards are so good that we have too many of them. For example, you see that some countries are moving to create their own internet standard. China is moving to create its own internet. Russia is moving to create its own internet. You see societies that are moving [00:20:00] away from having a standard because they're trying to close themselves off from the world.

It would not make sense for them to change something like the container standard or the email standard because they still need to trade with the rest of the world. But the other things are encroaching on standard, like political views and, fear of certain regimes from fearing their own people basically.

So they want to limit the information. 

Trond Arne Undheim: I guess, one of the things, perhaps, I was thinking of. It is of course unfair to compare e-commerce of consumer goods, to the supply chain in the industrial setting, because it is immensely more complicated, but I'm just speaking on behalf of consumer expectations. You know, the consumer in a Western country and certainly in mainland U.S. today, expect that if they have a prime account or some other account from a leading e-commerce provider, they would get it same-day delivery, maybe even less.

And for bigger things, rarer goods, maybe, within two, three days. A lot of that is not always [00:21:00] happening in the industrial space. Now, obviously, some of it is because some components have moved on to this kind of commerce, supply chain. Is it within sight to get more industrial components on this similar kind of track, or are we just dealing with two sorts of rare components that are much harder to put on the same kind of expectation?

Because I'm trying to dig on this issue of just-in-time, which, you know, was so fashionable. It sounded like such a fantastic idea and you were onto it, you know how everyone moved to just-in-time. Then now suddenly, it comes back to bite us. There are a lot of pundits, who are like, "oh, we should have never done it."

You've been on the other side, saying, "listen, there are immense benefits." Explain this argument to me because I think you're often misunderstood like you're battling the anti-innovation train. But you're saying something different.

Yossi Sheffi: No, what I'm saying is that most people who say just-in-time (JT) is dead, don't understand supply chain, or don't understand JT. [00:22:00] With all due respect, it's people who are looking at the silver bullet. It's mostly people in the media.

You don't see too much amongst supply chain professionals.

Trond Arne Undheim: Maybe some IT people, or software types? People who are swayed by emerging technologies at the surface level?

Yossi Sheffi: It's people who are not in supplies, basically. Hey, a lot of people say the elections were stolen, so what, it doesn't make it right.

Trond Arne Undheim: I understand. So precisely JT, why is it a bad idea to abandon it?

Yossi Sheffi: First of all, let's just state my view that people will never abandon it. I never say never, but people are not going to abandon it in the next few years, in the next many, few years. First of all, more generally, to do with the production system, just-in-time is part of it. Not only for locals; locals are not the reason for just-in-time. It's the result of JT. JT was there in order to increase the quality [00:23:00] of products because what happens when you have a lot of inventory, let's say, of parts-- lots of parts in inventory.

The way we used to have inventory was just delivering and then people kept a whole pile of parts. Then let's say you have some problem with the part. The part is subpar, it doesn't work. First of all, you may discover it after you work a whole lot of, let's say automobiles, or whatever is the finished product. Then what happens?

You will need to rework it, or you don't discover it, and it goes to customers, and you'll need to pay warranty claims. Even worse, you get a reputation for lousy automobiles. Second, it actually creates resilience, because with little inventory, tied much stronger, to both your supplier and your customer. Because everything has to move within very small tolerances because you don't have a lot of inventories.

You have to make sure that you communicate with everybody all the time, which means that you can respond much better. And the response of the whole supply chain, not only of the company, you always need [00:24:00] the whole supply chain to respond. And some people who are my age might remember what we used to have. I came up with the system and Honda and other Japanese manufacturers adopted it immediately.

We had voluntary quarters on Japanese automobiles because there were so good. The quality was so good that they were going to decimate the entire U.S. automotive industry. People learned from this and the whole industry, not only automotive, but soft goods, refrigerators, washing machines, computers--any product that has to be assembled from parts, became a lot better.

A company that will abandon these processes will not be competitive. I just don't see it happening. Sure. I talk a lot to boards of directors who are full of people who are in marketing, finance, and law, and not with supply chain. They try to put pressure on their CEOs and supply chain people to move into this direction.

