May 19, 2020 • 52 mins
The supply chain is vital to life in the modern world, and the COVID-19 pandemic has disrupted this flow of goods and materials to a considerable degree. In this episode of Stuff to Blow Your Mind, Robert and Joe chat with IBM Global Managing Director for Consumer Industries Luq Niazi and Partner at the Consumer Center of Competence (CoC) at IBM Karl Haller.
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Episode Transcript
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Speaker 1 (00:00):
Robert and I are going to sit down for virtual
chats with people using technologies developed by IBM to deal
with the unique challenges the world is facing today. In
this episode, we'll be focusing on how consumers, retailers, and
supply chains adapt in the midst of a pandemic. And
for this subject, we're going to be in conversation with
Luke Nazzi, the IBM Global Managing Director for Consumer Industries,
(00:22):
and Carl Holler, who is a partner at the Consumer
Center of Competency at IBM. If you'd like to hear
more episodes of Smart Talks, the tech Stuff podcast has
already released the first four episodes of the series and
its feed. You can find them on the I Heart
Radio app or wherever you get your podcast. Just look
up tech Stuff and click on the episodes labeled smart
Talks and stay tuned for upcoming Smart Talks episodes. Here
(00:45):
on Stuff to Blow your Mind, which will be published
in our feed in the coming weeks. And now straight
onto our conversation with Luke and Car. All Right, well,
I guess probably the best place to start off would
be to have you each introduce yourself, so Luke and
Carl can you each introduce yourself and just talk a
little bit about your background. Yeah, Hi, I'm looking as
(01:06):
I'm the Global Managing Director for Consumer Industries for IBM.
Consumer industries are retail, consumer products and the agribusiness and
I have the pleasure of leading that for IBM globally
across all of the things that IBM does, and that's
everything from our research, through our technology and our services
(01:27):
and our industry platforms. And I'm Carl Haller. I'm part
of Luke's team and lead our Consumer Industry Center of Competency,
which is part of the IBM Services business unit, and
we work me and my team, we work with clients
around the world on um some of the more challenging
(01:49):
issues that they're facing that require deep industry skills and expertise. Well,
we really appreciate you joining us today. So one of
the main things that we were going to focus on
today was supply chains and how supply chains are adapting
during a pandemic. And so to start off, I think
we should think about what supply chains are. They They're
(02:11):
one of the many features of our world that I
think can remain mostly invisible to us until they break down,
you know, it's only by your failure or by their
failure that we suddenly sort of noticed them. Can you
provide a little background on how like normal shopping behavior
like buying a frozen pizza or buying a pair of
genes relies on supply chains. So so, first of all,
(02:32):
in terms of the fundamental to supply chains, um, when
you when you buy something at a store, it's there
because it's been distributed to the store. That means it's
traveled from somewhere and it's got to where it needs
to be. But behind that, it's been made somewhere. That
means that there's been a factory where it is being
(02:54):
made and to be able to make it. And let's
take that pizza example, in the ingredients that have gone
into that pizza have got to have been sourced. And
so that's what we start to get into the kind
of the fundamentals of the supply chain, because that means
the bits for the dough, the tomato based, the herbs,
the cheese, the toppings, they all need to come together
from a range of suppliers, and those suppliers can be
(03:17):
you know, very broadly distributed, and so you're getting more
into the unpacking of that product, and then going further back, well,
actually all of those things need to be either produced
or grown. If they're natural, they're grown, but if they
are you know, like artificial flavorings, and they have to
be manufactured. And so that simple thing of buying a
(03:39):
pizza and getting a pizza has to go through all
of those stages of the retail, the distribution, and the logistics,
the actual manufacturing, all the way through to the sourcing
of materials. And of course if you then take something else,
like a pair of genes, um, it's the same concept,
but of course all of the processes that make prepare
(04:00):
of genes, and so you've got to get them to
the store. They've got to be traveled. Often they're traveling
from very far away because they're made in the lowest,
most effective cost manufacturing typically UM. And then when you
think about everything that goes into a pair of genes, well,
there's all the cotton, but there's all of the dying
that goes into it, and that's a complex process in itself,
(04:21):
and you've got to take care of that in a
in an effective way. UM. And of course then that
goes back to the source materials. That's what we mean
by a supply chain. But I'll let Carl explain a
little bit about the complexities that are in supply chains
in the retail world. Yeah, thanks, Luke. You know the
thing that I think most people I would agree with
(04:43):
you probably understand that, you know, the things that they
buy are made by someone and grown somewhere in concept,
but they don't always understand how complex the supply chains
have gotten. And whether we're talking about a food supply chain,
or we're talking about a fashion or clothing supply chain
(05:04):
or a package good supply chain, there are often upwards
of a dozen different parties, maybe even more, who are
involved in the work that happens to go from raw
materials most of which many of which come from a farm,
UM through the various stages of processing UM, manufacturing, UM, distributing,
(05:29):
selling to get goods into you know, a refrigerator or
a pantry or addresser drawer UM and and these these
different companies tend to involve multiple geographies. Sometimes goods go
back and forth around the world once or twice UM
(05:50):
as they get from raw materials into finish goods UM
and and that's usually done in order to get goods
to consumers in the most efficient and lowest cost manner possible. Um.
The thing that the supply chain relies on today is
(06:11):
it relies on a couple of basic assumptions um. One
that goods and capital flow freely across borders um. And
second that most consumers are willing to make the trade
off of really knowing and understanding how, where, and by
(06:33):
whom goods are made in exchange for getting the goods
whenever they want, wherever they want, and of a low
and attractive price point. Well, that actually brings to mind
a question I wanted to ask about some of the
ways that values guiding the formation of supply chains could
actually be in conflict. So, uh, the idea of like
(06:55):
cost and convenience versus energy efficiency or sustainability or just
in time philosophy, and if you can explain what that
is versus like a supply chain being robust against interruptions,
could you talk about that a little bit? Yeah, sure,
So there's quite a few parts to that. Joe's are
trying to unpack them in various pieces. So so, so
(07:17):
the first thing is that you know, if we if
we cast our minds back over the last twenty years
in the consumer industries, you know, particularly around food and
you know fashion, we've kind of accelerated through an environment
where people can kind of get pretty much whatever they want,
wherever they want, any time of the year, and so
(07:40):
you can get fruit all the year around, and you
can get your berries all around. What's what's occurring around that,
of course, is that they're coming from many different places
to be able to get those berries or the year round.
And we've, through the digitization of commerce, learned to expect
that if I want something that is shown on my
tablet that I can search on, that I can get
it delivered to my home at a you know, a
(08:02):
reasonable time, and so you know, the what's undergone the
supply chains, of course is a is a is a
drive to efficiency and cost reduction and a value delivery,
and so you know, we as consumers have been honestly said,
a little bit selfish in terms of expecting anything any
time anywhere in the world at the lowest kind of
(08:25):
price point and without really having due consideration of the
consequences of what it's taking to get that piece of
food into the supermarket or that garment you know, into
the store that I'm looking to buy. From all on online.
Now what is interesting is that UM and so by
(08:47):
the way, that's called convenience you know, it's all about
convenience retailing. UH, and we we we've had the decades
of convenience retailing. What's interesting is that at the beginning
of this year, Carl and members of my team, working
with the National Retail Federation and our IBM Institute of
Business Value, did a piece of research with over nineteen
(09:10):
consumers in I think it was twenty eight countries. Ever
I remember, of course all demographics and we try to
understand what was occurring in buyer behaviors and what the
study showed, and it's available you can download it is
that there are kind of three major categories, and the
convenience category is still the biggest category. Of the respondents
(09:32):
were convenience buyers looking for value, looking for cost effectiveness,
looking for that fulfillment wherever they needed at the lowest
price point. But for almost the same number, we're in
a category that we called purpose driven consumers. These are
consumers who care about where things have come from, the
journey that they've been on, how they've been made, what
(09:56):
kind of energy was used in them, what's the carbon footprint,
whether they are sustainable in nature, and what we're seeing
is this rise of the purpose driven consumer. There are
a couple of other categories. But in the other categories
are you know, those that follow the kind of the
brand and the higher segments and they kind of are
(10:19):
more aligned to the that pure brand brand value. But
I believe in twenty twenties we are really at the
point in time when we're in a decade where in
the main people are starting to care much more about
where things have come from and how are they made
and what are some of the implications to the planet
(10:43):
and society around that sourcing. We're becoming more responsible in
our consumption. So in terms of that rise of the
purpose driven consumer, what we're now seeing is that in
the respondence that we surveyed about and out of ten
are prepared to make choices and decisions that are reflect
(11:05):
their drive for whatever their purposes, sustainability, lower use of plastic,
evidence of re use in their purchasing, and even more
fascinating is that we're seeing that they're prepared to pay
more for those companies that are able to demonstrate and
improve that their products have been made in a more
(11:26):
sustainable or environmentally friendly way. The survey actually showed that
people are prepared to be up to a third more
for that. What's also interesting is this, this trend of
that group is across age profiles, So it's not just
a certain age profile, it's you know, all age profiles
are showing that tendency. And it's not just a highly
(11:53):
developed Western economy type of perspective. It's actually per permeates
across a globe context and different stages of economic development.
