Ep. 9 - Decision Advantage: Winning in a Volatile Market

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I want to clarify that this podcast is distinct from my responsibilities as a professor in the CMM Walton College of Business.
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Nonetheless, it aligns with my aspiration to provide practical insights to professionals and business by showcasing companies and people that can enhance your ability to manage, lead, and strategize and market effectively and the retail value chain.
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And now without further ado, let's get into the exciting episode.
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I have with me today Michael Zimmerman, who is a partner with Carney.
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And he has an extensive background in consulting.
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He's been with uh Kearney for over 16 years, but he also has lots of experience with companies like SAP and Carrier Corporation and others.
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He has his uh MBA from Darden.
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Uh Michael, thank you so much for joining us today.
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I really appreciate it.
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Cheers.
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It's uh it's good to be here, Matt.
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Uh always love talking about logistics uh and uh look forward to covering some interesting topics with you.
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Would you mind telling us a little bit about what you do at Kearney and your your background there?
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Yeah, happy to do that.
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Uh I specialize in logistics at Kearney, logistics sourcing and optimization.
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And uh I've been here building that capability at the firm uh with my partner colleagues for I think I'm in my 17th year now.
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Uh I got here by starting in uh supply chain operations uh at a company called U.S.
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Surgical at the time.
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After a few acquisitions, uh the brand is now Medtronic.
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I worked at Carrier Corporation, which was part of United Technologies.
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And those were all supply chain roles: uh materials management, uh, materials management programming, uh, inbound and outbound logistics.
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So good hands-on operations experience, uh, followed by strategic sourcing at a company about called Free Markets that got bought by Ariba, that got bought by SAP.
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Uh and that was all about bringing technology, strategic sourcing technology uh to the sourcing uh process and helping companies in that space.
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Um I then specialized in logistics sourcing and optimization with my own company and then joining Carney in 2009.
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And that's led me to work uh across the Fortune 500 uh over the last 17 years in logistics sourcing and optimization um problem solving, if you will, uh, within the larger context of strategic operations.
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So um getting right into it, Michael, you know, many people say volatility, the level of volatility we have now, has become the new normal.
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And from your perspective, has it really become this level of volatility become structural at this point?
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I think very much so.
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I think volatility has become structural.
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It's not cyclical anymore.
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And and the evidence is beyond the headlines, right?
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So when you look at risk data over the last 20 years, disruption frequency uh and severity are up.
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And this has been cataloged by insurers and reinsurance, uh, reinsurance companies.
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So Swiss RE Alliance have reported multi-decade upward trends uh in weather, uh, geopolitical risk, trade policy.
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Um these drivers directly translate into logistics volatility.
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And then global logistics performance metrics have become more unstable.
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So ocean schedule reliability has been below pre-2020 levels after demand normalized, transit time variability is much higher.
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And then if you look at trade policy itself, it's become a source of uh uncertainty.
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It's been it's been weaponized.
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Um, and so since the late 2010s, you know, tariffs, sanctions, export controls, that's been creating shocks uh rather than smooth cycles, right?
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And what you see is that firms have been redesigning their supply chains around this assumption.
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So they've been multi-sourcing, you've heard of terms like near shoring and friendshoring, regionalization.
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Uh those things are hard to do, but they've been underway uh since the the 2010s, and that's only been accelerating.
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Uh, that also means higher inventory buffers.
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Um, so optionality isn't anymore something you you kind of create in a temporary way.
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It's something that you have to hard code into network design, into contracts and technology investments.
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I think that's the clearest proof is that companies are permeably trading, you know, efficiency for resilience.
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They're they're signaling that volatility is no longer an exception.
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It's it's a design constraint, a design requirement.
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So, uh, you know, thinking about planning, both short-term and long-term planning, um, and you've got a lot of experience.
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So I'm wondering how, given the level of volatility, how has our approach to planning changed, or how should it change, both short-term and long-term?
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Yeah, I mean, if you think if you accept that volatility is structural, planning can no longer be a linear lock-in exercise.
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So historically, supply chain planning assumed relative stability.
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You forecast demand, you optimize for cost, um, you lock-in capacity through annual bids and multi-year contracts, and then you manage the exceptions as they arise, right?
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But that model breaks when disruptions are frequent, they're asymmetric and long-lasting because a lot of these uh trade-related, you know, trade policy-related changes that we've been seeing, um, I think it's wishful thinking to think they're going to be reversed in the short and the medium term.