And that's when the supply chain people [00:25:00] usually call me and say, "you must give a talk to the board of directors or to the executive team. They are going the wrong way." So I'm sure some companies will do something, but I don't see it happening.

Trond Arne Undheim: So does that mean, this whole idea of diversifying the supply chain in and of itself is a bad idea, or are you just saying establishing local inventory is a bad idea, and abandoning China, in and of itself is a bad idea?

You were talking about China Plus One strategies in your book, which is saying you have to have a regionalized alternative. You talk specifically about Europe using Turkey and the U.S. using Mexico. I found that kind of fascinating. Is that a direction you're seeing happening all around the world?

Yossi Sheffi: Yes. I don't see people moving out of China. I see people putting new investments outside. Sometimes, it's just Vietnam and Malaysia, and sometimes it's Turkey, Romania, and Mexico. Just, balancing, but another point that I should really explain, when you say moving out of [00:26:00] China, think about it. Going back to the first question you asked me, "is it the network or is it chain" It's beyond the network.

It's an ecosystem. It's suppliers and their suppliers, their suppliers, their suppliers, and tens of thousands of those, for each company. Until you go either--if it's an agricultural product, you go to the field. If it's a hard product, you go to the mines. It's everything from the mines until you have the finished product. Many suppliers and warehouses and transportation and custom regimes and whatever.

 

Trond Arne Undheim: So it's a network. And the other thing that you pointed out, I think, in your book is if you're not in supply chain, you might be still fooled by thinking China's a low-cost supplier, meaning it's low quality. But it's becoming a highly sophisticated, partly because of the network you're explaining, but also because of individual suppliers. Each engine, for example, is very sophisticated.

Yossi Sheffi: But the point that I tried to make is, when you build an ecosystem in China, you may take what's called tier-one supplier, the one that you buy from. You can take it out of China, and [00:27:00] put it in Malaysia, or Mexico or Romania, but it doesn't matter because the bulk of the supply chain still stays in China: suppliers, suppliers, suppliers...

That's still in China. Some of it is because we have rules, laws, and regulations, that will not ever allow us to get out of China. Take, for example, rare earth minerals that are used in every sophisticated product, and every technology-based product today. China has the most suppliers, you know, 80, 85% of the world with rare earth minerals.

You know, which country has more rare earth minerals than China? It's the United States. But in the U.S., environmental laws don't allow mining for it. I don't want to live next to an open mine or trucks, and the Diesel, and the disgusting landscape. 

So that's the cost. We have to decide what we want to do here. It would be very hard to leave China. Also, don't forget one [00:28:00] more thing, China has the second-biggest economy in the world, and probably will be first before long.

Trond Arne Undheim: Its own market, its own industrial market.

Yossi Sheffi: But also its own consumer markets. Western companies want to sell to China, especially when China is becoming more and more nationalistic.

They'll have to make it in China. So it's very hard to think about wholesale getting out of China.

Trond Arne Undheim: Let's talk about technology for a minute, predictive forecasting, just to pick one area of optimization, right? For the history of that area. What are the techniques and tools that you've seen throughout your career, that have actually made a dent in true prediction?

Because there are many ways to try to predict the market.

Yossi Sheffi: All of these technologies, and you can start with linear, nonlinear, regression, Box-Jenkins techniques, and go all the way to machine learning today. All of them suffer from the same shortcomings that cannot be overcome unless we have a time machine.

And the shortcoming is that the forecast is always [00:29:00] based on the past. So as long as, more or less, the future will act like the past, you can forecast the seasonality: people will buy more towards Christmas, people will buy more candies before Halloween, and so forth. You can forecast this based on past behavior.

However, when there's a fundamental change, like what happened during the pandemic, or the things that happened during the financial crisis... when there's a big change in the behavior of people, this all goes by the wayside.

