From the ongoing COVID-19 pandemic to the Suez Canal being blocked by the Ever Given containership, 2021 has caused major disruptions in global supply chains, impacting how consumers and companies have made and transported materials and goods. But supply chains have been struggling for more than just last year.
Dr. Eleftherios Iakovou, the Hartley Hubbell Professor of industrial distribution in the Department of Engineering Technology and Industrial Distribution at Texas A&M University, is putting his years of knowledge toward finding ways to decrease the impact of disruptions on these systems.
From the ongoing COVID-19 pandemic to the Suez Canal being blocked by the Ever Given containership, 2021 has caused major disruptions in global supply chains, impacting how consumers and companies have made and transported materials and goods. But supply chains have been struggling for more than just last year. Dr. Eleftherios Iakovou is putting his years of knowledge towards finding ways to decrease the impact of disruptions on these systems.Steve Kuhlmann:
I'm Steve Kuhlmann. My co-host, Hannah Conrad and I sat down with Dr. Iakovou, the Hartley Hubbell Professor of industrial Distribution in the Department of Engineering, Technology and Industrial Distribution, to talk about how global supply chains continue to face challenges today, and what solutions could lead to more resilient systems. This is SoundBytes. Welcome to Engineer This.Hannah Conrad:
Let's go ahead and take it from the basics. What exactly is a supply chain?Dr. Eleftherios Iakovou:
The supply chain is this extended enterprise that tries to improve benefits for all stakeholders, from upstream, suppliers downstream to customers. The supply chain is about the creation of sales of a product. At the end of the day is to support sales and also satisfy societal needs. Do we have the PPEs? Do we have the pharmaceuticals and so forth and so on.Steve Kuhlmann:
What work are you doing with supply chain management right now?Dr. Eleftherios Iakovou:
We've been talking about supply chain risk management, and I have a relatively humble recent record of supply chain resilience. We've be talking about it for many years. The expanded lengthy supply chains that were designed during the '90s that we thought at the time, though we could treat them as deterministic networks, namely, with no certainty, created profound challenges towards competitiveness and resilience of the United States. And I can take it further, supporting the role of the U.S. as a global leader, but furthermore, as a beacon of the power of liberal democracy against autocracies such as the one of China. I'm a director of supply chain management for the SecureAmerica Institute housed at the RELLIS campus. This is a unique public private partnership, a PPP that we lead as Texas A&M, encompassing 100 members industrial, academic, across the United States, with a focus Steve on improving competitiveness, security and resilience. Another interdisciplinary effort that I started with the professor at the business, or the Bush School, I'm sorry. Raymond Robertson, the director of the Mosbacher Institute. We co-developed and are co-directing a global value chains program at the Bush School to educate public leaders Steve about the issues, of the emerging issues of global value chains, because indeed, we have a confluence of business and policymaking for the first time following COVID. But also do targeted interdisciplinary research, where we bring together what? Manufacturing, all the excellence that the College of Engineering is bringing. Operations, logistics, supply chain management, international trade, policy and economics. So the new realities really demand this holistic interdisciplinary approaches to add value. I'm not going to claim that we solve everything. But what I do claim is the following. The narratives that we provide are unique, are timely, are holistic. So we provide a framework Steve, and then we add value by specific research publications that we start fostering that ecosystem of supply chain management expertise within Texas A&M. So we try to provide a narrative for the nation, for other stakeholders, and humbly start putting pieces of the puzzle together.Hannah Conrad:
Supply chain management, a lot more so than other areas of engineering, seems to be kind of at this crossroads with government. How does your team balance engineering with the political pressures and expectations put on supply chain management?Dr. Eleftherios Iakovou:
Hannah, we try not to get into politics, but I do understand there's clearly a confluence now, for the first time, between business leaders and public policy leaders. I fathom to say for example, the CEO, C level executives, are more than ever liable to wider numbers of stakeholders, right? So societal partners, government. So it's not just that the policymakers, public leaders have to learn from business leaders. But also business leaders have to learn from policymakers. We try to bring policymaking into the decision making of how design strategically the supply chains. What is the narrative the supply chains have faced since December of 2001? For supply chains that's the date that we as the United States brought China to the World Trade Organization as a preferential trading partner. That was a political decision. Now that political decision shaped for the next 20, 25 years, everything that we have to do with supply chains. At the same time policymakers today, where are they struggling? They're struggling to understand why is it that we don't have the luxury of business continuity during COVID? The bottlenecks of supply chains for four critical supply chains for the US, right? Rare earth minerals, chips, pharmaceuticals, large capacity batteries that we use on electric vehicles. Why are these supply chains brittle? Due to the political decisions made in the '90s. The incentives for these organizations were focused on short-term profitability. Policy creates severe constraints to business. And then we have a chicken and the egg kind of a circle, right? Business focuses on what? On short-term solutions that don't satisfy long-term needs of the nation. And when I say the nation, I use here another term stakeholders. And this keeps on propagating. And today, we have a unique challenge. We need to harmonize the key priorities of the private sector with the key priorities of the United States as a nation. July of 2019. This is before the pandemic hit us. There is a round table that encompasses 182, 81 most powerful CEOs of the United States. These guys and girls understood that something's wrong by the way the supply chains are run. And in July of '19, they called for a shift from shareholder capitalism, where we just focus on shareholders, to stakeholder capitalism. Let's upgrade the way that we run businesses. And with stakeholders, what they're trying to say is, "Look, we're not going to focus just on shareholders. We have societal pressures. We got to focus also on workers. We got to focus also on society." And yes, we got to focus also the United States as a nation, because guess what. These companies make tons of money encompassing educational, logistics, transportation infrastructure of the United States. But three years down the road, we realize that that's wonderful to be said. They're far away from the solution because September of 2021 Hannah, when we look at the reward structure of these executives, it remains exactly the same.Jenn Reiley:
Howdy, it's Jenn Reiley, your producer, here with a quick note. We hope you're enjoying this week's episode and thanks for your patience with any glitches in the audio. This interview was recorded over Zoom. Don't want to miss an episode of Engineering SoundBytes? Consider subscribing on your favorite platform to be alerted when a new episode airs. I don't want to keep you any longer, so let's get back to the interview.Hannah Conrad:
In just the last year, year and a half, we've had many instances that tested global supply chains. We've had COVID-19, the Suez Canal incident.Dr. Eleftherios Iakovou:
Oh absolutely.Hannah Conrad:
What challenges in the supply chain have been uncovered from those incidences?Dr. Eleftherios Iakovou:
The press, God bless, and society at large started understanding the impact of this risk on supply chains. And more importantly, I think policymakers and governments went overboard to start talking about supply chain. Hannah, there's not a single day since COVID started that I don't hear from my colleagues outside of engineering about supply chains. Let's go back and understand what is going on with this supply chain risk management. When China got, got into WTO in 2001, the pressures were for all executives of the U.S. to reduce unit manufacturing costs in what we call total landed cost. The cost that it takes from production up to delivery to the customer. It led to an explosion of global trade. Leaders, business leaders, understood that the lengthy supply chains are very brittle. They're exposed to a wide range of disruptions due to earthquakes, floods, hurricanes. 60% of our oil and gas of the nation is from the Houston area, right? Cybersecurity attacks. Trade wars. Today, upcoming holiday season, supply chains are threatened by disruptions in demand, right? We have a certain demand that we never seen before. On the average, supply chain disruptions lead to erosion of about 17% of shareholder value. That's an amazing percentage for a chief financial officer. While everybody's talking about, "Oh, you know, we're going to change the way we do business because of COVID." One of the challenges is the cost pressures are so much, a lot of people are worried that following COVID because one day COVID will go away one way or the other. We're going to go back to our business as usual, which is something that we shouldn't do, right?Steve Kuhlmann:
What are some possible solutions out there to creating more resilient supply chains?Dr. Eleftherios Iakovou:
