Scott Luton is one of the foremost thought leaders on supply chain. He is the founder, CEO, and host of Supply Chain Now. With over 15 years of experience in the end-to-end supply chain, Scott’s insights have appeared in major publications including The Wall Street Journal, USA Today, and CNN. He has also been named a top industry influencer by Thinkers360, ISCEA and more.
Dan Gingiss: Scott, tell us about you! Who you are and what is this whole supply chain business? Why should we care about this?
Scott Luton: Well, one of the silver linings here that comes out of the pandemic, which has been such a tough time for everybody, is the additional recognition of the supply chain, the work force and all the folks and organizations and entities that keep things moving. It keeps the economy moving ahead and makes sure consumers have what they need, because that demand only gets higher and higher.
So, the global supply chain makes sure that we get what we need, and we can go into the stores and get things off shelves or in the ever-burgeoning e-commerce space, which a lot of folks are saying, let’s just drop the E, it’s commerce, right? It’s commerce here and now and moving ahead. You know, e-commerce is exploding and there’s a very vast supply chain behind e-commerce, making sure folks can get those things they ordered two days later at the price they want.
Dan Gingiss: Exactly. And tell us a little bit about Supply Chain Now. I noticed you say you are the co-founder, CEO, and host.
Scott Luton: Yes, we launched Supply Chain Now a few years back all about serving as the voice of the global supply chain industry. We’re really giving light and some conversations on the issues impacting not just supply chain, but global business. And we do this via live streams, podcasts or special events, you name it. It’s all about getting industry that voice. The best practices, the critical issues of the day, the people that make it happen. And the technologies, of course, that make it happen. They all roll up into these days what is an information supply chain.
Dan Gingiss: Awesome, that’s cool. Now, you mentioned the pandemic and you mentioned that certainly supply chain has become more of a focus as has customer experience, I think, during that time. Let’s talk about two things that seem to be on people’s minds or on companies minds that have definitely been affected. The first are computer chips and the second is PPE, or personal protective equipment. Tell us what’s going on and why we’re seeing a crunch there.
Scott Luton: Yeah, sure. I think I can back up a second. Do you remember the movie from the 1980’s, “Spaceballs?” That movie is a spoof on Star Wars. And there’s a scene in there where whoever is playing the Darth Vader-esque character, there’s a scene where they’ve got to chase after who they’re chasing after and they ask, should we move the light speed? He goes, “No. Ludicrous speed.” And there’s a big gasp. And you know, that scene is playing out not just across the platform, but across business digital transformation. I mentioned the information supply chain that is very real.
Talk about market intel, Wal-Mart, which has been fascinating to watch their transformation as they continue to get better and better at competing against all the other players there, especially, of course, Amazon. Their Chief Customer Officer, Janey Whiteside said, “We’ve witnessed five years of digital transformation in five weeks.”
And really, if you think about what that does in general, we think about what that does in global business. But then think about the supply chain community, which has already been moving so fast. There’s a ton of change because of how consumer preferences are changing, and demands are changing. Who would have thought we’d be talking about toilet paper as much as we have? But that demand is so historical. You know, 500-600% over what’s normal is a huge, huge ripple effect throughout supply chains that consumers have felt oftentimes.
So that’s a little bit of backdrop. This digital transformation has really been shaping the supply chain community, the business community, but specifically computer chips. So, what let’s think about demand for a second. What’s one big factor that you would think really impacts demand for semiconductors?
Dan Gingiss: Let’s go with smartphones.
Scott Luton: Sure, absolutely, smartphones. What devices aren’t becoming smart these days right? They’re not only in our phones, but certainly in our automobiles in electric vehicles, right? In our refrigerators, in our vacuums. Everything, the Internet of things. Well, that’s requiring so much digitalization of what goes into these products. The demand for computer chips has really taken off. In fact, so much so that there’s been a couple of automotive companies that have had to shut down production lines and stagger back production because they can’t get their hands on computer chips.
So that’s a couple of things there. I am by no means a semiconductor expert. There’s another thing that’s impacting computer chip demand. That’s this notion of ambient computing. So, the Alexa device. You have one of those in your home?
Dan Gingiss: I do.
Scott Luton: So, I stole this from my friend Kevin L. Jackson. He talked to me about this notion of ambient computing. So ambient computing, these things are always on. They’re always listening, and the technology goes into those things is changing. And they’re getting smaller and smaller. Companies like Intel, which has been one of the world’s largest producers for a long time, they’ve been undergoing some challenges, especially related to production and the demand for smaller devices. We’re talking seven nanometers big on these computer chips. It’s incredibly difficult.