Trond Arne Undheim: This is what you call whack-a-mole demand in your book. So how do you prepare for that then? The fact that prediction models are very bad for this kind of thing, I mean, is it just still doing scenario analysis, having backup plans and spare capacity, is that the only answer to it?

Yossi Sheffi: The scenario analysis is good for the long term. If you want to know what happened in 5 to 50 years, that's what you use scenario analysis for. Basically, you have to build a [00:30:00] company that's agile and flexible.

They can respond quickly in short term to these changes. And the trick is, this is easier said than done because it's not enough to have sensors in the ground or get to see changes that are happening, you have to believe them. Look at what happened in the United States, we started having the pandemic in Wuhan, then it moved to Europe.

And the United administration was still saying, "it's not happening here. In 15 days it will all go away." 

Trond Arne Undheim: My guess is that you weren't of that category, you could even pinpoint the days before?

Yossi Sheffi: Well, not quite the days. If I could pinpoint the days, I would invest in the stock market and be a millionaire.

So I did not, but I could see it. Not only me but there were also people who could see that this was going to be really bad and then start understanding some of the implications. Most people did not. So even though the data was there; it was in the news, it was in the BBC and CNN, that Northern Italy had the disaster. I don't know if you [00:31:00] recall this during March 2020 last year. In my book, I describe how German researchers in January 2020 already discovered there was transmission between, not from animal to people, but between people and asymptomatic people. And the researcher was really good and she was derided by the government. The Swedish government made a report that this cannot happen, she does know what she's talking about, and so forth and so on. So there are people who raised the alarm, but nobody wanted to hear bad news.

Trond Arne Undheim: So one thing that's striking to me, I mean, in my opinion, people with your type of expertise should have been on these scenario plannings for future disasters. If you see what I'm saying because they were all calling up infectious disease doctors who could say, you know, yes, I've had X 5 patients and this happens with the virus.

It's really not about what happens with the virus, right? It's about the world disruption that you actually know about.

Yossi Sheffi: Trond, And they were parading Anthony Fauci and [00:32:00] others in front of Trump, and all this. You cannot imagine how many emails and letters I wrote asking where is the commerce department supply chain task force?

Where is the commerce department business continuity task force? They were nonexistent! So look, the problem is that over time, we never developed expertise in this. I remember being called, this was before the pandemic, for some reason, the commerce, the U.S. commerce department heads working-group. Not a task force. It was called the working group, and they had to report to the secretary about supply chain issues, preparing for supply chain disruption in the United States.

This was in 2018. So there were people from trunklines, railroads, ports, all of these. And I was the token academic, but actually, preparing a reasonably good report, which of course, is still collecting dust on some shelves in the bounds of the commerce department. And the worst thing, is we [00:33:00] have to build institutions that deal with supply chain, that understand the supply chain. Just trying to build it on the fly, those in the Biden administration, it's not working.

Because they don't have the relationship. They don't have the data. It's a long-term effort that I hope, will start up now.

Trond Arne Undheim: I mean, you're pointing out that it's not just about the commerce, perhaps. On the other hand, let's look at the other flip side of the coin. Some companies managed, despite all the complexity, to do things well.

Let's talk about that for a moment: some of the large companies. And then let's move into some startups that are trying to make, admittedly, small progress so far. But what are some of the companies that you felt came out of the pandemic, or are plowing through these difficulties, with some amount of agility?

Whether because they prepared beforehand, or because they just had a very good crisis mindset. What are some examples that you feel are exemplifying this sort of agile attitude?

Yossi Sheffi: The big U.S. retailers are doing well, have done well, and are doing well. Walmart, [00:34:00] Target, Lowe's, Home Depot, they are using their heft and their ability to get suppliers to pay attention to them.

And they have the ability to, for example, right now, during the shortest, get their own vessels, get to small ports, and get their staff, while others, small retailers, cannot. So the big companies are using their ability to get suppliers to do their bidding, basically, and get the material, and get the parts, and be able to still supply the consumer or the customer.

