How’s your business doing now? During the pandemic, a lot of businesses, across all industries, got affected.
In today’s episode, Justin interviews Jim Tompkins of the Tompkins Ventures. Together, they discussed how to transform your supply chain to a digital supply network.
Listen to more episodes and subscribe to the podcast on Apple.
- Life during the pandemic and the new normal: Has he ever experienced something like this before? – 0:40
- Publishing his 31st book. – 4:57
- Marrying two concepts together. – 7:32
- Taking it to the next level. – 11:46
- The answer to resilience. – 15:41
- What it’s all about: Visibility and actionability. – 18:08
- How many people have picked up on it? – 19:56
- Steps to taking actions on these items. – 21:01
- Type of company or engagement he’s been recently that can help illustrate to people. – 24:09
- The challenge. – 35:51
Connect with Jim Tompkins
Connect with Justin Smith
Justin Smith: Hey Jim, how’s it going?
Jim Tompkins: Well, how are you?
Justin Smith: I’m doing all right. You can believe it that 2019 is when we had an interview like this before there’s been a lot has happened since.
Jim Tompkins: Oh my goodness, that was about two decades ago, I think.
Justin Smith: No doubt. Well, great I know you’re busy, so I figured we’d just hop right in.
Jim Tompkins: That’s fine for me.
Justin Smith: When you think of what we’ve experienced over this past two years and since our last interview and thinking about the future, have you ever experienced anything like this before?
Jim Tompkins: Justin, absolutely not. 2020 and 2021 are clearly the most difficult times in the history of the world. I mean, the scope and the magnitude are beyond comparison. COVID-19 has had major impacts on everything everywhere. There’s nothing I’m doing that doesn’t have a COVID-19 tone to it. COVID-19 has globally impacted all aspects of business, all aspects of how we live, all aspects of real estate, all aspects of supply chain, all aspects of almost everything. In fact, the disruptions resulting from COVID-19 are huge, but what makes the disruptions even stronger or bigger or worse is that we are living with an uncertainty about uncertainty.
Justin Smith: That’s a good way to put it as not only what the new normal looks like. Like the pace of change and just a somewhat chaotic environments to know what will change, what will go back, what will only go forward and how to make sense of that when making long-term commitments.
Jim Tompkins: Yeah, that’s very difficult. In fact, you use the term new normal. I think a lot of folks are out there saying, when are we going to get back to the old normal? I began thinking about this level of change back in January of 2019. When I saw more and more and more disruptions occurring.
And I went back and studied the old term VUCA, which came from the army back in the 1988 timeframe. Where VUCA stands for volatility, uncertainty, complexity, and ambiguity. And by golly, we got volatility, we’ve got uncertainty, we’ve got complexity and we’ve got ambiguity. So it’s the rate of black swans or just, I mean, the black swans are flying everywhere with surprises and things that we kind of just shake their heads and look at and say, wow, what’s that about? In June of 2019, I did a video how do we deal with VUCA and optionality. Now, the interesting thing about that video, when it came to March, people call me up and said, Jim, you predicted COVID. Now as you well know Justin, I am not a healthcare guy. I don’t know much about COVID. In fact when it all happened, I didn’t know what a locked down was. I came home from a trade show, my wife said we’re going in a lockdown, and I thought she and I were going for a date at a new restaurant. I didn’t even know where what’s what the word lockdown meant. Nevertheless, back in March, I still didn’t get the impact of what COVID 19 was going to do. I thought this was going to be a problem for a couple months, and then we’ll kind of go back to usual. But as the doctors and the healthcare professionals started telling us more about their learnings about COVID. I started to understand the implications and I said, you know, there never is going to be a new normal. Well, as time goes on, I now think there will be a new normal but the new normal is nonstop disruptions. This is the new normal we’re living in today. This is not the good old days, but this is the reality for the next 5, 10, 20 years. We’re going to have a continuous disruption environment taking place time and time and time again. This is the new normal and it is disruptive. It’s time to get over it and realize this is what we’re going to deal with.
Justin Smith: No use of being nostalgic of days past. It doesn’t do you any good when you’re making all of these plans and when you’re making all of these investments. It is interesting to think if you’re in the nonstop disruption, if that is the lens that you are looking at in the landscape that you’re working with, what do you do if that’s the theme? I mean, you have a book coming out, actually. So this would be you thinking through that and it’s amazing it’s your 31st book if I understand that correctly.
