Jim Tompkins redux: US supply chains receive F+

July 28, 2022 GENERAL

In April 2020, as the pandemic was raging worldwide, Jim Tompkins, arguably the dean of supply chain management consultants, spoke to FreightWaves about the outlook for his industry. Tompkins warned that COVID-19 was a before-and-after event for supply chains and that it would cement a profound shift from models based on cost, speed and efficiency to those based on what he referred to as “volatility, uncertainty, complexity and ambiguity,” or “VUCA.”

Jim Tompkins (Photo: Tompkins International)

More than two years later, events have borne out Tompkins’ forecasts — and have gone beyond what he could have expected. With that in mind, FreightWaves sat down again with Tompkins, who founded Tompkins International in 1975 and Tompkins Ventures in 2020 — the latter where he is chairman — to get his views on where supply chains have been, where they are and where they’re headed. His remarks have been mildly edited for brevity.

FREIGHTWAVES: In the spring of 2020, you forecasted a difficult adjustment for supply chains from the traditional cost-and-efficiency model to one based on resilience. Events have largely confirmed your projections. What is your read of the current situation?

TOMPKINS: Supply chain managers and leaders in all sectors still do not have a solid awareness that disruption is the new normal. Many still hope for the “good old days” or a new, stable normal. As we move forward, we need optionality, not optimality. The ability to optimize a perfect supply chain no longer exists. Supply chain networks need agility, speed and resilience.

FREIGHTWAVES: Are you surprised or did you underestimate the magnitude of the disruptions that have occurred, especially over the past 18 months?

TOMPKINS: In June 2019, I did a YouTube video explaining that the rate and magnitude of change would continually increase. In other words, VUCA would not diminish, and leaders needed to increase agility, speed and resilience.

Did I anticipate the whole world being turned upside down via COVID? Absolutely not. In fact, I kept being surprised by the impacts into the fall of 2020. Then I saw that three great shifts — working from home, the explosion of e-commerce and broken supply chains — were buffeting society at the same time. This is like nothing in the history of mankind.

At the risk of simplifying a complex situation, how did we get into this mess and why does it persist more than two years on? Were supply chains so compromised that it could not tolerate an event like this? Or were we dealing with an event like nothing we’ve had before?

We were dealing with an event like nothing before. Instead of freezing or reversing history, COVID-19 accelerated it. Pre-pandemic supply chains were not compromised — as long as nothing changed, they provided optimal service. But the business climate has changed more in the last 2 years than in the previous 50.

While consumer demand changes quickly via clicks on a keyboard, scaling up physical supply chain assets — transportation, DCs/FCs/, infrastructure, port facilities — all takes time. There has also been a lack of urgency in embracing digital supply networks, which is the only way to deal with perpetual disruption. End-to-end digital supply networks use artificial intelligence, machine learning and data analytics to bring visibility and actionability to every enterprise in a supply chain from raw material to finished product. This offers true optionality.

This may be beating a dead horse, but are we seeing a concerted effort to reshore manufacturing and distribution to the U.S.? And is Latin America overrated as a nearshore point?

While some reshoring is happening, the idea that the U.S. can be the center of all manufacturing/distribution is impossible. Reshoring implies coming back, and there is no “back” to come to. Many of the physical facilities for manufacturing have been turned into condos, and no one wants to work in those environments. The only reshoring possible involves operations that include a significant amount of automation. Nearshoring to Latin America and Africa are viable options.

It took years to build the intricate global supply chains to the Far East, and it will take time to build such infrastructure throughout Latin America and Africa.

FREIGHTWAVES: Have BCOs (beneficial cargo owners) done a good enough job of adjusting to the situation?

TOMPKINS: Like the rest of us, BCOs have had nonstop surprises. Like many, they want to return to the good old days. But with disruption as the new normal, there is no finish line, only continual adjustment.

FREIGHTWAVES: We are a little more than halfway through the year. What is your sense as to how the upcoming peak season will evolve?