To honor the audience right, we've got to describe what supply chain resilience is. A resilient supply chain is a supply chain that can bounce back as quickly as possible from a disruption. How do you do that? Well, you got to understand supply chain resilience has its own cycle. And the cycle encompasses four or five tasks. One of them is before the event occurs. So I've got to plan. I've got to detect there's a breach. There's a disruption. Respond, recover, and also debrief, learn. Now the challenge, Steve, is if we say here, let's make the United States' supply chains more resilient. Let's bring them all back in the United States. Is that the answer? Absolutely not. How do we develop this next generation of supply chains that are not only resilient, but are also cost competitive? If we don't focus on cost competitive supply chains, we will put our supply chains of the United States at a competitive disadvantage with supply chains of adversarial nations that want to compete with ours. For the first time, we have tools now. We can monetize data to ensure that our supply chains can start acting, allow me crude paradigm the same way that the web acts. In other words, let's say because of tropical storm Nicolas, there is a certain segment of south central, southeast United States that is cut off. Can we still send emails? Yes, we can. The web in real time reorganizes itself right to ensure there is a flow of messages from origin to destination. Supply chains similarly have the opportunity today to start doing something like this almost in real time.Hannah Conrad:
We're making our way toward the holiday season. How can an ongoing supply chain disruptions impact everyday people, especially during busy shopping seasons?Dr. Eleftherios Iakovou:
I just looked at today's numbers, right. So this is Wednesday, September 15. Port congestion in the United States is more extreme than ever. Today, we have 100 containerships stuck at anchor of United States coasts. We have 55 containerships off drifting at anchor or drifting of the neighboring Port of Los Angeles and Long Beach. Companies are freaking out. The Port of Long Beach recorded August of 2021 the busiest month ever. We experiencing so far 20% increase in sales for retailers 2021 up in August compared to the previous year. We have a historic surge that started July 2020. And if you recall, July 2020 was about what? Four months, five months following the onset of COVID. What do retailers face in importance? Well, guess what? Let's start from upstream in the supply chain. I have an outbreak in a factory. I have a shipping constraint. I cannot find containers today. And then I have a domestic transportation constraint. Finally, when my, my containers after 14, 15 days waiting, three weeks. When I'm actually able to put them on a yard on a United States port. They're not going to go out because our rail, transportation and tracking system is already saturated. Is a perfect storm, right? A story of two steps forwards, one step backwards. So what is going on? Retailers experienced surge demand. They tried to build inventories, but they cannot even build it up, build inventories up. The pace of sales far exceed the pace that these organizations have to replenish inventories. So yes, we will experience major issues during the Christmas season. The only way that I know of how to make the system better is to understand that ports are pivotal points, not just of a transportation infrastructure of the U.S., but rather there are pivotal points of thousands upon thousands of global supply chains that go through them. This is the end-to-end supply chain management. Unfortunately, what happened during the years the message has been distorted, that they focused on a small last mile logistic or transportation issues. Today due to COVID, we are forced to look at the entire picture. And as the U.S., I think we have a responsibility to the world and also to the citizens, the men and women of this nation, to do that as quickly as possible.Steve Kuhlmann:
If you could choose one thing that you wish the general public understood better about supply chains, what would it be?Dr. Eleftherios Iakovou:
That there's no magic bullet. That we need to identify what is the new sophisticated portfolio supply chains that we have to develop as a nation to support both short-term but also long-term needs for low prices for customers, absolutely, but also business continuity, security and competitiveness of the United States. And I wish all of us start understanding that and started being willing to say you know what. Let's think about new ways to run the supply chains to become again global leaders. We update the way that liberal democracies are working. We update the way that the citizens in the U.S. perceive economic growth. I beg to say that if we do that correctly, we can reduce polarization disenchantment within the United States, being able to increase growth, increased salaries, with added value manufacturing, for example, while serving the needs of the nation in the post-COVID era, and further boosting its ability to be indeed the beacon of liberal democracy across the globe.Hannah Conrad:
We hope you enjoyed this episode of Engineering SoundBytes. Make sure to subscribe to stay up to date with what's happening within Texas A&M Engineering. Until next time, stay safe and Gig 'em.Steve Kuhlmann:
The views and opinions expressed in this podcast are those of the hosts and guests and do not necessarily reflect the official policy or position of The Texas A&M University System. SoundBytes is a part of the Texas A&M Podcast Network. To find more official Texas A&M podcasts, go to podcast.tamu.edu. Thanks and Gig'em.