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So that means the old way of planning, it's not dead, but it has to be severely modified.
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And um, leaders need to think of what we call, you know, layered planning.
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So you have a long-term plan, but you define ranges, options, and constraints rather than single commitments.
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So if you take, you know, what's very typical for large corporations, annual ocean and roadbids, for example, those become capacity portfolios with flexibility clauses, uh, optional lanes, pre-negotiated alternatives.
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Warehousing networks are designed with swing capacity to be able to move up or down and have exit ramps, not just uh fixed commitments with utilization targets.
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And then short-term planning operates inside that long-term envelope.
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So you have explicit decision triggers.
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What happens if a sailing is blanked, uh if a country source becomes unavailable, or if lead times double?
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Uh, those moves, you know, have to be pre-approved, modeled, uh, and executable in days, not like what we saw a lot in during COVID was, you know, debating this in real time.
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You heard a lot about control towers.
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Well, it turned out that control towers were 15 different stakeholders showing up on a Teams call that lasted four hours as options were debated.
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Um, that's simply not acceptable in a world where you have to make good decisions quickly and have your options already played out.
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Um, we'll we'll probably talk about this at some point, but if you do have to debate things in real time, you better have some agentic AI in place to help support the debate.
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So, to tie this up, I would say the goal isn't to predict disruptions better, but to plan for fast reconfiguration.
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So your planning shifts from optimize and hold to design for change.
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And resilience and speed are treated as priority objectives alongside cost, of course.
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So you mentioned resilience, and that comes to mind when I think of volatility, obviously.
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Resilience and agility.
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Um so I'm wondering what kind of capabilities are required for this level of volatility to achieve, you know, um resilience and and um um agility in terms of people, processes, and technology.
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Right, right.
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And and those are really the the things that that leaders have to work with, you know, in their supply chains and in their their worlds of logistic.
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Uh and so that I think the common thread through people, processes, and technology is decision quality under volatility, right?
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If our thread is that volatility is here to stay, and you have to be able to make better decisions in that kind of a context.
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Um if you look at it for each of those components, on people experience matters more than ever.
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You know, not just generic tenure, but uh contextual logistics experience, leaders who have lived through demand shocks, through COVID, through career cycles, through tsunamis, disruptions, and recovery as well, right?
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And and I see as a consultant working um, you know, across the Fortune 1000, um, I see a lot of companies rotating logistics leaders maybe too quickly in the name of breadth, in the name of preparing general management skills.
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That creates generalists, but it kind of weakens resilience, right?
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Because uh hard-earned pattern recognition um, you know, that takes experience, that can get lost.
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So um if you are going to do that, because that's part of some of the company cultures, um, you should at least have really powerful playbooks and discipline handovers.
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Um, because for me, the the most important thing in in the people space is is that you know, either personal, team, or institutionalize uh experience and knowledge on how to deal with a difficult category.
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Wait, yeah.
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Process and technology, I'll try to hit those quickly.
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Um I see a lot of locally optimized processes.
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You know, you you hear about corporate silos, they're still out there.
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Um, in fact, you know, that's the way most of them still operate.
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But agility really breaks down at the seams between the silos.
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And so the biggest failures I see are not, you know, with load planning or sourcing, but in the handouts, right?
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So order management into load planning, forecasting into capacity commitments.
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So resilient processes have to be explicitly cross-functional and designed around collaboration to understand, you know, work with and resolve constraints.
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And then finally, in technology, um, I'm a big fan of evolution, not revolution and big transformation uh in technology.
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So the best teams really understand their current tech stack and layer, so ERP, TMS, WMS, Global Trade Management, and they're focused on the use cases, you know, lane level rate leakage detection on top of a TMS, or uh lane level decision support, exception management, uh, AI co-pilots to help with bid preparation.
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Um so for technology, I think the big leaps fail because they overload the people and the processes at the same time.
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Um get those use cases and get them working with your existing technology uh stack would be my my choice on technology.
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So uh I know you're exposed to lots of different companies.
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Um and I'm curious uh when it comes to building resilience, where do you see companies failing to build it?
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Um, you know, um in terms of um both you know logistics and supply chain?
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Yeah, I I mean I think most organizations fail at resilience before execution ever starts.
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And and again, it's at the design and the sourcing stage.