It's somewhat less successful in a B2B area, actually. Because you have the same supplier supplying a lot of competitors, they're competing with each other. And many people are suing the suppliers because the suppliers cannot give them everything. The relationships are fraying. So we still have manufacturers that don't have enough parts in materials to build their product. [00:35:00]

Trond Arne Undheim: What about on the startup side? If we move quickly to those, what are some startups that you have been, either impressed with or that you think are contributing in this manner? There are MIT startups working on supply transparency. There's a bunch of startups, obviously, working on autonomy and autonomous driving, and you know, contributing to the supply chain by automation.

Of course, all the robotics startups, but then there are also information startups. So these are trying to basically, create a sense, not just for Walmart, right? Walmart has its own fairly advanced supply network, but that are trying to provide this on an industry wide-base, as more of an information product.

Where do you see the value of startup innovation when it comes to supply chain?

Yossi Sheffi: Okay. First of all, as long as you realize that 99% of them are going to fail,  then we all understand where you are. So it's hard to forecast, but let's talk about the area, not particular companies. So companies who are investing in automation and autonomous vehicles, they are still years away, [00:36:00] and many of them will not be able to go the distance because at one point, the VCs would stop funding them.

Also, it will take a lot more time than people think, to get actual, fully autonomous vehicles on the road. We have almost autonomous. This is already happening. When you drive a Tesla, when you drive a Cadillac CT6, you can take your hands off the wheel, but you still have to have a driver as the system monitors the driver.

I don't know if you know about how Cadillac does it, but we have several of these cars around to play with them and contribute to the software. The Cadillac has cameras that look at your eyes, and the minute that your eyes are off the road, the steering wheel starts buzzing and moving around. And after a few more seconds, the car will go to the right of the road and stop because your eyes are not on the wheel.

So it needs you there. And honestly, as long as the driver is there, the savings are not going to be substantial. 

Trond Arne Undheim: So there are actually more augmentation technologies than they are automation.

Yossi Sheffi: Augmentation technology are fun and they contribute to safety. So I don't [00:37:00] want to poopoo them. I'm not poopooing them, but in terms of fundamentally changing the cost structure, the way containers change the cost structure of moving freight, this is not even close. Where we do see a lot of automation robotics is in the warehouse. A lot of warehouse robotics and warehouses are starting to be a lot more automated. This is being pushed by what's happening in the pandemic, and today, the lack of workers. It's hard to get warehouse workers so you get companies investing more, and more, in technology. And in robotics, especially. I saw some amazing, this was even before the pandemic, I was seeing a JD.com, a distribution center in Shanghai, that used to have 400 workers, now has 4. Totally automated, the same throughput with 1% of the workers. So it's quite impressive. And as BSF, the chemical company, has a lights-out plant in Switzerland. And they say it actually has a man and a dog. [00:38:00] The man is there to watch over the equipment, and the dog is there to make sure that the man is not going to touch anything.

Trond Arne Undheim: Well, is it going to replace all these workers or is it going to free them up for other things?

Yossi Sheffi: It's a $64,000 question. Those workers who would want to invest and learn, then the company will invest in educating and training their workers, yes, these workers will find something. But they've made the fundamental changes that happened before, but it's now accelerated its workers will have to stop complaining and realize that they are masters of their own way.

There is no reason today for most workers not to upgrade their capabilities when you can take any course online when you can take any training online. It's irresponsible for workers to think that the company will always take care of them. They have to make sure that they take care of themselves first by upgrading their capabilities. Especially workers in [00:39:00] places like warehouses, trucking, or other professions, even a retail store. All of these people over time can be replaced by automation.

And what the government has to do is to make it free and available, and better, and encourage people to upgrade their capabilities so they don't sit there and go on food stamps in the U.S. or go on government help, but be able to work. By the way, some companies are doing, Google itself, said that it will not pay that much attention to a university degree, even from places like MIT, or Stanford, or Harvard, but to the capabilities of a person.

