Season 3 - Episode 318
COVID-19 has forced the global supply chain into the spotlight as consumers seek products that have been, at times, difficult to find. What factors impact the supply chain, and how do industries respond? In this Baylor Connections, Dr. Pedro Reyes, Associate Professor of Operations and Supply Chain Management in Baylor University’s Hankamer School of Business and longtime operations leader, shares lessons in “Supply Chain 101.” He details how disruptions lead to a domino effect and analyzes how supply chain professionals can process current challenges to ensure more products on the shelves when consumers need them. .
Derek Smith:Hello and welcome to Baylor Connections. A conversation series with the people shaping our future. Each week we go in depth with Baylor leaders, professors, and more discussing important topics in higher education, research and student life. I'm Derek Smith and our guest today is Dr. Pedro Reyes. The supply chain has been key in the news over the last several weeks due to COVID-19 and Dr. Reyes is a supply chain expert. He serves as associate professor of operations and supply chain management in Baylor University's Hankamer School of Business. Dr. Reyes is the founder and former director of the Center of Excellence in Supply Chain Management, is a leading supply chain scholar and expert author of the books RFID in the Supply Chain and Global Supply Chain Management and dozens of published journal articles. Prior to a career in higher education, Dr. Reyes spent two decades in supply chain management professionally. His dissertation, early research focused on grocery supply chains, replenishment systems, the use of radio frequency identification or RFID technology and he's been researching further industry 4.0 in the global supply chain. He is with us here today. Dr Pedro Reyes. Thanks so much for joining us. It's great to talk to you and get to learn more about a topic you know well.
Pedro Reyes:Well, thank you. I appreciate the invite and I'm very happy to be here to help out.
Derek Smith:Mm-hmm (affirmative) I think for a lot of us we hear about the supply chain and have a basic idea of what it does, but I think a little supply chain 101 here over the next 23 minutes would be interesting for a lot of us who want to really dive in a little bit further. So let me start by asking you, what is life like in the supply chain world right now during COVID-19 and what are the topics and questions that are dominating those conversations?
Pedro Reyes:Well, that is certainly an interesting question. That's a good way to frame it. Well, life in the supply chain during this COVID-19 has no doubt captured the attention of many people. Now and seriously, all of a sudden, the field of operations and supply chain management is sexy and is relevant. It is interesting to hear the topics and questions I hear on the news and people around me and how this dominated the conversations. Some of the topics are very straight to what I cover in my classes. In general, the topics will include replenishment and demand planning. Big questions; where's the toilet paper? Well, that's an inventory management question. Why are the shelves empty? That has to do with replenishment, demand planning. Why can't the grocery stores restock faster? Well, that's basically supply chain processes. Why was this not predictable? Demand planning. It's very difficult to predict in a pandemic like this. And then again, probably the most important question topic that I hear is why is a supply chain broken? Many more questions like that, basically, has led to this panic buying that we're in right now.
Derek Smith:Well, let's scale back a moment Dr. Reyes. Define more specifically so we can define it the same way you do. How would you define the supply chain to a student or just simply someone who asks you what you do?
Pedro Reyes:Well, I get constantly asked that question. I can keep it real simple and I can get really long winded. But let me first say this, that the actual term supply chain was first introduced into business speak in about 1992. Before that, the concepts were basically independently taught as islands in the different linkages. These are logistics, transportation, warehousing, procurement, and so on. Since 1992, there's been many different definitions, but there's a lot of similarities in those definitions as well. And these have been offered by the different professional groups in operations and supply chain management field. So from a procurement side, the purchasing people will have a definition. The logistics side, they'll have a definition, and so on. But you asked me how I define the supply chain to my students. Having worked as a supply chain professional for more than 20 years, I offer a simple definition based on those years of experience. Basically, all the events that lead up to having products on the shelf. I'll tell you a funny story. When I was a grad student, I read an article and this thing about supply chain was just coming out. In the article, and I've never been able to find that article again, I wish I could, but it defined supply chain as all of the events for toilet paper to get on the shelf. Basically, it was all the events from start to finish, which was from the stump to the rump. All those activities define supply chain management. And that was very humorous, but when you take it further out as to how we actually frame it in the classroom, overall global supply chain management involves specific and very complex decisions. And they address the fundamental questions of planning to get the product on the shelf for the customer. This includes the sourcing, the making, and delivering of those manufactured goods. So as I tell my students, it's all about planning. Planning for the demand and planning for supply. And supply does not necessarily mean inventory. Supply also means capacity.
Derek Smith:Visiting with Dr. Pedro Reyes, associate professor of operations and supply chain management at Baylor. Dr. Reyes, how does the supply chain impact our lives in ways that we rarely consider? I think we probably take a lot of it for granted.
