Thinking Short-Term and Long-Term About Your Business with the SAC Supply Chain Special Interest Group

Patrick Daly:
Hello, this is Patrick Daly and welcome to Interlinks. Interlinks is a program about connections, international business, supply chains and globalization and the effects these have had on our life, our work and our travel over recent times. Recent years have been very challenging for business leaders and strategists all around the world. Having to think about and strategize for their businesses as a succession of events have unfolded, including political upheavals, trade wars, pandemics, natural disasters, real shooting wars and inflation spikes. One after the other and it seems without any respite apparent and no kind of return to so-called normality to be seen on the horizon. So in fact, there is no normal anymore and the idea of getting back to normal just doesn’t seem to make sense any longer. But nonetheless as business owners and managers we still need to think about the future. Both in the short term and the long term and we need to take strategic decisions for our companies. To ensure that they’re able to continue to develop and grow and adapt to the circumstances as they unfold whatever it is they turn out to be.
Patrick Daly:
So how we can do this most effectively given the volatility and unpredictably of events is what we’re going to be talking about today. So I’m joined again by three of my colleagues from the Society for the Advancement of Consulting special interest group. So we have with us Elizabeth Warren, President and CEO of Dialed-In Partners based in San Pedro and the greater Los Angeles area in California. Welcome, Elizabeth.
Elizabeth Warren:
Thank you, Patrick. Appreciate the opportunity to be here today.
Patrick Daly:
Great to have you back again. We have David Ogilvie, founder and principal of David Ogilvie Associates in Brisbane, Australia. Welcome David.
David Ogilvie:
Good to be with you again, Patrick.
Patrick Daly:
Finally, Diane Garcia President of Lorraine Consulting, I think now based in Phoenix but today traveling around the world. So from Phoenix, Arizona welcome Diane.
Diane Garcia:
Yeah. Good morning, glad to be here.
Patrick Daly:
You’re very welcome. Let’s focus first on short term acute challenges. So I’ll touch on each one of you to see from your point of view, what are the most important short term acute challenges that are being experienced by businesses right at this moment in time. So David, what’s your view on that?
David Ogilvie:
Well, Patrick a number of clients that I’ve been helping them with problems such as dealing with material shortages, which we’ve spoken at length about in other podcasts and so forth. They are also dealing with the inflationary environment at the moment and the impact that, that’s having both on their margins and their ability to pass that onto to customers. So that’s two of the key areas. I guess, we still have a lingering issue with labor shortages and those sorts of things and fortunately there are some improvements coming down the pipeline. Where the costs of containers and those sorts of things have started to improve and hopefully we’ll have seen the markets changing a little. So in the short term, they are really the key areas that they’ve been focusing on.
Patrick Daly:
So we’ve got material shortages, we’ve got inflation/margins and we’ve got labor I guess/skills shortages. Elizabeth, would you add any others to those or would you make a comment on what you think is the cause of those short term issues that people are experiencing?
Elizabeth Warren:
So those are great points, David and I could not agree more with you. Patrick, the one thing that I would probably add is that Covid is still a threat in other parts of the world. Here in the US we are pretty much learning to live with Covid, kind of like we do as the flu. We’ve taken down all of our mask requirements and now masking is an option. We have plenty of access to vaccines and also to medications but in other parts of the world, it could still be a threat to shut down either manufacturing or shipping. So I would recommend to our listeners and also to businesses, just to take that into consideration wherever you are manufacturing. That, that could still be a threat to getting even more material shortages and those raw materials or even some finished goods out of Southeast Asia if one of our ports has to shut down again.
Patrick Daly:
Yeah, that’s true. In the last few weeks I have been… Well, I’m here in Ireland as my base but I’ve been in Spain, I’ve been in France and I’ve been in Italy over the last number of weeks. So pretty much across Europe it’s a similar situation to the US, masks are optional. Most people are vaccinated with Pfizer or Moderna or one of those types of vaccines. But I am conscious that in countries like China, maybe Russia, some of the Southeast Asian countries they haven’t been using these types of vaccines. They haven’t rolled them out to the same extent and therefore they’re still subject to rolling lockdowns, particularly in China we’ve seen it ongoing and as we come into the northern hemisphere. Autumn and winter now, over the next few weeks and months we may see that coming back with a bang and then we also have flu which I understand David the flu this year in Australia was pretty bad, wasn’t it? So we might be getting that now in our winter, yeah?
