Episode 17

Podcast: Rob O’Byrne on Digital Transformation, Sustainability, and Diversification in Sourcing

Supply chain and logistics consultant, educator, and podcast host Rob O’Byrne has over 40 years of supply chain experience. He has been helping companies design more profitable supply chains for over 25 years, most of them as founder and CEO of Logistics Bureau. He provides a wide array of educational content for supply chain practitioners, including the Supply Chain Secrets channel on YouTube and a number of books, including his latest, Supply Chain Secrets.

In episode 17 of Supply Chain Next, Rob talks with host Richard Donaldson about the factors shaping the future of supply chain management, and how businesses are adapting.

Apple PodcastsGoogle PodcastsSpotifyYouTubeAmazon MusiciHeartRadioSoundCloudStitcherBlubrryPodbay

Highlights from the Conversation

Let’s start off by talking a little bit about your background.

  • So many people get into supply chain by accident, and it was the same with me. Supply chain wasn’t even a word when I got into it, logistics was the new word.
  • I was a rowdy kid. I was at an expensive school, but wasn’t suited to school life, so I was “invited to seek my fortune” at the age of 15. My choices weren’t limited to getting a job or joining the army, but that’s a close approximation.
  • I think I must have done quite well on the army’s entrance test, because they asked me, “which job do you want?”. I answered by asking which one pays the most. They explained that it was logistics with a twist, because I would have to work with explosives, in bomb tech and bomb disposal. I said, “that’s fine, I’ll take that one”.
  • I ended up in what’s now known as the Royal Logistics Corps, specializing in logistics. It’s embarrassing to say, but I’ve been in logistics since 1975.
  • So military logistics was really interesting because it’s big scale stuff. I specialized in dangerous goods, explosives, and so on. I can claim to have been a nuclear rocket engineer for a couple of years, looking after nuclear rockets in West Germany during the end of the Cold War. The logistics of those things was pretty interesting.
  • Foolishly, the army decided to send me to Cranfield University in the UK to study for a masters’ in logistics, and that just opened up a whole new world. It was far more fascinating than military logistics, so within a few years I decided to leave and headed out to Australia and worked for a consulting company for two or three years.
  • I started my own consulting business in 1997, and later bought the firm I’d originally joined. Since then I’ve been in education and consulting.

You fell into supply chain during its early days. What’s stayed the same, and what has changed?

  • Looking back over the last forty years or so, it’s been interesting from two perspectives. Without sounding like we haven’t moved forward at all, a lot of the consulting work we’re doing now is not dissimilar to what we were doing twenty years ago.
    • People are still worried about having efficiencies in their warehouses, making sure they’re laid out properly, and having the right processes. People are still concerned about outsourcing logistics and doing that right. They’re worried about being competitive in the marketplace and streamlining their supply chains. All those fundamental things are still challenges for business.
    • Overlaid on top of that, in the last decade or so the biggest changes have been in technology and automation in the supply chain. There are much better planning and forecasting systems now.
  • I think what’s happened particularly in the last ten years is that the focus on cost reduction and being competitive has really driven that need for rationalization in the supply chain, and of course for the globalization that we’ve seen. Manufacturing sites have been rationalized in terms of, “we don’t need five factories in this country, we only need three, then two, then we don’t need them at all, we’ll move them to China”.
  • You see that as well in the actual distribution centre networks. A lot of companies now will have regional hubs with just smaller satellite warehouses in each country.
  • Sourcing has probably been the biggest thing over the last decade or two, coupled with that reduction in local manufacturing of course. Sourcing is now predominantly overseas: China is one of the big sourcing countries of course, along with India, Pakistan and Bangladesh, Vietnam and Thailand. That’s been a massive trend.
  • Using automation better to reduce labour costs, the adoption of sales and operations planning (S&OP), and planning systems have really taken off in the last ten years.
  • What we’ve been focusing on overall in the last ten years is becoming leaner, getting our lowest cost possible per unit through the supply chain, so we’ve ended up with very extended supply chains, and that of course was tragic when the pandemic hit.

The irony is that the supply chain controls the biggest part of the enterprise’s budget but has the least amount of credibility, and has always been viewed as a cost centre. It’s always about reduction of costs. Do you think that’s changing, and do you think improvement in visibility is a part of that?