TOMPKINS: Demand will be unpredictable due to the Russia-Ukraine war, inflation, semiconductor shortages and labor issues. Supply and lead times also will remain unpredictable. It will be a difficult peak season with inventory shortages and inventory overages, poor customer service and poor supply chain performance. Both online and in-store performance will be disrupted.

FREIGHTWAVES: We continue to see difficulties with chassis availability, warehouse capacity and intermodal reliability on inland moves. Is there any chance, even in the intermediate term, for these dislocations to resolve themselves?

TOMPKINS: Difficulties with chassis availability, warehousing and overall congestion are expected to continue on the U.S. East Coast. Major importers have decided to divert cargo to East Coast ports ahead of a potential (West Coast) port strike, which also reduced the amount of cargo in LA/LGB. Intermodal unreliability will be constant through year’s end as well.

FREIGHTWAVES: There has been a change in presidential administrations since we last spoke. The Biden administration appears to be taking a proactive stance toward the issue of supply chain disruptions, and it has painted steamship lines as greedy villains. Is this a misguided approach, and should the free market be free to clean up the mess that exists today?

TOMPKINS: A proactive stance is good. But it’s like planning without execution — there is little value. For example, the U.S. government has theoretically taken a proactive stance on funding semiconductor production in the United States. Yet the bill remains stuck in Congress. Telling gas stations they should just lower prices is not proactive; it is misguided. And it is still charging ahead to destroy the energy independence that we built two years ago.

You can see this on subject after subject. The government takes a stance, but talk yields no action and no result. It is very disappointing.

The solution lies in technology. We need to let the free market come to the rescue by deploying AI, agility, optionality and speed.

FREIGHTWAVES: We have seen spot market rates decline significantly on the eastbound Asian box trade as well as in truckload services in the U.S. If we operate under the assumption that these pricing changes reflect a cooling of demand, will this help bring supply chains into some type of balance?

TOMPKINS: With the past capacity issues and long lead times, retailers have ordered products early so they will not miss their seasonal demand. In doing so, orders are now arriving four to six weeks earlier than their forecast, which is creating inventory and warehouse capacity issues. This may shift the problem but could also continue to create congestion at the ports.

FREIGHTWAVES: As we spoke in mid-July, there was no contract between West Coast dockworkers and waterfront management. It would seem logical to say that a lockout, a strike or even a work to the rule on the part of the International Warehouse and Longshoremen Union (ILWU) would further damage an already-brittle supply chain. Is that a logical assumption, or are importers ahead of the game in their planning?

TOMPKINS: The dockworkers have great leverage at this time with the continued congestion. When volumes are high, a work stoppage of one day can create weeks of backlog. The math I have seen is that every day of a strike translates into one week of recovery. Importers did heed the warnings of a possible work stoppage or slowdown. They have begun strategically diverting cargo away from LA/LGB, which also could have softened the ILWU’s leverage.

FREIGHTWAVES: More than two years on, what report card would you give the U.S. supply chain and why? Are there sustainable improvements you can point to?

TOMPKINS: The grade for the U.S. is an F-plus. An “F” because the U.S. supply chain is broken. The “plus” is because most executives are aware of the problem and are trying to manage it. The failure of the U.S. and global supply chains reflects the failure of meeting the basic objective of supply chains: To synchronize supply to demand while exceeding customer expectations at a minimal cost. For the last two years, supply chains have not synchronized supply to demand. Supply chains have had both huge inventory shortages and rampant overages. We also have not met customer expectations nor have we minimized costs. Thus, the F.

The future does not look much better because so many supply chain professionals are trying to do the impossible. They are trying to fix their supply chains by working on their enterprise. I view this as being in my home office after a storm, with no power and no internet, and trying to fix the Bluetooth connection between my laptop and my printer.

The supply chain task at hand is not an enterprise problem; it is an end-to-end network problem involving multiple enterprises. The solution does not lie with fixing one link in the chain but in devising an ecosystem where all the links of the chain work together with a real-time single version of the truth, using artificial intelligence and machine learning capabilities to beget an autonomous digital supply network.

Source: https://www.freightwaves.com/news/jim-tompkins-redux-us-supply-chains-receive-f-plus