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So they might optimize logistics as static, cost-minimized network built around the single demand forecasts, you know, rather than as a portfolio of capacity options.
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Um I've I've started to see a range, but if you think about 10 years ago, it really was the former.
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You know, we we're we're planning for something fairly static and we're going to adapt.
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And the reason they then fail or fall short, you know, when they need to be resilient is that when the volatility hits, you know, the rigid design convulses uh and sometimes collapses.
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So, you know, carrier mixes can be overconcentrated.
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The the capacity commitments that they've made, you know, uh limit your ability to surge, or if they're not getting what they expected, um, they're going to reallocate that capacity elsewhere.
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Um so these rigidities that can be built into an assumption that that the world's going to be stable then fail when when the world uh behaves in a volatile manner.
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Um think of it as optionality was historically engineered out uh of processes and plans because they were more costly, right?
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Having backup carriers means you have to develop those carriers.
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Having um contingent warehouse space uh means you uh need to plan and maybe commit to to potential extra space.
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Or being able to flex down means you won't get a discount for committing to a higher volume.
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Um so there are costs associated with that.
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Um but when you plan in a more rigid world or an expected rigid world, you know, the the results are pretty predictable.
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Uh expediting explodes, premium labor gets pulled in, uh detention and dual spike, budgets blow out.
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Um think of it as the cost of buying efficiency without insurance.
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So what leaders have to do to sell the concept of resilience is that they kind of have to pre-pay for it by having a little more fat in their planning, by building um, well, for example, ocean road and warehousing as a capacity portfolio and negotiating in the on-ramps and the off-ramps, um, having primary and secondary carriers, you know, pre-priced and ready to move to, with understandings that you may have to flex up or down.
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That takes extra effort, extra cost, but but that's how you avoid uh failing at the resilience game.
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You know, supply chain leaders are facing just an incredible amount of change and an explosion and the availability of data, information, and new tools for all different kinds of tools.
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And yet to be a good leader, you have to set priorities to deal with all this.
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But how can you do it in a way that doesn't overwhelm the organization?
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Yeah.
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And I think what will definitely overwhelm an organization is any kind of a tool for a strategy because everyone is bombarded by tools.
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Obviously, the providers are trying to sell them.
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You've got, you know, the the kind of the ERP will do everything versus the best of breed.
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And that seems to be the debate.
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And I think, you know, the way to avoid being overwhelmed by by all of these options is to simply not prioritize the tools and prioritize the kinds of decisions that are going to change outcomes for you.
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So data and technology only matter if they're improving the decisions that drive profit uh and resilience.
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And what I mean by that is you know, for most shippers, most shippers in logistics, um, it's a pretty consistent short list on what's going to drive profit and resilience.
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Transportation sourcing, uh you know, it's it can be 80, 90 percent between the modes and the nodes of your logistics spend, right?
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On top of that, the ERP and the people, they're actually a small fraction of what you spend.
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So if you want to uh be thinking about how you're going to be most profitable and agile, you need to be excellent at a few things, right?
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Um so sourcing, capacity assurance, supplier performance management, those are the things that are going to let you operate efficiently and effectively uh at an attractive cost.
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And then, you know, if if a tool isn't going to materially help those things, um, you shouldn't spend a lot of time on them.
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So what we've helped a lot of our clients do is, you know, map the core logistics activities and ask two questions.
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Is it strategically differentiating for us?
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Does it help us win in the market?
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And are we better or worse at it than the market is?
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And so high return on investment uh initiatives where the activity is strategic and you're internally capable and it can be upgraded to either sustain or extend your market leadership, um, those are the technologies you want to invest in.
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If it's non-strategic or the company lags the market, you look for more capable 3PL partners and you close the gap that way.
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That seems like a really wise way to think about it.
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Um were you gonna say something else?
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Yeah, I was just gonna say is the consequence of that, and you've seen this in a lot of companies, and and this is one of the reasons 3PLs have grown so much, is that things like transactional execution, load planning, tendering, track and trace, freight audit, that's largely been outsourced or automated.
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It's you know, it's it's table stakes.
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It doesn't allow you to differentiate yourself strategically.
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But if you think about leading shippers, you know, and how they're going to differentiate themselves, strategic sourcing, network design, supplier relationship, as I mentioned, that's where 80 to 90 percent of the logistics spend is committed, right?
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And where capacity is won or lost when uh when capacity gets tight.