So so we believe that we are absolutely in the
era of um what was becoming purpose different consumption. Now,
the third part of your question is, you know, the
(12:14):
kind of the dilemma that we find ourselves in right now.
And obviously, with the global COVID nineteen pandemic, there was
an immediate rush to people to kind of stock up
and get basic goods. It was food, it was grocery,
(12:35):
it was sanitary products, it was kitchen toweling, it was
bathroom to um toweling, et cetera massive push for that.
And and actually if you kind of look at them,
the results and they're kind of they're publicly available on
the stock market market and other reports that food and
grocery and kind of basic sanitary health and wellness type
(12:58):
category that is continuing have significant demand at the moment
right now, albeit that the other categories of what we
consider in retail have clearly experienced a slowing in this
environment because of the fact that they can get to
stores and there's only a certain amount of the business
(13:18):
that's online. And so what is going to be interesting,
and we can definitely unpack this a bit further, is
what is going to happen. What are the implications of
this pandemic continuing, and how it's going to change or
alter different parts of what we see in the supply chain,
and whether these things that we saw in terms of
this convenience versus purpose, how how is that going to
(13:42):
play out over time. One of the impacts that we
see from COVID nineteen is that place and people are
both increasing in importance um there of all, as Luke
was saying that that to our purpose driven are thinking
about broader issues, and some are thinking about sustainability, and
(14:05):
they're thinking about their own personal values. What we're seeing
now is that as safety and personal personal safety family
health becomes paramount, more people are concerned about how things
were made, where they made, and who's touched them along
(14:25):
the way than they were, you know, just just eight
weeks ago. Um. So, so that's becoming something that is paramount,
perhaps even for some of those people who were otherwise
predisposed towards price and convenience. Well, that's interesting that it
makes me wonder about um unintended positive effect of even
irrational concerns, Like I know that there were people who
(14:47):
were concerned, um in the early days of the pandemic
about products coming from China and like the idea that
they could get infected by the virus from that, And now,
of course, like that that's not a real concern, you know,
the virus and by the time people were concerned about this,
it was all over the world anyway, and the virus
wouldn't survive the shipping time. So it's like a totally
(15:08):
irrational concern, but could lead to people just generally being
more aware of like, oh, wait a minute, the products
I buy do have to come from a place and
there's something behind them, and normally like uh, I mean
I I can even admit this in myself. Most of
the time, I just don't even think about that. You
just buy it at the store like that, that whole
(15:29):
history is completely invisible. I think you're exactly right, whether
it's something we're buying in a in a in a
mall store, you know, home, something for the home, or
something for for ourselves, or whether it's groceries you're buying
and we're just so used to getting, you know, fresh tomatoes,
fresh fruits and vegetables in the winter, we probably don't
(15:53):
really think that all of those were grown and transported here. Um,
And now I would agree with you there is going
to be a bit more awareness of that across the board.
I mean, what, of course has occurred with the pandemic
has been a massive lockdown of people pretty much around
(16:13):
the entirety of the world, all be at different times,
and a lockdown of transportation systems, initially people, but also
harder controls around borders, much less flight transportation, and of
course every time a plane flies to a country, not
only is it taking people to but it's also taking
(16:35):
some kind of produce, typically as as part of the cargo.
And so one of the consequences of the pandemic is
that the availability of supply in this globally connected network
that we have that delivers us anything any time anywhere
has had to deal with this massive contraction in the
(16:55):
practicalities of transportation and logistics and are tightening up, and
that combined with the peaks in demand, and we know
what kind of demand peaked early on, and we talked,
we talked about the sanitary products, but also what peaked
very early on where things like packaged products, tins of soup,
(17:16):
whether it's Campbell, Super Hinds or whatever your your preference is.
And what also peaked is things like dried products like pasta. Um. Now,
I live in London and I live in Europe, and
most of our dried pastor comes from Italy. Yeah, and
of course Italy was one of the countries that was
(17:36):
locked down the hardest and impacted the hardest early on
in Q one and consequently, and it's still taken a
little bit of time. You know, it took quite a
long time for dry light pastor to be readily available
back on the shelves because there was a disruption in
that supply chain. Now what what what starts to occur is,
(17:56):
of course the supply chains are gradually recovering, transportation opens up,
and so it's kind of less of that shock, but
The other thing that's occurring is that if you've got
demand for products, um, you know, and you are in
the business of providing those products to let's keep with
food and grocery to your customers, you're going to start
(18:17):
to work through alternative sources of supply. And so what
this is also driven is companies starting to look at
alternative sources of a supply so that they can meet
their demand. And that in itself is driving because of
this constraint on transportation, a shift from global demand to
(18:37):
what I kind of global local, which is I need
to be more balanced and if I can get it locally,
it might be more of a preference. Now, at a
very practical level, you can see that if you are,
you know, going out and if you're still buying food,
because what's what's occurring if you're going out to buy
your food is not everyone is going to a supermarket
(18:58):
or a big superstore. What they're doing is they're combining
that shop with a greater propensity to buy from local stores,
whether it's the local vegetable store or the local butcher's store.
And so what is occurring is a greater awareness of
where things are available, and I think that's been driven
very much by a kind of a needs perspective. But
(19:20):
I think over time these two forces, this kind of
longer term trend that we talked about around purpose driven
consumption and people starting to be more aware of where
food is coming from or where goods are coming from
and what the alternatives are, is going to drive a
different mix in that supply chain that we talked about
(19:42):
to be more more regional rather than global. And I
think that might mean over time us UM ultimately driving
a better a better carbon footprint for the for the
food that we consume, but also it might also help
at a better redistributional value in that food value chain
(20:04):
to allow the smaller corner shop to survive alongside the
big store formats UM and I think we were seeing
some of those changes start to ripple through. So Luke
and Carl, have there been any um major challenges from
like from food supply and demand or in other industries,
even things that would be considered non essential like clothing
(20:28):
that have been presented by the pandemic situation that we
haven't talked about yet that that you would like to address.
On one of the things that that we've seen with
COVID is that the food business runs to parallel but
largely disconnected supply chains. UM. It all starts all the
(20:51):
food starts on farms, not always the same farms, but
but certainly starts on farms. And then from there, part
of that food runs through the supply chain that ends
up on a grocery store shelf that we as consumers
go out and buy and bring home. Part of that
food runs through a different supply chain that ends up
(21:11):
in either restaurants or food service. UM. As food service
and restaurants effectively shut down, you know, near shutdown of
most of those across most of the US and frankly
most of the world, that supply chain dried up, and
we were left in a situation where the consumer supply
(21:36):
chain had shortages. UM, we had shortages of you know,
fresh goods and dry goods, shelf stable goods, and yet
we also had situations where farmers and distributors to the
UM to the restaurant food service supply chain had an
overstock of goods. And so that one of the challenges
(21:58):
has been how can we figure out a way to
better integrate those supply chains or at least provide better
visibility of what actual products exist where, so that there
could potentially be some intermixing. This is this is one
of those things that the move toward efficiency over the
(22:23):
past plus years UM at the expense of agility, has
cost us. And I think what we see going forward
is a little bit more balanced between efficiency and agility
such that you can make a brand, um, manufacturer, retailer,
(22:43):
you know, anyone involved in the in the supply chain
can make different decisions in a more dynamic manner and
change things on the fly because because there are hurdles
I understand in the way of taking say pasta that
was in the restaurant supply chain and switching it over
to the consumer individual consumer supply chain. Yes, there there
(23:05):
are hurdles. There are some hurdles that and it depends
on the product category. There are some hurdles that are
regulatory in nature. UM. There are some hurdles in terms
of the not as much as the manufacturing process, but
potentially the quantities and the pack sizes. UM. There are
some hurdles in the packaging and how those goods are
(23:27):
aggregated together. I know, just you know, my family, we
uh purchased some fresh seafood from a seafood purveyor that
normally sells to restaurants, and it was one excellent but
to the quantity that you have to buy is not
the normal amount that you might buy in a grocery store,
(23:48):
so you have to you know, they've had to adjust. Um.
They're also not used to bringing things directly to consumers.
You know, they're used to a simpler supply chain. Um,
they're not used to transacting by credit card with consumers.
You know. So there are a lot of hurdles in
the you know, the making and moving of things. There
are also a lot of hurdles on the transactional side.
(24:10):
So this is interesting. Yeah, so that kind of thing.