Pedro Reyes:Well, that is true. The supply chain in general they do impact our lives. But kind of flies below the radar, so to speak, in our everyday life because we don't really consider how it works. We only know that it works. That is until we have a breakdown or a temporary disruption such as this. But over the years and since the third industrial revolution has started in the 1950s, it was a lot of developments in how supply chains were managed. Flexible production systems, my gosh, lean systems in the early 1970s, just the outsourcing phenomenon. Here in the United States, everything was made here and then everything, all of a sudden, it's now outsourced and it's global sourcing. It's throughout the world. That started in the 1990s. And then the increase automated systems started in the early 2000s. All of this has led to integrated supply chains. So all this stuff has been happening in the background for decades. But we as consumers, we really don't pay attention to that because we just know it works. The only time that we actually start to question or be concerned about it is when, "Well, wait a minute, it's no longer working. Why?" And then we go and fix it.
Derek Smith:This is Baylor Connections. We are visiting with Dr. Pedro Reyes, expert in supply chain management in Baylor's Hankamer School of Business.
Derek Smith:Dr. Reyes, as we dive in a little bit more to COVID-19 and its impact, are there distinctions that we should think about in the way the supply chain works in different industries? I would say specifically some of those staple industries that most of us are using and thinking about now?
Pedro Reyes:Well, yes, there are clear distinctions in the way supply chains work. I tell my students repeatedly throughout the semester that not all inventories are created equally and therefore not all supply chains are created equally and how we design supply chains and specifically the delivery system. I refer to that as the delivery system because we're starting at one end of the supply chain and it ends up on the shelf, for example, to deliver products to the customers. So how those are designed is very unique to the products themselves. By that, this is where I refer the students to a very simple marketing concept known as a product life cycle. This product life cycle is known to have four different faces. The introduction, the growth, mature and decline. Okay? But when you look at it from an operational perspective, there are basically two different strategies or two different approaches to how inventories... Excuse me, to how supply chain management is designed to deliver those products to the customer. I'll give you a couple of examples. So early on in the product life cycle, the introduction, the growth, the products are not mature yet. We kind of refer to these as staple products or mature products. But early on in its lifecycle, we don't know what's going to happen with these products. There's a lot of uncertainty. So the design tends to be one where we want to be responsive to the customer, we want to be responsive to the market. So then the supply chain design basically is focused on the processes itself to deliver those goods to the customers. Later, at the product matures, and now in the back half of the product life cycle, this would be your staple items, everyday items. In this case, the design looks to be more efficient, an efficient design, so that we can get the products to the customer at the lowest possible cost. That's just a general way of describing the differences between different supply chains because not all inventories are created equally, not all supply chains are created equally, and the designs for how we deliver to the customer has to be viewed as such. But then by industry you have certain types of products that are going to be, well, they're going to be a little minor adjustments to how those are managed. For example, a blood supply chain would be managed way different compared to how you would manage a canned products; can of corn, can of peas, et cetera.
Derek Smith:Talking to Dr. Pedro Reyes here on Baylor Connections. Dr. Reyes serves as associate professor of operations and supply chain management at Baylor's Hankamer School of Business. Dr. Reyes, what's unique about the disruptions to the supply chain from COVID-19 and how does that compare and contrast to maybe some other more common disruptions that professionals have to deal with?
Pedro Reyes:Yeah, that's an interesting question. I guess in a real simple way, I've already been comparing this to the disruption of 9/11. I was actually working as a supply chain coordinator at Dallas Semiconductor when 9/11 happened. Border crossings were closed, there was no land transportation crossing the borders, no trucks, no rail. Trucks stuck in Canada, trucks stuck in Mexico, and so on. There was no air traffic whatsoever for weeks. Nothing coming in and out. We couldn't ship our work in process inventory to factories and suppliers. We weren't receiving anything back. We got to the point where we actually stopped production. We just didn't start any new work orders because of the uncertainty. Well, global supply chains was seriously disrupted. Fast forward a bit, the tsunami in Japan. All that catastrophe, just a few short years ago. Practically, shut down global supply chains all over the world. We have not fully recovered from that. The hurricanes we've had here in the United States have not fully recovered. The local economics have not fully recovered. What's unique about this particular disruption, well, it just captured a lot of attention, mostly about supply chain and some processes. It has really brought... It has given me more material to talk about in class. We look at it as a customer from, is there a product on a shelf? I talked about, where's my toilet paper, where's my stuff? The shelves are empty. Well, the shelves are no longer empty. But it's just a lot of fear, a lot of uncertainty. What saddens me and more talking points to my students is that we look at it from the customer demand side without really focusing much about the delivery system itself. I mean, what's happening now in the media, we're hearing cotton farmers can't process... They can't sell the cotton because the production companies are closed because they're not essential. You have, what, meat processing companies, they're actually have to euthanize the animals because they can't finish the process so that they can be sold downstream. And milk is being thrown away. I mean that's just crazy. But the thing is, it is the fact that the supply chain is so dependent of on everybody going in a similar fashion and when one piece of the chain link is broken, everything falls apart. And that turns into panic buying.