Jim Tompkins: That blows my mind because 12 years ago, when I finished my 30th, I said, I’m never going to write a new book. I’m now going to be all video or live speeches or all podcast or something. Well, I still do a lot of podcasts and I appreciate the great work you’re doing on that as well. But the fact of the matter is it’s time for a new book. And so I am writing the 31st book. This book will be the title will be Insightful Leadership: Surfing the Waves of a Turbulent World. What the book presents is a three-phase evolution of how black swans disruptions lead the tipping points. And then these tipping points lead to paradigm shifts. The point of insightful leadership is that what we need to do is we need to study. We really sit down and think about the disruptions and ask ourselves questions. What tipping points can we anticipate and what insights do we have about those tipping points so that this gives us a chance to see the paradigm shifts early on. If we can see the paradigm shifts early on, we then can develop foresights as to how to innovate ahead of the paradigm shifts. And so innovating ahead of the paradigm shifts is what I’m talking about surfing the waves of the turbulent world. It allows us to get in front of the paradigm shifts that capture the power of the wave to create business success and then move past our competition. So, yeah, I’m excited about surfing the waves of the turbulent world, because that’s what we need to do to be successful with nonstop disruptions.
Justin Smith: Never needed more than ever then this moment now. It is interesting to think through how, if you can recognize that and you can surf it, you can communicate that to all of your partners. And then when everybody has that same mentality there’s power behind that and there’s more visibility behind that. I love it. I feel like it’s like dancing in the rain. You’ve got to be comfortable with that and enjoy the process.
Jim Tompkins: Oh man, well said.
Justin Smith: All this disruption and going to tipping point and then taking that to the paradigm shifts in applying it towards the supply chain. So how do we marry those two concepts together?
Jim Tompkins: Well, the impact of this nonstop disruptions and the tipping points in paradigms has been brutal. I mean, COVID 19 has resulted in three major disruptions that lead to tipping points and began the paradigm shifts. What we see is that first of all, The COVID-19 lockdown. Secondly, we see the explosion of digital commerce. And thirdly, we see the total failure of supply chains to accomplish that primary objective. The primary objective of supply chain is the synchronized supply to demand. And what we saw is that we were not able to synchronize supply to demand. We didn’t understand what the supply was going to be and then we didn’t have an understanding of what the demand was going to be. So what we saw was the total dismantling of supply chain. This was just huge. The fact of matter is Justin, things that you and I thought we knew five years ago simply are not true anymore. The two major tipping points to come from the lockdown, where the whole staying at home thing and the whole society of sociology of life. Staying at home from work and school and travel resulted in us not living the life as we know. And you know, we don’t go to school. We don’t go to church. We don’t go shopping. We don’t travel. We don’t take vacations. We don’t socialize. It’s changing everything. If we look at what came from ecommerce, it resulted in the explosion of digital commerce. That had a huge impact on distributed logistics, where instead of building a couple of big DCS, we now need to have multiple fulfillment centers that are closer to the customer. And then what we need to do is really figure out this final mile transportation. The two major tipping points that come from the failure of supply chain was a heightened awareness of how important supply chains are to us. The supply chain was on the news, the newspaper every single day, supply chain, supply chain, supply chain. And so what we’ve learned is that we need to leave supply chains behind. The concept of a chain needs to be left behind and we need to move on to digital supply networks. Where the combination of the lockdowns and the digital commerce, it just resulted in us having to reinvent the science and the practice of what we’ve had called supply chains. And we now need to be talking about digital supply networks, not supply chains. It’s not a series of links, it’s one integrated network end to end.
Justin Smith: It’s amazing to have things become more public. Where those were like industrial warehouses, all the containerships at the ports and the million disparate ways that’s impacted everybody. To be like to come into the light where people usually you don’t think about that, you don’t wonder where things were made so much or how they made it to your doorstep. And then all of a sudden to have that front and center for everybody is, I assume is a more a blessing than a curse because then it just brings about more people with innovative ideas and much like you thinking through. I love the concept of the chain and going from chain to the digital supply networks. Just thinking how we’re all connected and how can supply, and demand be more connected and work more as a cohesive unit. Yeah. That would tell you that supply chains are broken. And that’s, what’s in the news. So as we evolve out of that, how do we take that to the next level?