Think about all the manufacturing complexity that goes into making something that small, and has to be that high performance. So, tons of factors going into computer chips. With Intel, they brought on a new CEO that’s an engineer. Some of the headlines read, “Engineers are back in control of Intel.” Well, we’ll see. I think Intel really is a barometer in that space. And as everything gets smarter and smarter, we’ll see how the industry steps up to meet that demand and make sure that there’s enough supply that goes into all these smart devices that we all take advantage of every day.
Dan Gingiss: So I want to take this back to customer experience. I’ve written about this before, that sometimes as companies, our experience is dependent on other people or other organizations that are sometimes out of our control. One of my favorite examples is a baseball team. The team is in control of everything that happens in the stadium, the food and the seating and the lighting and all that sort of stuff. But they’re not in control of the weather and they’re not in control whether the team plays well that day.
Similarly, now you’ve got companies that this supply chain aspect, whether it’s a computer chip or something else, is often out of their control. So, let’s say you’re a company now. Let’s say you’re a car company and you’re shutting down manufacturing. What is it that you now must tell customers? And how do you explain this to them when you know the word “supply chain” might sort of cause their eyes to glaze over and they’re just looking to you, the car company, to have the product in stock? They don’t really care about your back-end problems.
So how do we communicate this to customers, especially during a crisis, when it’s out of our control and yet we’re doing everything we can to try to fix it?
Scott Luton: Yeah, it’s a wonderful question and a very timely question. Many companies are answering that question out of necessity, day in and day out. I think two things for me come to mind and it goes back to my days of working in supply chain, working in manufacturing. And there’s two things I always use.
Number one, you’ve got to be transparent and honest and really answer questions. Don’t hide anything. No smoke and mirrors. We all know how important trust is to brands these days. And then secondly, make sure you’ve got a working knowledge of what the root cause is. Give them give them an intuitive business case for why you can’t get what you are supposed to get on whatever day, at whatever price.
And better yet when they can expect. Walk them through that story where really it makes sense. I think that helps trust and it helps them know that it’s not just an excuse. This really happened and a lot of it’s out of our hands. But we’re working hard for you, Mr. and Miss Customer, to make sure you’re taken care of.
Dan Gingiss: Yeah, I think with anything, it’s about communication and customers generally are understanding when you are upfront and honest and communicate in a genuine way with them. Especially during the pandemic, people realized, hey, companies are going through tough times, they’re doing the best that they can. So, I do think communication is absolutely key.
If you’re out of stock on something and your e-commerce site, don’t just say “out of stock.” Give a little bit more information. Why is it out of stock? When might it be back in stock? Give us some sense that you’re working on it. And I think that customers will be much more forgiving.
Scott Luton: Along those lines, over the last few months, we’ve all probably have experienced different challenges of getting stuff we needed. The spare parts industry, for example. We had a dishwasher go down and we needed a couple of inexpensive spare parts. It was next to impossible. It was a month and a half later without a dishwasher. Which, first world problem, but with three kids, those dishes were stacking up.
But really, understanding where those parts are coming from. Sometimes companies and the customer care agents are not well versed in how the supply chain is going to deliver on the order. And so, I found myself in a couple of cases really trying to get to, OK, what’s the problem? Where’s the miscommunication? Getting that root cause is so important.
I think one of the best practices I’ve certainly seen in recent days is, is companies that really train their customer service agents or representatives on how to really problem solve and make sure to communicate what’s going on honestly and to the point to the customer.
Dan Gingiss: Yeah, great advice. I’m going to shift this a little bit and tell you a quick story about my first job out of college where I worked for a collectibles company, the Danbury Mint. I happened to work on sports collectibles. And one of the things that they did to one lucky new employee every year, and it just happened to be me, was they put us in charge of the freight forwarding and the relationships with the freight forwarders. So, I got a very quick education on container shipping and all this operational stuff that frankly was really interesting, but I kind of didn’t ask for. For some reason, probably because I was good at it, they had me keep that for almost the entire time I worked there. It was supposed to change every year, but I got to hang onto it.
My point here is that I’ve been hearing from some of my clients about some issues right now with containers, and containers either not arriving or delayed. And by the way, just for everybody else, when we talk about a container, basically think of a think of a 16-wheeler on the highway. It’s that box that sits on top of the chassis. That’s a container.
That container comes over in a ship, usually stacked super high. You wonder how these things make it across and things don’t fall into the water. And then those containers get put on trucks and the trucks get delivered to a warehouse.
What I’ve been hearing is that there are cases now where companies are being charged double what it would normally be to get a container shipped with any amount of speed or basically being told you’re going to be shipped over in favor of the ones that are willing to pay. What’s going on there, and how should companies prepare for potentially another crunch?