David Ogilvie:
Yeah. We haven’t really had the flu all that badly to be honest. I’m not sure where you picked that up, certainly the influenza has sort of shown its head again for some reason for two years or so. We didn’t really have any influenza, whether that’s because they were calling the influenza Covid or whatever it happens to be.
Patrick Daly:
It’s probably because people were staying away from each other.
David Ogilvie:
It’s bit of that too-
Patrick Daly:
[inaudible 00:06:29] yeah.
David Ogilvie:
Yeah.
Patrick Daly:
Yeah. So Diane those short term issues, so kind of double barrel question for you. Would you have anything to add and what do you think is the immediate cause of those issues? So just to remind ourselves, so we have material shortages, we have inflation, we have labor/skill shortages and then we have this kind of Covid thing going on.
Diane Garcia:
Well, what I would add is what I’ve been working with clients on and that is prioritization within their facility just because of the backlog that they’re seeing. Now, I know that David mentioned material shortages. Most of my clients are not waiting on material, they’re dealing with the labor shortages and trying to satisfy their entire backlog. What that means is they really have to prioritize and figure out how to optimize within their facilities. So I would say that’s probably the main more recent projects I’ve been working on with clients and really I think it’s just this disruption. We’ve had disruptions like you’re talking with Covid and trying to get materials out of certain places and then now we have these materials in other places or we have product on the seas. So things just have not been in the right place at the right time and in the cases of my clients, most of them have had what they need in terms of material but they don’t have what they need in terms of labor.
Patrick Daly:
Yeah. So we have all of these short term issues, so people are kind of reacting to those and taking decisions and kind of trying to work their way around these things. I think some of the immediate causes, obviously the pandemic happened, hopefully it’s coming to an end. So the pandemic is one of these kind of short term shocks that comes and maybe will go away, we hope will eventually go away. We have the war, which is maybe an immediate cause of some shortages as well in Europe particularly it’s a cause of inflation spikes in energy costs. But the war again, is something that’s not going to go on forever it’s going to end one way or another sometime. But what do you think…. This is an area I’m interested in exploring. There are other things going on in the world that have been going on for a long time and they kind of predate some of these shocks, the pandemic and so on. I think they’re affecting business as well and they’re interacting and interplaying with these short term issues.
Patrick Daly:
I’d just like to get your own kind of view on what do you think are the big longer term issues that are kind of permanent or semi-permanent that are really going to change the way we think about our businesses? What would be your own take on that? Maybe I’ll go in reverse order this time and start with you Diane. In terms of big long term trends that we need to be taking into account in business terms what do you think they are?
Diane Garcia:
Well, I do think that the labor shortages and the talent pool that we have today is still a concern in the long term as well. I do see that we as companies are working to find talent and develop talent, which is what I would recommend we continue to do. But I do see that, that will carry forward. We will continue to see companies having to compete and how does that translate into your policies as how do you compete with the market on labor. I think that’s the long term issue that companies will continue to face here.
Patrick Daly:
Yeah. My kind of view on that, I see what others think. I think that’s kind of baked into our demographics in developed economies say in the US, Australia and Europe there are just fewer younger people around. While there are older people, say the baby boomer generation who are just retiring out the workforce and they’re not being replaced and then you’re even having younger people for one reason or another. People in their 40s or 50s maybe saying no I’m done, I’m out of here and doing something else or going off to set up their own businesses or going to become a yoga instructor in the south of Spain or something like this. So there’s all sorts of stuff going on like that and I think they’re kind of baked in. Any others Elizabeth that you would see as kind of big long term issues that we need to be thinking about?