  • That elevation of the supply chain role has been happening over the last five years. The importance of supply chain is much more recognized in the boardroom. Of course, if you’re talking to major retailers, they’ve known this for decades, that the business foundation is supply chain.
  • This year, of course, everyone knows what supply chain is about.
  • The expectation of the supply chain now is that it’s not just a cost centre, it’s the part of the business that can ensure that customer service is maintained and can drive improved profitability. Because one of the major costs in a business, if you take in procurement and cost of goods, is supply chain. If we can do that efficiently, all of that is going straight to the bottom line.
  • We were just doing a webinar on cost to serve, which is one of my favourite topics. Incredibly, 70% of the over 800 people registered had not undertaken any kind of cost to serve analysis for their business. I was imploring them to do this. If you want to be a supply chain hero, you’ve got to understand this stuff! This is where the gold is! It’s a very simple analysis technique that a lot of people don’t adopt. It’s a great way to not only reduce cost analysis in the supply chain, but to improve service and really add to the bottom line.
  • The last six months have helped with this—people now look to the supply chain for answers. They realize the capability of the supply chain to really change the direction of the business.

In your consultancy work, are there themes in what companies are asking you to do, or are they just asking for general open-ended advice in their supply chains, saying “hey, we don’t know what to do, can you take a look?”.

  • There’s a lot of that! I probably have a couple of those conversations a week. We’re not coping, and these are the basics.
  • I talked to a company who provides personal care products. They were saying that their inventory is through the roof, demand is up, but that they were not tracking inventory properly, and production runs were running out of room— but it’s all exacerbated by the current situation. So many companies are seeing demand just go through the roof. Sadly, many have also seen demand go through the floor, but for the companies that are seeing demand jump, that’s been putting very basic supply chain processes through an enormous amount of pressure. That’s of course a look at the lower level of maturity.
  • The bigger, smarter, national and multinational businesses are still looking at the things they were looking at last year, and COVID hasn’t significantly impacted them in terms of their longer-term plans. They’re still going ahead with reconfiguring their distribution networks, implementing new systems, and looking at automation and AI and so on, because those are longer term projects that they understand still need to happen. There’s still a bit of firefighting going on day to day, just because of the volatile nature of the market.
  • 50% to 60% of what we’re doing is still the standard stuff, but because companies are under a lot more pressure it’s become more of an issue for them. 30% to 40% is longer term planning, which is being reshaped a bit by the last six months and the uncertainty.

You’ve got a large educational component to your consulting program, so what do you see as far as the people who are signing up and how they’re changing? Is there anything different about how supply chain people are being asked to adapt, or about their job functions in today’s environment?

  • The major change has been in the last two to three years. It comes down to understanding of technologies, systems, and analytics.
  • I think education and consulting go hand in hand. I think any good consulting company should be doing as much as they can to share knowledge with their clients and to build their capabilities. I love sharing knowledge, and I’ve now got four YouTube channels, and several books now to help companies improve their operational knowledge, and more importantly, help individuals do well in the supply chain.
  • People still need to know the basics, but the big change is in the analytics area. We have a couple of people in our business who are amazing at building online analytics tools to analyze inventory, provide benchmarking, and all sorts of diagnostic tools. Those are the things that the fresh generation are doing as a matter of course. They’re loading programs and using analytical tools in house. They are far more literate in terms of data. If you look back ten years ago, being a good supply chain manager was about understanding the operations, understanding your metrics, keeping a tight grip on the costs—it’s a lot more than that now. It’s all of that PLUS being able to look into the future a bit.
  • I think we’re going to see huge advances in technology and systems looking at predictive analytics. That new generation is bringing in a new tech-savvy perspective that will be absolutely critical going forward.

The timeframe of digital transformation of supply chain has been collapsed due to COVID. But a lot of supply chain managers are thinking, “I get it, I need to go digital, but what does that actually mean?” Do you hear that a lot?

