Speaker 1: Robert and I are going to sit down for virtual
Speaker 1: chats with people using technologies developed by IBM to deal
Speaker 1: with the unique challenges the world is facing today. In
Speaker 1: this episode, we'll be focusing on how consumers, retailers, and
Speaker 1: supply chains adapt in the midst of a pandemic. And
Speaker 1: for this subject, we're going to be in conversation with
Speaker 1: Luke Nazzi, the IBM Global Managing Director for Consumer Industries,
Speaker 1: and Carl Holler, who is a partner at the Consumer
Speaker 1: Center of Competency at IBM. If you'd like to hear
Speaker 1: more episodes of Smart Talks, the tech Stuff podcast has
Speaker 1: already released the first four episodes of the series and
Speaker 1: its feed. You can find them on the I Heart
Speaker 1: Radio app or wherever you get your podcast. Just look
Speaker 1: up tech Stuff and click on the episodes labeled smart
Speaker 1: Talks and stay tuned for upcoming Smart Talks episodes. Here
Speaker 1: on Stuff to Blow your Mind, which will be published
Speaker 1: in our feed in the coming weeks. And now straight
Speaker 1: onto our conversation with Luke and Car. All Right, well,
Speaker 1: I guess probably the best place to start off would
Speaker 1: be to have you each introduce yourself, so Luke and
Speaker 1: Carl can you each introduce yourself and just talk a
Speaker 1: little bit about your background. Yeah, Hi, I'm looking as
Speaker 1: I'm the Global Managing Director for Consumer Industries for IBM.
Speaker 1: Consumer industries are retail, consumer products and the agribusiness and
Speaker 1: I have the pleasure of leading that for IBM globally
Speaker 1: across all of the things that IBM does, and that's
Speaker 1: everything from our research, through our technology and our services
Speaker 1: and our industry platforms. And I'm Carl Haller. I'm part
Speaker 1: of Luke's team and lead our Consumer Industry Center of Competency,
Speaker 1: which is part of the IBM Services business unit, and
Speaker 1: we work me and my team, we work with clients
Speaker 1: around the world on um some of the more challenging
Speaker 1: issues that they're facing that require deep industry skills and expertise. Well,
Speaker 1: we really appreciate you joining us today. So one of
Speaker 1: the main things that we were going to focus on
Speaker 1: today was supply chains and how supply chains are adapting
Speaker 1: during a pandemic. And so to start off, I think
Speaker 1: we should think about what supply chains are. They They're
Speaker 1: one of the many features of our world that I
Speaker 1: think can remain mostly invisible to us until they break down,
Speaker 1: you know, it's only by your failure or by their
Speaker 1: failure that we suddenly sort of noticed them. Can you
Speaker 1: provide a little background on how like normal shopping behavior
Speaker 1: like buying a frozen pizza or buying a pair of
Speaker 1: genes relies on supply chains. So so, first of all,
Speaker 1: in terms of the fundamental to supply chains, um, when
Speaker 1: you when you buy something at a store, it's there
Speaker 1: because it's been distributed to the store. That means it's
Speaker 1: traveled from somewhere and it's got to where it needs
Speaker 1: to be. But behind that, it's been made somewhere. That
Speaker 1: means that there's been a factory where it is being
Speaker 1: made and to be able to make it. And let's
Speaker 1: take that pizza example, in the ingredients that have gone
Speaker 1: into that pizza have got to have been sourced. And
Speaker 1: so that's what we start to get into the kind
Speaker 1: of the fundamentals of the supply chain, because that means
Speaker 1: the bits for the dough, the tomato based, the herbs,
Speaker 1: the cheese, the toppings, they all need to come together
Speaker 1: from a range of suppliers, and those suppliers can be
Speaker 1: you know, very broadly distributed, and so you're getting more
Speaker 1: into the unpacking of that product, and then going further back, well,
Speaker 1: actually all of those things need to be either produced
Speaker 1: or grown. If they're natural, they're grown, but if they
Speaker 1: are you know, like artificial flavorings, and they have to
Speaker 1: be manufactured. And so that simple thing of buying a
Speaker 1: pizza and getting a pizza has to go through all
Speaker 1: of those stages of the retail, the distribution, and the logistics,
Speaker 1: the actual manufacturing, all the way through to the sourcing
Speaker 1: of materials. And of course if you then take something else,
Speaker 1: like a pair of genes, um, it's the same concept,
Speaker 1: but of course all of the processes that make prepare
Speaker 1: of genes, and so you've got to get them to
Speaker 1: the store. They've got to be traveled. Often they're traveling
Speaker 1: from very far away because they're made in the lowest,
Speaker 1: most effective cost manufacturing typically UM. And then when you
Speaker 1: think about everything that goes into a pair of genes, well,
Speaker 1: there's all the cotton, but there's all of the dying
Speaker 1: that goes into it, and that's a complex process in itself,
Speaker 1: and you've got to take care of that in a
Speaker 1: in an effective way. UM. And of course then that
Speaker 1: goes back to the source materials. That's what we mean
Speaker 1: by a supply chain. But I'll let Carl explain a
Speaker 1: little bit about the complexities that are in supply chains
Speaker 1: in the retail world. Yeah, thanks, Luke. You know the
Speaker 1: thing that I think most people I would agree with
Speaker 1: you probably understand that, you know, the things that they
Speaker 1: buy are made by someone and grown somewhere in concept,
Speaker 1: but they don't always understand how complex the supply chains
Speaker 1: have gotten. And whether we're talking about a food supply chain,
Speaker 1: or we're talking about a fashion or clothing supply chain
Speaker 1: or a package good supply chain, there are often upwards
Speaker 1: of a dozen different parties, maybe even more, who are
Speaker 1: involved in the work that happens to go from raw
Speaker 1: materials most of which many of which come from a farm,
Speaker 1: UM through the various stages of processing UM, manufacturing, UM, distributing,
Speaker 1: selling to get goods into you know, a refrigerator or
Speaker 1: a pantry or addresser drawer UM and and these these
Speaker 1: different companies tend to involve multiple geographies. Sometimes goods go
Speaker 1: back and forth around the world once or twice UM
Speaker 1: as they get from raw materials into finish goods UM
Speaker 1: and and that's usually done in order to get goods
Speaker 1: to consumers in the most efficient and lowest cost manner possible. Um.