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So by focusing on what's strategic and creating the most value and driving the most cost, you can then ask which tools out there in the marketplace are going to help me um excel in that space.
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You know, 20 years ago it was collaborative optimization tools, which um helped large shippers um really master the complexity of logistic sourcing and carrier prioritization and capacity allocation.
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Um most Fortune 500 companies have um uh adopted those tools over the last 20 years.
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They emerged in the early 2000s, they're now standard everywhere.
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Um, or they're using those tools through their 3PLs because the 3PLs have gotten good at using them.
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Um what's next?
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Uh well we'll be talking about that soon, but but they're now looking for tools that are going to help them further differentiate in in those um in those areas.
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Okay, Michael, now for the topic we cannot avoid artificial intelligence.
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So, how is artificial intelligence uh influencing prioritization and decision making and supply chain and and where is it really adding value today?
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Yeah, um I love being use case focused.
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So rather than making blanket statements about how it's going to improve everything, um I see its current applications um in certain spaces.
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I think it's going to grow very quickly, and that that promise is going to come.
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But I think today it's influencing uh prioritization and decision making most effectively, where it's accelerating and improving repeatable high-volume logistics decisions.
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And by that I mean uh and I'm contrasting that to where you require judgment and experience.
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So, what AI does really well is plowing through huge amounts of data from disparate sources, you know, gathering the data, um, cleansing it in in the sense that it it understands and can normalize the data in its um in its database, if you will, in its knowledge set, and then uh enhance that with its knowledge.
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Of different sources and start to create visibility and insight.
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So, for example, agentic AI is very strong in logistics, in freight audit, and pay, spend visibility and sourcing support.
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And those are areas where teams are historically losing, you know, weeks and sometimes months to data extraction, cleansing, normalization, exception handling.
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AI does that extremely well.
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But what it doesn't do is, you know, have a good conversation with suppliers over what capacity commitment looks like and what happens when you need an extra 30% or you need to ramp down by 30%.
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What happens to my um drop trailer pool when I need 30% less volume?
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You know, AI is not ready to have that conversation, but it is ready to prompt uh a member of the shipping team and say, look, our volumes are down for four consecutive weeks at this um DC, and we have three carriers with trailer pools who are going to be suffering.
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You better do something about it.
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So AI is very good at bringing together information and doing a lot of the data collection and cleansing scut work, if you will, and bringing things to the attention of the resources.
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And the beauty of that is that it also it also elevates the work of the people using AI, right?
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So it's not like it's labor reduction, it's decision compression.
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It's it's providing um better content for logistics practitioners to make better decisions quicker.
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It collapses the time from raw data to actionable insight.
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Um, and and that's what I really like about it, because having worked in operations and having seen teams as a consultant where the teams don't have time for these higher value added activities, you know, um cross-functional teaming, um, working with the order management team to make the chunks of orders that are arriving uh more digestible for load planning.
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Those are more cross-functional um human interactive activities.
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If they're chasing after freight audit and pay data or trying to cleanse um, I don't know, actual shipments for the last month to do some planning, they don't have time for those higher value activities.
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So uh I really like the way agentic AI is is um delivering on these kinds of use cases.
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So, Michael, um looking ahead, what should supply chain leaders be focused on right now and in the future to make sure they maintain competitiveness and effectiveness?
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Yeah, I mean, you've been hearing about, we've been talking about volatility and the ability to plan for and make better decisions uh under volatility.
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And I think the the greatest focus should be on being advantage in your decision making under this kind of structural volatility.
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So the winners won't be the teams with the most tools.
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We were talking about tools.
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They're the teams that can sense, decide, and reconfigure faster without blowing out cost, right?
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So we've been talking about designing optionality into the system, multi-sourcing, capacity portfolios in ocean road with flex clauses, uh, pre-price alternatives, warehousing networks that include swing capacity, ability to move up or down, and that's made explicit in the agreements that you know within within a week, we can maybe go up 15% or 20% by adding overtime.
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Within three weeks, we can go up 50 or 60% by adding a second shift, and vice versa.
00:26:03.680 --> 00:26:10.960
Um, you know, how do we drop volumes by 10 or 20% without heavily penalizing ourselves?
00:26:11.200 --> 00:26:18.960
So you design that kind of optionality um so that your resilience is prepaid, not improvised.
00:26:19.279 --> 00:26:23.759
Um we talked about designing optionality into the system.