  • Technology can be applied at all different levels. People get confused between technology and automation.
    • In its simplest form, what we’ve seen over the last few years is increased use of technology in warehousing, for example, in terms of automation. That’s now expanding into robotics. Of course, the trap here is that people think, “I need robots in my warehouse and all this advanced technology”, but we forget sometimes that every country is different, and every economy is different. Robotics make sense only if you’re in a very high cost labour environment and makes absolutely no sense if you’re not. That’s the lower level of technology.
    • Then there’s the intermediate level, where we’re seeing much better use of technology in terms of forecasting. There’s a huge swathe of companies that have shockingly poor forecasting accuracy. I had a discussion with someone who’s very passionate about forecasting, and she said, “people don’t get it—forecasting is always wrong!” and it is— it’s about getting as close as possible, but it really is always going to be wrong. We have to be prepared for that and deal with that.
      • But still I think we’ve seen a big leap in terms of demand forecasting and sales and operations planning.
    • And then we’ve got the upper layer, that’s about machine learning and AI, it’s about using technology in really smart ways so we’re not looking over our shoulder at historical demand and trying to predict what’s going to happen in the future. We’re making the future. I think it’s crazy—I don’t think we can continue to work on this historical model for much longer. The environment is much more volatile these days.
      • For example, I don’t know if you have these in your shopping malls, but here we have red and green lights that shows drivers where the open parking spaces are in parking lots. That’s a really interesting technology because if you wire that up to the weather forecast, you can start to plot that flow of cars in and out of shopping malls based on the weather. So, if it’s going to be a rainy day on a Saturday, we can start to predict earlier traffic into malls, and then greater traffic through the food courts etc.
      • With digital twins, we can then feed other data sources through our model and start to predict scenarios like this. It’s a lot more forward focused than our traditional view, in which we’re steering the ship by looking over our shoulder at the wake.

I think digital twins are one of the top things that people should be thinking about, if they’re not already. I’d love to know your thoughts on that.

  • I agree with you wholeheartedly on that.
  • When I look at the consulting work that we do, a lot of it is using specialized software packages to optimize supply chains. I’ve spent half my life managing projects where we’re looking at very complex supply chains and routes to market. We’re digitally modelling that, running scenarios over it, for example, what if demand goes up, what if demand goes down, testing different service levels, what if we have ten warehouses or five—digital twinning allows you to just do all that yourself. You don’t have to have the consultants coming in. You should have that ability in house. Get a couple of smart people running these systems, so you can ask “what if demand goes up 20% next week instead of 5%—give me the solution”.
  • It’s useful even when you’re keeping track of what’s happening right now. You need that ability to know that you’re going to run out of trucks next Tuesday.

Supply chain people live in a very practical world and are looking for very hands-on advice when it comes to starting their digital transformation journey. Is there anything that you’ve drawn up in your playbook for your consultancy that you could give them get started?

  • Honestly that’s a really difficult question because every business is so different, depending on size, market, geography, and customer expectation. It would be hard to come up with a game plan that fixes everybody.
  • For some businesses it means focusing on demand planning and getting that right so you can get a handle on your inventory.
  • For others it means having really good visibility for outbound distribution.
  • For others they need to have really detailed monitoring of throughput for distribution centres to three decimal places so we know the minute we have increased demand.
  • I tend to say to most businesses that they need to do a quick review of their end-to-end supply chain, look at the pain points, and really focus on those initially. In that webinar I mentioned I was doing about cost to serve analysis, that was aimed at pinpointing the biggest opportunity.
  • I think it’s the same with technology and digital twinning: start at your biggest pain point because that’s where you’re going to get your biggest bang for your buck.

I saw that you’ve recently spoken with Deborah Dull, who is awesome. Circularity and sustainability are really hot topics in parallel with digital transformation. But I don’t know if people have really connected the two, in terms of how they both effect the bottom line.

  • There’s been a lot of greenwashing in the last couple of years in which businesses are trying to look more sustainable than they really are. But the public is starting to figure that out that a lot of industries aren’t as sustainable as they thought. Fast fashion in particular has come under a lot of fire. There are a couple of documentaries that show how unbelievably polluting cotton manufacturing is, for example.
  • Prior to the pandemic, there was this massive desire to buy more sustainably produced products. That wave hasn’t gone away. Starting in March, some of that got pushed a little bit to the side because businesses were just focused on survival. Now that things have settled down a little bit, we have to start looking at greater circularity and sustainability even if we are still in a volatile environment, because our consumers are going to be demanding it more and more.
  • Some people think it sounds a bit wishy-washy, but many people think that the pandemic is the dress rehearsal for what’s coming next, which is global change and environmental change. I’m not a tree hugger and I don’t think the sky is falling, but it’s happening and companies need to get on top of this now. It’s not just about putting solar panels on the roof of the warehouse anymore, I think one of the critical areas that companies have to look at is their sourcing.
    • Where are your products coming from?
    • Where are your raw materials coming from?
    • What are the impacts on the environment for the raw materials going into your products?
    • What happens to your products at the end of their life cycle?
  • I think we’re going to see a real increase in our markets next year for better labelling. It won’t be enough to say, “this is fair trade coffee from Kenya”, people are going to want to see information going a few levels back from that, that the inputs are sustainable as well.