Speaker 1: The thing that the supply chain relies on today is
Speaker 1: it relies on a couple of basic assumptions um. One
Speaker 1: that goods and capital flow freely across borders um. And
Speaker 1: second that most consumers are willing to make the trade
Speaker 1: off of really knowing and understanding how, where, and by
Speaker 1: whom goods are made in exchange for getting the goods
Speaker 1: whenever they want, wherever they want, and of a low
Speaker 1: and attractive price point. Well, that actually brings to mind
Speaker 1: a question I wanted to ask about some of the
Speaker 1: ways that values guiding the formation of supply chains could
Speaker 1: actually be in conflict. So, uh, the idea of like
Speaker 1: cost and convenience versus energy efficiency or sustainability or just
Speaker 1: in time philosophy, and if you can explain what that
Speaker 1: is versus like a supply chain being robust against interruptions,
Speaker 1: could you talk about that a little bit? Yeah, sure,
Speaker 1: So there's quite a few parts to that. Joe's are
Speaker 1: trying to unpack them in various pieces. So so, so
Speaker 1: the first thing is that you know, if we if
Speaker 1: we cast our minds back over the last twenty years
Speaker 1: in the consumer industries, you know, particularly around food and
Speaker 1: you know fashion, we've kind of accelerated through an environment
Speaker 1: where people can kind of get pretty much whatever they want,
Speaker 1: wherever they want, any time of the year, and so
Speaker 1: you can get fruit all the year around, and you
Speaker 1: can get your berries all around. What's what's occurring around that,
Speaker 1: of course, is that they're coming from many different places
Speaker 1: to be able to get those berries or the year round.
Speaker 1: And we've, through the digitization of commerce, learned to expect
Speaker 1: that if I want something that is shown on my
Speaker 1: tablet that I can search on, that I can get
Speaker 1: it delivered to my home at a you know, a
Speaker 1: reasonable time, and so you know, the what's undergone the
Speaker 1: supply chains, of course is a is a is a
Speaker 1: drive to efficiency and cost reduction and a value delivery,
Speaker 1: and so you know, we as consumers have been honestly said,
Speaker 1: a little bit selfish in terms of expecting anything any
Speaker 1: time anywhere in the world at the lowest kind of
Speaker 1: price point and without really having due consideration of the
Speaker 1: consequences of what it's taking to get that piece of
Speaker 1: food into the supermarket or that garment you know, into
Speaker 1: the store that I'm looking to buy. From all on online.
Speaker 1: Now what is interesting is that UM and so by
Speaker 1: the way, that's called convenience you know, it's all about
Speaker 1: convenience retailing. UH, and we we we've had the decades
Speaker 1: of convenience retailing. What's interesting is that at the beginning
Speaker 1: of this year, Carl and members of my team, working
Speaker 1: with the National Retail Federation and our IBM Institute of
Speaker 1: Business Value, did a piece of research with over nineteen
Speaker 1: consumers in I think it was twenty eight countries. Ever
Speaker 1: I remember, of course all demographics and we try to
Speaker 1: understand what was occurring in buyer behaviors and what the
Speaker 1: study showed, and it's available you can download it is
Speaker 1: that there are kind of three major categories, and the
Speaker 1: convenience category is still the biggest category. Of the respondents
Speaker 1: were convenience buyers looking for value, looking for cost effectiveness,
Speaker 1: looking for that fulfillment wherever they needed at the lowest
Speaker 1: price point. But for almost the same number, we're in
Speaker 1: a category that we called purpose driven consumers. These are
Speaker 1: consumers who care about where things have come from, the
Speaker 1: journey that they've been on, how they've been made, what
Speaker 1: kind of energy was used in them, what's the carbon footprint,
Speaker 1: whether they are sustainable in nature, and what we're seeing
Speaker 1: is this rise of the purpose driven consumer. There are
Speaker 1: a couple of other categories. But in the other categories
Speaker 1: are you know, those that follow the kind of the
Speaker 1: brand and the higher segments and they kind of are
Speaker 1: more aligned to the that pure brand brand value. But
Speaker 1: I believe in twenty twenties we are really at the
Speaker 1: point in time when we're in a decade where in
Speaker 1: the main people are starting to care much more about
Speaker 1: where things have come from and how are they made
Speaker 1: and what are some of the implications to the planet
Speaker 1: and society around that sourcing. We're becoming more responsible in
Speaker 1: our consumption. So in terms of that rise of the
Speaker 1: purpose driven consumer, what we're now seeing is that in
Speaker 1: the respondence that we surveyed about and out of ten
Speaker 1: are prepared to make choices and decisions that are reflect
Speaker 1: their drive for whatever their purposes, sustainability, lower use of plastic,
Speaker 1: evidence of re use in their purchasing, and even more
Speaker 1: fascinating is that we're seeing that they're prepared to pay
Speaker 1: more for those companies that are able to demonstrate and
Speaker 1: improve that their products have been made in a more
Speaker 1: sustainable or environmentally friendly way. The survey actually showed that
Speaker 1: people are prepared to be up to a third more
Speaker 1: for that. What's also interesting is this, this trend of
Speaker 1: that group is across age profiles, So it's not just
Speaker 1: a certain age profile, it's you know, all age profiles
Speaker 1: are showing that tendency. And it's not just a highly
Speaker 1: developed Western economy type of perspective. It's actually per permeates
Speaker 1: across a globe context and different stages of economic development.