00:26:24.000 --> 00:26:26.480
You have to invest in capabilities at the seam.
00:26:26.559 --> 00:26:29.119
So we talked about people, processes, and tools.
00:26:30.319 --> 00:26:36.960
If you have these historic silos, how do you invest more in cross-silo collaboration?
00:26:37.119 --> 00:26:42.720
So, what what are those handoffs between forecast, order management, sourcing, and execution?
00:26:42.880 --> 00:26:45.039
Because that's where agility breaks down, right?
00:26:45.200 --> 00:26:52.559
If people expect to manage batches within their silos, they're not going to be effective when they have to be more agile.
00:26:52.720 --> 00:26:58.960
And then we talked about technology, you know, layered use cases, not big transformation.
00:26:59.119 --> 00:27:17.359
Use AI where it already adds value, compressing decisions and spend visibility, sourcing support, uh, exception workflows, and then uh keep keep your humans doing the higher value added work so that they can be ready to act under uncertainty.
00:27:17.519 --> 00:27:22.400
And of course, as you as you trust AI more, it can expand its scope of action.
00:27:22.559 --> 00:27:32.559
But I think this idea of keeping it focused, you know, and technology solutions focused on use cases is going to help make the decisions where to invest.
00:27:32.720 --> 00:27:46.640
And then I think there's there's kind of a larger takeaway is you know, keeping the people who are making these judgments precious, you know, valuing them.
00:27:46.799 --> 00:28:13.039
Um you know, keeping experienced logistics leadership long enough that they can uh be well grounded and recognized and speak with authority, um, codify that into playbooks uh if there's turnover so that the experience base that's managing this um is continuously growing, that you don't have too many breaks in in the knowledge.
00:28:13.680 --> 00:28:24.559
So, Michael, uh we have a large number of uh senior supply chain leaders that listen to this uh podcast.
00:28:24.720 --> 00:28:34.160
And um what piece of advice would you what one piece of advice would you really give them that you think might help them succeed?
00:28:34.559 --> 00:28:37.279
I'm gonna have to be more succinct here.
00:28:37.519 --> 00:28:53.920
So yeah, consistent with our our conversation, I'd I would say decision advantage, being able um to make better logistics decisions faster than your peers under uncertainty, and then execute them without friction.
00:28:54.079 --> 00:29:01.920
So point efficiency, you know, uh long-term planning can't be the only answer anymore.
00:29:02.079 --> 00:29:06.880
Um but this how to get decision advantage has to be sold.
00:29:06.960 --> 00:29:13.440
So the leaders not only should pursue it, but they should explain why they're pursuing it, why they're investing in it, right?
00:29:13.599 --> 00:29:15.279
Volatility is structural.
00:29:15.440 --> 00:29:29.519
We have to pre-pay for optionality, for capacity portfolios, for flex clauses, for swing capacity so we can reconfigure faster in a more agile manner without without blowing out costs.
00:29:29.839 --> 00:29:32.720
So we're we're gonna be ruthless in our investment.
00:29:32.799 --> 00:29:34.240
I'm speaking as a leader here.
00:29:34.400 --> 00:29:46.240
We're gonna focus people uh and technology on the logistics conditions that actually move spend, that give us the competitive advantage, better service, better resilience.
00:29:46.319 --> 00:30:04.559
Um, and then we're going to, you know, either outsource and make sure it's outsourced to highly capable um uh 3PLs and partners, um, where they can do it better, or we're simply going to de-emphasize it if it's not creating that advantage in the marketplace.
00:30:04.880 --> 00:30:07.440
Well, Michael, this has been really insightful.
00:30:07.599 --> 00:30:11.200
Um, your wisdom in this topic is very evident.
00:30:11.440 --> 00:30:14.000
Thank you so much for taking time to share with the audience.
00:30:14.160 --> 00:30:14.880
Really appreciate it.
00:30:15.200 --> 00:30:16.400
Matt, it's a real pleasure.
00:30:16.480 --> 00:30:22.240
It's uh it's great to be out there constantly in the marketplace and see how these things are playing out.
00:30:22.559 --> 00:30:31.839
And uh one thing is certain uh, you know, for logistics leaders, um they've chosen a very exciting, some would say too exciting profession.
00:30:32.400 --> 00:30:35.920
Uh it and it's just continuously gotten more interesting.
00:30:36.079 --> 00:30:38.400
So um it's a great place to be.