Elizabeth Warren:
The one thing I would like to add to Diane’s comment about labor is that what we’re hearing… This kind of leads to what you just were talking about Patrick is, what we’re hearing here is the younger generations looking for that work, life balance. So they’re not wanting to have the traditional Monday to Friday 8:00 to 5:00 job, they’re looking for more flexibility. They’re looking for ways that they can stay home and be with their families while still working and there’s a lot of companies that still want people to come into the office. So I know that’s a challenge here but yet the other point that I wanted to add, another issue and that’s especially something we deal with on a day to day basis in California, but also around the world and that is sustainability and energy. I know that David will talk a little bit more about this as well but here in Southern California we have a very strong port and logistics industry. Which we are constantly trying to get emissions reductions through electric vehicles and getting the emissions capped from different areas.
Elizabeth Warren:
One of the things that the industry is constantly fighting with regulators is the amount of energy that’s available and the type of energy and then getting it to the users. Meaning that we have the demand for electric trucks, we have a mandate here in the state that by 2035 we won’t be able to buy combustion engines, vehicles anymore. Cars will only be electric cars but the concern is we don’t have enough electricity generated and if we did, we don’t have the infrastructure to get it to enough charging stations.
Patrick Daly:
Okay. So you’ve got kind of two things there, so you picked up on the labor thing, the demographics which are kind of permanent they’re not going to change anytime in the future. So that’s with us for the foreseeable and then you’ve picked up on this societal issue of young people’s attitude to work, which is very different from the previous generations and that ain’t going to change either. So those two things are kind of permanent that we’re going to have to be dealing with. Now, I know you’ve gone on to touch on the energy transformation. So the energy transformation regardless of the politics around it. So the energy transformation is just going to be an energy transformation and in that transformation there’s going to be discontinuity. So there’s going to be perhaps a mismatch between supply and demand or the ability to meet demand and that’s going to be an ongoing thing given the targets that have been set. So I know in the US or maybe at a state level you have certain targets set, here in Europe we have to half emissions by 2030 and be net zero by 2050.
Patrick Daly:
So there’s going to be massive implications of that for the energy transformation for the next two or three decades.
Speaker 5:
93.9. Dublin South FM.
Patrick Daly:
David, any other longer term issues that you see there besides those two or three that we’ve touched on?
David Ogilvie:
Yes, Patrick. But I agree entirely with what everybody said so far. Particularly around that energy price I’ve been talking about that being probably the constraint to bringing manufacturing back to this country at least this is where energy price is going to be. Particularly when you consider the current state of the budgets of most governments at the moment because they’ve been supporting businesses and everybody through their payments and things in Covid. That whole transition period to 2035, I just think there are some serious issues that are going to come out of the transformation. A lot of people are promising lower energy prices with the renewables, I just don’t see the… When you consider the infrastructure that’s required to make this transition to distribution networks and all of those sorts of things. I just don’t see that happening by 2035 and the pace at which that change is going to have to happen is going to be quite significant and I think it’ll have quite serious ramifications.
David Ogilvie:
I also think that there is a strong potential for some social unrest, particularly around governments mandating that you have to have EVs and can’t buy an internal combustion engine. I’m just not sure how well the population is going to take on having no choice or freedom of choice about what they can buy or what they can do with their money. I think there’s a strong risk of social unrest and I think there’s also a strong influence, at least in this country. Because we’ve just had a recent change of government and we now have a left leaning government. The position of unions in this country is getting stronger and stronger and they are having a much stronger influence on the industrial landscape that’s here and that’s going to have some ramifications. More particularly the influence that the unions have with their industry superannuation funds. There was a thought that we might be putting union leaders on boards of companies because they are representing the superannuation fund.
David Ogilvie:
But it’s now getting to a point where they are mandating where the investments from those companies have to go to and I think that’s going to have some serious ramifications for organizations as well.
Patrick Daly:
Yeah. So I’ve heard some people comment that… So say we go back to the 70s and 80s and if you like, unions were much stronger. Then we had the [inaudible 00:16:35] Reagan period in the 80s and the unions lost a lot of sway and the pendulum went more in favor of capital as opposed to labor. The people are saying there’s been a lot of inequality created in that period and it looks now that maybe the pendulum is swinging back the other way.
David Ogilvie:
Right.