Derek Smith:Talking to Dr. Pedro Reyes. Dr. Reyes, are there industries that are best situated to weather the disruption or at least alleviate some of the effects?
Pedro Reyes:Truthfully, I don't think any one industry is going to do well. There's going to be some... There are already bumps in the roads. There's already hiccups, there's already things that are going to have to be redesigned, rediscovered and basically just reworked. But I don't really believe that any one particular industry is going to fully weather this storm. That's mostly because of supplier risk management practices. That's been common. In the 1990s, I had mentioned was, this phenomenon of outsourcing. And our supply chains in the United States are so stretched out. By that, I mean stretched out all over the globe. I mean, because there is global sourcing. When you take that risk of having a single source supplier and it's not within your own borders, you lose not just the control because you give up control when you outsource. But you lose the ability to respond, the resiliency is no longer there. So what I see coming up next is companies are going to have to start looking at better designs for resiliency. Now, we'll say this. The grocery supply chain is perhaps has the most resilient design compared to others. And that's because of the proliferation of products that we have in our supply chains. We don't really notice when things are temporarily out of stock because there's always something else on the shelf. It took this COVID-19 disruption to actually see that effect. But think about this. Here in the United States, we've been very, very spoiled because we always have an abundance of products. But look at another country, for example, New Zealand. They're an Island. Practically, everything is imported and they export a lot. So if there's a temporary stockout, it will be noticed.
Derek Smith:Talking to Dr. Pedro Reyes. Dr. Reyes, are you seeing any creative ways that industries are working together to alleviate some of those impacts in the global disruption?
Pedro Reyes:Well, actually, I've been keeping a very close eye on the news, taking a lot of notes. It's contributing to my research and some future papers that I plan to write. But it's really interesting how the Defense Protection Act actually is being used again. This is something that President Trump put out. The biggest example that I can point to right now is Ford, they're not making automobiles anymore. Instead, they're making the needed medical equipment and supplies. When you have companies over the years have had to redesign themselves because of just things happen. When the internet and email came out and all of a sudden now you can send things electronically, you had companies that was relying on overnight delivery and they went out, they had to redefine themselves in order to stay in business. I think we're going to start seeing a few more of those events happening here in the next few months, next few years, where companies are going to start to redefine themselves to address some of these opportunities that, basically from a business perspective and opportunity, that they're going to see that's available, that we need to do to better strengthen our supply chain. That's just one example, Ford. There's quite a few others companies that are doing the same thing.
Derek Smith:Visiting with Dr. Pedro Reyes. Dr. Reyes, as we head into the final couple of minutes of the program, are there any external factors that you see, whether it's improving or that it need to improve that we as consumers can be watching for as we look for things to get back to normal?
Pedro Reyes:Well, we are living in the industry 4.0 era. I think we will start seeing another small explosion from that. We've had to adjust quite frankly to... We've pushed a lot of people into this digital era now. Even though I research it, I don't fully embrace it, but I've had to embrace the digital and the technology, the data interchange and such. We're going to see probably a rediscovery of global supply chain management practices. I say that because we want to have agile supply chains. We want to have lean supply chains. We want to have very cost efficient, cost effective supply chains. I'm seeing that there's already starting to take the effects of some small tweaking in the supply chains to address this needed resiliency. When you're focusing on lean systems, you give up that resiliency. When you're focused on agile, you give up some other things. So we're going to start seeing some more, I guess, a rediscovery, some redesigns, and some changes. What I'm hoping, that it's practical and not knee jerk reaction.
Derek Smith:Well, that sounds good. Well, Dr. Pedro Reyes, we very much appreciate your time. Thanks so much for sharing your insights with us today.
Pedro Reyes:Appreciate you having me. I appreciate you asking me to do this, so thank you.
Derek Smith:Dr. Pedro Reyes. Associate professor of operations and supply chain management in Baylor's Hankamer School of Business, our guest today here on Baylor Connections. I'm Derek Smith. As a reminder, you can hear this and other programs online baylor.edu/connections. Thanks for joining us here on Baylor Connections.