Speaker 1: So so we believe that we are absolutely in the
Speaker 1: era of um what was becoming purpose different consumption. Now,
Speaker 1: the third part of your question is, you know, the
Speaker 1: kind of the dilemma that we find ourselves in right now.
Speaker 1: And obviously, with the global COVID nineteen pandemic, there was
Speaker 1: an immediate rush to people to kind of stock up
Speaker 1: and get basic goods. It was food, it was grocery,
Speaker 1: it was sanitary products, it was kitchen toweling, it was
Speaker 1: bathroom to um toweling, et cetera massive push for that.
Speaker 1: And and actually if you kind of look at them,
Speaker 1: the results and they're kind of they're publicly available on
Speaker 1: the stock market market and other reports that food and
Speaker 1: grocery and kind of basic sanitary health and wellness type
Speaker 1: category that is continuing have significant demand at the moment
Speaker 1: right now, albeit that the other categories of what we
Speaker 1: consider in retail have clearly experienced a slowing in this
Speaker 1: environment because of the fact that they can get to
Speaker 1: stores and there's only a certain amount of the business
Speaker 1: that's online. And so what is going to be interesting,
Speaker 1: and we can definitely unpack this a bit further, is
Speaker 1: what is going to happen. What are the implications of
Speaker 1: this pandemic continuing, and how it's going to change or
Speaker 1: alter different parts of what we see in the supply chain,
Speaker 1: and whether these things that we saw in terms of
Speaker 1: this convenience versus purpose, how how is that going to
Speaker 1: play out over time. One of the impacts that we
Speaker 1: see from COVID nineteen is that place and people are
Speaker 1: both increasing in importance um there of all, as Luke
Speaker 1: was saying that that to our purpose driven are thinking
Speaker 1: about broader issues, and some are thinking about sustainability, and
Speaker 1: they're thinking about their own personal values. What we're seeing
Speaker 1: now is that as safety and personal personal safety family
Speaker 1: health becomes paramount, more people are concerned about how things
Speaker 1: were made, where they made, and who's touched them along
Speaker 1: the way than they were, you know, just just eight
Speaker 1: weeks ago. Um. So, so that's becoming something that is paramount,
Speaker 1: perhaps even for some of those people who were otherwise
Speaker 1: predisposed towards price and convenience. Well, that's interesting that it
Speaker 1: makes me wonder about um unintended positive effect of even
Speaker 1: irrational concerns, Like I know that there were people who
Speaker 1: were concerned, um in the early days of the pandemic
Speaker 1: about products coming from China and like the idea that
Speaker 1: they could get infected by the virus from that, And now,
Speaker 1: of course, like that that's not a real concern, you know,
Speaker 1: the virus and by the time people were concerned about this,
Speaker 1: it was all over the world anyway, and the virus
Speaker 1: wouldn't survive the shipping time. So it's like a totally
Speaker 1: irrational concern, but could lead to people just generally being
Speaker 1: more aware of like, oh, wait a minute, the products
Speaker 1: I buy do have to come from a place and
Speaker 1: there's something behind them, and normally like uh, I mean
Speaker 1: I I can even admit this in myself. Most of
Speaker 1: the time, I just don't even think about that. You
Speaker 1: just buy it at the store like that, that whole
Speaker 1: history is completely invisible. I think you're exactly right, whether
Speaker 1: it's something we're buying in a in a in a
Speaker 1: mall store, you know, home, something for the home, or
Speaker 1: something for for ourselves, or whether it's groceries you're buying
Speaker 1: and we're just so used to getting, you know, fresh tomatoes,
Speaker 1: fresh fruits and vegetables in the winter, we probably don't
Speaker 1: really think that all of those were grown and transported here. Um,
Speaker 1: And now I would agree with you there is going
Speaker 1: to be a bit more awareness of that across the board.
Speaker 1: I mean, what, of course has occurred with the pandemic
Speaker 1: has been a massive lockdown of people pretty much around
Speaker 1: the entirety of the world, all be at different times,
Speaker 1: and a lockdown of transportation systems, initially people, but also
Speaker 1: harder controls around borders, much less flight transportation, and of
Speaker 1: course every time a plane flies to a country, not
Speaker 1: only is it taking people to but it's also taking
Speaker 1: some kind of produce, typically as as part of the cargo.
Speaker 1: And so one of the consequences of the pandemic is
Speaker 1: that the availability of supply in this globally connected network
Speaker 1: that we have that delivers us anything any time anywhere
Speaker 1: has had to deal with this massive contraction in the
Speaker 1: practicalities of transportation and logistics and are tightening up, and
Speaker 1: that combined with the peaks in demand, and we know
Speaker 1: what kind of demand peaked early on, and we talked,
Speaker 1: we talked about the sanitary products, but also what peaked
Speaker 1: very early on where things like packaged products, tins of soup,
Speaker 1: whether it's Campbell, Super Hinds or whatever your your preference is.
Speaker 1: And what also peaked is things like dried products like pasta. Um. Now,
Speaker 1: I live in London and I live in Europe, and
Speaker 1: most of our dried pastor comes from Italy. Yeah, and
Speaker 1: of course Italy was one of the countries that was
Speaker 1: locked down the hardest and impacted the hardest early on
Speaker 1: in Q one and consequently, and it's still taken a
Speaker 1: little bit of time. You know, it took quite a
Speaker 1: long time for dry light pastor to be readily available
Speaker 1: back on the shelves because there was a disruption in
Speaker 1: that supply chain. Now what what what starts to occur is,
Speaker 1: of course the supply chains are gradually recovering, transportation opens up,
Speaker 1: and so it's kind of less of that shock, but
Speaker 1: The other thing that's occurring is that if you've got
Speaker 1: demand for products, um, you know, and you are in
Speaker 1: the business of providing those products to let's keep with
Speaker 1: food and grocery to your customers, you're going to start
Speaker 1: to work through alternative sources of supply. And so what
Speaker 1: this is also driven is companies starting to look at
Speaker 1: alternative sources of a supply so that they can meet
Speaker 1: their demand. And that in itself is driving because of
Speaker 1: this constraint on transportation, a shift from global demand to
Speaker 1: what I kind of global local, which is I need
Speaker 1: to be more balanced and if I can get it locally,
Speaker 1: it might be more of a preference. Now, at a
Speaker 1: very practical level, you can see that if you are,
Speaker 1: you know, going out and if you're still buying food,
Speaker 1: because what's what's occurring if you're going out to buy
Speaker 1: your food is not everyone is going to a supermarket
Speaker 1: or a big superstore. What they're doing is they're combining
Speaker 1: that shop with a greater propensity to buy from local stores,
Speaker 1: whether it's the local vegetable store or the local butcher's store.