Would that explain why we could see these strange disconnects
where say, I don't know that the dairy shelf fit
your grocery store might be very bare, and yet you
also see video online of dairy producers having to like
discard unused things. Yes, exactly exactly, and you can see
(24:30):
you know, on on one and so so one the
there are short you know, the shortages. So the dairy
shelves being empty also then drives up the price to
the consumer because there is as as Luke was saying
earlier there's a big mismatch in supply and demand in
one piece of the supply chain, yet in another piece,
the mismatch and supply and demand is the opposite. There's
(24:52):
an excess of demand. So despite the higher price consumers
are paying for milk, farmers are having to get rid
of milk because they don't have anywhere to put it
in any any place, to any place to sell it into,
because they may not have that same access um to
the supply chain that that serves consumers directly. Actually, I've
(25:12):
been very impressed with what some of the major grocers
in the US have been doing, where they're actually starting
to now buy up access supply and sometimes incorporated into
their own business, but other times, frankly, just donate it
so that it's at least getting to needy consumers to
(25:33):
to help them, you know, get through get through this crisis. Well,
that's great. It's also great yet to see some of
that waste being avoided. Luke, we were talking the other
day before this call, and you mentioned something about the
sometimes kind of staggering amount of waste that already happens
just as like an unfortunate byproduct of the way that
supply chains uh exist today before the pandemic even yeah,
(25:58):
absolutely Jones. You know, the the industries that we're talking
about UM produce a massive amount of goods that don't
end up being consumed. Either you have food in the
food supply chain UM that ends up being beyond its
(26:19):
state and then goes to waste, or you have you know,
in the fashion industry, a lot of projects that are
made and even after discounting and multiple campaigns, are still
left and end up, you know, being effectively wasteful and
so UM in its entirety. You know, the you know,
(26:41):
there's about a third of the supply chains that are
producing stuff that goes to waste. And this isn't because
there isn't demand. There's demand around the world, it's just
about where it's ending up at that particular point in time.
And that that that waste is obviously a massive impact
for the planet. It's it's the second largest CEO to
(27:03):
producer as an set of industries, behind the global energy system.
And so if we can do things that make the
demand much more connected to the supply in a more
integrated fashion, then there's this opportunity to not only fulfill
people and give them important information that they want about
(27:26):
where things have come from and and how it's going
to affect them. But there's also an opportunity to get
a closer integration of that demand signal back into the
supply side of the world, and therefore we can be
more responsible in terms of how the supply chains come together.
And I'm I think it's going to it's going to
(27:46):
take a decade to manifest itself, but I absolutely believe
that technologies like blockchain, when connected to digital technologies that
we interact with that i M the smart apple's on
your phone as you're buying the food, or the data
that you get when you're buying online. If you start
(28:08):
to connect those choices, we can start to drive much
more holistic understanding of what's going on and ultimately a
better use and a more sort of sustainable supply change.
And so right now, companies like car for in Europe,
if you go and scan the QR code that is
on the organic chicken, you can see the whole history
(28:31):
of where that chicken has come from and proved that
it's organic, and you can see you know where the
food has come from, et cetera. Now I'm not saying
that every shop is going to scan every product, but
it starts to drive in kind of a change and
an understanding of where things are coming from, and that
in itself can drive more sustainable usage. So so this
problem is very substantial, but it's also one of the
(28:54):
big problems that we see as being addressed in this
decade because of the availa ability of the technologies that
we see in front of us. And by the way
these technologies, um you know, they they are cloud driven
and they are connecting different parts of the supply chain.
(29:15):
Business network are also some of the technologies that are
companies are using to reconfigure their supply chains right now
because they're saying, okay, I understand who's available in terms
of what produced in this region and they are applying
that to get better supply to the demand that they have. UM.
(29:36):
You know. Similarly, you know, I touched on what AI
was doing is doing in terms of the inter end processes,
and it's prevalent across the whole of the value chain.
But you know that AI is allowing consumer goods manufacturers
to do optimization of demand and supply in terms of
(29:57):
they know what they produced and they know where it
is physically in the supply chain and the distribution network,
and they can sense at a hyperlocal basis where the
demand is for those products, and they can drive a
better matching of that supply to the demand. That means
that ultimately the things that they produce are sold and
they make money, But it also means that lessons go
to waste and and so so these technologies that you
(30:21):
know I touched on to we're asking about Robert's question
also have a very important implication in terms of driving
better sustainability as I touched upon, but also having a
better optimization of the hyperlocal needs that we're seeing right now,
and I think we're going to continue to see these
waves of hyperlocal needs over the next six or twelve months.
(30:44):
Some of our listeners may have heard about the existential
need for digital commerce three point oh in order to
keep the supply chain healthy, not on idearing, but after
COVID nineteen, can you walk us through what digital commerce
three point oh? Yeah it really is. I'll take a
pass at this um because I think I think when
we talk about you know, digital commerce three point oh
(31:06):
or retail three point oh, you know, we have to
get it. What a what a definition is and I think,
you know, that's really a term that we would use
within IBM as as an industry flavor of a broader
umbrella term that we call the cognitive enterprise UM. And
this is really an enterprise that UM understands, gathers information, UH,
(31:35):
creates insights, acts on those insights, and learns over time.
You know, an enterprise that has many more of the
capabilities that we as humans have, rather than just being
a great big machine UM. And I think many traditional
enterprises right now are essentially great big machines, and they've
(31:56):
been tuned for efficiency UM, just as machines and engines
are tuned for efficiency. UM. What we're seeing now, UM,
and I would say this is in It's in digital commerce,
it's in all commerce, because most commerce has a digital
element to it UM. And it's really all the way
(32:17):
upstream from the point of commerce for the consumer up
to the point of growing or producing. UM. What we're
seeing is a you know, a greater need to sense
and respond in real time to better understand the variable
(32:37):
dynamics in demand and then match both supply to that
and match frankly all of your operations to those variabilities
in in UH in demand. This has existed for the
last five or ten years. We've known about this UM.
With COVID nineteen, it's really exacerbated thing that we've known
(33:00):
about but haven't always really needed to do anything about
because the variations in demand were relatively minor, might be
a couple of points up or down, and might be
happening on a small scale. Now we're seeing swings in
demande up and down at a local level, depending on
(33:22):
where outbreaks have been taking place, where countries are flattening
the curve, where countries are getting back to normal, or
even cities and localities are are reacting and responding in
different ways. So it's now become business critical to understand
which parts of the United States or the world are
(33:45):
open and are open for business in a more traditional manner,
and which parts are still locked down, because you're going
to have such massive swings in demand that the success
of your business depends on knowing that UM. So that
that's really this ability to UM to really sense and
(34:06):
respond in real time, and the ability to act on
all of what you're sensing. UM is really at the
heart of of you know, retail three point oh, industry
three point oh however you want to phrase it. The
ramifications of digital commerce effect more than just the retailer.
(34:27):
The ramifications are felt upstream um to the consumer products
companies as well um frankly, because right now the business
model at the retail level is certainly in groceries, is
not supporting the growth of online shopping. The cost to pick, pack, fulfill,
(34:48):
and distribute those goods to consumers homes um is quite expensive,
and consumers, except maybe in a crisis period, are not
willing to pay a premium for that. So some of
that will now move upstream to the manufacturer, and so
they're going to have to think about new routes to
get goods to a pick up location, two new routes
(35:11):
to get goods into stores. Potentially they might be drop
shipping goods from their own warehouses directly to consumers homes.
That may also make them think about pack sizes in
different ways how they aggregate goods together. Especially if you're
thinking about traditional center core packaged goods that have a
(35:32):
longer shelf life, we may see something like pack sizes
increase in order to make the logistics workout for consumers
who are shopping online. We may also see consumers start
to adopt auto replenishment methods to buy those goods where
they get a steady supply of things you know, delivered
(35:55):
to them every month in exchange for the convenience of
not having to go to the store to either those
things and put them in your basket and load them
in your car and drive them home. So we're going
to see a lot of ramifications of this upstream on
the producers side manufacturer side as well. Yeah, if I
can give a very real example of that to share,
(36:15):
and it's an example that was actually add on our
Think twenty Digital event that we just had and Mark Foster,
r s v P of Services, interviewed UM, one of
the s vps from Free to Ly, and they talked
about the digital transformation that they've driven to change their
(36:42):
direct delivery model, which is actually the biggest private fleet
of truck deliveries you know in the US, five thousand
trucks a day being optimized to get Freely products all
the way through their supply chains into where whever they
need to be distributed, whether that at a store or
(37:02):
at other locations. Well, not every CpG company has a
model as advances of that, and what car is alluding to,
is well, how do you start to kind of plug
in those kind of engines that you know, free to
lay has into my model. If I'm a beer company
and I'm used to just distributing to certain places and
(37:23):
then I'm used to the restaurant companies getting them from
those places and getting them to the end consumer as well,
right now that model has died down significantly. So how
do I get my beer products much more direct to
the consumers, um, not just relying on on what is
coming through the supermarkets. And so you can see how
(37:43):
you know, you know, a CP company, like you know,
a beer manufacturer has got to think around next generation
of digital for its B two B model, but actually
they may have to get into the next generation of
delivery into a BBC model. And it's that kind of
change that we're that we're going to see being accelerated,
and that's companies having to adopt more common street or
(38:06):
zero type capabilities over and above where they had previously.