I look at the business value of a properly run circular program, that you can be profitable and sustainable at the same time. There’s a lot of money to be made in selling those assets but haven’t sold as products—there’s a chart we’ve put out there illustrating how the Global 2000 are sitting on $189 trillion in assets. They should be monetizing assets on the disposition side because there’s a lot of free cash to be made there, but most don’t.

  • I agree 100%, but most businesses don’t think like that. It’s a change in focus that requires education.
  • The CFOs have got to be shown the dollars. We’ve got to show them that the steps involved in transportation, refurbishment, reusing parts, whatever they may be, are worthwhile. We’ve got to be able to show that the business case works.

There’s another angle as well, in which you’re alleviating the need to pull as many new resources out of the ground.

  • You’ve also got to be targeting the consumer and getting them to buy more sensibly. I came across a fantastic video by a fashion influencer who was convincing her audience to buy fewer clothes, buy better quality, and buy linen instead of synthetic, because there’s far less pollution that goes into those clothes.
  • We’ve also got to educate the producers and manufacturers.

Is there a company that you hold up as an example of a company or industry that’s leading that charge?

  • I have to confess that I don’t.

I’ll admit in turn that that was a loaded question! But my purpose with that is just to show everyone that they’re not alone, and to show people that this is an opportunity to be had across all levels and all industries.

  • I see some examples where there are bits of the business that are moving forward, but I don’t know enough about all the levels to be able to say that it’s truly sustainable.
  • Maybe we should start having sustainability audits, and have an ISO standard.

Even without COVID, we were seeing a lot of change coming up in what we call “the Decade of Supply Chain”. As we head into 2021, what are you seeing as the themes for supply chain?

  • I think the key themes going forward are going to be:
    • Flexibility. We’ve seen that particularly in the last six months in channels to market. Some companies have had to learn to service through new channels very quickly. And that’s really good practice, folks, because you should be servicing though a variety of channels anyway.
    • Planning and forecasting. We’ve already talked about how it’s always going to be wrong.
    • Use of assets such as warehouses and trucks. I think that we’re going to see a lot less capital equipment and fixed assets. I think we’re going to see a decline of those rows and rows of pallet racks. It’s going to become much more flexible with robotics and AGBs and so forth so that we can reconfigure our storage at will. There’s not a lot you can do with a 20K-pallet warehouse once it’s full of stuff—it’s really hard to reorganize.
      • The same thing with trucks. I hate to use that term “Uberization” but we’re seeing that in trucking now. I’m getting home deliveries in the evening from people who are obviously doing something else during the day, and they’re doing a couple of hours of delivering packages during the evenings.
      • All of that is going to be giving us flexibility and multiple sourcing.
    • Visibility is a key one, we’ve touched on that. Visibility of product, of inventory, of demand—and real demand, that’s the key. It’s not historical demand and what we think we’re going to sell.
      • Someone recently shared with me a wonderful example of seeing false demand. It was a medication for people with a particular disability, who were more at risk if they were to get COVID. So hospitals were stocking up on this medicine, and patients with the condition were stocking up with the medicine, and somehow someone went online saying that this medicine helps with COVID, so all sorts of people were buying it. So there had to be restrictions placed on the medicine, and the company was trying to forecast what they’d be selling in the future, considering that there were people buying it that were never going to use it.
    • Analytics. As we’ve talked about, predictive analytics in particular.

What about the role of China and other countries that have been dominating the manufacturing sector going forward? Probably 60% of our products are manufactured there, and people are now looking at redistributing.

  • This is one of the most asked questions I’ve been getting over the last few months. Will people change their sourcing strategies?
  • Smaller companies are probably more nimble, and a lot of companies are looking at diversifying their supplier base.
  • We will probably still be buying from China, but companies now want a secondary supply base. That’s just common sense.
  • The other thing to consider is that I may be getting my products from a factory in China, but I will want to know where they are getting their raw materials. I’ve got to look further back into the supply chain to mitigate any risk there.
  • There are many major retailers who are getting the bulk of their products out of China. Can they realistically switch? That’s hard to do.

To distill this down, are there any other countries that can offer the cheap but very skilled labour that China can offer?