They have courses for 6 to 8 months, teaching people to code, developing software, and they say, it's fine. These people can work for Google. They don't have to have a computer science degree from MIT. So farsighted companies and companies, of course, who have money. Google basically, prints money. Companies like this can invest in the [00:40:00] next generation, and make sure that they don't have worker shortages.

Trond Arne Undheim: And it looks to me, you'll see that you have more faith that large companies with deeper pockets will be able to take this on, kind of industry-wide, as like a workforce challenge. More than you think, government regulations, or stimulus programs are going to do this. What are the specific things that you think governments around the world, not just in the U.S., could do, beyond making training free and available? So that's a big-ticket item, right? So we're talking about community colleges. I'm imagining online training, other things. What specifically should the commerce department, or other departments--should there be a department of supply chain?

The kind of system dynamics problem that you're outlining. I'm using this MIT term, but where I think the problem lies, is that the problem you're spelling out, it sounds so simple when you explain but it's not understood, almost at all in certain regulatory circles. So where do we start?

Yossi Sheffi: First of all, let's make sure we know that flooding the market with money, [00:41:00] like the Biden administration did, is backfiring because the main reason for the shortages is too much money in people's pockets.

So there's inflation. They are buying like crazy. Demand is up. Supply cannot keep up so you have shortages, higher prices, and all of this. It doesn't work unless you do it very gingerly and they did not. Being that as it may, long-term--let me tell you a story and this is a story from Israel.

Back from the early days of Israel in 1948, after Israel got its independence, there were huge waves of immigration into Israel, mostly from Arab countries. Most of them were not educated. And the prime minister of Israel, at the time, said, "Okay, we are not investing in this generation. We're investing only in the second generation, in the kids. We're not building houses. For years, people lived in tents and there were demonstrations in the streets." He said, "No, no, no. We're only building schools, and training teachers, because long-term, that's the [00:42:00] future." That's the reason today, you see Israel is a high-tech powerhouse. I mean years of investment in education, Israeli universities are leading innovations and everything. By the way, the same thing in South Korea, for example, the investment in education. In Japan, it's the investment in education.

This is something that in the U.S. we don't do, it's basically done better in Germany, in particular, but in the U.S., we don't take the hard long-term solutions, and this is getting K-12 education better because it's all tied up in politics. There are so many problems. So we see what we get. We get an uneducated workforce. In the U.S., I don't know, is way down in Stem, in terms of, you know, high school students' ability to do the math, physics, and other sciences, as compared to other countries.

People from the outside mistakenly look at places, like MIT, and [00:43:00] Stanford, Harvard, and others. Clearly the elite universities--the U.S. is a huge society, so the top is still at the top, of course. But the economy is not running at the top, it is running on average and on the bottom.

Trond Arne Undheim: So Yossi, taking all of this into account, what is the future of supply chains?

Let's be specific. If you look, sort of 10 years into the future, it's not something that academics always promise to do, but you have, and you are. In some of your work, taking all of these things into account, the relative kind of poverty, I guess, of a long-term strategy in the U.S., and some other countries around the world, doing the right thing.

Arguably, the European Commission, perhaps stimulating countries to do some correct things in the industrial strategy there. Isolated countries like Israel, South Korea, doing the right thing, where are we going to end up over the next few years? So, you know, play out COVID for a little bit, play out some of these startups working on this, where are we ending up?

Will there be massive improvements in supply chain? Is there [00:44:00] whack-a-mole demand all ahead of us the next decade? Or is there any structure to the madness?

Yossi Sheffi: I'll tell you why it's a tough question, because I think it has nothing to do with supply chain. If you tell me where Taiwan will be in 5 years or 10, where would the U.S. and China relationship be, or U.S. and Russia, you know, U.N. and Russia? I think global political forces will swap anything that we can do in business, not only in supply chain, but in business, and business in general. Assuming that they'll not be a disaster, on the magnitude of the pandemic, and worse. Thinking about yeah, let's talk about supply chain. In the context, there are many, many bigger forces [00:45:00] and not the bigger force, will Trump be back in 2024? Can you imagine? Yeah, I can imagine this. 