So in trying to imagine how technology could help businesses
and supply chains adapt and become more like a human
less like a you know, an automated machine, something that
that is able to have some agility and and and
insight into the process overall. How much would this kind
(38:26):
of technology just be about, you know, seeing more of
the data that's currently available at every step in the
supply chain, incorporating that and adapting, and how much of
it would actually be predictive because I imagine that big
problems come through and at each stage in the supply
chain where somebody sees, you know, they can't tell signal
from noise, like suddenly the dairy shelves are in empty
(38:50):
one day, and you don't know, like, is this part
of a trend that I need to adapt to or
is this just some weird fluke today. Yeah, I know,
it's a really good question, Joe. And the data is
there If the data is there in each part of
the process that we describe, it's there at the point
of purchase, it's it's there in the transportation logistics that
(39:13):
got that product to that point of purchase. It's there
in the manufacturing, it's there in the the raw goods produce.
But each of those are many different companies, and there
are many different segments of the industry, and therefore they're
very siloed. And so even though there the data is there,
(39:34):
and each of those subparts of the inter and value
chain are being optimized in their own individual piece. What's
not necessarily occurring is the optimization of the whole. And
so you know, the the opportunity in the the that
that kind of visibility question that you're kind of reaching
(39:54):
out of, Joe, is is how do you start to
overlay these kind of broad order platforms of of UM
enablement UM. So what I mean by how do you
get data together that's in disparate parts and in different
companies where you can make it available into the cloud?
How can you analyze data sets at scale UM that
(40:18):
are massive data sets solving really complex, highly undeterministic problems. Well,
you can chuck the power of AI into First of all,
what you do actually is you apply AI to the
individual sub processes and then you start to optimize subparts
of the system, and then later on you start to
optimize the fuller system. UM. Not possible by the way,
(40:42):
for everything, but but definitely possible for certain parts of it. UM.
And then of course you leverage this visibility platform that is,
I can track and trace anything through that whole supply
chain if it's already in the block chain. So you
can see how the connectivity and enabling technologies are starting
to come together that allows you to drive a much
(41:04):
smarter way of running these businesses end to end and
elevating beyond the process or the sub segment optimization that's
currently occurring. And you know, it needs the benefit of
this data to be shared in the way that I
described for people who actually see what actually by my
sharing this data with here, the some of the game
(41:27):
gets better. And that's the kind of things that we're
working on. You know, I've explained I made reference to
Food Trust earlier around that visibility of food. It was
it was started for safety, but it can track and
trace pretty much any characters you want as as food
moves through the supply chain. That's going to be hugely important.
(41:48):
A lot of the techniques that are being applied as
AI techniques to e g. The energy industry, and there's
a lot of AI that goes into that, and I've
been involved in that in the past. UM can be
applied to the AI of e g. Farming and that's
all we're doing with our Watson data platform for agriculture
(42:09):
that leverages are weather company assets and the ability to
connect a data from multiple data sources in different parts
of the value chain. Well, that's where you need the
ability to do things like multi cloud management. And that's
where our acquisition of red Hat and the capabilities of
(42:32):
that company brings starts to come to bear. So we
have all of the ingredients to start to solve this
problem and ultimately make much better use of the world's
finite resources and therefore reduce waste. But it's about applying
(42:52):
these digital transformative technologies to the bigger parts of the
systems and end to end than just trying to solve
the individual components. So Luke and Carl, how do you
see um retail in you know, physical storefront retail and
digital commerce adapting after COVID nineteen. Well, I think, you know,
(43:18):
some of the things that we've been talking about are
going to continue to accelerate. I think this has driven
a a significant shift to recognize that there is an
increase need to enhance the technology enablement of that end
to end supply chain and retail experience, and this enhancement
(43:44):
of digital capability. UM, you know, people are going to
understand that they can do more and buy more and
experience more in a digital context. And so I think
we're going to see, you know, a step chain enge
occur in this period of how much is able to
(44:05):
be done digitally? And then right now people are just
figuring out how to get it done and how to
make it work and how to stitch together the fulfillment.
But the next thing that will come is how do
I make that a great and beautiful experience and how
do I drive loyalty and values and all the other
things that you want. And so I think there's going
to be a continuation of digital experience enhancement, very pervasive
(44:30):
across multiple segments of the industry, continuing at quite some
pace post the event postal crisis. I think it's it's
too early to be able to be precise about what's
going to happen. Um you know, two stores, you know,
I think, you know, I think there will be a
(44:52):
rebalancing of the kind of the physical footprints that companies
have because they will be driving more more digit really
and therefore there will be some form of reduction in
physical footprint. But again, when you have that physical footprint,
you know, you need to make sure that it's delivering
what the customer wants. UM and is you know, for
(45:14):
for some of the higher end things that we do
what the current customer customer really wants from an experienced perspective.
So I do think the ongoing digitization of the store
will continue, but it might be for fewer stores over time.
And of course, you know the things that we've talked
about in terms of supply chain resilience, supply chain responsiveness,
(45:39):
supply chain intelligence, well that's going to be needed irrespective
of where the channel is that you're fulfilling, and so
we're going to see that ongoing trend. So I do
think this will will result in an ongoing and continuous
level of innovation and enhancements in various components that we've
(46:01):
talked about UM today. I believe, you know, the COVID
nineteen crisis is extremely disruptive at all levels of the business. Frankly,
whether you're an essential brand, an essential retailer, or whether
you're considered non essential UM, it's disruptive in different ways.
(46:23):
And as we work our way through this UM and
as Luke said earlier, we believe this is this is
going to stay with us for a while UM, and
there's going to be a continued variability, you know, high
degree of variability of what's happening with consumers, which then
(46:46):
impacts up through retail and uh consumer products, even up
to farms. As this ripples through over the next eighteen two,
maybe twenty four months, we see that it's probably going
to spur companies to do things that they know they
(47:07):
should have done over the past two or three or
four years, but have not always found the means or
the impetus to take action on. You know, companies, when
we talk to our clients, you know they know they
need to be better enabled with digital commerce, whether that's
B two B or B two C. They know they
need to enable customers to shop seamlessly across channels or touchpoints. UM.
(47:33):
They know they need more insight and analytics on data
that they have in their company and on data that's
out freely available or for pay available in the marketplace,
but available data. And they know they need to be
able to adjust their operations so that they can be
(47:55):
more kind of intelligent and responsive based on all of
that data. They've known they need to change their cost model.
They've known they need to reduce costs. They know they
need to balance agility and efficiency UM. But they that's
a difficult thing to do. It's a fundamental change to
the way many of these businesses operate. UM. And one
(48:16):
of the things I think we will see coming out
of uh COVID nineteen and in the middle of COVID
nineteen even is companies are starting to address these things
that were important but not urgent, and now they've become
both urgent and important, and that sent that tends to
spur our clients us for every company into action. So
(48:38):
you've been talking about what you expect to see. What
would you love to see, like, what what would what
kind of adaptations are changes do you think would be
the most ideal? So one thing I would love to
see is more conscious consumerism taking place. UM. I think,
as again, as we've talked about a little early, our
(49:00):
consumers are being more concerned now about about people and
place and where things come from and how they're made.
We have we're in an industry that has a lot
of waste to push goods out to consumers, and frankly,
consumers contribute a lot of that waste themselves. I think
if we overall start to adjust toward fewer things that
(49:24):
potentially mean more to us, that would be a better
thing for everyone. My mind is similar, Joe. I mean,
I think we've been talking about a lot of re
engineering of the capabilities that make up the enterprise. We've
been re engineering of commerce, re engineering of supply change,
reengineering of manufacturing and sourcing activities. We are going to
(49:47):
go through a major period of companies re engineering themselves
to respond to what the new normal looks like. Wouldn't
it be great if the re engineering head kind of
sustainability at the heart of that re engineering, so that
(50:08):
we fulfill customers needs and demands. But we're doing that
at a much more responsive and a much more balanced
regional We've balanced a global way, and we bring back
that sense of understanding and identity about where things are
made from and how they're consumed all the way through
the value chain that we kind of lost in the
(50:31):
last twenty years. Wouldn't be great if this, this this
period brings that back into place, because it's going to
make ultimately a more sustainable society. Means that things will
be better distributed to the broader population in the world,
and it means that less things were going to waste,
and that would be a fantastic outcome. I think. All right,
(50:53):
so there you have it. Thanks once more to Luke
and Carl for taking time out of their busy days
to chat with us here, and if you would like
to learn more, go to IBM dot com slash smart Talks.
That's IBM dot com slash smart Talks. And if you
would like to catch up on other episodes of Stuff
to Blow Your Mind, you can find us wherever you
get your podcasts and wherever that happens to be. We
(51:15):
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as always to our excellent audio producer Seth Nicholas Johnson.