Jim Tompkins: Well, I, I think that’s a great question, Justin and what we need to do is we need to look back at where we came from. And so I’ve been using a little acronym E.E.R.R. And the first E is where we were back in from 1991, when we first invented the concept of supply chain through 2005, where what we focused on was efficiency. So the first E is efficiency. And what we were really talking about is cost reduction. How do we take transportation cost and inventory costs out of the links? And so we were really focused on the company. We weren’t even focused on anything that looked like a chain. We were dealing from 1991, we call it supply chain, but we really were looking at linked excellence. How do we make our link of the chain work well? And then between 2006 and 2020, depending upon what industry you’re in, the focus was on the second E of effectiveness. So effectiveness is a focus on customer experience. What we learned was that as we improve customer satisfaction, we increase sales. And so it’s not about cost reduction strictly it’s about improving the bottom line. And the bottom line is a combination of increasing sales and reducing costs. And so E stands for the efficiency and effectiveness where we’re really looking at profitable growth. Then in 2020, we got the first R, and this is what I mentioned a moment ago about being supply chain in the televisions and the Wall Street Journal. What we found is the first R is respect. I recall very clearly in April of 2020, my wife came into my office and sat down my home office. Now my wife, I think, is probably sat down at my home office, maybe like three or four times in the last 20 years. And every other time in the past, once you sat down and it’s because I messed up. And so she came in in April of 2020 and sat down and I thought, oh wow, what did I do? I left the refrigerator open last night. I forgot the take the trash out or what did I do? What’s going to happen now? And she looks across the desk and she smiles at me and I thought, wow, that’s weird. And she said, congratulations. And I said, well, huh, thanks, what are you congratulating me for? And she said, well, you are now legitimate. I said, wow. I said, mom and dad never told me. I thought I was the gentleman. And she says, no, no. She said I we’ve been married for 53 years and for 53 years, I had to tell our friends, my friends, your friends, I had to tell our kids, I had to tell her what it is you do for a living and no one ever. I would explain supply chain and they will look at me like I had two heads. They didn’t have any clue what I’m talking about. She said, but now my girlfriends are calling me up and say, oh, supply chain I heard it on the news last night. Is that what Jim does? Is Jim the one that makes is he the reason we don’t have toilet paper in the stores. And so they’re almost sudden us supply chain guys became like rockstar. And so that’s the first R of respect. So we have efficiency that affected us none of respect. But then what happened is what we found ourselves is with this level of turbulence and the magnitude of turbulence, like we had never seen before, VUCA totally destroyed the supply chains. We could no longer synchronized supply to demand. And so that’s the last R of E.E.R.R is resilience. The question is what is the answer to resilience? Well, the answer is to replace the traditional supply chain with the words you like Justin, a digital supply network, and there’s four key points here. The first word as you picked up on Justin is the word network. It’s not a series of links, but it’s a network of connected, enabled, digitally enabled the multi-party, multi-echelon, an end-to-end network where there is one version of the truth. Everyone in the network knows exactly what’s happening in real, real, real time. And that gives us the capability to synchronize supply to demand because we know what supply is and we know what demand is. The second part of resilience is synergy and here’s a whole different way of thinking about things. Synergy says the whole is better than the sum of the parts. And so, what we need to do is not just work for ourselves, but we have to work for ourselves and our trading partners because it’s us and the trading partners that are going to result in the largest cost on the P&L the cost of goods sold. The cost of goods sold is nothing more than a role of all the expenditures, everyone before you up the network spends. And so, when one of our partners waste money, we waste money. And so, what we need to do is we need to function with everyone’s best interest concern, and we need it’s more about the team than it is the individual.
Then the last, no, not the last, the third thing we got to talk about is harmony. Where harmony says all links must march together to the drum beat of the customer demand. So, it has to be a demand driven network, where we have the fourth characteristic, which is called orchestration. Where we use the tools of orchestration. So, we use the tool of artificial intelligence. We use the tool of machine learning. And so, like a conductor of an orchestra, we’re able to use AI and ML to address the disruptions in real time to maximize customer satisfaction while minimizing the total cost. This is what it’s all about. It’s about visibility and actionability. If you don’t have visibility, you don’t know what the problems are to solve. If you don’t have actionability, you can’t solve the problem. So, we need visibility and actionability. I guess you could say that’s the digitization of supply chain is a mandate in today’s complex, long network of suppliers and logistics providers.