Trond Arne Undheim: Well if Trump is back, will that continue the nationalization of the U.S. supply chain?

Yossi Sheffi: Yes, absolutely, and will create more tension with the rest of the world.

And unfortunately, more tension. Look, I still remember, after the first year of the Trump administration, we put restrictions on still imports from Canada. This was because he couldn't do it. He needed Congress to do it unless it's a national security issue. So Trump declared a national security issue, and remember, the Canadian prime minister on t.v.,

I was in Toronto at the time, exasperated, saying, "Canada is a national security threat to the United States? What are you talking about? How can Canada be a national security threat? We've been with you on every war and every time, why are we a national security threat?" I don't know; I hope this will not happen, but who knows?

It's more and more trendy to me [00:46:00] like, this is happening.

Trond Arne Undheim: Yeah, Yossi. I want to ask you just a final question, who else do you trust for insights on this? Individuals on supply chain, and the future of supply chain, or even just supply chain data? Who are the individuals, institutions, consulting firms?

University labs, apart from your lab, who else do you read, and gain insight on supply chain these days? Because it seems to me it's not an enormous number of individuals. 

Yossi Sheffi: In terms of academics, I pay attention to how Hau L. Lee at Stanford, to some people at Harvard. I pay attention to Marshall Fisher at the University of Pennsylvania, and Jan Fransoo, professor in Tilburg, a Dutch university.

These are just some of the people that I listen to. I also listen to people in the industry. I listened to Lynn Torrel, who is the Chief Supply Chain Officer of Flex. I listen to Dave Waller, who is the [00:47:00] Chief Operating Officer of New Balance. Some people on the, there's an organization called Supply Chain 50.

They put 50 chief supply chain officers together several times a year. And again, I'm the token academic there. Some of the insights from these people are worth listening to because they have their hands on the pulse.

Trond Arne Undheim: I guess one of the reasons I asked that question, is that it seems to me, to be such an underestimated field. And very recently people have caught up to this issue.

So the question is, what happens to the area? Does it necessarily mean more investment and better data? Or do you think people are gonna forget again like once the system starts running, they're going to say, "Yeah, yeah? Luckily we fixed it. We are so advanced."

Yossi Sheffi: Well, yes and no. A classic academic response, right?

At this point in the next year, two years, three years, people will invest in real estate. People will still understand that this is a big deal. But not only this, [00:48:00] there will be some structural changes, some elevation of the supply chain function in companies reporting directly, to say, having CEOs that come from the supply chain function, like Apple. Tim Cook was the Supply Chain Officer working under Steven Jobs. Also, people will start to understand that companies, who we call retailers, like Walmart, are really supply chain operators. They don't make or invent anything. They just move, store it, and sell it. It's all supply chain. So people will start to understand that it is a competitive advantage.

It is something that is important. So some of it will stay. How long will it play? I don't know. I always say, remember, a colleague in civil engineering who is an earthquake engineer. And when there's an earthquake for in next six months, his consulting rates are sky high and he's, you know, in demand.

And then people forget about it. So, people forget lesser than issues, like earthquakes. It also depends on [00:49:00] continuing disruptions. It's not clear, in this case, what will be the shortages. The high prices will come down very quickly. They will come down. They will happen but it will take a while. And by then, we might have new disruptions, maybe geo-political, maybe cyber-attacks, who knows what?

So we'll have to keep watch. As long as the key ports of supply chain are the function that is most responsible for it.

Trond Arne Undheim: Yossi, it's been fascinating. Thank you so much for spending time with me. And I'll be watching. Maybe we'll check in if there's a major disruption again. We'll be one of the institutions checking back in with you.

I'm sure we'll hear from you. So thanks.