If you would like to get in touch with us
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can email us at contact at stuff to Blow your
Mind dot com. Stuff to Blow Your Mind's production of
(51:42):
I Heart Radio. For more podcasts for My Heart Radio,
visit the i Heart Radio app, Apple Podcasts, or wherever
you're listening to your favorite shows. Three to two Propert
Robert and I are going to sit down for virtual
chats with people using technologies developed by IBM to deal
with the unique challenges the world is facing today. In
this episode, we'll be focusing on how consumers, retailers, and
supply chains adapt in the midst of a pandemic. And
for this subject, we're going to be in conversation with
Luke Nazzi, the IBM Global Managing Director for Consumer Industries,
(00:22):
and Carl Holler, who is a partner at the Consumer
Center of Competency at IBM. If you'd like to hear
more episodes of Smart Talks, the tech Stuff podcast has
already released the first four episodes of the series and
its feed. You can find them on the I Heart
Radio app or wherever you get your podcast. Just look
up tech Stuff and click on the episodes labeled smart
Talks and stay tuned for upcoming Smart Talks episodes. Here
(00:45):
on Stuff to Blow your Mind, which will be published
in our feed in the coming weeks. And now straight
onto our conversation with Luke and Car. All Right, well,
I guess probably the best place to start off would
be to have you each introduce yourself, so Luke and
Carl can you each introduce yourself and just talk a
little bit about your background. Yeah, Hi, I'm looking as
(01:06):
I'm the Global Managing Director for Consumer Industries for IBM.
Consumer industries are retail, consumer products and the agribusiness and
I have the pleasure of leading that for IBM globally
across all of the things that IBM does, and that's
everything from our research, through our technology and our services
(01:27):
and our industry platforms. And I'm Carl Haller. I'm part
of Luke's team and lead our Consumer Industry Center of Competency,
which is part of the IBM Services business unit, and
we work me and my team, we work with clients
around the world on um some of the more challenging
(01:49):
issues that they're facing that require deep industry skills and expertise. Well,
we really appreciate you joining us today. So one of
the main things that we were going to focus on
today was supply chains and how supply chains are adapting
during a pandemic. And so to start off, I think
we should think about what supply chains are. They They're
(02:11):
one of the many features of our world that I
think can remain mostly invisible to us until they break down,
you know, it's only by your failure or by their
failure that we suddenly sort of noticed them. Can you
provide a little background on how like normal shopping behavior
like buying a frozen pizza or buying a pair of
genes relies on supply chains. So so, first of all,
(02:32):
in terms of the fundamental to supply chains, um, when
you when you buy something at a store, it's there
because it's been distributed to the store. That means it's
traveled from somewhere and it's got to where it needs
to be. But behind that, it's been made somewhere. That
means that there's been a factory where it is being
(02:54):
made and to be able to make it. And let's
take that pizza example, in the ingredients that have gone
into that pizza have got to have been sourced. And
so that's what we start to get into the kind
of the fundamentals of the supply chain, because that means
the bits for the dough, the tomato based, the herbs,
the cheese, the toppings, they all need to come together
from a range of suppliers, and those suppliers can be
(03:17):
you know, very broadly distributed, and so you're getting more
into the unpacking of that product, and then going further back, well,
actually all of those things need to be either produced
or grown. If they're natural, they're grown, but if they
are you know, like artificial flavorings, and they have to
be manufactured. And so that simple thing of buying a
(03:39):
pizza and getting a pizza has to go through all
of those stages of the retail, the distribution, and the logistics,
the actual manufacturing, all the way through to the sourcing
of materials. And of course if you then take something else,
like a pair of genes, um, it's the same concept,
but of course all of the processes that make prepare
(04:00):
of genes, and so you've got to get them to
the store. They've got to be traveled. Often they're traveling
from very far away because they're made in the lowest,
most effective cost manufacturing typically UM. And then when you
think about everything that goes into a pair of genes, well,
there's all the cotton, but there's all of the dying
that goes into it, and that's a complex process in itself,
(04:21):
and you've got to take care of that in a
in an effective way. UM. And of course then that
goes back to the source materials. That's what we mean
by a supply chain. But I'll let Carl explain a
little bit about the complexities that are in supply chains
in the retail world. Yeah, thanks, Luke. You know the
thing that I think most people I would agree with
(04:43):
you probably understand that, you know, the things that they
buy are made by someone and grown somewhere in concept,
but they don't always understand how complex the supply chains
have gotten. And whether we're talking about a food supply chain,
or we're talking about a fashion or clothing supply chain
(05:04):
or a package good supply chain, there are often upwards
of a dozen different parties, maybe even more, who are
involved in the work that happens to go from raw
materials most of which many of which come from a farm,
UM through the various stages of processing UM, manufacturing, UM, distributing,
(05:29):
selling to get goods into you know, a refrigerator or
a pantry or addresser drawer UM and and these these
different companies tend to involve multiple geographies. Sometimes goods go
back and forth around the world once or twice UM
(05:50):
as they get from raw materials into finish goods UM
and and that's usually done in order to get goods
to consumers in the most efficient and lowest cost manner possible. Um.
The thing that the supply chain relies on today is
(06:11):
it relies on a couple of basic assumptions um. One
that goods and capital flow freely across borders um. And
second that most consumers are willing to make the trade
off of really knowing and understanding how, where, and by
(06:33):
whom goods are made in exchange for getting the goods
whenever they want, wherever they want, and of a low
and attractive price point. Well, that actually brings to mind
a question I wanted to ask about some of the
ways that values guiding the formation of supply chains could
actually be in conflict. So, uh, the idea of like
(06:55):
cost and convenience versus energy efficiency or sustainability or just
in time philosophy, and if you can explain what that
is versus like a supply chain being robust against interruptions,
could you talk about that a little bit? Yeah, sure,
So there's quite a few parts to that. Joe's are
trying to unpack them in various pieces. So so, so
(07:17):
the first thing is that you know, if we if
we cast our minds back over the last twenty years
in the consumer industries, you know, particularly around food and
you know fashion, we've kind of accelerated through an environment
where people can kind of get pretty much whatever they want,
wherever they want, any time of the year, and so
(07:40):
you can get fruit all the year around, and you
can get your berries all around. What's what's occurring around that,
of course, is that they're coming from many different places
to be able to get those berries or the year round.
And we've, through the digitization of commerce, learned to expect
that if I want something that is shown on my
tablet that I can search on, that I can get
it delivered to my home at a you know, a
(08:02):
reasonable time, and so you know, the what's undergone the
supply chains, of course is a is a is a
drive to efficiency and cost reduction and a value delivery,
and so you know, we as consumers have been honestly said,
a little bit selfish in terms of expecting anything any
time anywhere in the world at the lowest kind of
(08:25):
price point and without really having due consideration of the
consequences of what it's taking to get that piece of
food into the supermarket or that garment you know, into
the store that I'm looking to buy. From all on online.
Now what is interesting is that UM and so by
(08:47):
the way, that's called convenience you know, it's all about
convenience retailing. UH, and we we we've had the decades
of convenience retailing. What's interesting is that at the beginning
of this year, Carl and members of my team, working
with the National Retail Federation and our IBM Institute of
Business Value, did a piece of research with over nineteen
(09:10):
consumers in I think it was twenty eight countries. Ever
I remember, of course all demographics and we try to
understand what was occurring in buyer behaviors and what the
study showed, and it's available you can download it is
that there are kind of three major categories, and the
convenience category is still the biggest category. Of the respondents
(09:32):
were convenience buyers looking for value, looking for cost effectiveness,
looking for that fulfillment wherever they needed at the lowest
price point. But for almost the same number, we're in
a category that we called purpose driven consumers. These are
consumers who care about where things have come from, the
journey that they've been on, how they've been made, what
(09:56):
kind of energy was used in them, what's the carbon footprint,
whether they are sustainable in nature, and what we're seeing
is this rise of the purpose driven consumer. There are
a couple of other categories. But in the other categories
are you know, those that follow the kind of the
brand and the higher segments and they kind of are
(10:19):
more aligned to the that pure brand brand value. But
I believe in twenty twenties we are really at the
point in time when we're in a decade where in
the main people are starting to care much more about
where things have come from and how are they made
and what are some of the implications to the planet
(10:43):
and society around that sourcing. We're becoming more responsible in
our consumption. So in terms of that rise of the
purpose driven consumer, what we're now seeing is that in
the respondence that we surveyed about and out of ten
are prepared to make choices and decisions that are reflect
(11:05):
their drive for whatever their purposes, sustainability, lower use of plastic,
evidence of re use in their purchasing, and even more
fascinating is that we're seeing that they're prepared to pay
more for those companies that are able to demonstrate and
improve that their products have been made in a more
(11:26):
sustainable or environmentally friendly way. The survey actually showed that
people are prepared to be up to a third more
for that. What's also interesting is this, this trend of
that group is across age profiles, So it's not just
a certain age profile, it's you know, all age profiles
are showing that tendency. And it's not just a highly
(11:53):
developed Western economy type of perspective. It's actually per permeates
across a globe context and different stages of economic development.