Patrick Daly:
So we’re seeing in the US, we’re seeing the UK, we’re seeing in Europe and in Australia maybe the labor unions gaining more power and the pendulum swinging back towards labor away from capital. I guess, these demographic changes in terms of people, their availability and their skills might also tip the balance in favor of labor. So I guess then people who are running businesses or investing in business need to think very carefully about that. How they deal with people and how they interact with their people and how they reward them and how they look after them when they have to [inaudible 00:17:32]-
David Ogilvie:
Absolutely, there’s a lot of talk here at the moment about bringing in an across industry bargaining regime and [inaudible 00:17:41]. Right? There’s a lot of talk about the damage that, that could potentially do. So as business executives running companies we need to be careful about what the impact this is going to be. I believe as you said the pendulum has swung, it doesn’t swing very quickly so I think this is going to be one of those long term things.
Patrick Daly:
Yeah, it’s going to be with us. Yeah. You kind of hinted at another one that I have in my kind of notes here which is the kind of global debt accumulation and particularly the debt accumulation with governments. So it’s constraining their ability to act and I think offline we were talking about the UK government, they took a decision. So whether you agree with the politics or not of it, they took a decision which was essentially to borrow to finance tax cuts and there was a reaction in the capital markets and the currency markets. Which is because they already had a very high accumulated debt and the kind of markets are going okay, so you’ve got this debt and now you’re going to incur more debt in order to finance tax cuts and you’re also going to be subsidizing people’s energy through the winter. So it kind of brings us to our next kind of question which is in the context of these short term pressures that we have but with these long term issues going on, how do we go about taking decisions?
Patrick Daly:
So it looks like the British government took a decision in response to acute pressures and maybe in their own beliefs, which I might be right or might be wrong we don’t know. But the context didn’t like it and therefore they were punished for it. So as business people how do you think we should be as a kind of methodology for taking decisions given all of these things we’ve put our finger on? Maybe Elizabeth, what do you think? How should we go about taking decisions even about the acute things in the context of the long term things?
Elizabeth Warren:
Well, we certainly have no shortage of challenges as businesses that are facing us in the short term and in the long term. So I would recommend to my clients that they look at both their short term and long term investments by what can they do today to maximize their profits and maybe to hold on to some of their cash. Look at the investments that they are going to make for the long term that will allow them to be more energy efficient, to be more sustainable and look at ways that they can retain the employees that they have. Hang on to those employees that have their institutional knowledge that they don’t have to do retraining on and find ways that they can accommodate their current employees that they retained for the long term. So whether that is with more flexible schedules, more vacation time, something that they can retain and not have to have turnover for those employees. Because trying to have… I just read an article about someone that had hired 10 people, only three showed up and one quit before noon.
Patrick Daly:
Okay.
Elizabeth Warren:
That employee turn is very expensive.
Patrick Daly:
Yeah.
Elizabeth Warren:
But if you hang on to those employees that you have, they’ll get that turnover and hopefully we can ride out this inflation for the next year or so. But it’s going to be with us for a little bit longer, we’re not going to get out of this anytime soon.
Patrick Daly:
Yeah. So Diane, how would you take a decision in the short term in response to a pressure point now but in the context of the long term? What would you kind of look at those two things in order to take a decision that makes sense?
Diane Garcia:
Well, I would always say Patrick when I talk with clients and work with clients on is improvements on their supply chain and how do you make your supply chain. How do we prepare and turn as we need to when disruptions occur and these… Like you said, the normalcy is never returning. So how do we continue to stay nimble in our supply chains and I would just say that if you’re not working on upgrading processes within your supply chain. You’re not thinking about your organization and how you integrate all of your processes together then it’s not going to be successful for the future.
Patrick Daly:
Thanks. David, when we were offline earlier you brought up this topic of the British government and the decision they took recently with regard to their budget. What was in your mind, what were you thinking about in the context of this conversation?
David Ogilvie:
Well, it was really about where the pressure came from for them to change their decision and there is some talk in the market I guess about the position that the media’s taken. Whether that be the normal mainstream media or whether it be social media that’s having the level of influence that it’s having on changing people’s views and minds. There’s no doubt that we were saying that the population didn’t like it, the markets didn’t like it and I guess the question is where does that come from? Business leaders need to be conscious of their position in the social media realm if you like and the influence that that can have on them. We’ve just had a major telecommunication organization in Australia be hacked and people’s passport numbers and license numbers have been exposed to the dark web and they have actually been crucified on social media.