Scott Luton: Excellent. And if I can add to your story, too, that the containers weren’t always in place. Malcolm McClain was a business, a freight shipping businessperson that back in the fifties said there’s got to be a better way. We can’t always pick up piece by piece as we’re offloading ships. So, it came up with the notion of standardizing 20-foot and 40-foot containers. I love that story.
So, you know, there’s so much more there. There are two things that we’ve been tracking here lately, and I’ve heard a lot about lately that one of them is just it goes back to demand like so much does with supply chain. Because demand is your north star. The demand has been so much, especially driven by e commerce, especially driven by the replenishment of inventories, which took hits based on the pandemic. Some of those core things we’re all looking to get our hands on.
The demand for ocean shipping is off the charts. That is putting a lot of pressure on maxing out these massive cargo ships. And to your point, stacking these containers up really high. Well, get this. So according to the World Shipping Council, between 2008 and 2019, an average of 1,382 containers were lost each year. Twelve months.
Dan Gingiss: Do you mean like they fell off the ship?
Scott Luton: Most of the time, yeah. I’m sure there’s other incidents but there are lost, unaccounted for. Insurance claims were filed, you name it. 1,300. In the first month of 2021, over 4,000 containers were lost in less than one month, one of those claims is over two hundred million dollars in insurance. So, you think about some of those factors that are really elevating shipping costs, that certainly chief among them.
The second issue we’re tracking. We’re going to get a global trade expert to come in and really dissect the trade war going on between China and the U.S. but a lot of empty vessels, when they come over to a port, whether it the port of Long Beach or maybe on the East Coast. Instead of loading up those ships and fulfilling demand, going back the other way that all those vessels are going back empty to China. Well, I’ll leave that to the trade experts, the pressures that the Chinese government could put on some of the shipping.
But that really is preventing that demand. And it’s causing empty miles. And it’s really setting back our efforts at really catching up to the demand. So, huge demand stacking up these container ships, causing accidents and leading to unfulfilled orders. And number two, not maximizing these long voyages, which is highly inefficient. And it’s just sadly, it’s an outcome with this trade war taking place.
Dan Gingiss: Well, yeah. I mean, we forget about the fact that so many American companies make a lot of their money on exports. And so, they have to get this material overseas to other countries to sell, and much as we are bringing in items from other countries as well.
I mean, this is not a political show and I’m not sure I want to get into trade wars, but I will say one of the things that that made me most aware of any trade imbalance was a few years ago when I went to Tokyo. I loved being there and Japan was wonderful. But the first thing I noticed is there were no American cars on the road.
I’m like, ‘hold on a second on our roads, we have all our Japanese cars.’ And yet there were almost no American cars on the Japanese roads. And that was the sort of the first reality check for me, when they talk about trade imbalance, sometimes a concept that’s hard to grasp. But that one made it a lot clearer to me as cars seem to be going in one direction only. And that doesn’t seem exactly right. So very interesting.
I think companies are certainly feeling the pinch in the United States in terms of trying to bring things in. I know one of my clients is trying to bring in more PPE and it’s getting stuck where they’re having to pay a whole lot more to bring it in. Of course, that cost gets passed on to the end user and the end user is unhappy because gloves or masks that they were paying cents for, they’re not paying dollars for. And it’s a really big difference. And not only is it more expensive, but we need more of them because of what’s going on and having to change them out more often and all that sort of thing. So interesting stuff. And I think on the export side, I hadn’t thought so much about the export side, but also important if that’s a big part of your business.
Dan Gingiss: Scott, always a pleasure to talk with you. I learn something every time I talk with you. And I’m really glad that you’ve brought supply chain to the masses, if you will. I know that your core audience are people that are in supply chain, but you and I have crossed paths now enough times that I know that you’re helping other people understand what is a complex part of business. Frankly, if you’ve been in marketing or customer service, maybe you haven’t really spent a lot of time learning about. But as we’ve shared today, it is a critical part of the end experience. And it is one of those pieces that when it works, nobody thinks about it. When it doesn’t work, everybody’s attention is on it.
Scott Luton: Appreciate the kind words. I love your storytelling and that’s what we do. At the heart of it is telling the stories of the practitioners, of the folks out there, the companies out there, the team, the technologies that are working so hard to protect the psyche of the rest of us as consumers. And they don’t get enough attention. And that’s really important. But I got to tell you then, I’ve stolen a couple of your best practices. I really enjoy our interactions. I’m really excited about one of the big products you’ve got coming out with this new book, I can’t wait to get my hands on that. And it’s all to do. You bet. It’s always a pleasure to connect with you.
You can connect with Scott Luton at his website or by listening to his podcast, Supply Chain Now.
Main image: Ian Taylor on Unsplash. Other images courtesy of Scott Luton and Supply Chain Now.
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