So so we believe that we are absolutely in the
era of um what was becoming purpose different consumption. Now,
the third part of your question is, you know, the
(12:14):
kind of the dilemma that we find ourselves in right now.
And obviously, with the global COVID nineteen pandemic, there was
an immediate rush to people to kind of stock up
and get basic goods. It was food, it was grocery,
(12:35):
it was sanitary products, it was kitchen toweling, it was
bathroom to um toweling, et cetera massive push for that.
And and actually if you kind of look at them,
the results and they're kind of they're publicly available on
the stock market market and other reports that food and
grocery and kind of basic sanitary health and wellness type
(12:58):
category that is continuing have significant demand at the moment
right now, albeit that the other categories of what we
consider in retail have clearly experienced a slowing in this
environment because of the fact that they can get to
stores and there's only a certain amount of the business
(13:18):
that's online. And so what is going to be interesting,
and we can definitely unpack this a bit further, is
what is going to happen. What are the implications of
this pandemic continuing, and how it's going to change or
alter different parts of what we see in the supply chain,
and whether these things that we saw in terms of
this convenience versus purpose, how how is that going to
(13:42):
play out over time. One of the impacts that we
see from COVID nineteen is that place and people are
both increasing in importance um there of all, as Luke
was saying that that to our purpose driven are thinking
about broader issues, and some are thinking about sustainability, and
(14:05):
they're thinking about their own personal values. What we're seeing
now is that as safety and personal personal safety family
health becomes paramount, more people are concerned about how things
were made, where they made, and who's touched them along
(14:25):
the way than they were, you know, just just eight
weeks ago. Um. So, so that's becoming something that is paramount,
perhaps even for some of those people who were otherwise
predisposed towards price and convenience. Well, that's interesting that it
makes me wonder about um unintended positive effect of even
irrational concerns, Like I know that there were people who
(14:47):
were concerned, um in the early days of the pandemic
about products coming from China and like the idea that
they could get infected by the virus from that, And now,
of course, like that that's not a real concern, you know,
the virus and by the time people were concerned about this,
it was all over the world anyway, and the virus
wouldn't survive the shipping time. So it's like a totally
(15:08):
irrational concern, but could lead to people just generally being
more aware of like, oh, wait a minute, the products
I buy do have to come from a place and
there's something behind them, and normally like uh, I mean
I I can even admit this in myself. Most of
the time, I just don't even think about that. You
just buy it at the store like that, that whole
(15:29):
history is completely invisible. I think you're exactly right, whether
it's something we're buying in a in a in a
mall store, you know, home, something for the home, or
something for for ourselves, or whether it's groceries you're buying
and we're just so used to getting, you know, fresh tomatoes,
fresh fruits and vegetables in the winter, we probably don't
(15:53):
really think that all of those were grown and transported here. Um,
And now I would agree with you there is going
to be a bit more awareness of that across the board.
I mean, what, of course has occurred with the pandemic
has been a massive lockdown of people pretty much around
(16:13):
the entirety of the world, all be at different times,
and a lockdown of transportation systems, initially people, but also
harder controls around borders, much less flight transportation, and of
course every time a plane flies to a country, not
only is it taking people to but it's also taking
(16:35):
some kind of produce, typically as as part of the cargo.
And so one of the consequences of the pandemic is
that the availability of supply in this globally connected network
that we have that delivers us anything any time anywhere
has had to deal with this massive contraction in the
(16:55):
practicalities of transportation and logistics and are tightening up, and
that combined with the peaks in demand, and we know
what kind of demand peaked early on, and we talked,
we talked about the sanitary products, but also what peaked
very early on where things like packaged products, tins of soup,
(17:16):
whether it's Campbell, Super Hinds or whatever your your preference is.
And what also peaked is things like dried products like pasta. Um. Now,
I live in London and I live in Europe, and
most of our dried pastor comes from Italy. Yeah, and
of course Italy was one of the countries that was
(17:36):
locked down the hardest and impacted the hardest early on
in Q one and consequently, and it's still taken a
little bit of time. You know, it took quite a
long time for dry light pastor to be readily available
back on the shelves because there was a disruption in
that supply chain. Now what what what starts to occur is,
(17:56):
of course the supply chains are gradually recovering, transportation opens up,
and so it's kind of less of that shock, but
The other thing that's occurring is that if you've got
demand for products, um, you know, and you are in
the business of providing those products to let's keep with
food and grocery to your customers, you're going to start
(18:17):
to work through alternative sources of supply. And so what
this is also driven is companies starting to look at
alternative sources of a supply so that they can meet
their demand. And that in itself is driving because of
this constraint on transportation, a shift from global demand to
(18:37):
what I kind of global local, which is I need
to be more balanced and if I can get it locally,
it might be more of a preference. Now, at a
very practical level, you can see that if you are,
you know, going out and if you're still buying food,
because what's what's occurring if you're going out to buy
your food is not everyone is going to a supermarket
(18:58):
or a big superstore. What they're doing is they're combining
that shop with a greater propensity to buy from local stores,
whether it's the local vegetable store or the local butcher's store.
And so what is occurring is a greater awareness of
where things are available, and I think that's been driven
very much by a kind of a needs perspective. But
(19:20):
I think over time these two forces, this kind of
longer term trend that we talked about around purpose driven
consumption and people starting to be more aware of where
food is coming from or where goods are coming from
and what the alternatives are, is going to drive a
different mix in that supply chain that we talked about
(19:42):
to be more more regional rather than global. And I
think that might mean over time us UM ultimately driving
a better a better carbon footprint for the for the
food that we consume, but also it might also help
at a better redistributional value in that food value chain
(20:04):
to allow the smaller corner shop to survive alongside the
big store formats UM and I think we were seeing
some of those changes start to ripple through. So Luke
and Carl, have there been any um major challenges from
like from food supply and demand or in other industries,
even things that would be considered non essential like clothing
(20:28):
that have been presented by the pandemic situation that we
haven't talked about yet that that you would like to address.
On one of the things that that we've seen with
COVID is that the food business runs to parallel but
largely disconnected supply chains. UM. It all starts all the
(20:51):
food starts on farms, not always the same farms, but
but certainly starts on farms. And then from there, part
of that food runs through the supply chain that ends
up on a grocery store shelf that we as consumers
go out and buy and bring home. Part of that
food runs through a different supply chain that ends up
(21:11):
in either restaurants or food service. UM. As food service
and restaurants effectively shut down, you know, near shutdown of
most of those across most of the US and frankly
most of the world, that supply chain dried up, and
we were left in a situation where the consumer supply
(21:36):
chain had shortages. UM, we had shortages of you know,
fresh goods and dry goods, shelf stable goods, and yet
we also had situations where farmers and distributors to the
UM to the restaurant food service supply chain had an
overstock of goods. And so that one of the challenges
(21:58):
has been how can we figure out a way to
better integrate those supply chains or at least provide better
visibility of what actual products exist where, so that there
could potentially be some intermixing. This is this is one
of those things that the move toward efficiency over the
(22:23):
past plus years UM at the expense of agility, has
cost us. And I think what we see going forward
is a little bit more balanced between efficiency and agility
such that you can make a brand, um, manufacturer, retailer,
(22:43):
you know, anyone involved in the in the supply chain
can make different decisions in a more dynamic manner and
change things on the fly because because there are hurdles
I understand in the way of taking say pasta that
was in the restaurant supply chain and switching it over
to the consumer individual consumer supply chain. Yes, there there
(23:05):
are hurdles. There are some hurdles that and it depends
on the product category. There are some hurdles that are
regulatory in nature. UM. There are some hurdles in terms
of the not as much as the manufacturing process, but
potentially the quantities and the pack sizes. UM. There are
some hurdles in the packaging and how those goods are
(23:27):
aggregated together. I know, just you know, my family, we
uh purchased some fresh seafood from a seafood purveyor that
normally sells to restaurants, and it was one excellent but
to the quantity that you have to buy is not
the normal amount that you might buy in a grocery store,
(23:48):
so you have to you know, they've had to adjust. Um.
They're also not used to bringing things directly to consumers.
You know, they're used to a simpler supply chain. Um,
they're not used to transacting by credit card with consumers.
You know. So there are a lot of hurdles in
the you know, the making and moving of things. There
are also a lot of hurdles on the transactional side.
(24:10):
So this is interesting. Yeah, so that kind of thing.