I mean, if you look at it, someone says what’s different now than it was 10 years ago. Well, now there’s not any product that’s made anywhere that doesn’t have components of it from all over the world. We’ve got very long, very complex supply chains. And so, we need to address that and understand. And today it’s not about your company versus my company. It was not even my supply chain versus your supply chain. It’s about my digital network versus yours. That’s the competitive environment we’re dealing with. And so, someone might say, well, Jim, this digitization of the supply chain, how important is that on a scale of zero to 10? I’d say, well zero to 10 I would probably give it a twenty because it’s the whole game. It’s kind of like saying, what’s the importance of the quality of your football players to winning the game? Well, the team with the best players and the best coaches are going to win. The ones without the best coaches and best players are going to lose. So, this is how important, this is the future of where we’ve been doing for 30 years in supply chain and what we’ve got to do is we’ve got to do it differently than we have.
Justin Smith: Yeah, when you think of how many people have picked up on this as a percentage of industry, would you say it’s half?
Jim Tompkins: Well, I would guess Justin that about 80% of the people get that we are disrupted, that we are no longer in control and there’s a huge amount of turbulence. And then 15% are saying, oh my goodness, we’ve got to do something different. And then maybe 5% actually understand what they need to do to create a digital supply network. So, it’s just starting to be understood and acted upon. So, there’s a huge opportunity going forward for companies that use this as a competitive advantage, because if you have a digital supply network and you’re dealing against someone that has a supply chain you’re going to absolutely clean their clock with respect to your performance, the customer, and your costs.
Justin Smith: If we take this into actionable initiatives for manufacturers, for retailers and for distributors is there addressing these disruptions and looking for tipping points and thinking about paradigm shifts. How can you take action on these items?
Jim Tompkins: Well, I, I guess the first step is to realize that there is no such thing as an optimal solution. Optimal assumes a given set of requirements but the fact of the matter is those requirements may be true today or yesterday, but by the time you get to tomorrow those requirements are going to change. And so, what we need to do is face head on that this continuous disruption is going to constantly change the requirements. And so, what we need to do is to move, not with optimality, but instead with optionality. So that we have a series of options, we can kind of chart our path through. If this happens, we’re going to do this. If this happens, we’re going to do this. And those types of resilient digital supply networks are the ones that are going to allow us to conform to our plans even though our plans have been substantially changed. Once we get that concept, we then need to look at what are the disruptions that are happening to me. And what are the tipping points that are resulting from those? And what insight do I have about them? Literally sit down and think about it. I mean, you got what is happening. Unfortunately, because of COVID, we’re all living in such turmoil. I got people running around in circles and they’re not even thinking about what’s happening to them. But what we’re going to do is sit down and say, what is it that is happening? And how can I develop foresights about these insights I have about the change that are occurring.
Once I have the foresights, I then understand where the paradigm shifts are going to be. So, I now understand what are the things I need to innovate about and then I implement the innovations. And then I’m going to be able to be ahead of the competition because I’m going to be ready for the paradigm shift when it happens.
So, it begins with understanding we really got to deal with continuous disruption. We’ve got to have insights about those disruptions where it allows us to get an insight into where we’re going to have. And then develop foresights, which allow us to innovate. So, it’s a pretty methodical process, but it takes some real thinking and not running around in circles like chickens with our heads cut off.
Justin Smith: That’s the power of taking a moment every 90 days, 60 days or 30 days, or whatever time periods to reflect. I feel like a lot of people are busier than they’ve ever been dealing with challenges and complexity and finding it harder to make that an important moment for them to be able to recast and to be able to think through what just happened and how can they make changes. And so, this is one of the ways you help people, not just in writing the book to help people understand, but actually walking the path with them. So how would you help someone with this, or I understand you’d walk through some of these past the action items we just talked about. Maybe you could give an example of type of company or an engagement you were on recently that can help illustrate this for people.
