Catching up with Yossi Sheffi

Yossi Sheffi has long been recognized as one of supply chain’s most important thought leaders, having published influential books on topics as varied as risk management and resilience, logistics clusters, sustainability and the development of the Covid vaccine. In The Magic Conveyor Belt, his most recent book, Sheffi looks at AI and the future of work and supply chain management. Here are excerpts from a recent conversation with Bob Trebilcock and Abe Eshkenazi.

Trebilcock: Yossi, now that we’re coming out of Covid, how do you assess supply chain management today? What’s working and where are we still struggling?

Sheffi: First of all, let me get rid of the misconception that supply chains broke down during Cvoid. My point is that the response to Covid was supply chain’s finest hour because the pandemic was not created by supply chain managers. It was created by outside forces and logistics, procurement and distribution reacted valiantly. I do think that Covid elevated the role of supply chain in the corporation, in the media and within government. I also saw it give a newfound confidence to some supply chain organizations. They said: Hey, we got through this. We can get through anything.

Now, what are we still struggling with? Mostly, I think there’s still a lot of inventory in the system, which we could have predicted because everybody was over ordering. They thought that the demand during the pandemic would continue forever. Well, nothing goes forever.

As to what I think is permanent, in the end the main pressure on corporations is to cut costs, increase service and increase revenue. There’s a lot of talk about reshoring, keeping more just in case inventory and getting out of China. Those may be happening on the margins, but, companies invested decades and billions of dollars manufacturing their products in China. It’s not easy to leave China.  

Finally, people are talking about the end of just-in-time manufacturing, and this is not going away. There are just too many benefits to just-in-time.

Eshkenazi: Has supply chain conditioned consumers to expect more than the supply chain can deliver? Before the pandemic, no one thought twice about placing an order for next-day delivery.

Sheffi: Clearly the profession was a victim of its own success. The fact that day in and day out we were delivering almost anything that people wanted unbelievably fast led consumers to think that was the norm. No one realized just what it takes to do something like that until there was a disruption.

Trebilcock: Let’s talk about complexity and meeting consumer demand. During Covid, we saw a lot of companies reduce the number of items they were taking to market. Is that permanent?

Sheffi: During every recession, companies focus on their best sellers and reduce the number of SKUs they’re offering. We saw this during the pandemic, where one leading soup maker reduced the number of varieties they were offering from 90 to 40. At MIT, we interviewed the CEO of Proter & Gamble, who told us how they had to reformulate Tide detergent while still maintaining it’s quality because not all of the ingredients they normally used were available. But, you know what happens after the recession? Marketing takes over and comes up with new varieties to get market share or increase revenue, and it goes back to the way it was before.

Eshkenazi: AI and robotics seem to be top of mind in almost every converstation that we’re having with supply chain leaders. From your perspective, how is AI and automation transforming supply chains?

Sheffi: Well, every warehouse operator is putting in new robots at a huge clip. That’s a trend that began before the pandemic. In terms of AI, it’s easy to forget that AI is already here to some extent and most of us don’t even realize we’re using it. Think of the customer service function of a company: We used to press one if you wanted this or that and now you just speak it. That’s AI on the other side that picks up what you’re saying.

In supply chain, one example is that companies are trying to learn more about their critical suppliers as part of their risk management strategy. The traditional way was to look at financial statements or Dun & Bradstreet. Those don’t help to find out what's going on right now. So, companies are using large language models to look at all of their suppliers. They’re looking at their social media, looking for stories about them in regular media. They’re trying to find out if they are lengthening the terms of payment to their suppliers; if they have a failed project; or if their deliveries are not 100%. Those are indications that something isn’t going right that needs to be investigated. This can’t be done without a large language model that can look at a lot of information about each supplier across thousands of suppliers. That’s just one example, and there are, of course, many others in manufacturing and distribution.

Trebilcock: Do we need to fear AI or automation in general in supply chain?

Sheffi: There are people on the extremes on both sides of this question. As usual, I think the truth is somewhere in the middle. A lot of the angst is about job losses, and in a period with historically low unemployment, and lots of open positions it’s hard to justify the level of anxiety. In every industrial revolution, some people lose their jobs, but new jobs are created, as well as new industries.

Eshkenazi: From your perspective, is automation or technology enough to take our supply chains to the next level of performance?

Sheffi: Again, you have to look at the past. Technology helps a lot, but we still have a workforce that is not used to working with high levels of automation. It will take time to train the workforce as jobs are changing. And if management isn’t sure about how or when to integrate people with automation, you’re going to have a lot of trial and error.

Trebilcock: How is the future of work in supply chain evolving?

Sheffi: When we talk about supply chain management, there’s work in the warehouse and factory and driving trucks, and then there’s work in planning and managing and monitoring supply chains. A lot of the angst today is that AI and automation will start to displace those managerial and white collar jobs in planning and monitoring.

First of all, there will be a lot more automation on the floor, but it will take much longer than people realize. There’s regulation, as some countries are talking about regulating AI. And, finally, there’s the issue of acceptance. With today’s airliners, you could go from gate to gate with no pilot in a 787, but will passengers be willing to fly in a metal tube at 35,000 feet across the Atlantic when there’s nobody in the cockpit, even if it’s monitored from the ground? Similarly, will people accept an autonomous truck with no driver going 80 miles an hour on the highway?

So, how do I see the future of supply chain work evolving? Number one is slowly. And, I don’t see too many jobs disappearing. The nature of those jobs might change just like the nature of jobs in an Amazon warehouse is different than they used to be. But, there are still 1.2 million warehouse workers at Amazon. And I don't see big changes happening fast over time.

Eshkenazi: Last question. What should supply chain leaders be focusing on?

Sheffi: One of the new challenges that I see has nothing to do with technology. It’s the polarization of the workforce and the community, the politcal polarization. How should companies respond when there will be pressure from certain groups and whatever they do, they’ll alienate the other half of the population? This is one of the most significant challenges. Companies used to think that they better avoid any political stand. Now, they’re under pressure to take a political stand. I’m not sure how this is going to play out, but companies will have to find ways of dealing with it.

In terms of a focusing on what come next in the supply chain, people are focusing on resilience because of the pandemic and the Russian action in in Ukraine. For many companies, resilience has taken attention away from sustainability and fighting global warming. We know the one constant is change and we have to prepare for that.

Click here to listen to Yossi Sheffi on The Rebound podcast, hosted by Abe Eshkenazi and Bob Trebilcock.

Click here to read an excerpt from The Magic Conveyor, Sheffi’s latest book.

Bob Trebilcock is the executive editor of Modern Materials Handling and an editorial consultant to Supply Chain Management Review. He can be reached at [email protected]

Abe Eshkenazi is the CEO of the Association for Supply Chain Management. He can be reached at [email protected].