Speaker 1: And so what is occurring is a greater awareness of
Speaker 1: where things are available, and I think that's been driven
Speaker 1: very much by a kind of a needs perspective. But
Speaker 1: I think over time these two forces, this kind of
Speaker 1: longer term trend that we talked about around purpose driven
Speaker 1: consumption and people starting to be more aware of where
Speaker 1: food is coming from or where goods are coming from
Speaker 1: and what the alternatives are, is going to drive a
Speaker 1: different mix in that supply chain that we talked about
Speaker 1: to be more more regional rather than global. And I
Speaker 1: think that might mean over time us UM ultimately driving
Speaker 1: a better a better carbon footprint for the for the
Speaker 1: food that we consume, but also it might also help
Speaker 1: at a better redistributional value in that food value chain
Speaker 1: to allow the smaller corner shop to survive alongside the
Speaker 1: big store formats UM and I think we were seeing
Speaker 1: some of those changes start to ripple through. So Luke
Speaker 1: and Carl, have there been any um major challenges from
Speaker 1: like from food supply and demand or in other industries,
Speaker 1: even things that would be considered non essential like clothing
Speaker 1: that have been presented by the pandemic situation that we
Speaker 1: haven't talked about yet that that you would like to address.
Speaker 1: On one of the things that that we've seen with
Speaker 1: COVID is that the food business runs to parallel but
Speaker 1: largely disconnected supply chains. UM. It all starts all the
Speaker 1: food starts on farms, not always the same farms, but
Speaker 1: but certainly starts on farms. And then from there, part
Speaker 1: of that food runs through the supply chain that ends
Speaker 1: up on a grocery store shelf that we as consumers
Speaker 1: go out and buy and bring home. Part of that
Speaker 1: food runs through a different supply chain that ends up
Speaker 1: in either restaurants or food service. UM. As food service
Speaker 1: and restaurants effectively shut down, you know, near shutdown of
Speaker 1: most of those across most of the US and frankly
Speaker 1: most of the world, that supply chain dried up, and
Speaker 1: we were left in a situation where the consumer supply
Speaker 1: chain had shortages. UM, we had shortages of you know,
Speaker 1: fresh goods and dry goods, shelf stable goods, and yet
Speaker 1: we also had situations where farmers and distributors to the
Speaker 1: UM to the restaurant food service supply chain had an
Speaker 1: overstock of goods. And so that one of the challenges
Speaker 1: has been how can we figure out a way to
Speaker 1: better integrate those supply chains or at least provide better
Speaker 1: visibility of what actual products exist where, so that there
Speaker 1: could potentially be some intermixing. This is this is one
Speaker 1: of those things that the move toward efficiency over the
Speaker 1: past plus years UM at the expense of agility, has
Speaker 1: cost us. And I think what we see going forward
Speaker 1: is a little bit more balanced between efficiency and agility
Speaker 1: such that you can make a brand, um, manufacturer, retailer,
Speaker 1: you know, anyone involved in the in the supply chain
Speaker 1: can make different decisions in a more dynamic manner and
Speaker 1: change things on the fly because because there are hurdles
Speaker 1: I understand in the way of taking say pasta that
Speaker 1: was in the restaurant supply chain and switching it over
Speaker 1: to the consumer individual consumer supply chain. Yes, there there
Speaker 1: are hurdles. There are some hurdles that and it depends
Speaker 1: on the product category. There are some hurdles that are
Speaker 1: regulatory in nature. UM. There are some hurdles in terms
Speaker 1: of the not as much as the manufacturing process, but
Speaker 1: potentially the quantities and the pack sizes. UM. There are
Speaker 1: some hurdles in the packaging and how those goods are
Speaker 1: aggregated together. I know, just you know, my family, we
Speaker 1: uh purchased some fresh seafood from a seafood purveyor that
Speaker 1: normally sells to restaurants, and it was one excellent but
Speaker 1: to the quantity that you have to buy is not
Speaker 1: the normal amount that you might buy in a grocery store,
Speaker 1: so you have to you know, they've had to adjust. Um.
Speaker 1: They're also not used to bringing things directly to consumers.
Speaker 1: You know, they're used to a simpler supply chain. Um,
Speaker 1: they're not used to transacting by credit card with consumers.
Speaker 1: You know. So there are a lot of hurdles in
Speaker 1: the you know, the making and moving of things. There
Speaker 1: are also a lot of hurdles on the transactional side.
Speaker 1: So this is interesting. Yeah, so that kind of thing.