Jim Tompkins: There’s a couple examples that we see repeated over and over Justin. And so, it’s really interesting to understand, how can we do a better job here? I guess the biggest one lately is, is the one about labor, what we’re seeing is a real conflict in the way people think about labor. Do we have to go back to work, is an interesting question? 4% of the people in the United States say, yeah, I want to go back to work, and I want to work in an office full time. Something like 25% said, no, I want to work at home full-time, I don’t want to go into the office. And then the other 71% want to do something called hybrid. Well, the problem is what do we mean by hybrid? And there’s a huge discrepancy between what companies think is hybrid. What the people think is hybrid. Companies say hybrid is we think it’s good that you work from home three, three to four days a month. The company says it’s okay for you to work from home three to four days a month. The employee says I want to work from home all, but three to four days a month. I want to spend the majority. So, we’ve got the exact opposite views of what hybrid is. And so, what we have is a major discrepancy about quote people returning to work. And so, I think we’re going to find more and more and more remote work. That’s going to have impacts on real estate, M&A. How people live. Where people live. But what we need to do then is we need to take care of the manual labor things via automation. And so material handling is a big area where I’m helping companies. Automation is an area where I’m helping companies and realizing that it’s no longer just about a return on investment. It oftentimes is about having the capacity to meet the requirements of the customer. So that’s a major issue of labor. I just mentioned the second point as well, which is the issue of capacity. And capacity could be with respect to funding. And so, I’m very involved in helping companies getting funding. It could be a capacity from a strategic planning point of view. It could be a capacity from an industrial development point of view of getting the real estate and building the buildings. You certainly know a lot more about that than I do Justin. It’s also about the transportation and not just the first mile, the middle mile, the final mile. It’s all of that. In fact, except for the first mile, the middle mile and the final mile, things are going pretty well in the United States right now.
Unfortunately, that’s all there is, first, middle and final. So that’s a major issue. And then another major issue with capacity is do we have enough space for the storage, the inventory? And so, what is the logistics capacity, the warehousing, the distribution, the fulfillment centers. And then the last issue that we find repeated over and over and over again is this one we’ve been talking about supply chain of having the proper network planning tools. So, we have the right network to work with, and then they have the information technology to allow that network to come to life. And then they have visibility and actionability of a digital supply chain to allow the network to really, really function, even though the requirements are changing. So, it’s an extremely interesting time. When I asked people the question, how are you doing in COVID? I had a guy say to me the other day, he said, well, except for the availability of pallets, containers, ships, trucks, labor, we’re doing fairly well. Unfortunately, that’s everything. Those are all the resources we need to function and all of them are really messed up. And so it’s an interesting time to figure out how we can calm this turbulence by getting out in front of the waves as opposed to trying to paddle in the waves and get washed over and wipe out.
Justin Smith: I had a similar client experience where we help them double in size. They manufacture overseas. And after we had signed our new lease, the building sat empty for six months while they waited for their product. Now it’s full and jam packed, and we need excess space as we try and plan for a year instead of a quarter. And revenue has doubled if not tripled or on its way to tripling. And so in my mind, I’m trying to make sense of that story. Of having your building be empty for a while and then being full and that is showing you like the whiplash of, their product and trying to be a good supplier to their customers. And how can you be good to customers when you’re dealing with that? Or how can you really meet them where they are? I could only imagine that times everybody in the country that’s in that manufacturing, retail and distribution space. That’s a lot of reverberations that are going throughout the supply chain right now.