Patrick Daly:
Yeah. [inaudible 00:23:30].
David Ogilvie:
So that is a relatively new phenomena that people need to be careful of and you need to take that into consideration with your decision making. But I would also support Diane’s position on improvements in the supply chain. Particularly I think one of the decisions you need to be taking in the short term to help you solve those longer term problems is finding ways to become more productive. Now, that may be through a better use of your technology and systems like ERPs and things which in that space we both play in. Finding ways where you can put robotics into your warehouses or your factory floors and take the demand away from the labor that you’re having so much trouble getting.
Patrick Daly:
Yeah.
David Ogilvie:
Just a final point on that. You mentioned that the demographics is changing. I think it’s not too far in the future where we may have a bubble of a population coming through that are inexperienced in these spaces, with these times. We’re talking about a lot of the baby boomers retiring or whatever it happens to be, they’re the ones that have lived through the inflationary times in the past. Now, while some of the sources are slightly different they’ve at least been exposed to the environment and seen what has and hasn’t worked. So if we’ve got these younger people coming through that are inexperienced in this space, a lot of them have been working their lives in stable rate environments that have low interest rates. This is going to be turned on its head in many cases, particularly if we do seriously have a recession and the Federal Reserve and our reserve banks overcook all of this. There’s a talent pool that doesn’t have the experience to deal with this.
Patrick Daly:
It’s true, those of us who are old enough to remember the 70s and 80s we sometimes forget that there’s a whole cohort of young adults who have never experienced that. So it’s a totally new experience for them, a couple of good points you made there. I think these productivity increases are really important now in the time of high inflation because productivity improvement is an antidote to inflation that gives you options either to raise your price and take extra margin. Or keep your price competitive and gain market share or one or the other or a combination of both and I think that point about social media and how it affects businesses. It’s as if businesses now are exposed to the same scrutiny as politicians and governments used to be through social media. So you can take a decision which you may believe makes logical sense but if you take it out of context with what’s going on you could be crucified for it.
David Ogilvie:
Yes.
Patrick Daly:
So yeah, it’s interesting. So one of the reflections I had is… And I found it useful to try to separate out the short term from the long term things. Because if I can see those long term things that I know are not going to change. I know that if I want to take a short term action to remedy an acute pain point, I can always health check it in the context of the bigger picture to give it context. I also know that if I want to take a longer term decision I can perhaps take it without paying a whole lot of attention to the short term shocks. So people might say oh, well you’re crazy to be investing €‎4 million now in an automated system but I’m going well, I’m looking at the long term trends and I’m not that concerned about the inflation right now. Because I know over the five, 10 year period this investment is really going to stand by me. So I think it’s useful maybe to split things up in that way.
Patrick Daly:
Well, maybe just to finish then, any final comments very quickly maybe a one liner from each of you? Diane.
Diane Garcia:
Well, it was a pleasure to talk with all of you today but I guess I was just going to pick up on David’s conversation on the social media and what the impacts are. I think it’s very true how it’s influencing our talent, how it’s influencing our government, how it’s influencing our overall long term world. So it is interesting how as companies and business leaders we have to keep an eye on what is happening on social media, what’s being said about our companies and just how do we navigate this digital world that we’re living in.
Patrick Daly:
Excellent, thanks Diane. Elizabeth, final word.
Elizabeth Warren:
Final word is to listen to all the experts that are here on this podcast today. We’ve got some great suggestions regarding short term, long term investments. I could not agree more with everything that’s been said, be flexible. Be flexible and look at those long term, short term investments.
Patrick Daly:
Thanks Elizabeth, and David.
David Ogilvie:
Well, mine’s fairly simple Patrick because I’m a simple man. These are exciting times and it’s a really good time to be part of all of this and I’m having a great time helping my clients through these challenges. So it’s a great time to be around.
Patrick Daly:
Excellent, David. Many thanks and thanks also to our listeners for tuning in. So keep well and stay safe, until next time.