Speaker 1: Would that explain why we could see these strange disconnects
Speaker 1: where say, I don't know that the dairy shelf fit
Speaker 1: your grocery store might be very bare, and yet you
Speaker 1: also see video online of dairy producers having to like
Speaker 1: discard unused things. Yes, exactly exactly, and you can see
Speaker 1: you know, on on one and so so one the
Speaker 1: there are short you know, the shortages. So the dairy
Speaker 1: shelves being empty also then drives up the price to
Speaker 1: the consumer because there is as as Luke was saying
Speaker 1: earlier there's a big mismatch in supply and demand in
Speaker 1: one piece of the supply chain, yet in another piece,
Speaker 1: the mismatch and supply and demand is the opposite. There's
Speaker 1: an excess of demand. So despite the higher price consumers
Speaker 1: are paying for milk, farmers are having to get rid
Speaker 1: of milk because they don't have anywhere to put it
Speaker 1: in any any place, to any place to sell it into,
Speaker 1: because they may not have that same access um to
Speaker 1: the supply chain that that serves consumers directly. Actually, I've
Speaker 1: been very impressed with what some of the major grocers
Speaker 1: in the US have been doing, where they're actually starting
Speaker 1: to now buy up access supply and sometimes incorporated into
Speaker 1: their own business, but other times, frankly, just donate it
Speaker 1: so that it's at least getting to needy consumers to
Speaker 1: to help them, you know, get through get through this crisis. Well,
Speaker 1: that's great. It's also great yet to see some of
Speaker 1: that waste being avoided. Luke, we were talking the other
Speaker 1: day before this call, and you mentioned something about the
Speaker 1: sometimes kind of staggering amount of waste that already happens
Speaker 1: just as like an unfortunate byproduct of the way that
Speaker 1: supply chains uh exist today before the pandemic even yeah,
Speaker 1: absolutely Jones. You know, the the industries that we're talking
Speaker 1: about UM produce a massive amount of goods that don't
Speaker 1: end up being consumed. Either you have food in the
Speaker 1: food supply chain UM that ends up being beyond its
Speaker 1: state and then goes to waste, or you have you know,
Speaker 1: in the fashion industry, a lot of projects that are
Speaker 1: made and even after discounting and multiple campaigns, are still
Speaker 1: left and end up, you know, being effectively wasteful and
Speaker 1: so UM in its entirety. You know, the you know,
Speaker 1: there's about a third of the supply chains that are
Speaker 1: producing stuff that goes to waste. And this isn't because
Speaker 1: there isn't demand. There's demand around the world, it's just
Speaker 1: about where it's ending up at that particular point in time.
Speaker 1: And that that that waste is obviously a massive impact
Speaker 1: for the planet. It's it's the second largest CEO to
Speaker 1: producer as an set of industries, behind the global energy system.
Speaker 1: And so if we can do things that make the
Speaker 1: demand much more connected to the supply in a more
Speaker 1: integrated fashion, then there's this opportunity to not only fulfill
Speaker 1: people and give them important information that they want about
Speaker 1: where things have come from and and how it's going
Speaker 1: to affect them. But there's also an opportunity to get
Speaker 1: a closer integration of that demand signal back into the
Speaker 1: supply side of the world, and therefore we can be
Speaker 1: more responsible in terms of how the supply chains come together.
Speaker 1: And I'm I think it's going to it's going to
Speaker 1: take a decade to manifest itself, but I absolutely believe
Speaker 1: that technologies like blockchain, when connected to digital technologies that
Speaker 1: we interact with that i M the smart apple's on
Speaker 1: your phone as you're buying the food, or the data
Speaker 1: that you get when you're buying online. If you start
Speaker 1: to connect those choices, we can start to drive much
Speaker 1: more holistic understanding of what's going on and ultimately a
Speaker 1: better use and a more sort of sustainable supply change.
Speaker 1: And so right now, companies like car for in Europe,
Speaker 1: if you go and scan the QR code that is
Speaker 1: on the organic chicken, you can see the whole history
Speaker 1: of where that chicken has come from and proved that
Speaker 1: it's organic, and you can see you know where the
Speaker 1: food has come from, et cetera. Now I'm not saying
Speaker 1: that every shop is going to scan every product, but
Speaker 1: it starts to drive in kind of a change and
Speaker 1: an understanding of where things are coming from, and that
Speaker 1: in itself can drive more sustainable usage. So so this
Speaker 1: problem is very substantial, but it's also one of the
Speaker 1: big problems that we see as being addressed in this
Speaker 1: decade because of the availa ability of the technologies that
Speaker 1: we see in front of us. And by the way
Speaker 1: these technologies, um you know, they they are cloud driven
Speaker 1: and they are connecting different parts of the supply chain.
Speaker 1: Business network are also some of the technologies that are
Speaker 1: companies are using to reconfigure their supply chains right now
Speaker 1: because they're saying, okay, I understand who's available in terms
Speaker 1: of what produced in this region and they are applying
Speaker 1: that to get better supply to the demand that they have. UM.
Speaker 1: You know. Similarly, you know, I touched on what AI
Speaker 1: was doing is doing in terms of the inter end processes,
Speaker 1: and it's prevalent across the whole of the value chain.
Speaker 1: But you know that AI is allowing consumer goods manufacturers
Speaker 1: to do optimization of demand and supply in terms of
Speaker 1: they know what they produced and they know where it
Speaker 1: is physically in the supply chain and the distribution network,
Speaker 1: and they can sense at a hyperlocal basis where the
Speaker 1: demand is for those products, and they can drive a
Speaker 1: better matching of that supply to the demand. That means
Speaker 1: that ultimately the things that they produce are sold and
Speaker 1: they make money, But it also means that lessons go
Speaker 1: to waste and and so so these technologies that you
Speaker 1: know I touched on to we're asking about Robert's question
Speaker 1: also have a very important implication in terms of driving
Speaker 1: better sustainability as I touched upon, but also having a
Speaker 1: better optimization of the hyperlocal needs that we're seeing right now,
Speaker 1: and I think we're going to continue to see these
Speaker 1: waves of hyperlocal needs over the next six or twelve months.
Speaker 1: Some of our listeners may have heard about the existential
Speaker 1: need for digital commerce three point oh in order to
Speaker 1: keep the supply chain healthy, not on idearing, but after
Speaker 1: COVID nineteen, can you walk us through what digital commerce
Speaker 1: three point oh? Yeah it really is. I'll take a
Speaker 1: pass at this um because I think I think when
Speaker 1: we talk about you know, digital commerce three point oh
Speaker 1: or retail three point oh, you know, we have to
Speaker 1: get it. What a what a definition is and I think,
Speaker 1: you know, that's really a term that we would use
Speaker 1: within IBM as as an industry flavor of a broader
Speaker 1: umbrella term that we call the cognitive enterprise UM. And
Speaker 1: this is really an enterprise that UM understands, gathers information, UH,
Speaker 1: creates insights, acts on those insights, and learns over time.