Jim Tompkins: That’s this whole mess started back in January of 2020. When Chinese New Year came about and all the people in China for Chinese New Year go back to the place of their birth. And so there’s this huge amount of travel, just as COVID was breaking out that resulted in COVID spreading relatively rapidly. And so what happened is the Chinese government locked down while everyone was away from home. They were at their hometowns, not their main place of living. And they were locked down for four or five, six weeks. And so what happened is the factory of the world was closed. And when the factory of the world was closed for eight weeks, it is expected to be closed for two weeks when the Chinese New Year, but it’s closed for eight weeks. And so what happened? There was no supply of products. People couldn’t get components out of China. They couldn’t get raw materials out of China. Couldn’t get finished products out of China. So the world was sitting there saying, hey, I got this factory it is maybe ready to make washing machines, but I can’t make washing machines because they don’t have this component, this component, this component that is supposed to come from China. And so they finally worked hard to get the factories back in operation. They got the factories making parts, but then they didn’t have the trucks to take it to the port. Then they didn’t have the boats at the port. They put them on the ship, they gave him travel. But just as they started exporting product again, what else did they export? Well, then you export ed the virus. And the virus got exported on airplanes. The products we’re export it on a ship, airplanes go faster than ships, so the virus spread around the world faster than the supply. And when the virus spread around the world, it just upset demand in a totally changed demand because now we have everyone working from home. And so therein lies the problem. Now, what happened is, so we had a total shutdown of supply, and we had a total shift in demand. And now here we sit 22 months later and it’s still there. We still have that same problem. I mean, how many ships are sitting off the port of Long Beach and LA today? It’s approaching a hundred. It’s a total, total, total disaster and it’s going to take years before getting settled. This is the new normal and we got to get ready for it and you got to be able to respond. So, your situation you had way too much patient and then you don’t have enough space. That’s somewhat typical. I mean, that is what we have out there and it’s a shame. And someone says, why didn’t we think about that as well because the world turned topsy-turvy on us and we’re trying to get it corrected. And so it’s not that anyone messed up. It’s just, oh my goodness it’s a whole new game.
Justin Smith: One question though, I thought it was interesting is you read the headlines of Amazon and the Walmart’s starting to focus on owning rather than leasing and thinking how that reverberates through the market through the lens that you’ve applied today. Is that something, I suppose, that fits into the resiliency part of your model of why they would be doing that.
Jim Tompkins: Well, absolutely. I mean the landlords that have the land. I have a good client that has been leasing space in California and he’s got a five-year lease. He’s been paying 50 cents per square foot per month. Based on that, he’s a 3PL he filled the building and was doing a good business there. Two weeks ago, the landlord comes down and says, beginning January 1st, your five years is up, and your new rent rate is a $1.30 and my friends said we can’t afford a $1.30 and that’s ridiculous. You can’t do that. The guy said, well, I have a tenant who wants to rent my building for $1.30, he’s going to pay a $1.30 a square foot a month. And he said, oh my goodness that’s ridiculous. And he said, well, that’s what it is. And so my friend had to pull his 3PL out of California and move it to Salt Lake and he’s going to lose about half his customers. So the reality is all people, if you’re renting or if you’re owning, it’s smart to tie that thing down for a long term because we’re going to see especially in a high demand place like California a tremendous increase in the value and the cost to that space. And I would suggest it’s really no different for folks in residential property. If I look at what my beach house will sell for now, versus what I pay for 20 years. I said do I really need a beach house? My goodness, it’s ridiculous what’s happening there. So of course the people with the money are going to be buying the buildings because they don’t want to deal with this price escalation in the rents. So it’s not surprising that Amazon and Walmart are doing it. It’s not surprising that anyone who has the balance sheet to borrow the money or has the money to buy the building that they’re doing that. That’s the reality of it. I think that’s going to be great for people that really, really understand real estate like you do Justin to really make some good things happen for folks and make the right decisions there.
Justin Smith: I’ve found with some companies, if you balanced acquiring your next facility with other capital expenditures like IT and the digitization and warehouse automation. Thinking through all those have their own huge investments that are necessary in their own ramifications of making one versus the other. It’s a time to invest. If you got to work through a warehouse automation system and buying a building all the same time. Those are huge investments.
Jim Tompkins: And it’s certainly a challenge because companies have to think through that. Certainly, you have no choice, but to do the automation because you don’t have the labor, but you only have so much capital. So, it’s interesting, a couple of years ago, a lot of private equity companies were investing in companies because they were asset light. They wanted to invest in companies that didn’t have assets. Now they see how companies, who had the assets, the assets appreciated. And now they’re looking at that under a different light. So, it’s interesting how it ebbs and flows. Owning real estate is something that a lot of companies said, absolutely not we’ll lease but, I think the best of the best today are buying real estate because that’s the smart thing to do.
Justin Smith: Jim, we just opened up a whole other episode worth of things to talk about.
Jim Tompkins: Justin, I think you, and I could probably talk about just about anything can go for an hour or two, because it’s such an interesting time to be doing what we’re doing. So, absolutely. I’d love to do that and appreciate the discussion today. And thanks so much for hosting this.
Justin Smith: I’m looking forward to it Jim. Thank you so much.