Would that explain why we could see these strange disconnects
where say, I don't know that the dairy shelf fit
your grocery store might be very bare, and yet you
also see video online of dairy producers having to like
discard unused things. Yes, exactly exactly, and you can see
(24:30):
you know, on on one and so so one the
there are short you know, the shortages. So the dairy
shelves being empty also then drives up the price to
the consumer because there is as as Luke was saying
earlier there's a big mismatch in supply and demand in
one piece of the supply chain, yet in another piece,
the mismatch and supply and demand is the opposite. There's
(24:52):
an excess of demand. So despite the higher price consumers
are paying for milk, farmers are having to get rid
of milk because they don't have anywhere to put it
in any any place, to any place to sell it into,
because they may not have that same access um to
the supply chain that that serves consumers directly. Actually, I've
(25:12):
been very impressed with what some of the major grocers
in the US have been doing, where they're actually starting
to now buy up access supply and sometimes incorporated into
their own business, but other times, frankly, just donate it
so that it's at least getting to needy consumers to
(25:33):
to help them, you know, get through get through this crisis. Well,
that's great. It's also great yet to see some of
that waste being avoided. Luke, we were talking the other
day before this call, and you mentioned something about the
sometimes kind of staggering amount of waste that already happens
just as like an unfortunate byproduct of the way that
supply chains uh exist today before the pandemic even yeah,
(25:58):
absolutely Jones. You know, the the industries that we're talking
about UM produce a massive amount of goods that don't
end up being consumed. Either you have food in the
food supply chain UM that ends up being beyond its
(26:19):
state and then goes to waste, or you have you know,
in the fashion industry, a lot of projects that are
made and even after discounting and multiple campaigns, are still
left and end up, you know, being effectively wasteful and
so UM in its entirety. You know, the you know,
(26:41):
there's about a third of the supply chains that are
producing stuff that goes to waste. And this isn't because
there isn't demand. There's demand around the world, it's just
about where it's ending up at that particular point in time.
And that that that waste is obviously a massive impact
for the planet. It's it's the second largest CEO to
(27:03):
producer as an set of industries, behind the global energy system.
And so if we can do things that make the
demand much more connected to the supply in a more
integrated fashion, then there's this opportunity to not only fulfill
people and give them important information that they want about
(27:26):
where things have come from and and how it's going
to affect them. But there's also an opportunity to get
a closer integration of that demand signal back into the
supply side of the world, and therefore we can be
more responsible in terms of how the supply chains come together.
And I'm I think it's going to it's going to
(27:46):
take a decade to manifest itself, but I absolutely believe
that technologies like blockchain, when connected to digital technologies that
we interact with that i M the smart apple's on
your phone as you're buying the food, or the data
that you get when you're buying online. If you start
(28:08):
to connect those choices, we can start to drive much
more holistic understanding of what's going on and ultimately a
better use and a more sort of sustainable supply change.
And so right now, companies like car for in Europe,
if you go and scan the QR code that is
on the organic chicken, you can see the whole history
(28:31):
of where that chicken has come from and proved that
it's organic, and you can see you know where the
food has come from, et cetera. Now I'm not saying
that every shop is going to scan every product, but
it starts to drive in kind of a change and
an understanding of where things are coming from, and that
in itself can drive more sustainable usage. So so this
problem is very substantial, but it's also one of the
(28:54):
big problems that we see as being addressed in this
decade because of the availa ability of the technologies that
we see in front of us. And by the way
these technologies, um you know, they they are cloud driven
and they are connecting different parts of the supply chain.
(29:15):
Business network are also some of the technologies that are
companies are using to reconfigure their supply chains right now
because they're saying, okay, I understand who's available in terms
of what produced in this region and they are applying
that to get better supply to the demand that they have. UM.
(29:36):
You know. Similarly, you know, I touched on what AI
was doing is doing in terms of the inter end processes,
and it's prevalent across the whole of the value chain.
But you know that AI is allowing consumer goods manufacturers
to do optimization of demand and supply in terms of
(29:57):
they know what they produced and they know where it
is physically in the supply chain and the distribution network,
and they can sense at a hyperlocal basis where the
demand is for those products, and they can drive a
better matching of that supply to the demand. That means
that ultimately the things that they produce are sold and
they make money, But it also means that lessons go
to waste and and so so these technologies that you
(30:21):
know I touched on to we're asking about Robert's question
also have a very important implication in terms of driving
better sustainability as I touched upon, but also having a
better optimization of the hyperlocal needs that we're seeing right now,
and I think we're going to continue to see these
waves of hyperlocal needs over the next six or twelve months.
(30:44):
Some of our listeners may have heard about the existential
need for digital commerce three point oh in order to
keep the supply chain healthy, not on idearing, but after
COVID nineteen, can you walk us through what digital commerce
three point oh? Yeah it really is. I'll take a
pass at this um because I think I think when
we talk about you know, digital commerce three point oh
(31:06):
or retail three point oh, you know, we have to
get it. What a what a definition is and I think,
you know, that's really a term that we would use
within IBM as as an industry flavor of a broader
umbrella term that we call the cognitive enterprise UM. And
this is really an enterprise that UM understands, gathers information, UH,
(31:35):
creates insights, acts on those insights, and learns over time.
You know, an enterprise that has many more of the
capabilities that we as humans have, rather than just being
a great big machine UM. And I think many traditional
enterprises right now are essentially great big machines, and they've
(31:56):
been tuned for efficiency UM, just as machines and engines
are tuned for efficiency. UM. What we're seeing now, UM,
and I would say this is in It's in digital commerce,
it's in all commerce, because most commerce has a digital
element to it UM. And it's really all the way
(32:17):
upstream from the point of commerce for the consumer up
to the point of growing or producing. UM. What we're
seeing is a you know, a greater need to sense
and respond in real time to better understand the variable
(32:37):
dynamics in demand and then match both supply to that
and match frankly all of your operations to those variabilities
in in UH in demand. This has existed for the
last five or ten years. We've known about this UM.
With COVID nineteen, it's really exacerbated thing that we've known
(33:00):
about but haven't always really needed to do anything about
because the variations in demand were relatively minor, might be
a couple of points up or down, and might be
happening on a small scale. Now we're seeing swings in
demande up and down at a local level, depending on
(33:22):
where outbreaks have been taking place, where countries are flattening
the curve, where countries are getting back to normal, or
even cities and localities are are reacting and responding in
different ways. So it's now become business critical to understand
which parts of the United States or the world are
(33:45):
open and are open for business in a more traditional manner,
and which parts are still locked down, because you're going
to have such massive swings in demand that the success
of your business depends on knowing that UM. So that
that's really this ability to UM to really sense and
(34:06):
respond in real time, and the ability to act on
all of what you're sensing. UM is really at the
heart of of you know, retail three point oh, industry
three point oh however you want to phrase it. The
ramifications of digital commerce effect more than just the retailer.
(34:27):
The ramifications are felt upstream um to the consumer products
companies as well um frankly, because right now the business
model at the retail level is certainly in groceries, is
not supporting the growth of online shopping. The cost to pick, pack, fulfill,
(34:48):
and distribute those goods to consumers homes um is quite expensive,
and consumers, except maybe in a crisis period, are not
willing to pay a premium for that. So some of
that will now move upstream to the manufacturer, and so
they're going to have to think about new routes to
get goods to a pick up location, two new routes
(35:11):
to get goods into stores. Potentially they might be drop
shipping goods from their own warehouses directly to consumers homes.
That may also make them think about pack sizes in
different ways how they aggregate goods together. Especially if you're
thinking about traditional center core packaged goods that have a
(35:32):
longer shelf life, we may see something like pack sizes
increase in order to make the logistics workout for consumers
who are shopping online. We may also see consumers start
to adopt auto replenishment methods to buy those goods where
they get a steady supply of things you know, delivered
(35:55):
to them every month in exchange for the convenience of
not having to go to the store to either those
things and put them in your basket and load them
in your car and drive them home. So we're going
to see a lot of ramifications of this upstream on
the producers side manufacturer side as well. Yeah, if I
can give a very real example of that to share,
(36:15):
and it's an example that was actually add on our
Think twenty Digital event that we just had and Mark Foster,
r s v P of Services, interviewed UM, one of
the s vps from Free to Ly, and they talked
about the digital transformation that they've driven to change their
(36:42):
direct delivery model, which is actually the biggest private fleet
of truck deliveries you know in the US, five thousand
trucks a day being optimized to get Freely products all
the way through their supply chains into where whever they
need to be distributed, whether that at a store or
(37:02):
at other locations. Well, not every CpG company has a
model as advances of that, and what car is alluding to,
is well, how do you start to kind of plug
in those kind of engines that you know, free to
lay has into my model. If I'm a beer company
and I'm used to just distributing to certain places and
(37:23):
then I'm used to the restaurant companies getting them from
those places and getting them to the end consumer as well,
right now that model has died down significantly. So how
do I get my beer products much more direct to
the consumers, um, not just relying on on what is
coming through the supermarkets. And so you can see how
(37:43):
you know, you know, a CP company, like you know,
a beer manufacturer has got to think around next generation
of digital for its B two B model, but actually
they may have to get into the next generation of
delivery into a BBC model. And it's that kind of
change that we're that we're going to see being accelerated,
and that's companies having to adopt more common street or
(38:06):
zero type capabilities over and above where they had previously.
