Supply chain dynamics don’t often get big laughs, but it wasn’t a tough crowd last week at the Reynolds Center for Enterprise Development on the University of Arkansas campus in Fayetteville.
Business leaders across the spectrum of transportation and retail companies participated in the 14th annual conference of the Supply Chain Management Research Center at the university’s Sam Walton College of Business. One of the keynote speakers was Arkansas native Rodney Slater, who served as transportation secretary under President Bill Clinton.
The focus of the conference was how companies can remain agile during tight capacity times. A telling anecdote, and the one that got the biggest laugh, was told by Tracy Rosser, senior vice president of transportation for Wal-Mart Stores Inc. of Bentonville, who showed a picture of two once-popular toys during his presentation.
“Anybody remember Tickle Me Elmo? That darn thing,” said Rosser, referring to the doll that caused a shopping craze around Christmas 1996. “You just never know what is going to get hot when you’re in retail.”
Rosser said he recalls Wal-Mart springing into action when the shopping frenzy caused shortages. Wal-Mart executives called the manufacturer to ask how many could be made and how quickly — and how fast they could be delivered to stores.
When Furby caused a similar eruption in 1998, Wal-Mart even resorted to drastic, costly measures to deliver the product to its customers, according to Rosser. “We had Furby in the belly of a plane,” he said.
The truth of supply-chain dynamics is that best-laid plans are often upset by various — and unpredictable — turns of events, such as government actions, weather and customers themselves. Retailers like Wal-Mart or transportation companies like J.B. Hunt Transport Services of Lowell have to be able to adapt.
“I’m not talking about quick and nimble being a month, not talking about a day. I’m talking about by the minute and by the hour,” Rosser said. “It’s amazing the velocity at which things move, and customers are changing in terms of their expectations.”
Highway Funding Stressed
Slater, who is now an attorney in Washington, said replenishing the Federal Highway Trust Fund continues to be an important part of solving some of the traffic gridlock and inefficiencies of the transportation system. There is a potential $100 billion shortfall in the fund in the next decade, and the Arkansas Highway & Transportation Department has postponed numerous projects because of uncertainty about future funding. (For more about that, see the Executive Q&A with AHTD Director Scott Bennett.)
Poor transportation related to road conditions and gridlock can cause delivery delays and increased costs.
“States like Arkansas can’t afford federal piecemeal bills,” Slater said, referring to a recent speech by current Transportation Secretary Anthony Foxx. “Globalization demands that we deal with our transportation challenges today, not tomorrow. If we’re experiencing gridlock and choke points today, if we fail to do [anything], it’s only going to compound itself in the years to come.”
A labor dispute that caused a slowdown at West Coast ports has caused consternation recently among those involved in the supply chain. The Long Beach-Los Angeles port is a major point of arrival for goods coming to the United States, and the slowdown caused a backlog of products stuck in unloaded ships.
Many shippers began to divert shipments from the West Coast to other ports such as Houston or Savannah, Georgia. J.B. Hunt, EVP Shelley Simpson said, had to adjust accordingly.
“Our ability to move with this is very important,” said Simpson, who is the president of J.B. Hunt’s integrated capacity solutions division. “We have to react very quickly to what is happening in the supply chain.”
Simpson said companies that react the best in an ever-changing supply chain environment are those that have strategic, long-term relationships with customers. Rosser said Wal-Mart relies on such “strategic partners” to understand the urgency of quick changes.
Simpson relayed an anecdote about a manufacturer who didn’t use J.B. Hunt because its shipping fees were higher than a competitor’s. However, after the competitor began to have delays and missed delivery times, J.B. Hunt was able to show how reliability and customer service more than compensated for a higher up-front price.
“As a transportation provider, we tend to build our networks around customers who are stable with us,” Simpson said. “Customers that stay with us in a longer-term agreement, which I would suggest is three-plus years, our retention rate is high. We know we can count on those customers.”
Terry Esper, the executive director of the UA’s Supply Chain Research Center, said that was the “big, big” takeaway he learned at the conference: Low bids in the transportation sector don’t always save money.
“The needs of companies are almost opposite: J.B. Hunt says prices are increasing, but Wal-Mart says everyday low price,” Esper said. “The takeaway for me was that, for a long time, companies said we cost more because we offer better service, but a lot of customers didn’t know how to translate that service to a better value to them. It might mean forgoing short-term gains for long-term gains.”
The Effect of Online Shopping
A new factor in the business world is the impact of online shopping. Slater said when he was growing up in Marianna, his access to the outside world was Highway 79 leading to Memphis and St. Louis and beyond.
“You give a millennial a smartphone, and they don’t necessarily want or need a driver’s license,” Slater said. “That smartphone dwarfs time and space for them. It gives them access to the world.”
Rosser said e-commerce and the advanced technology of mobile devices have changed retailers’ and customers’ expectations. Still, there are times when problems are solved the old-fashioned way.
A couple of years ago, Wal-Mart had a holiday guarantee special involving 50-inch televisions. Well, when a customer expected the television to be delivered to a specific store that didn’t have any in stock, a Wal-Mart market manager transported it from another store in a Chevrolet Impala.
“You talk about supply-chain agility: That was a tool we never thought we’d utilize,” Rosser said.
“If we were half as good as everyone thought we were, we’d be awesome. We still have lots of room to improve. Our ambition is to continue to develop a dynamic national supply chain that can adjust quickly, much faster than we do today.”