You have just listened to episode 68 of the Augmented Podcast with host Trond Arne Undheim. The topic was Industrial Supply Chain Optimization and our guest was Professor Yossi Sheffi, director at the MIT Center for Transportation and Logistics. In this conversation, we talked about how to optimize industrial production and delivery. And we talked about the future of supply chains. My takeaway is that optimizing production is about more than fixing individual elements along a chain. The supply chain is by now, more of a network, a system of interdependencies. Strikingly, technology is not even the most important part. It may never be. But innovation has its place, and augmenting every piece of the supply chain helps us see what we need to do is augment our understanding of the overall picture. Only then, can policymakers, startup founders, and supply chain professionals, together, enhance the enormously complex production and delivery of a multitude of goods and services along the industrial badge.

Thanks for listening. If you liked this show, subscribe at augmentedpodcast.co or in your preferred podcast player and rate us with 5 stars. If you liked this episode, you might also like episode 50 "The Last Mile of Productivity." Hopefully, you'll find something awesome in these and other episodes. If so, do let us know by messaging us. We would love to share your thoughts with other listeners. The Augmented podcast is created in association with Tulip, the frontline operations platform, that connects, the people, machines, devices, and systems used in production for logistics processes in physical locations. Tulip is democratizing technology and empowering those closest to operations to solve problems. Tulip is also hiring. You can find Tulip at Tulip.co. Please share this show with colleagues who care about our industry, especially, industrial tech. To find us on social media is easy. We are Augmented Podcast on LinkedIn and Twitter, and AugmentedPodcast on Facebook and Youtube. Augmented, industrial conversations that matter. See you next time.

Yossi Sheffi Profile Photo

Yossi Sheffi

Author, Professor, Director

Professor Yossi Sheffi is Director of the MIT Center for Transportation & Logistics (MIT CTL), and Director and Founder of the Master of Engineering in Logistics Program. He is a faculty member of the MIT Civil and Environmental Engineering Department, as well as the Institute for Data, Systems, and Society. He is a global expert in systems optimization, risk analysis and supply chain management. Additionally, he is the author of a text book Urban Transportation Networks: Equilibrium Analysis with Mathematical Programming Methods (1985) and six management books: The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage (2005); Logistics Clusters: Delivering Value and Driving Growth (2012); The Power of Resilience: How the Best Companies Manage the Unexpected (2015); ); Balancing Green: When to Embrace Sustainability in Business (and When Not to) (2018); and The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19 (2020). His sixth and latest book, is A Shot in the Arm: How Science, Engineering, and Supply Chains Converged to Vaccinate the World (October 2021).

Under his leadership, the MIT CTL has launched many educational, research, and industry/government outreach programs, including the MIT Master of Engineering in Logistics program in 1998, the MIT Master of Applied Sciences in Supply Chain Management, and the MIT on-line offering the MITx MicroMasters program in supply chain management. (Launched in 2016, it has enrolled more than 350,000 learners in 196 countries.)

Prof. Sheffi launched an international expansion of MIT CTL, establishing academic logistics and supply chain management centers around the world. These include the MIT-Zaragoza International Logistics Program in Spain launched in 2003, the Center for Latin America Logistics Innovation launched in 2007, the Malaysia Center for Supply Chain Innovation launched in 2012, the Luxembourg Center of Logistics launched in 2015, and the Ningbo Supply Chain Institute in China launched in 2016. Collectively these centers operate as the MIT Supply Chain and Logistics Excellence (SCALE) global network which he leads.

Outside academia, Dr. Sheffi has consulted with numerous governments and leading manufacturing, retail and transportation enterprises all over the world. He has also founded or co-founded five successful companies: LogiCorp (acquired by Ryder in 1994); PTCG (acquired by Sabre in 1996); e-Chemicals (acquired by AspenTech in 2001); Logistics.com (acquired by Manhattan Associates in 2003), and Syncra Systems (acquired by Oracle in 2004).

Dr. Sheffi has been recognized in numerous ways in academic and industry forums, including the 1997 Distinguished Service Award given by the Council of Supply Chain Management Professionals. In addition, he a life fellow of Cambridge University’s Clare Hall College.

He obtained his B.Sc. from the Technion in Israel in 1975, his S.M. from MIT in 1977, and Ph.D. from MIT in 1978.