NEW YORK — Think about what a supply chain leader has gone through in the past few years.
There was the pandemic that at first looked like it would crater demand for virtually all goods and services once the toilet paper rush ran its course.
Then came the whiplash in no time when huge demand for goods replaced demand for services that couldn’t be provided during lockdowns, and the transport and supply of those products failed to keep up. The end result: Old ways of doing business in the supply chain had to be tossed overboard rapidly, and new structures were built, often on the fly.
Or as Peter Smith, the COO of retailer Party City, told executives at a supply chain-focused panel Sunday at the annual meeting of the National Retail Federation: “Congratulations for living through the s— storm of the last three years.” He should know how tough that period was; Party City went through — and emerged from — Chapter 11 bankruptcy as a result of it.
And then in the past year or so has come the promise of generative AI, the next and maybe boldest step in artificial intelligence and machine learning, which already have been revolutionizing supply chain practices in the most forward-looking companies.
Those themes were on display at the daylong supply chain track at the NRF meeting, a giant gathering that always meets at the Javits Center on the shores of the Hudson River and was expected to draw 40,000 attendees this year.
Getting 2030 volume by 2022
It was Beth Rooney, the port director of the Port Authority of New York and New Jersey, who summed up the rate of change the supply chain has experienced the past few years.
“The pandemic gave us a glimpse into the future,” Rooney said of the ports under her management, on a panel specifically devoted to shifts on the waterfront. “We did the volume in 2022 that we didn’t expect to do until 2030.”
The panel kicked off with Suresh Krishna, the CEO of Northern Tool + Equipment. In a chat with Jon Gold, NRF’s vice president of supply chain and customs policy, Krishna said the pandemic “was fortuitous in many ways, because it was a wake-up call and accelerated things that might have taken many years to implement otherwise.” He cited as examples the ability to buy an item online and pick it up in a store or curbside.
But that’s on the micro level. On a more macro level, Krishna talked about “resiliency” and how chasing it as a goal had forced Northern Tool to make numerous, broad changes in its supply chain.
“Resiliency was something that was on the top of our mind throughout COVID,” he said. Getting to resiliency, he said, required pursuit of another broad practice: optionality.
Prior to the pandemic, Krishna said all e-commerce orders — which are now about 35% of the company’s business — were coming from a warehouse near Charlotte, North Carolina. “Think about how long it takes to serve the whole country from one warehouse,” he said.
But since then, additional warehouse capacity has been secured in other parts of the country to speed up deliveries. “That is resiliency,” he said.
Suresh Krishna, the CEO of Northern Tool + Equipment, talks with Jon Gold, NRF’s vice president of supply chain and customs policy.
And that kind of resiliency, created in part by the optionality that comes from warehouse capacity with a greater geographic reach, has allowed Northern Tool to get close to a goal of meeting customer orders within two days. Prior to the pandemic, that figure was more like five to seven days, Krishna said.
Before recent changes in operations, Krishna said, only 17% of customer orders were being fulfilled the day they were received. Warehouse and office hours didn’t include weekends, guaranteeing a two-day additional delay for an order that came in on Friday.
But by rejiggering hours, rather than simply hiring more people or pushing current workers to do more, as much as 99% of orders can be fulfilled on the day they are received, Krishna said.
Moving away from China
The other big shift in resiliency and optionality came in diversifying Northern Tool’s supply lines away from China. About three years ago, Krishna said, about 90% of the country’s imported products came from China. Coincidentally, it was about that percentage of imports from China that then came under the tariffs first imposed by the Trump administration.
Northern Tools set up offices in India and Vietnam as part of an effort to diversify its supply sources, Krishna said. The result: The figure coming from China is now about 50%.
A new manufacturing facility opened in Mexico, but as Krishna noted, it does get some of its parts to make finished products from China. “We’re not saying we’re not going to be in China,” Krishna said. “But we’re taking this opportunity to source from both.”
When the NRF supply chain track’s attention shifted to the future, AI as a catch-all phrase for the whole range of capabilities that loom as change agents for supply chains took center stage.
Helen Davis, the senior vice president of and head of North America operations at Kraft Heinz (NASDAQ: KHC), spelled out what a company like hers expects out of AI.
AI processes at Kraft Heinz will look to create “data flows and a self-driving supply chain that can automatically reset itself when there are disruptions,” Davis said.
A ‘cognitive decision layer’
She described a two-tiered system in which a base capability can do things like “digest data that tells us when a line is down.” But on top of that would reside what Davis said was a “cognitive decision layer that would react as if they were me … to really react to a change in consumer demand quickly.”
Sean Barbour, senior vice president of supply chain at Macy’s (NYSE: M), is approaching the introduction of greater AI capabilities with some caution, given the field that he’s in. “There is so much in the fashion space that is is unknowable, and I am pessimistic that AI can solve that,” Barbour said, noting rapid shifts in consumer sentiment.
But he also said that while consumer expectations of what AI is going to deliver are high, “it’s going to enable us to exceed those expectations and make some of the complex decisions more palatable, and that is an exciting concept for us.”
David Hardiman-Evans, senior vice president of U.K.-based online grocer Ocado Group, said AI and machine learning capabilities already allow the company to “predict people’s individuals baskets using algorithms.” With the continued evolution of AI, he said, “that is only going to get more accurate.”
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