Speaker 1: You know, an enterprise that has many more of the
Speaker 1: capabilities that we as humans have, rather than just being
Speaker 1: a great big machine UM. And I think many traditional
Speaker 1: enterprises right now are essentially great big machines, and they've
Speaker 1: been tuned for efficiency UM, just as machines and engines
Speaker 1: are tuned for efficiency. UM. What we're seeing now, UM,
Speaker 1: and I would say this is in It's in digital commerce,
Speaker 1: it's in all commerce, because most commerce has a digital
Speaker 1: element to it UM. And it's really all the way
Speaker 1: upstream from the point of commerce for the consumer up
Speaker 1: to the point of growing or producing. UM. What we're
Speaker 1: seeing is a you know, a greater need to sense
Speaker 1: and respond in real time to better understand the variable
Speaker 1: dynamics in demand and then match both supply to that
Speaker 1: and match frankly all of your operations to those variabilities
Speaker 1: in in UH in demand. This has existed for the
Speaker 1: last five or ten years. We've known about this UM.
Speaker 1: With COVID nineteen, it's really exacerbated thing that we've known
Speaker 1: about but haven't always really needed to do anything about
Speaker 1: because the variations in demand were relatively minor, might be
Speaker 1: a couple of points up or down, and might be
Speaker 1: happening on a small scale. Now we're seeing swings in
Speaker 1: demande up and down at a local level, depending on
Speaker 1: where outbreaks have been taking place, where countries are flattening
Speaker 1: the curve, where countries are getting back to normal, or
Speaker 1: even cities and localities are are reacting and responding in
Speaker 1: different ways. So it's now become business critical to understand
Speaker 1: which parts of the United States or the world are
Speaker 1: open and are open for business in a more traditional manner,
Speaker 1: and which parts are still locked down, because you're going
Speaker 1: to have such massive swings in demand that the success
Speaker 1: of your business depends on knowing that UM. So that
Speaker 1: that's really this ability to UM to really sense and
Speaker 1: respond in real time, and the ability to act on
Speaker 1: all of what you're sensing. UM is really at the
Speaker 1: heart of of you know, retail three point oh, industry
Speaker 1: three point oh however you want to phrase it. The
Speaker 1: ramifications of digital commerce effect more than just the retailer.
Speaker 1: The ramifications are felt upstream um to the consumer products
Speaker 1: companies as well um frankly, because right now the business
Speaker 1: model at the retail level is certainly in groceries, is
Speaker 1: not supporting the growth of online shopping. The cost to pick, pack, fulfill,
Speaker 1: and distribute those goods to consumers homes um is quite expensive,
Speaker 1: and consumers, except maybe in a crisis period, are not
Speaker 1: willing to pay a premium for that. So some of
Speaker 1: that will now move upstream to the manufacturer, and so
Speaker 1: they're going to have to think about new routes to
Speaker 1: get goods to a pick up location, two new routes
Speaker 1: to get goods into stores. Potentially they might be drop
Speaker 1: shipping goods from their own warehouses directly to consumers homes.
Speaker 1: That may also make them think about pack sizes in
Speaker 1: different ways how they aggregate goods together. Especially if you're
Speaker 1: thinking about traditional center core packaged goods that have a
Speaker 1: longer shelf life, we may see something like pack sizes
Speaker 1: increase in order to make the logistics workout for consumers
Speaker 1: who are shopping online. We may also see consumers start
Speaker 1: to adopt auto replenishment methods to buy those goods where
Speaker 1: they get a steady supply of things you know, delivered
Speaker 1: to them every month in exchange for the convenience of
Speaker 1: not having to go to the store to either those
Speaker 1: things and put them in your basket and load them
Speaker 1: in your car and drive them home. So we're going
Speaker 1: to see a lot of ramifications of this upstream on
Speaker 1: the producers side manufacturer side as well. Yeah, if I
Speaker 1: can give a very real example of that to share,
Speaker 1: and it's an example that was actually add on our
Speaker 1: Think twenty Digital event that we just had and Mark Foster,
Speaker 1: r s v P of Services, interviewed UM, one of
Speaker 1: the s vps from Free to Ly, and they talked
Speaker 1: about the digital transformation that they've driven to change their
Speaker 1: direct delivery model, which is actually the biggest private fleet
Speaker 1: of truck deliveries you know in the US, five thousand
Speaker 1: trucks a day being optimized to get Freely products all
Speaker 1: the way through their supply chains into where whever they
Speaker 1: need to be distributed, whether that at a store or
Speaker 1: at other locations. Well, not every CpG company has a
Speaker 1: model as advances of that, and what car is alluding to,
Speaker 1: is well, how do you start to kind of plug
Speaker 1: in those kind of engines that you know, free to
Speaker 1: lay has into my model. If I'm a beer company
Speaker 1: and I'm used to just distributing to certain places and
Speaker 1: then I'm used to the restaurant companies getting them from
Speaker 1: those places and getting them to the end consumer as well,
Speaker 1: right now that model has died down significantly. So how
Speaker 1: do I get my beer products much more direct to
Speaker 1: the consumers, um, not just relying on on what is
Speaker 1: coming through the supermarkets. And so you can see how
Speaker 1: you know, you know, a CP company, like you know,
Speaker 1: a beer manufacturer has got to think around next generation
Speaker 1: of digital for its B two B model, but actually
Speaker 1: they may have to get into the next generation of
Speaker 1: delivery into a BBC model. And it's that kind of
Speaker 1: change that we're that we're going to see being accelerated,
Speaker 1: and that's companies having to adopt more common street or
Speaker 1: zero type capabilities over and above where they had previously.