So in trying to imagine how technology could help businesses
and supply chains adapt and become more like a human
less like a you know, an automated machine, something that
that is able to have some agility and and and
insight into the process overall. How much would this kind
(38:26):
of technology just be about, you know, seeing more of
the data that's currently available at every step in the
supply chain, incorporating that and adapting, and how much of
it would actually be predictive because I imagine that big
problems come through and at each stage in the supply
chain where somebody sees, you know, they can't tell signal
from noise, like suddenly the dairy shelves are in empty
(38:50):
one day, and you don't know, like, is this part
of a trend that I need to adapt to or
is this just some weird fluke today. Yeah, I know,
it's a really good question, Joe. And the data is
there If the data is there in each part of
the process that we describe, it's there at the point
of purchase, it's it's there in the transportation logistics that
(39:13):
got that product to that point of purchase. It's there
in the manufacturing, it's there in the the raw goods produce.
But each of those are many different companies, and there
are many different segments of the industry, and therefore they're
very siloed. And so even though there the data is there,
(39:34):
and each of those subparts of the inter and value
chain are being optimized in their own individual piece. What's
not necessarily occurring is the optimization of the whole. And
so you know, the the opportunity in the the that
that kind of visibility question that you're kind of reaching
(39:54):
out of, Joe, is is how do you start to
overlay these kind of broad order platforms of of UM
enablement UM. So what I mean by how do you
get data together that's in disparate parts and in different
companies where you can make it available into the cloud?
How can you analyze data sets at scale UM that
(40:18):
are massive data sets solving really complex, highly undeterministic problems. Well,
you can chuck the power of AI into First of all,
what you do actually is you apply AI to the
individual sub processes and then you start to optimize subparts
of the system, and then later on you start to
optimize the fuller system. UM. Not possible by the way,
(40:42):
for everything, but but definitely possible for certain parts of it. UM.
And then of course you leverage this visibility platform that is,
I can track and trace anything through that whole supply
chain if it's already in the block chain. So you
can see how the connectivity and enabling technologies are starting
to come together that allows you to drive a much
(41:04):
smarter way of running these businesses end to end and
elevating beyond the process or the sub segment optimization that's
currently occurring. And you know, it needs the benefit of
this data to be shared in the way that I
described for people who actually see what actually by my
sharing this data with here, the some of the game
(41:27):
gets better. And that's the kind of things that we're
working on. You know, I've explained I made reference to
Food Trust earlier around that visibility of food. It was
it was started for safety, but it can track and
trace pretty much any characters you want as as food
moves through the supply chain. That's going to be hugely important.
(41:48):
A lot of the techniques that are being applied as
AI techniques to e g. The energy industry, and there's
a lot of AI that goes into that, and I've
been involved in that in the past. UM can be
applied to the AI of e g. Farming and that's
all we're doing with our Watson data platform for agriculture
(42:09):
that leverages are weather company assets and the ability to
connect a data from multiple data sources in different parts
of the value chain. Well, that's where you need the
ability to do things like multi cloud management. And that's
where our acquisition of red Hat and the capabilities of
(42:32):
that company brings starts to come to bear. So we
have all of the ingredients to start to solve this
problem and ultimately make much better use of the world's
finite resources and therefore reduce waste. But it's about applying
(42:52):
these digital transformative technologies to the bigger parts of the
systems and end to end than just trying to solve
the individual components. So Luke and Carl, how do you
see um retail in you know, physical storefront retail and
digital commerce adapting after COVID nineteen. Well, I think, you know,
(43:18):
some of the things that we've been talking about are
going to continue to accelerate. I think this has driven
a a significant shift to recognize that there is an
increase need to enhance the technology enablement of that end
to end supply chain and retail experience, and this enhancement
(43:44):
of digital capability. UM, you know, people are going to
understand that they can do more and buy more and
experience more in a digital context. And so I think
we're going to see, you know, a step chain enge
occur in this period of how much is able to
(44:05):
be done digitally? And then right now people are just
figuring out how to get it done and how to
make it work and how to stitch together the fulfillment.
But the next thing that will come is how do
I make that a great and beautiful experience and how
do I drive loyalty and values and all the other
things that you want. And so I think there's going
to be a continuation of digital experience enhancement, very pervasive
(44:30):
across multiple segments of the industry, continuing at quite some
pace post the event postal crisis. I think it's it's
too early to be able to be precise about what's
going to happen. Um you know, two stores, you know,
I think, you know, I think there will be a
(44:52):
rebalancing of the kind of the physical footprints that companies
have because they will be driving more more digit really
and therefore there will be some form of reduction in
physical footprint. But again, when you have that physical footprint,
you know, you need to make sure that it's delivering
what the customer wants. UM and is you know, for
(45:14):
for some of the higher end things that we do
what the current customer customer really wants from an experienced perspective.
So I do think the ongoing digitization of the store
will continue, but it might be for fewer stores over time.
And of course, you know the things that we've talked
about in terms of supply chain resilience, supply chain responsiveness,
(45:39):
supply chain intelligence, well that's going to be needed irrespective
of where the channel is that you're fulfilling, and so
we're going to see that ongoing trend. So I do
think this will will result in an ongoing and continuous
level of innovation and enhancements in various components that we've
(46:01):
talked about UM today. I believe, you know, the COVID
nineteen crisis is extremely disruptive at all levels of the business. Frankly,
whether you're an essential brand, an essential retailer, or whether
you're considered non essential UM, it's disruptive in different ways.
(46:23):
And as we work our way through this UM and
as Luke said earlier, we believe this is this is
going to stay with us for a while UM, and
there's going to be a continued variability, you know, high
degree of variability of what's happening with consumers, which then
(46:46):
impacts up through retail and uh consumer products, even up
to farms. As this ripples through over the next eighteen two,
maybe twenty four months, we see that it's probably going
to spur companies to do things that they know they
(47:07):
should have done over the past two or three or
four years, but have not always found the means or
the impetus to take action on. You know, companies, when
we talk to our clients, you know they know they
need to be better enabled with digital commerce, whether that's
B two B or B two C. They know they
need to enable customers to shop seamlessly across channels or touchpoints. UM.
(47:33):
They know they need more insight and analytics on data
that they have in their company and on data that's
out freely available or for pay available in the marketplace,
but available data. And they know they need to be
able to adjust their operations so that they can be
(47:55):
more kind of intelligent and responsive based on all of
that data. They've known they need to change their cost model.
They've known they need to reduce costs. They know they
need to balance agility and efficiency UM. But they that's
a difficult thing to do. It's a fundamental change to
the way many of these businesses operate. UM. And one
(48:16):
of the things I think we will see coming out
of uh COVID nineteen and in the middle of COVID
nineteen even is companies are starting to address these things
that were important but not urgent, and now they've become
both urgent and important, and that sent that tends to
spur our clients us for every company into action. So
(48:38):
you've been talking about what you expect to see. What
would you love to see, like, what what would what
kind of adaptations are changes do you think would be
the most ideal? So one thing I would love to
see is more conscious consumerism taking place. UM. I think,
as again, as we've talked about a little early, our
(49:00):
consumers are being more concerned now about about people and
place and where things come from and how they're made.
We have we're in an industry that has a lot
of waste to push goods out to consumers, and frankly,
consumers contribute a lot of that waste themselves. I think
if we overall start to adjust toward fewer things that
(49:24):
potentially mean more to us, that would be a better
thing for everyone. My mind is similar, Joe. I mean,
I think we've been talking about a lot of re
engineering of the capabilities that make up the enterprise. We've
been re engineering of commerce, re engineering of supply change,
reengineering of manufacturing and sourcing activities. We are going to
(49:47):
go through a major period of companies re engineering themselves
to respond to what the new normal looks like. Wouldn't
it be great if the re engineering head kind of
sustainability at the heart of that re engineering, so that
(50:08):
we fulfill customers needs and demands. But we're doing that
at a much more responsive and a much more balanced
regional We've balanced a global way, and we bring back
that sense of understanding and identity about where things are
made from and how they're consumed all the way through
the value chain that we kind of lost in the
(50:31):
last twenty years. Wouldn't be great if this, this this
period brings that back into place, because it's going to
make ultimately a more sustainable society. Means that things will
be better distributed to the broader population in the world,
and it means that less things were going to waste,
and that would be a fantastic outcome. I think. All right,
(50:53):
so there you have it. Thanks once more to Luke
and Carl for taking time out of their busy days
to chat with us here, and if you would like
to learn more, go to IBM dot com slash smart Talks.
That's IBM dot com slash smart Talks. And if you
would like to catch up on other episodes of Stuff
to Blow Your Mind, you can find us wherever you
get your podcasts and wherever that happens to be. We
(51:15):
just asked that you rate, review, and subscribe huge thanks
as always to our excellent audio producer Seth Nicholas Johnson.
If you would like to get in touch with us
with feedback on this episode or any other, to suggest
a topic for the future, just to say hello, you
can email us at contact at stuff to Blow your
Mind dot com. Stuff to Blow Your Mind's production of
(51:42):
I Heart Radio. For more podcasts for My Heart Radio,
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Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.