  • Don’t forget the other factor China offers: scale.
  • The answer that comes straight to mind is India. There’s Bangladesh in the garment industry. I’ve also been reading recently that Egypt makes sense for the garment industry—they’re really good and the costs make sense.
  • So we’re not going to see half the manufacturing suddenly taken away from China and moved elsewhere, but I would expect to see a slow decline as we take some product to other sourcing locations. I know that there are companies actively looking at taking their factories out of China and bringing them home.

Now that we know that the CFOs want visibility into their supply chains, and that’s going to require a fully enabled manufacturing facility. Given the challenges we’ve seen with data and privacy in China, will that need for transparency become a forcing function to rethink manufacturing locations?

  • I think it’s going to be a factor, but I’m not sure it’s going to be in the top three. It really comes down to costs. If you’re buying 90% of your products from China, you might look at switching them to India or Bangladesh on a case by case basis, that’s where you’ll see the slow erosion, either with dual product lines or complete sourcing.
  • But sourcing out of China is still so compelling in terms of cost and scale that we’re not going to see a sudden collapse.

What’s in store for you and your consultancy for the next year or two?

  • A lot of what we do is still what we’ve been doing for the last twenty years. And it’s not to sound like we need to move on, it’s what the market is demanding.
  • Where we’re expanding is our online and remote consulting. The pandemic has really brought that to the fore, but we’re used to working that way anyway, because we’re based in Australia and have offices in Thailand and New Zealand. But we do projects all around the world and most of that has been remotely. What’s been happening in the last few months is that people have gotten used to it, and are realizing that it really can work. We knew that all along.
  • Hand in hand with that is that there’s a demand for simple, quick, diagnostic and analytical tools, and that’s what we’re helping a lot of our clients with remotely now, in a matter of days.

More About Rob O’Byrne

Rob has dedicated his career to helping companies and supply chain practitioners alike achieve better results. He is a widely sought-after thought leader, educator and speaker.

He earned his MSc in Logistics from Cranfield University, widely acknowledged as one of the top schools for supply chain and logistics globally. Rob spent the next three years teaching logistics at the Army School of Logistics, and then moved into consulting, starting with well-known Australian consulting firm Dawson Consulting. In 1997, he founded his own consulting firm, Logistics Bureau. A few years later, he started acquiring other firms, including Dawson Consulting and Benchmarking Success.

Since establishing Logistics Bureau, Rob has led over 1,700 projects in 25 countries, across a broad range of industries.

He has founded and helped several causes. In 2012, he founded and funded Virtual Done Well, an organization that provides virtual assistants to help small business owners. He has been a business partner of the Business for Good program, which allocates a proportion of profits to a range of worthy causes around the world.

Subscription Form (5)


Subscribe for Updates

More Episodes

You can listen to our audio tracks and read highlights for each episode below.
We’ve also started publishing video episodes on our YouTube channel.

Dr Marcell Vollmer

058 – Dr Marcell Vollmer – Tech in Supply Chain, and the Sustainability Shift

Supply Chain Next · 058 – Dr Marcell Vollmer – Tech in Supply Chain, and the Sustainability Shift Meet Dr. Marcell Vollmer Dr. Marcell Vollmer, a renowned expert in the fields of digitalization, innovation, and sustainability. Marcell is a sought-after speaker and author that has dedicated his career to helping companies and individuals navigate the rapidly…

Learn More
Juli Lassow founder of JHL Solutions,

059 – Juli Lassow – Revolutionizing Retail, Sustainable Strategies, & the Future of Partnerships

Supply Chain Next · 059 – Juli Lassow – Revolutionizing Retail, Sustainable Strategies, & the Future of Partnerships Juli Lassow ,founder of JHL Solutions Meet Juli Lassow Juli Lassow, an accomplished retail professional, speaker, writer, and sustainability advocate, is the founder of JHL Solutions, a consultancy focused on creating outstanding private-label partnerships. With a deep…

Learn More
Martijn Lopes Cardozo, CEO at Circle Economy.png

060 – Martijn Lopes Cardozo – Circular Supply Chain

 Supply Chain Next · 060 – Martijn Lopes Cardozo – Circular Supply Chain Martijn Lopes Cardozo, CEO at Circle Economy Meet Martijn Lopes Cardozo Martijn, a seasoned entrepreneur, has an impressive track record of establishing prosperous ventures within the realms of software, mobile, and digital media in California. Upon returning to the Netherlands, he…

Learn More