Speaker 1: So in trying to imagine how technology could help businesses
Speaker 1: and supply chains adapt and become more like a human
Speaker 1: less like a you know, an automated machine, something that
Speaker 1: that is able to have some agility and and and
Speaker 1: insight into the process overall. How much would this kind
Speaker 1: of technology just be about, you know, seeing more of
Speaker 1: the data that's currently available at every step in the
Speaker 1: supply chain, incorporating that and adapting, and how much of
Speaker 1: it would actually be predictive because I imagine that big
Speaker 1: problems come through and at each stage in the supply
Speaker 1: chain where somebody sees, you know, they can't tell signal
Speaker 1: from noise, like suddenly the dairy shelves are in empty
Speaker 1: one day, and you don't know, like, is this part
Speaker 1: of a trend that I need to adapt to or
Speaker 1: is this just some weird fluke today. Yeah, I know,
Speaker 1: it's a really good question, Joe. And the data is
Speaker 1: there If the data is there in each part of
Speaker 1: the process that we describe, it's there at the point
Speaker 1: of purchase, it's it's there in the transportation logistics that
Speaker 1: got that product to that point of purchase. It's there
Speaker 1: in the manufacturing, it's there in the the raw goods produce.
Speaker 1: But each of those are many different companies, and there
Speaker 1: are many different segments of the industry, and therefore they're
Speaker 1: very siloed. And so even though there the data is there,
Speaker 1: and each of those subparts of the inter and value
Speaker 1: chain are being optimized in their own individual piece. What's
Speaker 1: not necessarily occurring is the optimization of the whole. And
Speaker 1: so you know, the the opportunity in the the that
Speaker 1: that kind of visibility question that you're kind of reaching
Speaker 1: out of, Joe, is is how do you start to
Speaker 1: overlay these kind of broad order platforms of of UM
Speaker 1: enablement UM. So what I mean by how do you
Speaker 1: get data together that's in disparate parts and in different
Speaker 1: companies where you can make it available into the cloud?
Speaker 1: How can you analyze data sets at scale UM that
Speaker 1: are massive data sets solving really complex, highly undeterministic problems. Well,
Speaker 1: you can chuck the power of AI into First of all,
Speaker 1: what you do actually is you apply AI to the
Speaker 1: individual sub processes and then you start to optimize subparts
Speaker 1: of the system, and then later on you start to
Speaker 1: optimize the fuller system. UM. Not possible by the way,
Speaker 1: for everything, but but definitely possible for certain parts of it. UM.
Speaker 1: And then of course you leverage this visibility platform that is,
Speaker 1: I can track and trace anything through that whole supply
Speaker 1: chain if it's already in the block chain. So you
Speaker 1: can see how the connectivity and enabling technologies are starting
Speaker 1: to come together that allows you to drive a much
Speaker 1: smarter way of running these businesses end to end and
Speaker 1: elevating beyond the process or the sub segment optimization that's
Speaker 1: currently occurring. And you know, it needs the benefit of
Speaker 1: this data to be shared in the way that I
Speaker 1: described for people who actually see what actually by my
Speaker 1: sharing this data with here, the some of the game
Speaker 1: gets better. And that's the kind of things that we're
Speaker 1: working on. You know, I've explained I made reference to
Speaker 1: Food Trust earlier around that visibility of food. It was
Speaker 1: it was started for safety, but it can track and
Speaker 1: trace pretty much any characters you want as as food
Speaker 1: moves through the supply chain. That's going to be hugely important.
Speaker 1: A lot of the techniques that are being applied as
Speaker 1: AI techniques to e g. The energy industry, and there's
Speaker 1: a lot of AI that goes into that, and I've
Speaker 1: been involved in that in the past. UM can be
Speaker 1: applied to the AI of e g. Farming and that's
Speaker 1: all we're doing with our Watson data platform for agriculture
Speaker 1: that leverages are weather company assets and the ability to
Speaker 1: connect a data from multiple data sources in different parts
Speaker 1: of the value chain. Well, that's where you need the
Speaker 1: ability to do things like multi cloud management. And that's
Speaker 1: where our acquisition of red Hat and the capabilities of
Speaker 1: that company brings starts to come to bear. So we
Speaker 1: have all of the ingredients to start to solve this
Speaker 1: problem and ultimately make much better use of the world's
Speaker 1: finite resources and therefore reduce waste. But it's about applying
Speaker 1: these digital transformative technologies to the bigger parts of the
Speaker 1: systems and end to end than just trying to solve
Speaker 1: the individual components. So Luke and Carl, how do you
Speaker 1: see um retail in you know, physical storefront retail and
Speaker 1: digital commerce adapting after COVID nineteen. Well, I think, you know,
Speaker 1: some of the things that we've been talking about are
Speaker 1: going to continue to accelerate. I think this has driven
Speaker 1: a a significant shift to recognize that there is an
Speaker 1: increase need to enhance the technology enablement of that end
Speaker 1: to end supply chain and retail experience, and this enhancement
Speaker 1: of digital capability. UM, you know, people are going to
Speaker 1: understand that they can do more and buy more and
Speaker 1: experience more in a digital context. And so I think
Speaker 1: we're going to see, you know, a step chain enge
Speaker 1: occur in this period of how much is able to
Speaker 1: be done digitally? And then right now people are just
Speaker 1: figuring out how to get it done and how to
Speaker 1: make it work and how to stitch together the fulfillment.
Speaker 1: But the next thing that will come is how do
Speaker 1: I make that a great and beautiful experience and how
Speaker 1: do I drive loyalty and values and all the other
Speaker 1: things that you want. And so I think there's going
Speaker 1: to be a continuation of digital experience enhancement, very pervasive
Speaker 1: across multiple segments of the industry, continuing at quite some
Speaker 1: pace post the event postal crisis. I think it's it's
Speaker 1: too early to be able to be precise about what's
Speaker 1: going to happen. Um you know, two stores, you know,
Speaker 1: I think, you know, I think there will be a
Speaker 1: rebalancing of the kind of the physical footprints that companies
Speaker 1: have because they will be driving more more digit really
Speaker 1: and therefore there will be some form of reduction in
Speaker 1: physical footprint. But again, when you have that physical footprint,
Speaker 1: you know, you need to make sure that it's delivering
Speaker 1: what the customer wants. UM and is you know, for
Speaker 1: for some of the higher end things that we do
Speaker 1: what the current customer customer really wants from an experienced perspective.
Speaker 1: So I do think the ongoing digitization of the store
Speaker 1: will continue, but it might be for fewer stores over time.
Speaker 1: And of course, you know the things that we've talked
Speaker 1: about in terms of supply chain resilience, supply chain responsiveness,
Speaker 1: supply chain intelligence, well that's going to be needed irrespective
Speaker 1: of where the channel is that you're fulfilling, and so
Speaker 1: we're going to see that ongoing trend. So I do
Speaker 1: think this will will result in an ongoing and continuous
Speaker 1: level of innovation and enhancements in various components that we've
Speaker 1: talked about UM today. I believe, you know, the COVID
Speaker 1: nineteen crisis is extremely disruptive at all levels of the business. Frankly,
Speaker 1: whether you're an essential brand, an essential retailer, or whether
Speaker 1: you're considered non essential UM, it's disruptive in different ways.
Speaker 1: And as we work our way through this UM and
Speaker 1: as Luke said earlier, we believe this is this is
Speaker 1: going to stay with us for a while UM, and
Speaker 1: there's going to be a continued variability, you know, high
Speaker 1: degree of variability of what's happening with consumers, which then
Speaker 1: impacts up through retail and uh consumer products, even up
Speaker 1: to farms. As this ripples through over the next eighteen two,
Speaker 1: maybe twenty four months, we see that it's probably going
Speaker 1: to spur companies to do things that they know they
Speaker 1: should have done over the past two or three or
Speaker 1: four years, but have not always found the means or
Speaker 1: the impetus to take action on. You know, companies, when
Speaker 1: we talk to our clients, you know they know they
Speaker 1: need to be better enabled with digital commerce, whether that's
Speaker 1: B two B or B two C. They know they
Speaker 1: need to enable customers to shop seamlessly across channels or touchpoints. UM.
Speaker 1: They know they need more insight and analytics on data
Speaker 1: that they have in their company and on data that's
Speaker 1: out freely available or for pay available in the marketplace,
Speaker 1: but available data. And they know they need to be
Speaker 1: able to adjust their operations so that they can be
Speaker 1: more kind of intelligent and responsive based on all of
Speaker 1: that data. They've known they need to change their cost model.
Speaker 1: They've known they need to reduce costs. They know they
Speaker 1: need to balance agility and efficiency UM. But they that's
Speaker 1: a difficult thing to do. It's a fundamental change to
Speaker 1: the way many of these businesses operate. UM. And one
Speaker 1: of the things I think we will see coming out
Speaker 1: of uh COVID nineteen and in the middle of COVID
Speaker 1: nineteen even is companies are starting to address these things
Speaker 1: that were important but not urgent, and now they've become
Speaker 1: both urgent and important, and that sent that tends to
Speaker 1: spur our clients us for every company into action. So
Speaker 1: you've been talking about what you expect to see. What
Speaker 1: would you love to see, like, what what would what
Speaker 1: kind of adaptations are changes do you think would be
Speaker 1: the most ideal? So one thing I would love to
Speaker 1: see is more conscious consumerism taking place. UM. I think,
Speaker 1: as again, as we've talked about a little early, our
Speaker 1: consumers are being more concerned now about about people and
Speaker 1: place and where things come from and how they're made.
Speaker 1: We have we're in an industry that has a lot
Speaker 1: of waste to push goods out to consumers, and frankly,
Speaker 1: consumers contribute a lot of that waste themselves. I think
Speaker 1: if we overall start to adjust toward fewer things that
Speaker 1: potentially mean more to us, that would be a better
Speaker 1: thing for everyone. My mind is similar, Joe. I mean,
Speaker 1: I think we've been talking about a lot of re
Speaker 1: engineering of the capabilities that make up the enterprise. We've
Speaker 1: been re engineering of commerce, re engineering of supply change,
Speaker 1: reengineering of manufacturing and sourcing activities. We are going to
Speaker 1: go through a major period of companies re engineering themselves
Speaker 1: to respond to what the new normal looks like. Wouldn't
Speaker 1: it be great if the re engineering head kind of
Speaker 1: sustainability at the heart of that re engineering, so that
Speaker 1: we fulfill customers needs and demands. But we're doing that
Speaker 1: at a much more responsive and a much more balanced
Speaker 1: regional We've balanced a global way, and we bring back
Speaker 1: that sense of understanding and identity about where things are
Speaker 1: made from and how they're consumed all the way through
Speaker 1: the value chain that we kind of lost in the
Speaker 1: last twenty years. Wouldn't be great if this, this this
Speaker 1: period brings that back into place, because it's going to
Speaker 1: make ultimately a more sustainable society. Means that things will
Speaker 1: be better distributed to the broader population in the world,
Speaker 1: and it means that less things were going to waste,
Speaker 1: and that would be a fantastic outcome. I think. All right,
Speaker 1: so there you have it. Thanks once more to Luke
Speaker 1: and Carl for taking time out of their busy days
Speaker 1: to chat with us here, and if you would like
Speaker 1: to learn more, go to IBM dot com slash smart Talks.
Speaker 1: That's IBM dot com slash smart Talks. And if you
Speaker 1: would like to catch up on other episodes of Stuff
Speaker 1: to Blow Your Mind, you can find us wherever you
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Speaker 1: as always to our excellent audio producer Seth Nicholas Johnson.
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